PFRS #17 Insurance Contracts

• insurance contracts - was issued to make limited improvements to the accounting for, and disclosure of, insurance contracts
• insurer (issuer of insurance contract) is the party that has an obligation under an insurance contract the compensate a policy holder if an insured event occurs
• an insurance contract is a contract under which one party (the issuer) were accept significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policy holder
• policyholder - is a party that has a right to compensation under an insurance contract if an insured event occurs
• insured event - is an uncertain future event that is covered by an insurance contract and creates insurance risk
• three essential elements in the definition of an insurance contract:

  1. transfer of significant insurance risk - transfer of significant insurance risk from the insured (policyholder)to the insurer (insurance provider).
  2. payment from the insured (premium)- the insured pays to a common fund from which losses are paid.
  3. indemnification against loss - the insurer agrees to indemnify the insured or other beneficiaries against loss or liability from specified events and circumstances
• insurance risk - is risk, other than financial risk, transferred from the holder of a contract to the issue.
• financial risk - is the risk of a possible future change in one or more of a specified interest rate
• in addition to financial risk the following risks are also not insurance risk:

  1. lapse or persistency risk - risk that the policyholder will cancel the contract earlier or later than the issue where had expected.
  2. expense risk- risk of unexpected increases in the administrative cost.
• types of insurance contracts:

  • direct insurance contract- an insurance contract where the insurer directly accepts risk from the insured and assumes the sole obligation to compensate the insured in case of loss and event.
  • reinsurance contract - an insurance contract issued by one insurer for losses on one or more contracts issued by the cedant: the reinsurer to compensate another insurer