Notes to the Financial Statements
or due to a change in regulations, the Group treats changes in cash flows caused by the modification as changes in estimates of the fulfilment cash flows ( FCF ), unless the conditions for the derecognition of the original contract are met. The Group derecognises the original contract and recognises the modified contract as a new contract if the modified terms had been included at contract inception and the Group would have concluded that the modified contract: • is not in scope of AASB 17; • results in different separable components; • results in a different contract boundary; or • belongs to a different group of contracts. When an insurance contract is derecognised from within a group of insurance contracts, the Group: • Adjusts the FCF to eliminate the present value of future cash flows and risk adjustment for non- financial risk relating to the rights and obligations removed from the group; • Adjusts the contractual service margin (CSM) (unless the decrease in the FCF is allocated to the loss component of the liability for remaining coverage (LRC) of the group) in the following manner, depending on the reason for the derecognition: • If the contract is extinguished, in the same amount as the adjustment to the FCF relating to future service. • If the contract is transferred to a third party, in the amount of the FCF adjustment less the premium charged by the third party. • If the original contract is modified resulting in its derecognition, in the amount of the FCF adjustment adjusted for the premium the Group would have charged had it entered into a contract with equivalent terms as the new contract at the date of the contract modification, less any additional premium charged for the modification. When recognising the new contract in this case, the Group assumes such a hypothetical premium as actually received. • Adjusts the number of coverage units for the expected remaining coverage to reflect the number of coverage units removed.
These groups represent the level of aggregation at which insurance and reinsurance contracts are initially recognised and measured. Such groups are not subsequently reconsidered.
5.1.3 Recognition and derecognition
5.1.3.1 Contract recognition
The Group recognises groups of insurance contracts that it issues from the earliest of the following: • The beginning of the coverage period of the group of contracts; • The date when the first payment from a policyholder in the group is due, or when the first payment is received if there is no due date; and • For a group of onerous contracts, as soon as facts and circumstances indicate that the group is onerous. The Group recognises a group of reinsurance contracts held it has entered into from the earliest of the following: • The beginning of the coverage period of the group of reinsurance contracts held. However, the Group delays the recognition of a group of reinsurance contracts held that provide proportionate coverage until the date when any underlying insurance contract is initially recognised, if that date is later than the beginning of the coverage period of the group of reinsurance contracts held; and • The date the Group recognises an onerous group of underlying insurance contracts if the Group entered into the related reinsurance contract held in the group of reinsurance contracts held at or before that date. The reinsurance contracts held by the Group provide proportionate cover. Therefore the Group does not recognise a proportional reinsurance contract held until at least one underlying direct insurance contract has been recognised. The Group adds new contracts to the group in the reporting period in which that contract meets one of the criteria set out above.
5.1.3.2 Contract modification and derecognition
An insurance contract is derecognised when it is: • extinguished (that is, when the obligation specified in the insurance contract expires or is discharged or cancelled); or • the contract is modified and certain additional criteria are met. When an insurance contract is modified by the Group as a result of an agreement with the counterparties
5.1.4 Measurement - general model
5.1.4.1 Fulfilment cash flows
Fulfilment cash flows within contract boundary
The FCF are the current estimates of the future cash flows within the contract boundary of a group of
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