IFRS 17 Volume II: General Measurement Model (GMM) talks about measurement models of IFRS 17
Key highlights of the publication:
- The General Measurement Model (GMM) is the standard approach to calculate/estimate liabilities for the insurance contract under IFRS 17. This model focuses on providing key information on the expected cash flows and profitability of the insurance contracts. In terms of applicability, the GMM is applicable to contracts with longer terms.
- Companies putting IFRS 17 into effect are required to disclose the impact on the balance sheet. The impact is calculated at the transition date, which is the beginning of the annual reporting period preceding the date of initial application.
- Best estimate liability (BEL) is the first building block of the general model. It is the present value of expected future cash flows discounted using a risk-free yield curve, i.e., the present value of outflow less the present value of inflows.
- Risk adjustment (RA) for non-financial risks is the second building block in the general model. It is needed under IFRS 17 to reflect the compensation that a company requires for bearing the uncertainty about the amount and timing of cash flows that arise from non-financial risk.
- Contractual service margin (CSM) is the third building block in the general model. This is a new concept introduced by IFRS 17, which will identify the expected profitability of a group of contracts.
- As per paragraph B119 of the IFRS 17 standards, an amount of the contractual service margin for a group of insurance contracts is recognised in profit or loss in each period to reflect the insurance contract services provided under the group of insurance contracts in that period.
- The next volume in this knowledge series will be focused on the Premium Allocation Approach, which is used to calculate liabilities for short-term insurance contracts under IFRS 17.
