IFRS17: A PROPOSAL FOR DISCLOSING LIABILITIES FOR INCURRED CLAIMS IN NOTES TO THE FINANCIAL STATEMENTS
DOI:
https://doi.org/10.14392/asaa.2024170205Keywords:
Insurance, IFRS17, Technical Provisions, Risk Adjustment, DisclosureAbstract
Objective: in this study we examine the disclosure requirements in the notes to the financial statements of insurance companies, specifically in relation to the Liability of Incurred Claims (LIC) and Risk Adjustment (RA), in accordance with the new accounting standard IFRS17 (CPC 50). The type and form of disclosure of the requirements of CPC 50 are proposed, as well as additional disclosures are suggested.
Method: adopting the classification of Hendriksen and Van Breda (1999), we define the type and form of the disclosures required by CPC50 (2021) related to LIC and RA. In addition, we suggested three complementary disclosures focused on risk aspects. In order to produce the disclosures, the Fulfilment Cash Flow (FCC) relating to the LIC and its respective RA was measured. Stochastic modeling (bootstrap) was used to estimate empirical probability distributions, and Value at Risk to obtain the confidence level, with its associated Expected Shortfall (expected loss beyond a threshold). Real data from a Brazilian insurance company was used, comprising an eight-year history of motor insurance claims (Hull and Third-Party Liability).
Results: the results show the importance of measures of risk of insufficient provision, a relevant aspect for the management and transparency of disclosure in financial reports.
Contributions: IFRS17 establishes new principles for recognizing, measuring and disclosing the financial information of (re)insurers. This new standard requires the measurement and disclosure of fulfillment cash flows (FCC), composed of the expected present value of actuarial obligations plus a Risk Adjustment (AR), which incorporates the uncertainty about their realization. Additionally, the suggested explanatory notes contribute to improving the ability of the user of accounting information to measure aspects related to risk and uncertainty associated with insurance companies’ liabilities.
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