NOTES TO F I NANC I AL STATEMENTS 4.2.5. Measurement – Premium Allocation Approach IFRS 17 OPTIONS ADOPTED APPROACH Premium Allocation Approach (“PAA”) Eligibility Subject to specified criteria, the PAA can be adopted as a simplified approach to the IFRS 17 general model. Coverage period for all insurance contracts issued and reinsurance contracts held are one year or less and so qualifies automatically for PAA. Insurance acquisition cash flows for insurance contracts issued Where the coverage period of all contracts within a group is no longer than one year, insurance acquisition cash flows can either be expensed as incurred, or allocated, using a systematic and rational method, to groups of insurance contracts (including future groups containing insurance contracts that are expected to arise from renewals) and then amortised over the coverage period of the related group. For groups containing contracts longer than one year, insurance acquisition cash flows must be allocated to related groups of insurance contracts and amortised over the coverage period of the related group For all product lines, insurance acquisition cash flows are allocated to related groups of insurance contracts and amortised over the coverage period of the related group. Liability for Remaining Coverage (“LRC”), adjusted for financial risk and time value of money Where there is no significant financing component in relation to the LRC, or where the time between providing each part of the services and the related premium due date is no more than a year, an entity is not required to make an adjustment for accretion of interest on the LRC. For all product lines, the coverage period is within one year, therefore there is no allowance made for accretion of interest as the premiums are received / earned within one year. Liability for Incurred Claims, (“LIC”) adjusted for time value of money Where claims are expected to be paid within a year of the date that the claim is incurred, it is not required to adjust these amounts for the time value of money. For claims within all product lines, the incurred claims are expected to be paid out in less than one year. Hence, no adjustment is made for the time value of money. Insurance finance income and expense There is an option to disaggregate part of the movement in LIC resulting from changes in discount rates and present this in Other Comprehensive Income (“OCI”). For claims within all product lines, the incurred claims are expected to be paid out in less than one year. Hence, no adjustment is made for the time value of money. 99
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