(paragraphs 87-92 and B128-B136 of IFRS 17)

BC38 Insurance finance income or expenses comprise the changes in the carrying amount of the asset or liability for a group of insurance contracts arising from:

(a) the effect of the time value of money and changes in the time value of money; and

(b) the effect of financial risks and changes in financial risks; but

(c) excluding any such effects for groups of insurance contracts with direct participation features that would normally adjust the contractual service margin but do not do so because the group of insurance contracts is onerous. These effects are recognised as part of the insurance service result, for the reasons given in paragraph BC247.

BC39 The definition of financial risk in IFRS 17 is unchanged from that in IFRS 4. To provide clarity on the treatment of assumptions about inflation when applying IFRS 17, the Board decided to specify that for the purposes of IFRS 17:

(a) assumptions about inflation based on an index of prices or rates or on prices of assets with inflation-linked returns are financial assumptions; and

(b) assumptions about inflation based on an entity's expectation of specific price changes are non-financial assumptions.