(paragraphs 11(b) and B31-B32 of IFRS 17)

BC108 An investment component is the amount an insurance contract requires the entity to repay to the policyholder even if an insured event does not occur. [In June 2020, the Board amended the definition of an investment component to clarify that an investment component is the amounts that an insurance contract requires the entity to repay to a policyholder in all circumstances, regardless of whether an insured event occurs (see paragraph BC34A)] Many insurance contracts have an implicit or explicit investment component that would, if it were a separate financial instrument, be within the scope of IFRS 9. As explained in paragraph BC10(a), the Board decided that it would be difficult to routinely separate such investment components from insurance contracts. Accordingly, IFRS 17 requires an entity to:

(a) separate only any distinct investment components from insurance contracts. An investment component is distinct if the cash flows of the insurance contract are not highly interrelated with the cash flows from the investment component. Separating such components does not create the problems noted in paragraph BC10(a).