(paragraphs 53-59 of IFRS 17)

BC288 IFRS 17 allows an entity to simplify the measurement of some groups of insurance contracts by applying a premium allocation approach.

BC289 The premium allocation approach permitted in IFRS 17 is similar to the customer consideration approach in IFRS 15. In the premium allocation approach, the initial measurement of the liability equals the premium received, and unless the group of insurance contracts is onerous, the entity does not identify explicitly the components otherwise used in IFRS 17 to build the measurement of the insurance contract, ie the estimate of future cash flows, the time value of money and the effects of risk. Nevertheless, that initial measurement can be described as containing the components that build the measurement of the group of insurance contracts implicitly, as follows:

(a) an estimate of the future cash flows, made at initial recognition;

(b) the effect of the time value of money and of financial risks, measured at initial recognition;

(c) the effect of non-financial risk, measured at initial recognition; and

(d) a contractual service margin, if any, measured at initial recognition.