(paragraphs 72, 76 and 77 of IFRS 17)

BC317 A modification of an insurance contract amends the original terms and conditions of the contract (for example, extending or shortening the coverage period or increasing the benefits in return for higher premiums). It differs from a change arising from either party to the contract exercising a right that is part of the original terms and conditions of the contract. If an insurance contract modification meets specific criteria (see paragraph 72 of IFRS 17), the contract is modified in a way that would have significantly changed the accounting of the contract had the new terms always existed. IFRS 17 therefore requires the original contract to be derecognised and a new contract based on the modified terms to be recognised. The consideration for the new contract (ie the implicit premium) is deemed to be the price the entity would have charged the policyholder had it entered into a contract with equivalent terms at the date of the modification. That deemed consideration determines:

(a) the adjustment to the contractual service margin of the group to which the existing contract belonged on derecognition of the existing contract; and

(b) the contractual service margin for the new contract.