Definition of investment component
Hi Graham,
I am having some trouble understand the definition of investment component of an insurance contract.
What does "Amounts included in premiums that are returned customers, regardless the occurrence of an event" mean?
Is it the amount of investment return expected to be made on premiums collected?
Thank you
Comments
Appendix B in the source text has a lot of examples but they all relate to life insurance.
The first example of an amount that could be returned to customers is the CSV (Cash Surrender Value) of a whole life insurance policy. This is the amount the insurer would return to the insured upon voluntary termination prior to maturity.
Another example is policyholder dividends. These types of regular dividend payments are often paid on permanent life insurance policies. So I suppose your comment is correct as these dividends would probably be investment returns in excess of losses and expenses incurred by the insurer.
The source text doesn't go into much depth on the separation of insurance components under IFRS 17 but it seemed like a potential exam question. I think there are other topics that are more likely to appear but I didn't want to leave this out completely.