| Paragraphs IG2.21 to IG2.27 provide guidance for applying the requirements of paragraphs 2.14 to 2.19 of FRS 103 and the principles of Section 21 Provisions and Contingencies and Section 32 Events after the End of the Reporting Period of FRS 102. They are only relevant to general insurance business. |
| IG2.21 | Subject to paragraph IG2.26, where the estimated value of claims and expenses attributable to the unexpired periods of policies in force at the reporting date exceeds the unearned premiums provision in relation to such policies after deduction of any deferred acquisition costs, an unexpired risks provision should be established. If material, this provision shall be disclosed separately either in the statement of financial position or in the notes to the financial statements. |
| IG2.22 | The assessment of whether an unexpired risks provision is necessary should be made for each grouping of business which is managed together. Any unexpired risks surpluses and deficits within that grouping should be offset in that assessment. For this purpose 'managed together' is defined in paragraph IG2.23. |
| IG2.23 | Business should only be regarded as being managed together where no constraints exist on the ability to use assets held in relation to such business to meet any of the associated liabilities and either: |
| (a) | there are significant common characteristics, which are relevant to the assessment of risk and setting of premiums for the business lines in question; or |
| (b) | the lines of business are written together as separate parts of the same insurance contracts. |
| IG2.24 | For delegated authorities (ie where the insurer is unable to influence the terms on which policies are issued) a provision should be established at the reporting date for any anticipated losses arising on policies issued in the period after the reporting date which the delegated authority entered into before that date. |
| IG2.25 | The assessment of whether an unexpired risks provision is required, and if so its amount, should be based on information available at the reporting date which may include evidence of relevant previous claims experience on similar contracts adjusted for known differences, events not expected to recur and, where appropriate, the normal level of seasonal claims if the previous reporting period was not typical in this respect. The assessment should not however take into account any new claims events occurring after the reporting date, as these are non-adjusting events. In accordance with paragraph 32.10 of FRS 102 exceptional claims events occurring after the end of the reporting period but before the financial statements are authorised for issue shall be disclosed in the notes to the financial statements together with an estimate of their financial effect. Where there is uncertainty concerning future events, in accordance with paragraph 2.9 of FRS 102, an insurer shall include a degree of caution in the exercise of the judgements needed in making the estimates required such that liabilities are not understated. |
| IG2.26 | In calculating the best estimate of the amount required to settle future claims in relation to the unexpired periods of risk on policies in force at the reporting date, the future investment return arising on investments supporting the unearned premiums provision and the unexpired risks provision may be taken into account. For the purposes of calculating this provision, the deferred acquisition costs should be deducted from the unearned premiums provision. The investment return will be that expected to be earned by the investments held until the future claims are settled. |
| IG2.27 | Deferred acquisition costs should not be written off, in whole or in part, to profit or loss as being irrecoverable for the purpose of reducing or eliminating the need for an unexpired risks provision. |
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