| 1.1 | This FRS applies to financial statements prepared by an entity that applies FRS 102 and that are intended to give a true and fair view of a reporting entity's financial position and profit or loss (or income and expenditure) for a period. |
| 1.2 | An entity that applies FRS 102 shall apply this FRS to: |
| (a) | insurance contracts (including reinsurance contracts) that it issues and reinsurance contracts that it holds; and |
| (b) | financial instruments (other than insurance contracts) that it issues with a discretionary participation feature (see paragraph 2.30). |
| 1.3 | This FRS applies to entities with insurance contracts and financial instruments with discretionary participation features within the scope of paragraph 1.2 as follows: |
| (a) | Section 1 Scope, Section 2 Accounting Policies, Recognition and Measurement, Section 4 Disclosure and Section 6 Transition to this FRS apply to all entities applying this FRS. |
| (b) | Section 3 Recognition and Measurement: Requirements for entities with long-term insurance business and Section 5 Disclosure: Additional requirements for with- profits business only apply to entities with long-term insurance business. |
| (c) | Appendix II Definition of an insurance contract applies to all entities. |
| The Regulations (or other legal framework that applies to the entity) may set out requirements in addition to those within this FRS. |
| 1.4 | The Implementation Guidance accompanying this FRS provides additional guidance for applying: |
| (a) | the requirements of this FRS; |
| (b) | the requirements or principles of FRS 102 by entities with general insurance business or long-term insurance business; and |
| (c) | the requirements of Schedule 3 to the Regulations. |
| In particular the Implementation Guidance may be relevant as follows: |
| (a) | Section 1: Guidance for entities with long-term business provides guidance on applying Section 3 of this FRS. |
| (b) | Section 2: Guidance for entities with general insurance business or long-term business provides guidance for all entities applying this FRS. |
| (c) | Section 3: Guidance on capital disclosures for entities with long-term insurance business provides guidance for entities with long-term insurance business. [AMD 49] |
| 1.5 | Paragraph 2.3 permits entities to change their accounting policies, either on adoption of this FRS or subsequently, providing the new accounting policies meet certain criteria. Entities that are setting accounting policies in relation to insurance contracts, or other financial instruments with discretionary participation features, for the first time, shall for long-term insurance business either: |
| (a) | first consider the requirements of Section 3, the Regulations and any relevant parts of FRS 102 as a benchmark before assessing whether to set accounting policies that differ from those benchmark policies in accordance with paragraph 2.3; or |
| (b) | establish accounting policies that are based on the rules under the Solvency II Directive for the recognition and measurement of technical provisions, and any relevant requirements of this FRS, the Regulations and FRS 102. In doing so an entity shall make appropriate adjustments to the Solvency II rules to ensure that the accounting policies result in information that is relevant and reliable. [AMD 1] |
| The Implementation Guidance accompanying this FRS also provides guidance. |
| 1.6 | This FRS does not address other aspects of accounting by insurers, such as accounting for financial assets held by insurers and financial liabilities issued by insurers (see Sections 11 Basic Financial Instruments, 12 Other Financial Instruments Issues and 34 Specialised Activities of FRS 102), except in paragraph 1.8 and in the transitional provisions in paragraph 6.4. |
| 1.7 | An entity shall not apply this FRS to: |
| (a) | product warranties issued directly by a manufacturer, dealer or retailer (see Sections 21 Provisions and Contingencies and 23 Revenue of FRS 102); |
| (b) | employers' assets and liabilities under employee benefit plans (see Sections 26 Share-based Payment and 28 Employee Benefits of FRS 102) and retirement benefit obligations reported by defined benefit retirement plans (see Section 34 of FRS 102); |
| (c) | contractual rights or contractual obligations that are contingent on the future use of, or right to use, a non-financial item (for example, some licence fees, royalties, contingent lease payments and similar items), as well as a lessee's residual value guarantee embedded in a finance lease (see Sections 18 Intangible Assets other than Goodwill, 20 Leases and 23 of FRS 102); |
| (d) | financial guarantee contracts unless the issuer has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts, in which case the issuer may elect to apply either Section 21 of FRS 102 or this FRS to such financial guarantee contracts. The issuer may make that election contract by contract, but the election for each contract is irrevocable; |
| (e) | contingent consideration payable or receivable in a business combination (see Section 19 Business Combinations and Goodwill of FRS 102); or |
| (f) | direct insurance contracts that the entity holds (ie direct insurance contracts in which the entity is the policyholder) (for which an accounting policy shall be selected in accordance with the principles of FRS 102). However, a cedant shall apply this FRS to reinsurance contracts that it holds. |
| 1.8 | Some contracts that have the legal form of an insurance contract do not meet the definition of an insurance contract in this FRS. Paragraph A2.19 provides examples of items that are not insurance contracts, and paragraphs A2.20 to A2.24 provide further information on accounting for contracts that are not insurance contracts. |
| 1.9 | For ease of reference, this FRS describes any entity that issues an insurance contract as an insurer, whether or not the issuer is regarded as an insurer for legal or supervisory purposes. |
| 1.10 | A reinsurance contract is a type of insurance contract. Accordingly, all references in this FRS to insurance contracts also apply to reinsurance contracts. |
| AMD 49 Amendment Paragraph 1.4 amended by Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland – Triennial review 2017 – Incremental improvements and clarifications (issued December 2017) Effective date 01/01/2019 Previous text 1.4 The Implementation Guidance accompanying this FRS provides additional guidance for applying: (a) the requirements of this FRS; (b) the requirements or principles of FRS 102 by entities with general insurance business or long-term insurance business; and (c) the requirements of Schedule 3 to the Regulations. In particular the Implementation Guidance may be relevant as follows: (a) Section 1: Guidance for entities with long-term business provides guidance on applying Section 3 of FRS 103. (b) Section 2: Guidance for entities with general insurance business or long-term business provides guidance for all entities applying FRS 103. (c) Section 3: Guidance on capital disclosures for entities with long-term insurance business applies to entities with long-term insurance business. |
| AMD 1 Amendment Paragraph 1.5 amended by Amendments to FRS 103 Insurance Contracts Solvency II (issued May 2016) Effective date 01/01/2016 Previous text 1.5. Paragraph 2.3 permits entities to change their accounting policies, either on adoption of this FRS or subsequently, providing the new accounting policies meet certain criteria. Entities that are setting accounting policies in relation to insurance contracts, or other financial instruments with discretionary participation features, for the first time, shall first consider the requirements of Section 3, the Regulations and any relevant parts of FRS 102, as a means of establishing current practice as a benchmark before assessing whether to set accounting policies that differ from those benchmark policies in accordance with paragraph 2.3. The Implementation Guidance accompanying this FRS also provides guidance. |
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