In accordance with the "Basic Standards for Enterprise Accounting", the Ministry of Finance issued the revised Enterprise Accounting Standard No. 25 — Insurance Contracts on 2020/12/19, effective as of 2023/1/1. This standard replaces the original insurance contract and reinsurance contract standards from the 2006 version.
1. Overview of Guidelines
This standard governs the recognition, measurement, presentation, and disclosure of insurance contracts. It applies to insurance contracts issued by insurers, reinsurance contracts issued by insurers, and reinsurance contracts held by policyholders.
Core Changes
- • Introduce the concept of an insurance contract group as a measurement unit
- • Uses the fulfillment cash flow and contract service margin measurement model
- • Standardized the presentation of insurance contract revenue and insurance service expenses
- • Require disclosure of more quantitative and qualitative information related to insurance contracts
II. Insurance Contract Grouping
Group Standards
Enterprises shall group insurance contracts with similar risks and managed uniformly into the same insurance contract portfolio, and further divide contracts within each portfolio into distinct groups based on profitability.
Annual Queue
An enterprise shall group contracts issued during each annual reporting period into separate contract groups and must not include contracts from different years in the same group.
III. Econometric Models
General Model
- • Fulfillment cash flows: estimates of future cash flows, adjusted for the time value of money and risk.
- • Contractual service margin: Represents the unearned profit from insurance coverage services that a company will recognize in the future.
- • Insurance contract liabilities = Fulfillment cash flows + Contractual service margin
Simplify Model
For qualifying insurance contracts, companies may apply the premium allocation approach to simplify measurement. Under this approach, entities are not required to calculate fulfillment cash flows or the contract service margin.
IV. Presentation and Disclosure
The enterprise shall separately present insurance service revenue, insurance service expenses, and insurance finance income and expenses in the statement of profit or loss.
Disclosure Requirements
- • Reconciliation of insurance contract balances
- • Breakdown of insurance service revenue and insurance service expenses
- • Breakdown of insurance financial income and expenditure
- • Explanation of significant judgments and estimates
Regulatory Document Attachment
Accounting Standards for Business Enterprises No. 25 — Insurance Contracts (Revised in 2020) (PDF)