In terms of the amendment to IFRS 17, an insurer is required to recognise losses on underlying insurance contracts on initial recognition.
How does this impact South African life insurers?
South African insurers are currently exploring whether income tax payments and receipts are specifically chargeable to the policyholders and whether this ability to charge is reflected in the terms of the contract. Generally, a policyholder is charged for income tax on products where the policyholder receives an investment return based on underlying assets. The question is whether it solves the concern of insurers that the contractual service margin (CSM) would be overstated if the tax cash outflows are not included in fulfilment cash flows of an insurance contract. Perhaps it is not solving the problem to the extent insurers were hoping.
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