Financial Accounting and Reporting for Insurers
This domain covers how Chinese insurers report results, centring on the revised CAS 25 issued in December 2020 and convergent with IFRS 17, together with the supporting reports regulators and boards actually read: solvency reports, embedded value disclosures and the actuarial annual report.
CAS 25 (2020 revision)
- Effective dates: entities listed both domestically and overseas, or listed overseas using IFRS or ASBE, from 1 January 2023; other domestic listed companies from 1 January 2024; non-listed companies from 1 January 2026.
- Measurement units: portfolios of contracts are divided into groups, with at least onerous, non-onerous-with-no-significant-risk and remaining groups kept separate.
- Three measurement models: the general model (BBA) = fulfilment cash flows (probability-weighted future cash flows plus a risk adjustment) + contractual service margin (CSM 剩余边际); the variable fee approach (VFA) for direct participating contracts; the premium allocation approach (PAA) for coverage of one year or less.
- The CSM is released over coverage units and accretes interest at the locked-in rate; it is a component of the liability, not distributable surplus.
- Revenue is 保险服务收入 - expected claims, expenses and CSM release - and excludes investment components. The income statement separates 保险服务业绩 from 投资业绩. An OCI option exists for financial risk changes.
Supporting reports
- 偿付能力报告 (quarterly and annual) under 偿二代二期; 内含价值 and 新业务价值 disclosures; the annual actuarial report.
Worked example
At initial recognition a group has PV of cash inflows 1,180, PV of cash outflows 1,000 and a risk adjustment of 60. CSM = 1,180 − 1,000 − 60 = 120. In year one the CSM accretes at the locked-in 3%, giving 123.6. Total coverage units are 400 and 40 are provided, so the release is 123.6 × 40/400 = 12.36 recognised as insurance service revenue, leaving closing CSM of 111.24 before experience adjustments. This simplified sequence is exactly what the roll-forward question tests.
Traps that cost marks
- Reporting written premiums as revenue - a pre-2023 habit that now loses marks.
- Treating the risk adjustment as equity rather than a liability component.
- Presenting CSM as free surplus available for dividends.
- Mixing the three effective dates.