IFRS 4 Insurance Contracts applies, with limited exceptions, to all insurance contracts (including reinsurance contracts) that an entity issues and to reinsurance contracts that it holds. IFRS 4 was issued in March 2004 and applies to annual periods beginning on or after 1 January 2005.
Definition of insurance contract
An insurance contract is a “contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.”
IFRS 4 on Prudence
An insurer need not change its accounting policies for insurance contracts to eliminate excessive prudence. However, if an insurer already measures its insurance contracts with sufficient prudence, it should not introduce additional prudence.
IFRS 4 includes a test for the adequacy of recognised insurance liabilities and an impairment test for reinsurance assets. The so called LAT.
IFRS will be replaced by IFRS 17 coming into force on 1 January 2021.