TFRS 17 Practice and Interpretation for Thai Non-Life Insurance Part 1

TFRS 17 is a financial reporting standard written as Principle-based, meaning it provides broad principles on how standards should be formulated, allowing each company to interpret them differently.

For example, if we say, "be a good person," under Principle-based standards, it will broadly describe what being a good person entails without specifying exact steps to follow. This differs from the past Rule-based criteria, where specific rules (e.g., brush your teeth twice a day, cross the street at the crosswalk, vote in elections, listen to your parents) would define being good. Following all 10 specified rules would make one good; failing to adhere to these rules would not.

In the Principle-based world, expertise is crucial for both regulators and users to discuss and interpret compliance with the standards. In accounting language, "complying with standards" is termed as "Comply," allowing companies to interpret and comply with the standards in various ways.

In the context of TFRS 17, it has been developed to encompass both life insurance and non-life insurance businesses. Those familiar with both sectors understand well that they operate differently in terms of data collection, customer demographics, insurance product characteristics, sales mindset, and regulatory frameworks. This distinction is evident in Thailand, where there are separate laws governing life insurance under the Life Insurance Act and non-life insurance under the Non-Life Insurance Act.

Some might wonder why TFRS 17 doesn't specifically tailor its guidelines separately for each type of insurance business, given the differences between non-life insurance and life insurance sectors.

In this regard, those drafting the TFRS 17 standard do not distinguish between life insurance and non-life insurance businesses (nor do they consider whether a company is licensed as a life insurance or non-life insurance company). Instead, they focus on the nature of the contracts such as either Long Duration Contracts or Short Duration Contracts.

To illustrate simply, a Short Duration Contract insurance policy provides coverage on an annual basis with premiums that can be adjusted, while a Long Duration Contract involves coverage over a longer period exceeding one year.

 

As seen, life insurance companies can sell Short Duration Contracts such as health insurance policies, while non-life insurance companies can simultaneously sell Long Duration Contracts like cancer insurance policies.

It is evident that typically, life insurance companies predominantly sell Long Duration Contracts with a small portion selling Short Duration Contracts. Conversely, non-life insurance companies mainly sell Short Duration Contracts with a small (or non-existent) portion selling Long Duration Contracts.

Furthermore, for those who have read TFRS 17 extensively, it may seem that TFRS 17 is primarily designed to encompass Long Duration Contracts while providing simpler guidelines for Short Duration Contracts. TFRS 17 considers Short Duration Contracts as a subset of Long Duration Contracts.

Therefore, even though both insurance sectors utilize the same TFRS 17 framework, businesses can interpret TFRS 17 to suit their specific context. By tailoring the interpretation to the context of the non-life insurance sector (which predominantly sells Short Duration Contracts with a small portion involved in Long Duration Contracts), compliance with TFRS 17 becomes effective, addresses issues directly, simplifies compliance, and minimizes undue cost burdens on businesses.

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Written by Master Tommy (Pichet)

FSA, FIA, FRM, FSAT, MBA, MScFE (Hons), B.Eng (Hons)

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