The majority of accounting services in Dubai and UAE ignore insurance accounting because they are not in the insurance business. Now that there will be a new accounting standard related to insurance contracts, chartered accountants should check to make sure they aren’t erroneously issuing them.

1. ACCOUNTING SERVICES OVERVIEW
OF INSURANCE CONTRACT UNDER
IFRS 17
https://farahatco.com/blog/a
ccounting-services-in-dubai-
overview-of-insurance-
contract-under-ifrs-17/

2. INT.
The majority of accounting services in Dubai and UAE ignore
insurance accounting because they are not in the insurance business.
Now that there will be a new accounting standard related to insurance
contracts, chartered accountants should check to make sure they
aren’t erroneously issuing them.

3. UNDERSTANDING INSURANCE
CONTRACT
In IFRS 17, a contract means a binding agreement between two or
more parties that imposes binding rights and obligations. It may be
written, verbal, or implied by a business’ customary practices.
Legal jurisdictions, industries, and entities may have different
practices and processes for establishing contracts with clients. They
may also vary within an organization. For example, these may be
influenced by the customer’s class or the promise of goods or
services.
The contract will contain explicit or implied terms (rights and
obligations). Laws and regulations are incorporated into a contract as
implied terms. A contract’s terms (rights and obligations) are
enforceable under law.

4. THE RELATIONSHIP BETWEEN THE
POLICYHOLDER AND THE ISSUER
The issuer and policyholder of an insurance contract Dubai and UAE
are not required to be unrelated parties under the definition of an
insurance contract, but IFRS 17 does clarify that:
It is not an insurance contract for a person to self-insure since he
prevents himself from accepting a risk covered by insurance.
In a consolidated sense, group insurance contracts are self-
insurance. In this case, accounting and financial services would report
such arrangements as insurance contracts in the individual or
separate accounts of the group entities but not at the consolidated
level.

5. UNDERSTANDING INSURANCE RISK
Insurance risk is typically distinguished from financial risk as financial
instruments under IFRS 9. Chartered accountants usually account for
these instruments as financial instruments.
We would also note that some arrangements like some life insurance
products are both financially and insurance-risky. For this reason
therefore, an agreement would be regarded as an insurance contract
when it has a considerable insurance risk component.
If a particular arrangement gives rise to insurance risk, a key factor to
consider is whether a Dubai and UAE entity will have to compensate
the counterparty if certain non-financial factors come by.

6. HERE ARE SOME EXAMPLES TO
ILLUSTRATE THIS:
First example:
Non-insurers in Dubai and UAE who agree to compensate a
counterparty when a vehicle owned by the counterparty suffers a fire-
related loss of value are exposed to insurance risk.
Second example:
The non-insurer faces financial risk in contrast with the example
shared earlier. There is no mechanism to compensate the
counterparty for residual losses in fair value attributable to physical
condition changes like fire.

7. THE QUESTION OF COMPENSATION
ARISES
The policyholder usually receives a cash settlement as compensation from the insurance company. Compensation can take many
forms, including:
Services such as replacement of goods – as well as new for old or repair payments
A release from the counterparty’s obligation to pay
Exemption from paying a third party
Uncertain future event
Unless at least one of the following is uncertain at the time the contract is negotiated, a future event is considered tentative:
An insured event’s likelihood of occurring
If the insured event occurs
If the insured event occurs, what the non-insurer will have to pay.
Therefore, a contract that pays a fixed amount if the policyholder dies can be considered an insurance contract. But if and only if
at the time of the contract, the insured event is uncertain and may not be likely to happen.
In An Insurance Contract: What Constitutes Adverse Effects On The Policyholder, And Why Are They Are Necessary
Insurance regulations are designed to protect policyholders from loss, in particular economic loss. Consequently, if uninsured,
events resulting in the policyholder suffering a financial loss would negatively affect the policyholder.

8. EXAMPLES INCLUDE:
Vehicles, equipment, land, or buildings are considered personal
property when they are stolen or damaged
Death or disability
Getting hospitalized
Procedures involving products, professionals, or the public
An erroneous purchase
Payment in kind or cash is generally provided in each of these
situations. A policyholder may also receive compensation by being
relieved of an existing obligation, as noted above.

9. IFRS 17 EFFECTIVE DATE
The IFRS 17 set for the annual reporting period will start on/after the
1st of January 2023. Account and financial services in Dubai are
allowed to make an early application, but if both IFRS 9 Financial
Instruments and IFRS 15 Revenue from Contracts with Customers
have been applied simultaneously.
Are you are a business located in Dubai or other emirates in the UAE
and are looking for a professional chartered accountant to help you
with your accounting needs? We would like to help you. Farahat & Co
is one of the leading accounting and financial services in Dubai with
operations spanning the entire country. If you would like us to help
you implement IFRS 17, give us a call. You can also visit our website
for more accounting information.

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