ASBE No. 26
Active
Reinsurance Contracts
Reinsurance Contracts is part of the Chinese Accounting Standards for Business Enterprises (ASBE).
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Conceptual Framework Linkage
The companion standard applying the general model to reinsurance
ASBE No. 26 governs REINSURANCE contracts – BOTH reinsurance HELD (CEDED to ANOTHER reinsurer) and reinsurance ISSUED (ASSUMED from ANOTHER insurer) – APPLYING the SAME general BUILDING block MEASUREMENT model INTRODUCED for DIRECT insurance CONTRACTS under ASBE No. 25 (see the COMPANION poster), ADAPTED for the SPECIFIC fact PATTERNS reinsurance ARRANGEMENTS present.
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Scope – Reinsurance Held and Reinsurance Issued
Both sides of a reinsurance arrangement
This Standard applies to REINSURANCE contracts an INSURER HOLDS (as a CEDING company TRANSFERRING risk to a REINSURER) and REINSURANCE contracts an INSURER ISSUES (as a REINSURER ACCEPTING risk from ANOTHER insurer) – COVERING BOTH sides of the REINSURANCE relationship.
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Reinsurance Contracts Held
A separate asset, measured using the same building block principles
A REINSURANCE contract HELD is RECOGNISED as a SEPARATE asset – MEASURED using FULFILMENT cash FLOWS and a CONTRACTUAL service MARGIN, PARALLELING the GENERAL model – RATHER than SIMPLY netted AGAINST the UNDERLYING direct INSURANCE liabilities it RELATES to.
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Recognition Timing – Aligned With the Underlying Contracts
Recognised no later than the underlying loss-making group
A REINSURANCE contract HELD is RECOGNISED WHEN the UNDERLYING insurance CONTRACTS it RELATES to are RECOGNISED, OR – WHERE EARLIER – WHEN the UNDERLYING group of CONTRACTS becomes ONEROUS (loss-MAKING), triggering EARLIER recognition of the REINSURANCE asset'S offsetting BENEFIT.
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Reinsurance Contracts Issued (Assumed)
Measured consistently with direct insurance contracts issued
WHERE an ENTERPRISE ISSUES (ASSUMES) reinsurance CONTRACTS, THEY are MEASURED CONSISTENTLY with HOW the SAME entity WOULD measure a DIRECT insurance contract ISSUED under ASBE No. 25 – the SAME building BLOCK approach, ADAPTED for the SPECIFIC terms of the REINSURANCE arrangement.
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The Same Building Block Model, Applied to Reinsurance
Fulfilment cash flows and a contractual service margin, from the reinsurer's perspective
CONSISTENT with ASBE No. 25, MEASUREMENT is BUILT from FULFILMENT cash FLOWS (probability-WEIGHTED, discounted, PLUS a risk ADJUSTMENT) and a CONTRACTUAL service MARGIN – REPRESENTING, for a REINSURANCE contract HELD, the NET COST or gain of PURCHASING reinsurance PROTECTION, recognised OVER the period REINSURANCE coverage is RECEIVED.
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Why a Separate Standard, Rather Than One Unified Standard
A structural choice, not a substantive divergence
AS discussed in the COMPANION ASBE No. 25 poster, IFRS 17 addresses BOTH direct INSURANCE and REINSURANCE within a SINGLE, unified STANDARD, WHEREAS China SPLITS the EQUIVALENT guidance across TWO separate STANDARDS. This REFLECTS a GENERAL ASBE preference for SEPARATING distinct TOPIC areas into THEIR own dedicated STANDARDS, RATHER than a SUBSTANTIVE difference in the UNDERLYING measurement PRINCIPLES themselves.
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Worked Example – Recognising a Reinsurance Contract Held
A separate asset, measured on the building block basis
Example: Ceding a portion of catastrophe risk
An insurer purchases reinsurance protection for a portfolio of property policies, ceding 40% of the underlying risk. The reinsurance contract's fulfilment cash flows and CSM are measured following the general building block model.
The insurer recognises a SEPARATE reinsurance CONTRACT asset, MEASURED using the SAME fulfilment CASH flow and CSM MECHANICS as its DIRECT insurance liabilities – RECOGNISED no LATER than the UNDERLYING direct policies THEMSELVES are recognised.
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Worked Example – Early Recognition Following an Onerous Underlying Group
Recognising the offsetting benefit as soon as the loss is identified
Example: A loss-making underlying policy group triggers early recognition
A group of underlying direct insurance contracts becomes onerous (loss-making) before the reinsurance contract covering them would otherwise be recognised under the general timing rule.
The INSURER recognises the REINSURANCE contract HELD ASSET EARLY – AT the SAME time the UNDERLYING onerous GROUP is recognised – ENSURING the OFFSETTING benefit of the REINSURANCE protection is REFLECTED WITHOUT delay.
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Disclosure Requirements
What ASBE No. 26 requires
Reconciliation of reinsurance contract assets/liabilities held and issuedAmounts recognised in profit or loss relating to reinsurance contracts
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether a group of underlying contracts is onerous, triggering early reinsurance recognition
SIGNIFICANT ESTIMATES
Probability-weighted future cash flow estimates for reinsurance arrangements
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Relationship to IFRS 17
Comparison – ASBE 26 vs IFRS 17's reinsurance provisions
FeatureASBE 26IFRS 17
Measurement approachBuilding block, same as direct contractsBuilding block, same as direct contracts – converged
Standard structureSeparate standard from direct contractsPart of the same unified standard
MEASUREMENT principles are GENUINELY converged – the STRUCTURAL choice to SPLIT direct and REINSURANCE guidance into SEPARATE standards is the MAIN point of DIFFERENCE.
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Statement Mapping
Where every reinsurance contract event lands
EventStatement(s) affectedNotes
Reinsurance contract heldBS ISRecognised as a separate asset, measured on the building block basis
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Related Standards
Cross-reference map
StandardConnection
ASBE No. 25Direct Insurance Contracts – supplies the general building block measurement model this Standard applies to reinsurance
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Quick-Reference Glossary
Reinsurance contract held
A reinsurance arrangement in which the reporting entity cedes risk to another reinsurer, recognised as a separate asset.
Onerous group
A group of insurance contracts expected to be loss-making, triggering early recognition of a related reinsurance contract held.
Financial statement key (Chinese GAAP / ASBE terminology)
BS Balance Sheet (资产负债表)
IS Income Statement (利润表)
SCOE Statement of Changes in Owners' Equity (所有者权益变动表)
CFS Cash Flow Statement (现金流量表)
History & Development
2006-02
ASBE No. 26 Reinsurance Contracts issued
Operative for periods beginning on or after 1 February 2007