PSAK 28 & PSAK 36

PSAK 28 & PSAK 36

Friday, July 20th, 2012

PSAK 28 Revised & PSAK 36 Revised

After so much argument regarding the application of IFRS on insurance contracts in the year 2012, such as PSAK 62, PSAK 28 & PSAK 36 Revised 2011, Accounting Standards Board (IAI) eventually issued a revision of PSAK 28 & PSAK 36 at the end of December 2012. The essence of the changes is as followed :


Modification on PASK 28 : General Insurance Contract.

[1] There is no change in short-term contracts liabilities.

[2] There is an additional paragraph regarding Reinsurance Assets adopting the contents of the Draft Technical Bulletin which was previously issued. This is the averment of that reinsurance asset is calculated using a consistent measurement with liabilities in accordance with the terms and conditions of the reinsurance contract.

[3] Long-term Contracts : Refers to PSAK 36 but there is a change in PSAK 36.

[4] Confirmation that the Liability Adequacy Test (LAT) as required in PSAK 62 remains to be done for the entire Liability (Liability for Future Policy Benefits and Claims Liabilities) and that the discount rate applied using current discount rate that reflects the risk attached to its liabilities.


Modification on PSAK 36 : Life Insurance Contract.

[1] There is no change in short term contract liabilities.

[2] For contracts other than short-term contracts, the “Gross Premium Reserve” terminology which previously was added to the definition of measurement has been omitted; however there is no change in the definition of measurements (measurements continue using the present value of future cash flows of benefit, all features, expense and premium).

[3] There is a paragraph that allows the measurements without using provisions of PSAK 36 revisions, however still using the previous method if the company does not have sufficient data.

[4] Additional paragraph on negative liabilities which basically adopts the contents of the Draft Technical Bulletin has previously been issued is the averment of the negative liabilities are not permitted at the aggregate level, but is allowed at the policy level.

[5] Other changes, similar to the changes in PSAK 28, refer to an additional paragraph on Reinsurance Asset and confirmation of Liability Adequacy Test.

With these changes, we can assure that the previous Draft of Technical Bulletin issued by the Accounting Standards Board IAI will not be enforced, at least for the near future.


Based on those developments here are some of the implications that can be concluded :

[1] There will be no delay in the use of PSAK 62 and the application of the method of “Gross Premium Reserve”. Although the term is being omitted in the revised PSAK 36, but the definition still requires companies to measure liabilities using the Discounted Cash Flow with the consideration that the premium will be received by the Company (for the life insurance, this method is termed Gross Premium Reserve). Thus, validation of this term eliminates confusion on the measurement of general insurance contracts whereby the measurement as in the above definition better known as “Unexpired Risk Reserve (URR)”. In the general insurance, term URR better known for short-term contracts. For the long-term contracts the URR should be modified to be complied with the definition in PSAK 36, by incorporating elements of the discount and the decrement in the calculation.

[2] The statement that this method can be waived if there are no sufficient data is misleading, because the LAT in PSAK 62 remains to be done and cannot be waived. Logically, if the company does not have sufficient data, then LAT required by PSAK 62 cannot also be applied, because the method for the measurement of liabilities in PSAK 36 and method for Liability Adequacy Test on PSAK 62 are the same.

[3] By not issuing the Technical Bulletin, companies can be more flexible in setting assumptions and other provisions were previously set in the Technical Bulletin. Issues like base assumptions (best estimate with or without the margin), the components of cash flow, the comparison of liabilities and demand value, whether the assumption is the current assumption or locked-in assumption, and whether the assumptions should reflect the company conditions or industry conditions, can be determined using the justification of each company. This implies devolution of justification responsibility is not limited to the actuary who is in charge of measurement, and the external auditor to review the fairness of the liabilities figure.