Premium allocation approach (PAA)
Simplified IFRS 17 model reserved for short-duration contracts, close to traditional earned-premium accounting.
The premium allocation approach is a simplified measurement model provided by IFRS 17 for short-duration contracts, typically one year or less, common in property and casualty insurance. It resembles traditional earned-premium accounting: the premium is spread over the cover period and claims are reserved as they occur, without explicitly building a contractual service margin for the remaining-coverage component. This simplification reduces the operational burden for fast-turnover non-life portfolios, where the general model would be disproportionate. It remains framed, however: the insurer must verify that the approach gives a result close to the general model and set up a provision for incurred claims under the standard's principles. For the analyst, the predominance of the PAA in a P&C insurer's accounts explains why the impact of IFRS 17 is often less spectacular there than on long-term life portfolios under the general model.
Textbook case: a motor insurer generally applies the PAA to its annual contracts, spreading the premium over the year and reserving claims as they occur.
PAA, premium allocation approach
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