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.
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, approche par répartition des primes