Step 1:
According to IFRS 17, An entity shall attribute cash flows to a distinct investment component or to a separated embedded derivative on a stand-alone basis – i.e. it measures the investment component or embedded derivative as if it had issued that item as a separate contract
Step 2:
After excluding the cash flows associated with separate investment components and embedded derivatives, a company will use IFRS 15 to separate promised goods or services other than insurance contract services from the insurance component of the contract.
Step 2 (a) Separating the cash inflows to goods and services
On initial recognition, the company will allocate cash inflows between the insurance component and any promised goods or services based on the stand-alone selling price of the components,
Step 2 (b) Separating the directly attributable cash outflows pertaining to goods and services
After allocating cash inflows, the entity shall allocate cash outflows based on whether they relate directly to the insurance component or the promised goods or services.
Step 2 (c) Separating the remaining cash outflows pertaining to goods and services
Any remaining cash outflows will be allocated between the insurance component and the promised goods or services on a rational and systematic basis, taking into account the costs that the company would expect to incur if it had issued that component as a separate contract.
Step 3
Finally, the company will use IFRS 17 to account for all remaining components of the host insurance contract.