Session 1B, IFRS 17: Deciding Whether to Build Internally or Buy a - - PDF document

Session 1B, IFRS 17: Deciding Whether to Build Internally or Buy a Ready Made System Presenters: Scott P. Odierno, FSA

SOA A Anti titr trust Disclaimer SO SOA A Presentatio ion D Discla laime imer

IFRS17: Deciding whether to build internally or buy a new system

HASSAN SCOTT ODIERNO

Partner

17 June 2019

• 1. Changing demands of the actuary
• 2. Flow of actuarial aspects of IFRS17
• 3. Data and Assumption Challenges
• 4. Actuarial Valuation Software
• 5. CSM and Sub-ledger calculation engine
• 6. Going beyond compliance

2

IFRS 4

• Traditionally, the actuarial department would use our actuarial models to

produce the actuarial liabilities as of the reporting date. The total actuarial liabilities would then be provided to finance department, which would then be included as part of the balance sheet, and change in actuarial liabilities in the Profit & Loss Statement. The finance department is happy to use draft reserves in their work whilst waiting for us to finish our analysis.

• Current IFRS 4 disclosure are as follows:
• Gross liabilities and reinsurance assets by type of contracts
• Sensitivity analysis for key assumptions on gross and net liabilities,

surplus, profit before taxation and shareholder’s equity.

Our work is just one small part of the financial statements

Profit & Loss Statement items that contributed by actuarial department

IFRS RS 4 4 Premium Investment Income Incurred Claims Change in insurance contract liabilities Expenses Pr Prof

• fit a

and L Loss IFR FRS 17 17 Expected Claims and Expenses Release in RA Release in CSM Incurred Claims and Expenses Acquisition Costs Reversal of Loss Gain/Loss from reinsurance Investment Income Insurance Finance Expenses Pr Prof

• fit a

and L Loss

Remember all the trouble the finance department goes through because of the yearly audit? This trouble is now passed to us!

Not to mention Disclosures!

• The disclosures required under IFRS 17 are very extensive which

include (but not limited to):

• Reconciliation between the opening and closing balances of the future cash

flows, risk adjustments and CSM

• Analysis of insurance revenue by comparing with the changes in Liabilities of

Remaining Coverage

• Analysis of insurance contracts assets/liabilities for group of contracts that are
• nerous (separately from other groups)
• Expected recognition of CSM

All of this means a lot more runs of our actuarial software and less ability to hide problems.

Flow of Actuarial Work

6

Actuarial Valuation Software Policy Data Assumptions Projections Cashflows Output needed for projections CSM and sub-ledger calculation engine Data required for audit Actual accounts data Accounts & Disclosures Management Analytics Chief Risk Officer Chief Financial Officer Internal Auditor External Auditor

Data and Assumption Challenges

7

Data Challenges

• For insurers who have been reserving under Gross Premium Valuation

(GPV) most required data to perform IFRS17 calculations will be already available.

• We will need to understand which policies belong to which cohort

though, so an extra field may be required.

• We will also need to store profit carrier results, but it is likely this will

be based on existing data fields.

Our work is just one small part of the financial statements.

Data Challenges – Reinsurers

• In some reinsurers there is long term guaranteed reinsurance under

their treaty business, i.e. reinsurance where the rates are guaranteed. These plans may not have been reserved under a GPV approach in the past so data is likely going to be a challenge.

Our work is just one small part of the financial statements.

Assumptions

• Most assumptions we will be able to use similar to what we do for
• GPV. The lock in rate (discount rate for CSM) though will need to be

set by cohort and remains fixed through the duration of the policy. This is likely to be the biggest challenge.

Our work is just one small part of the financial statements. Consistency with GPV Assumptions Simplicity and consistency globally

Actuarial Valuation

11

Challenges with number of valuation runs

• Most larger insurers already perform reserve movement analysis

which captures the impact of change in reserves due to model, data and assumptions.

• For IFRS 17, CSM has to be calculated retrospectively using locked-in

rates (for BBA), hence a few extra runs using locked in rate would be required to quantify the change in CSM over the reporting period.

Run List Overview

• The following run list table outlines the minimum runs required to

perform the IFRS 17 calculations:

Ste tep Name me Desc scriptions 1 Opening Position For all cohorts using previous year end’s discount rate 2 Opening Position For all cohorts using locked-in discount rate 3 Restated opening position Due to model changes, calculated using previous year end’s discount rate 4 Restated opening position Due to model changes, calculated using locked-in rate 5 New Business For cohorts with new business, using locked-in discount rate 6 Restated allowing for actual asset return For VFA only. 7 Roll forward Not actuarial run but this step is required to calculate interest accretion, release of cash flows for current service and future service

Run List Overview (continue)

• Step 8,9 and 11 can be further split into more sub-runs if the impact of

each assumption change needs to be quantified separately.

Ste tep Name me Desc scription 8 Experience Adjustment - future service Current period results based on current period inforce data, using locked-in rate 9 Change in non-financial assumption Current period results based on current non-financial assumptions, using locked-in rate 10 Change in risk of non- performance For reinsurance held only, using locked-in rate 11 Change in financial assumption Current period results based on new financial assumptions, using current period’s discount rate 12 CSM amortisation Or Loss reversal 13 Closing Position For all cohorts using current year end’s discount rate 14 Closing Position For all cohorts using locked-in discount rate

Challenges with Memory

• For those of us performing GPV already, it will be much of the same cash

flows, but now we will need to keep track of cohorts and save the cash flows (including profit carrier) accordingly.

• Furthermore, we also need to keep track of changes in IFRS 17 liabilities into

different dimensions. For example, we need to keep track of the changes in BEL, RA, CSM and loss component for each step as this would be fed into the reconciliation of liabilities in the disclosure.

• This process of writing and saving these cash flows can easily cause

memory problems, so this is one concern. In the past we might just save the actuarial reserves or a few key values by plan code, so this is a major change.

Actuarial Software Survey (current not IFRS17)

• There are very few formal comparison sites for actuarial software, so

we took a simple survey, with 37 respondents: 21 Life insurers, 9 General insurers and 7 others (investment and pensions).

• The

main respondents were from Malaysia but there were respondents from Thailand, Singapore, Indonesia and around the developing world.

• The life insurers used the software mainly for valuation, but also some

business projections and pricing, whereas for general insurers the software was used more heavily for pricing.

Our work is just one small part of the financial statements.

Actuarial Software Survey – Life Software Used

Our work is just one small part of the financial statements.

Actuarial Software Survey – Prophet Comments

Our work is just one small part of the financial statements.

Actuarial Software Survey – Unmodelled Business

Our work is just one small part of the financial statements.

Actuarial Software Survey – Life Insurer IFRS17 Budget

Our work is just one small part of the financial statements.

Actuarial Software Survey – General Insurer IFRS17 Budget

Our work is just one small part of the financial statements.

Valuation software decision

• For most insurers there will be a combination of greater memory issues and

much longer run times. Considering that for most IFRS17 valuations there will be 14 times more runs, this can be used to determine if you can live with your existing software. We will also still need to do statutory reserving and maybe tax reserving.

• It will be important to experiment with different software if possible. Our

experience is that some software is very fast for traditional

• r

straightforward plans, whereas when including more complex options such as having separate unit funds or Takaful funds some software works significantly better than others.

• The elephant in the room is that the finance department will now be waiting
• n the actuarial calculations in order to put their accounts together, so we

will need our programs running very efficiently! It is likely there will be actuaries within the finance team, perhaps called the Finance Actuarial Team.

Our work is just one small part of the financial statements.

CSM and sub-ledger calculation engine

23

What is a CSM and sub-ledger calculation engine?

• There are many names we can call this new aspect of our work, but the underlying

need is for something which will collect the cash flows by cohort and incorporate into the contractual service margins (CSM) and then organize into a format useful for the accounts and disclosures. Things such as expected cash flows and required interest is also saved for use in the accounts. These will then be incorporated into journal entries which will be used in the various lines of the accounts.

• For an insurer who has been around for 20 years, writing various types of business

there are likely to be hundreds of cohorts.

• The challenge is that each cohort must be accumulated forward, under base

conditions as well as under the various conditions used in the disclosures. We will need both actuarial cash flows as well as actual accounting items such as claims and investment income. The disclosures are similar to our analysis of surplus calculations in the past, where we show step by step how our reserves change due to assumption and methodology changes and whatnot.

Our work is just one small part of the financial statements.

CSM and sub-ledger calculation engine considerations

• The information in the CSM and sub-ledger calculation engine is fed

directly into the accounts via journal entries. Most likely a sub-journal will be created for IFRS17 specific entries and that will need to be integrated into the main journal of accounts.

• Thus this will be a key focus in the audit process. Our methodology

and audit trail needs to be robust in order to make this a smooth process.

• We may also need to push the CSM back into the actuarial software in
• rder to perform budget projections, normally on a yearly basis for

management purposes as well as Financial Conditions Reporting.

Our work is just one small part of the financial statements.

CSM and sub-ledger calculation engine options

• Solutions can be actuarial based, accounting driven or an intermediate

solution

• Actuarial based solution: FIS Prophet (combined with SAP)
• Integrated General Ledger solution: SAP Insurance Analyzer (MSG Global), Oracle

Insurance IFRS 17 Analyzer

• Intermediate solution: Moody’s Riskintegrity IFRS 17, SAS, Aptitude IFRS 17 Solution
• An actuarial based solution will integrate the CSM and sub-ledger

calculations with the actuarial engine whereas the integrated general ledger solution will integrate with the accounting system. The intermediate solutions tend to be agnostic and accept output from the actuarial system and give output to a sub-ledger which can then be used by the accounting system.

Our work is just one small part of the financial statements.

Actuarial based options

• Benefits:

With CSM development embedded within actuarial calculations model office capabilities such as embedded values, projections and appraisal valuations should be straightforward.

• Concerns: An ‘all in one’ solution is likely to get rather unwieldy,

especially as only subsets of the entire process might be needed for a particular use. Could result in ‘light’ and ‘heavy’ versions of the software.

Our work is just one small part of the financial statements.

Integrated General Ledger based options

• Benefits: All in solution, built especially for the particular insurer. Costs

are one off rather than recurring (though there are some recurring fees).

• Concerns: As the rules under IFRS17 get fine tuned over time these

solutions are likely less flexible and would require reworking by the vendor (who you are hostage to). This flexibility is important at transition as many CEO’s don’t care about the inner details of IFRS17 but want no additional capital injections due to IFRS17 and shareholders transfers under IFRS17 to be similar to the current basis.

Our work is just one small part of the financial statements.

Intermediate solutions

• Collect actuarial cash flows from any actuarial software and outputs results

into sub-ledger journal entries for the accounting system to pick up. Thus leaves the actuarial and accounting systems relatively untouched.

• Ideally cloud based so as IFRS17 rules change the system changes will be

made automatically with little fuss or headaches. There will also not be the need to maintain the IT infrastructure required under IFRS17.

• A hybrid to the intermediate solution is likely to be the service bureau

approach, where one company runs the actuarial software and data warehouse internally and simply provides the sub-journal entries to the

• insurer. This minimizes strain on the insurer’s actuarial resources, which can

be extremely important for small to medium sized insurers. It also allows the insurer to take a wait and see approach before investing in expensive internal systems.

Our work is just one small part of the financial statements.

Going beyond Compliance

30

Management Analytics

• Whatever system choices we make (existing versus new actuarial

system, building or buying a CSM and sub-ledger calculation engine) we are going to have an amazing amount of data at our disposal.

• IF we can also split our actual claims and expenses by cohort then we

have very detailed profitability indicators for the company and can use this to design management analytics to assist management and the board in its decision making. We will no longer be looking at top line growth and position as there is no more top line! Decision makers will need to have new information available to them.

• This can also be used for the risk management team in its work.

Our work is just one small part of the financial statements.

Example of Calculation

32

Case Study

• Assuming Insurer A has the following portfolio mix:
• Term, Savings, Unit Linked, Participating, Motor
• 100 IFRS groups (20 IFRS groups for each portfolio type). The pricing policy is such that the product is profitable at

total basis (i.e. some model points are profitable and some are not). Due to this, we assume that half of the IFRS groups are onerous, and the remaining half are non-onerous.

• To illustrate the amount of data required for disclosure, we have taken the 10 groups from Term as example.

IFR FRS g group ups Te Term Sav avings UL UL Pa Par Mo Motor To Total Onerous Group 10 10 10 10 10 50 Non-onerous/Others 10 10 10 10 10 50 Total 20 20 20 20 20 100

Step 1-Level of Aggregation

• Calculate the Fulfilment Cash Flows at inception using pricing assumptions and lock-in discount rate, to determine the

grouping of the policies.

Group Cohort FC FCF at t=0 Oner erous us/Non n Oner erous us CSM SM Loss C Compo ponen ent Total L l Liabilit bilitie ies 1 2008 (251.15) NO 251.15 0.00 0.00 2 2008 321.48 O 0.00 321.48 321.48 3 2009 (313.03) NO 313.03 0.00 0.00 4 2009 222.84 O 0.00 222.84 222.84 5 2010 (254.16) NO 254.16 0.00 0.00 6 2010 287.61 O 0.00 287.61 287.61 7 2011 (249.37) NO 249.37 0.00 0.00 8 2011 298.59 O 0.00 298.59 298.59 9 2012 (239.54) NO 239.54 0.00 0.00 10 2012 313.79 O 0.00 313.79 313.79

Step 2-Calculate the opening position of current reporting period

• There are three approaches for transition. Insurer A chose Full Retrospective Approach, hence Insurer A will have to “roll-

forward” the CSM/Loss Component from inception up to 31 December 2017. This involve a significant amount of historical data, assumptions from the point of sales.

• Table below shows the FCF, CSM and Loss Component for the 20 groups as at 31 December 2017:

Group Cohort Oner erous us/Non n Oner erous us FC FCF CSM SM Loss C Compo ponen ent Total L l Liabilit bilitie ies 1 2008 NO 903.42 142.53 0.00 1,045.94 2 2008 O 1,251.74 0.00 225.25 1,251.74 3 2009 NO 727.03 197.32 0.00 924.35 4 2009 O 1,081.06 0.00 170.73 1,081.06 5 2010 NO 631.64 170.77 0.00 802.41 6 2010 O 1,012.26 0.00 228.26 1,012.26 7 2011 NO 500.83 177.18 0.00 678.01 8 2011 O 903.10 0.00 244.03 903.10 9 2012 NO 372.67 180.54 0.00 553.22 10 2012 O 798.43 0.00 265.39 798.43

Step 3 – 7: CSM (Subsequent measurement)

CSM @ Beginning Reporting period CSM @ End Reporting period

CSM from New Contracts

Interest Accretion @ locked-in rate

Change in Expectation Amortization

Flow to P&L as Insurance Finance Expenses The pattern of release depends on the Profit Carrier. Flow to P&L as Insurance Revenue Change in Fulfilment Cash Flows due to change in future expectation for non-financial risks

The CSM at the end of the reporting period represents the profit that has not yet been recognized in profit or loss because it relates to the future service to be provided.

Step 3-Roll-forward

• Due to the yearly cohort requirement, no new business is assumed to have contributed to these 20 groups.
• This step calculates the interest accreted in the valuation period, taking into account the timing of the cash flows during the
• year. Fulfilment cash flows change during this step due to release in expected cash flows.

Group Cohort Oner erous us/Non n Oner erous us ∆ FC FCF ∆ CSM SM ∆ Loss C Compo ponen ent ∆ Total L l Liabilit bilitie ies 1 2008 NO 54.59 5.25 0.00 59.84 2 2008 O 8.96 0.00 8.39 8.96 3 2009 NO 85.91 9.71 0.00 95.62 4 2009 O 44.74 0.00 8.50 44.74 5 2010 NO 103.46 8.03 0.00 111.49 6 2010 O 60.41 0.00 10.85 60.41 7 2011 NO 113.43 7.19 0.00 120.62 8 2011 O 69.67 0.00 10.01 69.67 9 2012 NO 123.75 7.05 0.00 130.80 10 2012 O 79.84 0.00 10.48 79.84

Step 4-Change in non-financial assumptions

• The FCF increase and this results in lower CSM (for NO groups) or higher Loss Component (for O groups).

Group Cohort Oner erous us/Non n Oner erous us ∆ FC FCF ∆ CSM SM ∆ Loss C Compo ponen ent ∆ Total L l Liabilit bilitie ies 1 2008 NO 160.65 (160.65) 0.00 0.00 2 2008 O 170.05 0.00 170.05 170.05 3 2009 NO 165.11 (165.11) 0.00 0.00 4 2009 O 175.58 0.00 175.58 175.58 5 2010 NO 179.88 (179.88) 0.00 0.00 6 2010 O 192.34 0.00 192.34 192.34 7 2011 NO 189.38 (189.38) 0.00 0.00 8 2011 O 203.56 0.00 203.56 203.56 9 2012 NO 200.34 (200.34) 0.00 0.00 10 2012 O 216.53 0.00 216.53 216.53

Step 5-Change in financial assumptions

• Under BBA, change in financial assumption would not affect CSM/Loss Component. The impact of change in financial

assumption would flow through P&L/OCI.

Group Cohort Oner erous us/Non n Oner erous us ∆ FC FCF ∆ CSM SM ∆ Loss C Compo ponen ent ∆ Total L l Liabilit bilitie ies 1 2008 NO (22.65) (22.65) 2 2008 O (25.47) (25.47) 3 2009 NO 40.51 40.51 4 2009 O 51.02 51.02 5 2010 NO 0.84 0.84 6 2010 O 4.27 4.27 7 2011 NO (6.18) (6.18) 8 2011 O (4.16) (4.16) 9 2012 NO (29.89) (29.89) 10 2012 O (35.13) (35.13)

Step 6-CSM Amortisation

• This step amortises the CSM according to the coverage unit percentage.

Group Cohort Oner erous us/Non n Oner erous us ∆ FC FCF ∆ CSM SM ∆ Loss C Compo ponen ent ∆ Total L l Liabilit bilitie ies 1 2008 NO (15.48) 0.00 (15.48) 2 2008 O 0.00 (21.65) 0.00 3 2009 NO (21.52) 0.00 (21.52) 4 2009 O 0.00 (15.68) 0.00 5 2010 NO (16.71) 0.00 (16.71) 6 2010 O 0.00 (18.78) 0.00 7 2011 NO (16.16) 0.00 (16.16) 8 2011 O 0.00 (18.51) 0.00 9 2012 NO (15.29) 0.00 (15.29) 10 2012 O 0.00 (18.64) 0.00

Step 7-Calculating the closing position

• This step shows the final position of liabilities

Group Cohort Oner erous us/Non n Oner erous us FC FCF CSM SM Loss C Compo ponen ent Total L l Liabilit bilitie ies 1 2008 NO

1132.19 0.00 28.35 1,132.19

2 2008 O

1462.60 0.00 382.05 1,462.60

3 2009 NO

1048.33 20.40 0.00 1,068.73

4 2009 O

1403.62 0.00 339.13 1,403.62

5 2010 NO

942.10 0.00 17.79 942.10

6 2010 O

1320.33 0.00 412.67 1,320.33

7 2011 NO

818.82 0.00 21.17 818.82

8 2011 O

1218.16 0.00 439.10 1,218.16

9 2012 NO

683.50 0.00 28.03 683.50

10 2012 O

1102.23 0.00 473.77 1,102.23

NO t to O

• O

NO t to O

• O

NO t to O

• O

NO t to O

• O

Example of Disclosure

42

Disclosure

• IFRS 17 requires the company to disclose a number of different

reconciliations from opening to closing balances for insurance contracts measured under IFRS 17.

• Detailed reconciliations of changes in insurance contract balances

during the reporting periods should be shown separately for insurance contracts issued and reinsurance contracts held , and by product lines.

Disclosure

Analysis of Insurance revenue and insurance service result

• IFRS 17 requires analysis by product lines
• Expected recognition of the contractual service margin

Te Term Sav avings UL UL Pa Par Mo Motor To Total

Insurance Revenue Insurance Service Expenses Net Income (expenses) from reinsurance contracts held Tota tal I Insurance s service result Number o

• f y

f years u unti til e expected to to b be recogn gnised

Te Term Sav avings UL UL Pa Par Mo Motor To Total

1 2 3 4 5 6-10 >10 Total C al CSM

Disclosure

• The following slides show the sample disclosures required for one of

the product lines. The same disclosure would need to be repeated for

• ther product lines.

Disclosure

Reconciliation of the measurement components of insurance contract balances

• IFRS 17 requires reconciliation from the opening to the closing balances of each of the measurement components

BEL EL RA RA CSM SM To Total Opening Insurance Contract Liabilities Opening Insurance Contract Assets Net B Bala alance a as at at 1 1 Jan an Changes that relate to current service Changes that relate to future service Changes that relate to past service Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Insurance Contract Liabilities Closing Insurance Contract Assets Net B Balance a as s at 31 De 31 Dec

Disclosure

Reconciliation of the measurement components of insurance contract balances

• IFRS 17 requires reconciliation from the opening to the closing balances of each of the measurement components

BEL EL RA RA CSM SM To Total Opening Insurance Contract Liabilities Opening Insurance Contract Assets Net B Bala alance a as at at 1 1 Jan an Changes that relate to current service Changes that relate to future service Changes that relate to past service Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Insurance Contract Liabilities Closing Insurance Contract Assets Net B Balance a as s at 31 De 31 Dec

While BEL and RA are calculated prospectively, CSM would need to be calculated retrospectively. Insurers should consider the disclosure requirement and design/standardise the sequence of the various runs at the early stage of implementation phase.

Disclosure

Reconciliation of the measurement components of insurance contract balances

• IFRS 17 requires reconciliation from the opening to the closing balances of each of the measurement components

BEL EL RA RA CSM SM To Total Opening Insurance Contract Liabilities Opening Insurance Contract Assets Net B Bala alance a as at at 1 1 Jan an Changes that relate to current service Changes that relate to future service Changes that relate to past service Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Insurance Contract Liabilities Closing Insurance Contract Assets Net B Balance a as s at 31 De 31 Dec

This includes release in RA (step 3), release in CSM (step 6), and experience adjustment (difference between the actual and the expected amount (step 3))

Disclosure

Reconciliation of the measurement components of insurance contract balances

• IFRS 17 requires reconciliation from the opening to the closing balances of each of the measurement components

BEL EL RA RA CSM SM To Total Opening Insurance Contract Liabilities Opening Insurance Contract Assets Net B Bala alance a as at at 1 1 Jan an Changes that relate to current service Changes that relate to future service Changes that relate to past service Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Insurance Contract Liabilities Closing Insurance Contract Assets Net B Balance a as s at 31 De 31 Dec

This includes changes in valuation assumptions (step 4 and/or step 5) and recognition of new business during the year

Disclosure

Reconciliation of the measurement components of insurance contract balances

• IFRS 17 requires reconciliation from the opening to the closing balances of each of the measurement components

BEL EL RA RA CSM SM To Total Opening Insurance Contract Liabilities Opening Insurance Contract Assets Net B Bala alance a as at at 1 1 Jan an Changes that relate to current service Changes that relate to future service Changes that relate to past service Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Insurance Contract Liabilities Closing Insurance Contract Assets Net B Balance a as s at 31 De 31 Dec

This includes changes in LIC that relate to claims incurred in prior periods impact the BEL and RA but not the CSM.

Disclosure

Reconciliation of the measurement components of insurance contract balances

• IFRS 17 requires reconciliation from the opening to the closing balances of each of the measurement components

BEL EL RA RA CSM SM To Total Opening Insurance Contract Liabilities Opening Insurance Contract Assets Net B Bala alance a as at at 1 1 Jan an Changes that relate to current service Changes that relate to future service Changes that relate to past service Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Insurance Contract Liabilities Closing Insurance Contract Assets Net B Balance a as s at 31 De 31 Dec

The sum of the changes from 3 items above, should reconcile with the Total Insurance Service results in the analysis of insurance revenue

Disclosure

Reconciliation of the measurement components of insurance contract balances

• IFRS 17 requires reconciliation from the opening to the closing balances of each of the measurement components

BEL EL RA RA CSM SM To Total Opening Insurance Contract Liabilities Opening Insurance Contract Assets Net B Bala alance a as at at 1 1 Jan an Changes that relate to current service Changes that relate to future service Changes that relate to past service Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Insurance Contract Liabilities Closing Insurance Contract Assets Net B Balance a as s at 31 De 31 Dec

This includes the interest expense accretion

• n the BEL+RA+CSM, the effect of change in

financial assumptions on BEL+RA (if the P&L accounting policy option is taken)

Disclosure

Reconciliation of the measurement components of insurance contract balances

• IFRS 17 requires reconciliation from the opening to the closing balances of each of the measurement components

BEL EL RA RA CSM SM To Total Opening Insurance Contract Liabilities Opening Insurance Contract Assets Net B Bala alance a as at at 1 1 Jan an Changes that relate to current service Changes that relate to future service Changes that relate to past service Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Insurance Contract Liabilities Closing Insurance Contract Assets Net B Balance a as s at 31 De 31 Dec

This includes cash flows that would affect the IFRS17 but not in the revenue accounts. For example, premium received, insurance acquisition cash flows.

Disclosure

Reconciliation of the measurement components of Reinsurance contract balances

• Similar as before, but now for reinsurance contracts assets/liabilities

BEL EL RA RA CSM SM To Total Opening Reinsurance Contract Assets Opening Reinsurance Contract Liabilities Net B Bala alance a as at at 1 1 Jan an Changes that relate to current service Changes that relate to future service Changes that relate to past service Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Reinsurance Contract Assets Closing Reinsurance Contract Liabilities Net B Balance a as s at 31 De 31 Dec

Disclosure

Reconciliation of the measurement components of Reinsurance contract balances

• Similar as before, but now for reinsurance contracts assets/liabilities

BEL EL RA RA CSM SM To Total Opening Reinsurance Contract Assets Opening Reinsurance Contract Liabilities Net B Bala alance a as at at 1 1 Jan an Changes that relate to current service Changes that relate to future service Changes that relate to past service Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Reinsurance Contract Assets Closing Reinsurance Contract Liabilities Net B Balance a as s at 31 De 31 Dec

Reinsurance calculation would have to be performed separately and the reinsurance results may not be consistent with the calculations of the underlying insurance contracts liabilities. This could be due to differences in contract boundaries, timing of premium, lock-in rate, measurement methodologies

• IFRS 17 requires showing reconciliation of any loss component within the LRC separately from reconciliation of the LRC excluding any loss

component

LRC RC ( (exc xc LC LC) LRC ( C (LC) C) LI LIC To Total Opening Insurance Contract Liabilities Opening Insurance Contract Assets Net B Bala alance a as at at 1 1 Jan an Insurance revenue Insurance service expenses Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Insurance Contract Liabilities Closing Insurance Contract Assets Net B Balance a as s at 31 De 31 Dec

Disclosure

Reconciliation of the liability for remaining coverage and the liability for incurred claims

• IFRS 17 requires showing reconciliation of any loss component within the LRC separately from reconciliation of the LRC excluding any loss

component

LRC RC ( (exc xc LC LC) LRC ( C (LC) C) LI LIC To Total Opening Insurance Contract Liabilities Opening Insurance Contract Assets Net B Bala alance a as at at 1 1 Jan an Insurance revenue Insurance service expenses Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Insurance Contract Liabilities Closing Insurance Contract Assets Net B Balance a as s at 31 De 31 Dec

Disclosure

Reconciliation of the liability for remaining coverage and the liability for incurred claims

Instead of showing the breakdown of IFRS17 liabilities of BEL, RA and CSM, this disclosure requires the insurer to show the split into Liabilities for Remaining Coverage (exc Loss Component), LRC (LC) and Liabilities for Incurred Claims.

• IFRS 17 requires showing reconciliation of any loss component within the LRC separately from reconciliation of the LRC excluding any loss

component

LRC RC ( (exc xc LC LC) LRC ( C (LC) C) LI LIC To Total Opening Insurance Contract Liabilities Opening Insurance Contract Assets Net B Bala alance a as at at 1 1 Jan an Insurance revenue Insurance service expenses Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Insurance Contract Liabilities Closing Insurance Contract Assets Net B Balance a as s at 31 De 31 Dec

Disclosure

Reconciliation of the liability for remaining coverage and the liability for incurred claims

When a loss component exists, the insurance revenue would be reduced by the proportion of loss component of the LRC for the respective group of contracts.

• IFRS 17 requires showing reconciliation of any loss component within the LRC separately from reconciliation of the LRC excluding any loss

component

LRC RC ( (exc xc LC LC) LRC ( C (LC) C) LI LIC To Total Opening Insurance Contract Liabilities Opening Insurance Contract Assets Net B Bala alance a as at at 1 1 Jan an Insurance revenue Insurance service expenses Insurance Service Result Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Insurance Contract Liabilities Closing Insurance Contract Assets Net B Balance a as s at 31 De 31 Dec

Disclosure

Reconciliation of the liability for remaining coverage and the liability for incurred claims

This would show “new” losses on

• nerous contracts and reversal

amount

Disclosure

Reconciliation of the liability for remaining coverage and the liability for incurred claims

• Similar as before, but now for reinsurance contracts assets/liabilities

LRC RC LI LIC To Total Opening Reinsurance Contract Assets Opening Reinsurance Contract Liabilities Net B Bala alance a as at at 1 1 Jan an Net Income (expenses) from reinsurance contracts held Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Reinsurance Contract Assets Closing Reinsurance Contract Liabilities Net B Balance a as s at 31 De 31 Dec

Disclosure

Reconciliation of the liability for remaining coverage and the liability for incurred claims

• Similar as before, but now for reinsurance contracts assets/liabilities

LRC RC LI LIC To Total Opening Reinsurance Contract Assets Opening Reinsurance Contract Liabilities Net B Bala alance a as at at 1 1 Jan an Net Income (expenses) from reinsurance contracts held Finance Income/expense Result Total amount recognised in comprehensive income Total Other Cash flows Net B Balance a as s at 31 De 31 Dec Closing Reinsurance Contract Assets Closing Reinsurance Contract Liabilities Net B Balance a as s at 31 De 31 Dec

IFRS 17 recognise that reinsurance is a risk management tool and the expenses(losses) from reinsurance contract held can be recognised as and when the services are received. Hence no loss component for reinsurance contract held

Disclosure

Analysis of new insurance contracts issued

• The objective of this disclosure is to provide more insight on the various groups of contracts originated during the reporting period

No Non-on

• nerou
• us c

contrac acts Onerous c contr tracts ts To Total Estimation of the present value of future cash outflows Estimation of the present value of future cash inflows Risk Adjustment CSM Incre rease in i insurance c contract l t liabiliti ties f from c contr tracts ts recognised i in t the p period

Disclosure

Analysis of new reinsurance contracts held

• Similar as before, but now for reinsurance contracts held recognised during the reporting period

Reinsurance contracts ts n not t in a n net g t gain Reinsurance contracts ts i in a n net t ga gain To Total Estimation of the present value of future cash inflows Estimation of the present value of future cash outflows Risk Adjustment CSM Incre rease in R Reinsuran ance c contrac act a assets f from

• m contrac

acts recognised i in t the p period

Disclosure

Analysis of new reinsurance contracts held

• Similar as before, but now for reinsurance contracts held recognised during the reporting period

Reinsurance contracts ts n not t in a n net g t gain Reinsurance contracts ts i in a n net t ga gain To Total Estimation of the present value of future cash inflows Estimation of the present value of future cash outflows Risk Adjustment CSM Incre rease in R Reinsuran ance c contrac act a assets f from

• m contrac

acts recognised i in t the p period

Reinsurance contracts held cannot be onerous

Disclosure

Analysis of CSM by transition method

• IFRS 17 requires providing an analysis of the CSM from the opening to the closing balances separately for contracts that existed at the

transition date with the following transition methods:

• Full retrospective approach
• Modified retrospective approach
• Fair value approach

Contr tracts m measured under the f full ret etrospec ective e approac

• ach

Contra racts measured under the m modifi fied retros

• spective a

approac

• ach

Contra racts mea easured ed u under er the f fair air v valu alue approac

• ach

To Total CSM a as at at 1 1 Jan an Changes that relate to current service Changes that relate to future services Finance expenses from insurance contracts issued Total amounts recognised in comprehensive income CSM a as a at 31 31 De Dec

Disclosure

Analysis of CSM by transition method

• Similar as before, but now for reinsurance contracts held

Contr tracts m measured under the f full ret etrospec ective e approac

• ach

Contra racts measured under the m modifi fied retros

• spective a

approac

• ach

Contra racts mea easured ed u under er the f fair air v valu alue approac

• ach

To Total CSM a as at at 1 1 Jan an Changes that relate to current service Changes that relate to future services Finance expenses from reinsurance contracts held Total amounts recognised in comprehensive income CSM a as a at 31 31 De Dec

Putting it all together

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Putting it all together

• The actuary is entering a new world, where our work is central to the

development of the financial statements of the insurance company rather than simply being one line and a footnote. We have all had our experiences with systems which simply did not do what we needed it to do and had numerous manual calculations required.

• With such complex calculations required of us we simply must have

systems which work for us rather than us working for the system. With a strong understanding of IFRS17 and its nuances we can ensure whatever systems we choose are right for us or we can choose an intermediate solution and take a wait and see approach until the dust settles for IFRS17.

Questions? Hassan.odierno@actuarialpartners.com

www.linkedin.com/in/hassan-scott-odierno/

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