IFRS 17

IFRS 17 measures insurance contracts in groups, and books insurance revenue, insurance service expenses and the liabilities for remaining coverage and incurred claims.

Assumptions

Actuarial > IFRS 17 assumptions sets, for each line, the measurement model (PAA, the premium allocation approach, or GMM, the general model), the discount rate, the risk adjustment, the expected loss and expense ratios, the lapse rate and the average time to settle claims.

Groups

Policies are put into groups by line, year of issue and profitability: onerous when expected claims and expenses are above the premium, no significant risk of becoming onerous when expected claims and expenses are 85% of premium or less, and other. A policy keeps the group it was given at inception. Groups of contracts on an assumption shows the groups and their policies.

Measuring a period

Actuarial > IFRS 17 > Measure a period measures every group for the dates chosen:

• PAA: the liability for remaining coverage starts from the premium received, less acquisition costs, and releases insurance revenue as cover is given. Onerous groups carry a loss component.
• GMM: the present value of future cash flows, a risk adjustment and the contractual service margin, which is released over the coverage period.
• Incurred claims: claims outstanding and IBNR, discounted over the settlement time, plus the risk adjustment.

The run shows each group, and the disclosure tables: the movement of the liabilities from opening to closing, revenue and service result. Excel downloads it.

Post to the ledger books the revenue, service expenses, finance result and the liabilities for the run. A run can be posted only once, and only into an open month.

Limits

The measurement is simplified: cash flows come from the expected ratios on the assumptions, not from projections policy by policy; reinsurance held is not measured separately; and there are no transition approaches other than starting from the books today. The figures are a working basis for the finance team and auditors, not a complete IFRS 17 solution.