1. Attachment 1
Business Model Paradigm for Insurance Contracts
Insurance Contract Attributes
• Key business metric – underwriting • Key business metrics – interest, expense, surrender &
income or loss mortality/morbidity profits
• Key business drivers – Premium • Key business drivers – investment results, mortality & lapse
charged/earned & claims incurred experience
o Premiums typically single and fixed o Discretionary premiums may continue over coverage
o Claims typically emerge quickly; latent period;
exposures not subject to reliable o Net investment income may be earned on contractholder
estimation funds;
• $ amount of insurance risk variable up to o Claims occur longer after issue – unanticipated exposures
policy limits are atypical;
• Risks re‐underwritten & re‐priced o Policy terminates when covered risk event occurs
annually or more frequently due to • $ amount of mortality/morbidity insurance coverage
dynamics of underlying risks; specified in the contract
• Contracts are cancellable with a refund, or • Risks not re‐underwritten or re‐priced annually or more
adjust for certain changes in exposure frequently; risks are not re‐underwritten during term
during the contract period • Primary performance metrics
• Primary performance metrics o Premiums
o Written & Earned Premiums o Return on Investment
o Claims & Claims Expense o Mortality/Morbidity Results
o Operating Expenses o Operating Income
o Underwriting Income or Loss • Important performance analytical tools
• Primary performance analytical tool o Margin analysis for Investments, Mortality and Morbidity
o Claim development table o Actual to Expected Experience
Underwriting Asset‐Liability
Business Model Note Business Model
• Apply UBM for measurement & Apply building block approach
reporting: as proposed by Interested
• Undiscounted UPR in Pre‐claim Parties Group
period
• Post‐claim reserves – no
discounting or risk margins
• Continuous remeasurement of
post‐claim reserves
• Require loss development table
Note
Notwithstanding the existence of the traditional UBM utilized throughout most of the world for property‐casualty insurance
contracts, several countries utilize both discounting and explicit risk adjustments in the measurement and presentation of
their property‐casualty insurance contracts. Consistent with a belief that no insurance reporting entity should be required to
measure and present their business and business results in a manner inconsistent with how they underwrite, manage, and
evaluate performance, these companies and their respective countries should be allowed to measure and present their
insurance business on discounted basis and incorporating risk adjustments consistent with their business model.
See “Measurement and Presentation of Insurance Contracts Based on the Insurer’s Business Model” for more
information on the UBM