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IFRS 17 desgin of the process, presentation for IAJ
1. The design of the IFRS 17 actuarial process.
The presentation for Institute of Actuaries of Japan
4actuaries.com, presentation for the Institute of Actuaries of Japan
2. Goal of presentation
Present insights and useful ideas
Share my experience in designing
IFRS 17actuarial processes
Indicate challenges and possible
solutions
4actuaries.com, presentation for the Institute of Actuaries of Japan
The focus will be on what actuarial model must
produce to deliver data required by subledger.
3. AoC required
4actuaries.com, presentation for the Institute of Actuaries of Japan
Aoc Step Description
1 Beginning of Period/Expected
2 Change in non-financial risks
3 Change in financial risks
4 Change in discretion
5 New Business
6 End of period (change in FX)
We assume there are 6 steps of minimum AoC:
Expected step is the same step as Beginning of
Period but values are read from time step 1 not 0.
4. Data requirements
We divide it into the following groups:
a) Expected cashflows from previous period
b) Coverage Units (βCUβ) at Beginning of the Period (βBoPβ) and at the End of the Period (βEoPβ)
c) Best Estimate of Liabilities (βBELβ) for different steps of Analysis of Change (βAoCβ) at locked rates (β@LRβ) & at
current rates (β@CRβ)
d) Risk Adjustment (βRAβ) for different steps of AoC
e) Liability of Incurred Claims (βLFICβ) for different steps of AoC split between Best Estimate (βBEβ) and RA
component
f) Time Value of Option and Guarantees at Beginning of the Period (βBoPβ) and at the End of the Period (βEoPβ)
g) Actual Cashflows in the period
h) Book Values (βBVβ) and Market Values (βMVβ) of assets and investment income in the period
i) Equity positions: Share Premium, Share Capital etc.
The position g), h) and i) are delivered by accounting department so here we will just explain at which stage this data
shall be provided in the process.
4actuaries.com, presentation for the Institute of Actuaries of Japan
5. Data requirements
We divide it into the following groups:
4actuaries.com, presentation for the Institute of Actuaries of Japan
6. Process overview
We divide it into the following groups:
Cashflows & BEL
Risk Adjustment
Preparation of IFRS
17 Modelpoints
IFRS 17
subledger
Policy Data
DB
Accounting data
Results DB
4actuaries.com, presentation for the Institute of Actuaries of Japan
7. IFRS 17 profitability bucketing requirement
NSPO*
Other
Onerous
NSPO* - No Significant Probability of becoming Onerous
It should be reliable but at the
same time as easy as possible to
implement
There is no specific requirement
on the algorithm
New Business
modelpoints
8. IFRS 17 profitability bucketing in practice
$
BEL
0
Onerous
$
BEL
0
???
It is easy when BEL is on the safe side
But what to do if not?
4actuaries.com, presentation for the Institute of Actuaries of Japan
9. IFRS 17 profitability bucketing in practice
$
BEL
small
shock
0
NSPO
BEL
BEL
big
shock
$
BEL
small
shock
0
Other
BEL
BEL
big
shock
$
BEL
small
shock
0
Onerous
BEL
BEL
big
shock
4actuaries.com, presentation for the Institute of Actuaries of Japan
10. IFRS 17 profitability bucketing in practice
This is the algorithm of the method we implemented to our clients:
The functionality works as follows:
Step 1. Calculate BEL(π΅πΈπΏ), PV of Benefits (PVBen), and PV of Expenses (PVExp )
Step 2. PV of Cashflows after sensitivity 1 as follows:
π΅πΈπΏπ πππ π1 = π΅πΈπΏ β PVBen + PVBen β π΅ππππππ π1 β PVExp + PVExp β πΈπ₯πππππ π1
Step 3. PV of Cashflows after sensitivity 2 as follows:
π΅πΈπΏπ πππ π2 = π΅πΈπΏ β PVBen + PVBen β π΅ππππππ π2 β PVExp + PVExp β πΈπ₯πππππ π2
Condition Profitability bucket
π΅πΈπΏ β₯ 0 ππ π΅πΈπΏπ πππ π1 β₯ 0 Onerous
π΅πΈπΏπ πππ π1 < 0 πππ π΅πΈπΏπ πππ π2 β₯ 0 Other
π΅πΈπΏπ πππ π2 < 0 NSPO
Step 4. Allocate to profitability buckets as follows:
4actuaries.com, presentation for the Institute of Actuaries of Japan
11. Risk Adjustment
The one year VaR method:
4actuaries.com, presentation for the Institute of Actuaries of Japan
12. Risk Adjustment
What does it mean from process perspective:
Cashflows & BEL
Risk Adjustment
Mapping table for
shocked BELs
6 AoC steps
4 shocks up & down + base = 9
45 runs
*
=
4actuaries.com, presentation for the Institute of Actuaries of Japan
14. Risk Adjustment
Run dependent table to calculate BELs per AoC step and per shock:
4actuaries.com, presentation for the Institute of Actuaries of Japan
15. Risk Adjustment disclose confidence level
This is the algorithm of the method we implemented to our clients:
The confidence level must
be a multi-year confidence
level, not a yearly one as for
SII
SII 99.5%
yearly
Not satisfying IFRS
17 requirement!
Formula: πΆπΏπβπ¦πππππ¦ = 1 β (π β 1 β πΆπΏπ¦πππππ¦ )
for n = 40 & πΆπΏπ¦πππππ¦ = 99.5%βπΆπΏπβπ¦πππππ¦ = 1 β (40 β 1 β 0.995) = 80%
4actuaries.com, presentation for the Institute of Actuaries of Japan
16. Important links.
Our home page
β’ https://www.4actuaries.com/
4i17 solution page
β’ https://www.4i17.com/
Elearnings
β’ https://www.ifrs17elearning.com
4actuaries.academy
β’ https://www.4actuaries.academy/
Our LinkedIn profile
β’ https://www.linkedin.com/company/30736855
4cfl solution page
β’ https://www.4cfl.live/
4Res.T solution page
β’ https://4res-t.com/
4actuaries.com, presentation for the Institute of Actuaries of Japan
17. Looking forward to
hear from you!
4actuaries.com, presentation for the Institute of Actuaries of Japan
β’