IFRS 17 desgin of the process, presentation for IAJ

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

Goal of presentation
Present insights and useful ideas
Share my experience in designing
IFRS 17actuarial processes
Indicate challenges and possible
solutions
The focus will be on what actuarial model must
produce to deliver data required by subledger.

AoC required
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.

Data requirements
We divide it into the following groups:
a) Expected cashflows from previous period
b) Coverage Units (“CU”) at Beginning of the Period (“BoP”) and at the End of the Period (“EoP”)
c) Best Estimate of Liabilities (“BEL”) for different steps of Analysis of Change (“AoC”) at locked rates (“@LR”) & at
current rates (“@CR”)
d) Risk Adjustment (“RA”) for different steps of AoC
e) Liability of Incurred Claims (“LFIC”) for different steps of AoC split between Best Estimate (“BE”) and RA
component
f) Time Value of Option and Guarantees at Beginning of the Period (“BoP”) and at the End of the Period (“EoP”)
g) Actual Cashflows in the period
h) Book Values (“BV”) and Market Values (“MV”) 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.

Data requirements

Process overview
Cashflows & BEL
Risk Adjustment
Preparation of IFRS
17 Modelpoints
IFRS 17
subledger
Policy Data
DB
Accounting data
Results DB

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

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?

$
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

This is the algorithm of the method we implemented to our clients:
The functionality works as follows:
Step 1. Calculate BEL(𝐵𝐸𝐿), PV of Benefits (PVBen), and PV of Expenses (PVExp )
Step 2. PV of Cashflows after sensitivity 1 as follows:
𝐵𝐸𝐿𝑠𝑒𝑛𝑠𝑖1 = 𝐵𝐸𝐿 − PVBen + PVBen ∗ 𝐵𝑒𝑛𝑆𝑒𝑛𝑠𝑖1 − PVExp + PVExp ∗ 𝐸𝑥𝑝𝑆𝑒𝑛𝑠𝑖1
Step 3. PV of Cashflows after sensitivity 2 as follows:
𝐵𝐸𝐿𝑠𝑒𝑛𝑠𝑖2 = 𝐵𝐸𝐿 − PVBen + PVBen ∗ 𝐵𝑒𝑛𝑆𝑒𝑛𝑠𝑖2 − PVExp + PVExp ∗ 𝐸𝑥𝑝𝑆𝑒𝑛𝑠𝑖2
Condition Profitability bucket
𝐵𝐸𝐿 ≥ 0 𝑜𝑟 𝐵𝐸𝐿𝑠𝑒𝑛𝑠𝑖1 ≥ 0 Onerous
𝐵𝐸𝐿𝑠𝑒𝑛𝑠𝑖1 < 0 𝑎𝑛𝑑 𝐵𝐸𝐿𝑠𝑒𝑛𝑠𝑖2 ≥ 0 Other
𝐵𝐸𝐿𝑠𝑒𝑛𝑠𝑖2 < 0 NSPO
Step 4. Allocate to profitability buckets as follows:

Risk Adjustment
The one year VaR method:

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
*
=

Risk Adjustment
What does it mean from process perspective:
step ra_run_name run_no_base run_no_disa_dn run_no_disa_up run_no_expe_dn run_no_expe_up run_no_mort_dn run_no_mort_up run_no_surs_dn run_no_surs_up
RA_CR_at_Previous_Period 19q4_ra 37 38 39 40 41 42 43 44 45
RA_CR_Expected 19q4_ra 37 38 39 40 41 42 43 44 45
RA_CR_Change_in_non-financial_risks 20q4_ra 1 2 3 4 5 6 7 8 9
RA_CR_Change_in_financial_risks 20q4_ra 10 11 12 13 14 15 16 17 18
RA_CR_Change_in_discretion 20q4_ra 19 20 21 22 23 24 25 26 27
RA_CR_NB 20q4_ra 28 29 30 31 32 33 34 35 36
RA_CR_change_in_FX 20q4_ra 37 38 39 40 41 42 43 44 45
RA_LR_at_Previous_Period 19q4_ra 37 38 39 40 41 42 43 44 45
RA_LR_Expected 19q4_ra 37 38 39 40 41 42 43 44 45
RA_LR_Change_in_non-financial_risks 20q4_ra 1 2 3 4 5 6 7 8 9
RA_LR_Change_in_financial_risks 20q4_ra 10 11 12 13 14 15 16 17 18
RA_LR_Change_in_discretion 20q4_ra 19 20 21 22 23 24 25 26 27
RA_LR_NB 20q4_ra 28 29 30 31 32 33 34 35 36
RA_LR_change_in_FX 20q4_ra 37 38 39 40 41 42 43 44 45
Cashflows & BEL
Risk Adjustment

Risk Adjustment
Run dependent table to calculate BELs per AoC step and per shock:

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: 𝐶𝐿𝑛−𝑦𝑒𝑎𝑟𝑙𝑦 = 1 − (𝑛 ∗ 1 − 𝐶𝐿𝑦𝑒𝑎𝑟𝑙𝑦 )
for n = 40 & 𝐶𝐿𝑦𝑒𝑎𝑟𝑙𝑦 = 99.5%→𝐶𝐿𝑛−𝑦𝑒𝑎𝑟𝑙𝑦 = 1 − (40 ∗ 1 − 0.995) = 80%

Important links.
Our home page
• https://www.4actuaries.com/
4i17 solution page
• https://www.4i17.com/
Elearnings
• https://www.ifrs17elearning.com
4actuaries.academy
• https://www.4actuaries.academy/
Our LinkedIn profile
• https://www.linkedin.com/company/30736855
4cfl solution page
• https://www.4cfl.live/
4Res.T solution page
• https://4res-t.com/

Looking forward to
hear from you!
™

IFRS 17 desgin of the process, presentation for IAJ

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