Deloitte PowerPoint template ENG - mig-events.com · BEL, CSM and Risk Adjustment Prophet Module ... We are one of the leading professional services providers with 22 offices in Beijing,

Deloitte Tools

Prophet IFRS4 Phase 2 Mini Library

Simon Walpole

Insurance Industry Leader, Hong Kong

Revisiting our Financial Architecture

© 2015. For information, contact Deloitte China. 2

Asset

HiPortfolio /

Portia

Actuarial

Prophet

Market Data

Policy Admin

Life Asia / Polisy /

eBao

General Ledger

Group Reporting

Hyperion

Actuarial Model as part of the overall architecture

SAP Insurance Analyzer

Source Data Layer

Process & Method Layer

Results Data Layer

Analytics Layer

Financial Data Warehouse

Investments

Claims

Sales

Financials

Risk

Analytics

QlikView / Tableau

Overview

Prophet Module

Scope of Methodology

Exposure Draft

Staff Papers

Deloitte interpretation

Scope of Calculations

Non-par business

In force and new business

Balance sheet (including OCI)

P&L (new and traditional formats)

Transition (back-casting)

Components

Specification documentation

Policy-level calculation module

Cohort-level calculation module

Checking spreadsheets

User manual

© 2015. For information, contact Deloitte Consulting (Hong Kong) Limited. 3

Prophet Module Model Structure

Q product

Accumulation

C products

Cohort-level calculations: CSM

One product with array variables to perform calculations at the portfolio level

Aggregation

Use array variables to aggregate required results at the portfolio level

Policy-level calculations: BEL, RA, CSM run-off components

Use calculation loops to calculate BEL and PV service measure under different non-

economic assumptions and discount rates


BEL, CSM and Risk Adjustment

Prophet Module

Flexible coding layer to link standard and tailored cashflows to new code

Builds on top of standard Sungard libraries

Similar level of integration work needed as for Prophet US GAAP modules

Assumption management - retains style of the standard library

Use of input variables for different assumptions

Standard naming convention throughout

New parameter table provided for IFRS assumptions

Calculation loops

Ensures consistent code across each calculation of BEL, PV service measure and Risk Adjustment

under different assumption sets

Standard example of Risk Adjustment

Cost of capital approach, where the capital can be tailored (example uses Solvency II capital)

Management of yield curves

Leverages standard code, supports current and locked in curves at a given valuation date (historic

or future)


CSM Unlocking, Loss Recognition and OCI Solution

Prophet Module

CSM unlocking at portfolio level

Main CSM calculation is performed in an IFRS summary product at the portfolio level

A flag in the model point is used to allocate policies to portfolios

The initial CSM as a % of PV service measure may be a table input or calculated using the

backcasting functionality

Recognition and reversal of losses through CSM

Supports latest IASB tentative decision to allow for losses or recovery of losses on onerous

contracts

If the CSM is floored at zero, the negative balance is tracked and run off in line with the PV service

measure

For ease of implementation, the model performs all calculations allowing the CSM to be negative

and then applies the floor to the final reported value

Optional OCI solution

Since the use of OCI is optional, a switch is supplied to enable or disable it.

The only balance sheet items affected are the OCI balance and the final IFRS liability – all other

calculations use common code whether or not the OCI solution is used.


Policy Data

Risk Adjustment

BEL

CSM % of service

measure

Backcasting

Prophet Module

A pragmatic approach to transition, taking into account available historic data

The inforce model points as at the transition date are the starting point.

Policy data and values are projected backwards, "backcast", to the inception date of the policies

using realised assumptions

Using cashflows based on the backcast policy data and the same historic assumptions, a BEL is

determined at the point of sale (PoS) of the policy.

Risk Adjustments are calculated at the beginning of the restatement period and are held constant

for prior periods

CSM is then determined at the PoS as the negative of the sum of the BEL and RA


Inception

Date Beginning of

comparatives

Transition

Date

Backcast

assumption Backcast assumption

System Demo

8

IFRS_GRSPROF


• This is to show the calculation of profit, in traditional format though.

• Will continue to develop the library to cope with the newly proposed presentation format

IFRS_LIAB_NA_OD


• To show the building blocks of the IFRS reserve

OCI


• To show OCI is the difference of the IFRS liability under old and new discount rates.

• OCI together with the IFRS Gross Profit will become the Total Comprehensive Income (TCI)

IBC_CSM_AT_S


• Use the back-casting to estimate the CSM at the point of issue, which is the negative of the

sum of BEL and risk adjustment

CSM_ADJ


• To demonstrate that CSM is used to absorb the variance in the BEL and risk adjustment

when there is assumption change

IFRS_INVCOMP_DTH


• To show that the model is able to split the investment component

IFRS_INVCOMP_PP


• Currently the investment component is equal to the present value of future surrender outgo

• Can be easily changed after discussion with clients

IFRS Liability before Assumption Change


• A demo to show how each component of the IFRS liability will change when there is a

change in non-economic and economic assumptions

Prophet Demo with Assumption Change


• To show the change in the following two assumptions:

• Renewal expenses [Table Param_IFRS] (from 17 to 21)

• Discount rates [Table Scenarios] (from 4 to 5)

Prophet Demo with Assumption Change


• Prophet Run


• To show the change in the following two assumptions:

• Renewal expenses [Table Param_IFRS] (from 17 to 21)

• Discount rates [Table Scenarios] (from 4 to 5)

IFRS Liability after Assumption Change

Wrap-up

Prophet Module

Field-testing ready

Full in-force portfolios, not just new business

Fully specified – beyond just the theory

Next steps

HK par and discretionary DPF (including ALM elements)

Par, unit-linked and other updates to the ED / staff papers


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Deloitte PowerPoint template ENG - mig-events.com · BEL, CSM and Risk Adjustment Prophet Module ... We are one of the leading professional services providers with 22 offices in Beijing,