IFRS 17 Update - AKTUARIS IFRS 17... · IFRS 17 Update 2nd Indonesian Actuaries Summit 21 April 2017 Kelvin Yap EY Actuarial Services, ASEAN

IFRS 17 Update

2nd Indonesian Actuaries Summit21 April 2017

Kelvin YapEY Actuarial Services, ASEAN

Confidential — All Rights Reserved — EY IFRS17: latest news, implications and challenges faced by insurers | 2

The objectives of today

To outline particular issues the Indonesian

industry may be face

To understand what other insurers are

doing

To outline the impact to the

insurance industry under IFRS17

To provide an overview of main

changes and rationale for

IFRS17

To discuss operational

challenges to insurers

1. Introduction

2. Key features of IFRS 17

3. Challenges of IFRS 17

4. Numerical Example

5. Implementation implications

Agenda

This material has been prepared for general informational purposes onlyand is not intended to be relied upon as accounting, tax, or otherprofessional advice. Please refer to your advisors for specific advice.

Introduction01


It is believed that the existing insurance contracts accounting does not provide investors, lenders and other creditors with the information they need to understand the financial statements of entities that issue insurance contracts or make meaningful comparisons between such entities.

Why are changes needed to Insurance Accounting?IFRS17 brings insurance more in line with other accounting standards

Does not always reflect the economic and risks in a timely manner

• Long duration contracts measured using outdated information (eg NPV)

• Economic risks such as options and guarantees embedded in insurance contract are not reflected (eg Minimum Surrender Guarantees)

• Time value of money is not reflected (eg GI Chain Ladder)

• Little information is given about the sources of profit reported in current period or expected in future periods (Analysis of Surplus)

Little or no Comparability between entities

• IFRS 4 allows entities to maintain their existing accounting practices

• Current FS not comparable (1) across insurers due to different reserving practices (NPV, GPV wo PAD, GPV w PAD); or (2) across industries, egBanking and Wealth Management even for similar products

Accrual accounting basis

• Information about underwriting activity is often reported on cash / cash-like basis even when services is delivered in a different period, “change in liability” item which is needed to reconcile cash-based amounts to the accruals-based result of the period


Simplified Example: Insurance vs Asset Management accountingIFRS17 results in a more comparable P&L vs other financial institutions

Insurance Company

IFRS 4 Phase 1 Year 1

Premium Income 10,000,000

Commissions (100,000)

Increase in Reserves (1,000,000)

Investment income on underlying items 250,000

Comprehensive Income 150,000

IFRS 17 Year 1

Insurance Contract Revenue 50,000

• Fulfilment cashflows 0

• Change in RA 0

• CSM amortization 30,000

• Acquisition cost 20,000

Amortisation of Deferred Acquisition Cost (20,000)

Incurred losses 0

Underwriting result 30,000

Investment income on underlying items 250,000

Interest expense on insurance obligations (250,000)

Net investment income 0

Other Comprehensive Income -


Asset Management Company

IFRS 15 (Revenue Recognition) Year 1

Revenue (from initial charge) 250,000

Distribution Costs (100,000)


Simplified Example

• 5 Year Single Premium Unit Link, $10,000,000

• Mutual Fund

• SPUL Initial Allocation of 97.5% OR

• Initial Charges of 2.5% (Asset Manager)

• Acquisition Cost of 1% ($100,000) which is DAC over 5 years

• Yr 1 UL Returns of 2.56% ($250,000)

• Ignore mortality, lapse

Note: IFRS 15 may require the initial charge to be spread out over several years if it is determined that the performance obligation is satisfied over time


The new standard is expected to improve financial reporting by providing more transparent and comparable information. The new standard is also seen as more in line with other IFRS standards for other industries.

A Standard that better meets the needs of financial statements users

Reflects the characteristics of the insurance contract rather than the risk

related to asset/investment activity

Single accounting approach

Provides up-to-date market consistent information of obligation

including value of options & guarantees

Treats services provided by underwriting activity as revenue and expenses in comparable way to other non insurance business

Provides separate information about the investment and underwriting performance

Reflects time value of money


IFRS 9 (Financial Instruments) and 17 (Insurance Contracts) are highly interdependent for insurers, hence timing of the standards is aligned by the IASB

Ongoing IASB deliberations Implementation period Reporting

IFR

S 1

7IF

RS

9 a

nd

15

Potential IFRS 17 Final standard

Potential IFRS 17 effective date 1 Jan 2021 (**)

Potential IFRS 17 start of comparative period (**)

IFRS 9 and IFRS 15 Effective date 1 Jan 2018 (*)

Possible IFRS 9 deferred implementation date

First IFRS 9 annual financial statements (*)

2016 2017 2018 2019 2020 2021

(*) IASB has proposed an option to either defer the effective date of IFRS 9 for insurers or to apply a temporary ‘overlay’ method to mitigate the PL impacts of IFRS 9

(**) Effective date tentatively set by IASB


Country IFRS 17 IFRS 9 Not adopting

aligned with IFRS delay in adoption aligned with IFRS delay in adoption

Indonesia Note 1 1 January 2019

Taiwan Note 1 Note 1

Thailand 1 year later than effective date of IFRS

1 January 2019

China Note 2

Malaysia

Sri Lanka

Laos Note 2 Note 2

Korea

Philippines

Japan Note 3

Adoption in Asia

Note 1 – Local GAAP has not decided the date of adoption, but we are expecting the date to be later than the effective date of IFRS.

Note 2 – possible adoption but effective date of local GAAP is not known as of now

Note 3 - IFRS is not applied mandatory in Japan, and insurance/financial instruments accounting of JGAAP are different from IFRS4/9. However, listed companies can use IFRS.

Key Features of IFRS 17

02


IFRS 17 EDKey areas of the proposed model will require Actuarial involvement

Separation

Definition and scope

Disclosure

Financial Instruments and other accounting changes

Reinsurance

Presentation /disaggregation

Transition

Expected value of future cash flows

Discount rate

Risk adjustment

Contractual service margin

Bu

ild

ing

blo

ck a

pp

roa

ch/

va

ria

ble

fe

e a

pp

roa

chP

rem

ium

allo

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on

a

pp

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ch Liability for remaining coverage

Risk adjustment

Discount rate

Cash flows of claim liability

Regulatory capital standards

Re

se

rve

s


A simplified statement of comprehensive income is presented below (when experience is similar to assumptions):

Sample P&L presentation: Term InsuranceInsurance Contract Revenue replaces Premium approach

Current IFRS 4

Year 1 Year 2

Premium Income 178,486 169,688

Claims & Expenses 252,685 105,090

Increase in Reserves - 44

Investment income on underlying items (156) 354

Comprehensive Income (74,355) 64,909

Future IFRS 17

Year 1 Year 2

Insurance contract revenue 308,183 183,461

• Fulfilment cashflows 223,437 105,090

• Change in RA 4,324 3,048

• CSM amortization 49,358 46,228

• Acquisition cost 31,064 29,094

Amortisation of acquistion cost (31,064) (29,094)

Incurred losses (223,437) (105,090)

Underwriting result 53,682 49,277

Investment income on underlying items 7,139 14,213

Interest expense on insurance obligations (12,852) (10,669)

Net investment income (5,713) 3,544

Other Comprehensive Income - -

Comprehensive Income 47,969 52,820

• Reserves are zeroised at the end of year 1

• Initial strain on surplus due to high acquisition expenses

• No initial strain, less volatile

• Underwriting results reflect changes in RA and CSM amortization when actual experience does not deviate from assumptions

• Drop in CSM amortization due to change in mortality assumptions

Actuarial Involvement


Contracts with no participation featuresGeneral model — overview

A component of the measurement of the insurance contract representing the unearned profit that the entity recognizes as it provides services

The compensation that an entity requires for bearing the uncertainty about the amount and timing of the cash flows

An adjustment that converts future cash flows into current amount

Expected cash flows from future premiums, expenses, claims and benefit payments

PV ofexpected

futurecash inflows

Fulfilment cash flows

An explicit, unbiased and probability-

weighted estimate (ie expected value) of the present value of the future cash outflows

less the present value of the future cash

inflows that will arise as the entity fulfils the

insurance contract, including a risk

adjustment

Risk adjustment

Time value of money

Future cash flows


Best Estimate Liabilities (BEL)

(very similar to GPV wo PAD)


Contracts with no participation featuresGeneral model – Future Cash Flows

• The estimates of CFs used to determine the fulfilment CFs shall include all cash inflows and outflows that relate directly to the fulfilment of the portfolio of contracts:

• Current and explicit (separate from discount rate and risk adjustment)

• Market variables as consistent as possible with observable market prices

• Incorporate all available information in an unbiased manner (including trends), eg Best Estimate

• Possibly use stochastic models if cashflows are asymmetric

• Include all CFs within contract boundary

Coverage period

Premium

Acquisitioncosts

Otherexpenses/taxes

Claimspayments

Ca

sh o

utf

low

sC

ash

in

flo

ws

Cash flows within contract boundary

Claims payments including claim handling cost

Premium

Time

Risk adjustment

Time value of money

Future cash flows



Contracts with no participation featuresGeneral model - time value of money

• Adjust the estimates of future cash flows for the time value of money using discount rates that:

• Reflects characteristics of fulfilment cash flows

• Consistent with observable market prices for instruments with cash flows that have consistent characteristics with insurance contract, e.g., with respect to timing, currency and liquidity

• Adjust observed market prices to reflect the characteristics of the liability/the factors that are relevant for the contracts, e.g., exclude irrelevant risks, estimate the rate beyond the period of observable data

• Consistent with other estimates used to measure the insurance contract (e.g., inflation, discount rate for participating contracts)

• Top-down approach or bottom-up approach

• Bottom Up approach possibly: Risk Free Rate + Illiquidity Premium

• No need to discount cash flows which are expected to be paid or received in one year or less (UPR)

• Together with the Future Cash Flow, this is commonly referred to as the BEL

Risk adjustment

Time value of money

Future cash flows



• Compensation that an entity requires for bearing the uncertainty about the amount and timing of the cash flows that arise as the entity fulfils the insurance contract

• RA shall be included in the measurement in an explicit way (i.e., uncertainty/PfAD should not be included in the Future Cash Flows)

• No prescribed technique so different companies may use different techniques

• Disclosure on the confidence-level is required if the entity uses a technique other than the confidence level

Contracts with no participation featuresGeneral model - risk adjustment

Risk adjustment

Time value of money

Future cash flows


Knowledgeabout current

estimateand trend

Durationof contract

Width ofprobabilitydistribution

Uncertaintydue to lack of

experience

Lowfrequency

but high riskseverity

Knowledgeabout currentestimate and

trendDuration of

contract

Width ofprobabilitydistribution

Uncertaintydue to lack of

experience

Lowfrequency

but high riskseverity

RiskAdjustment


• At initial recognition, the CSM is defined as the negative of fulfilment cash flow, floored by zero.

• Purpose of recognizing a positive initial CSM:

• To eliminate any day 1 gains (if initial Fulfilment Cash Flow is negative / CSM is positive)

• Represents the unearned profit that the entity will recognize in future, as it provides services under the insurance contract.

• If CSM is floored by zero at inception, the insurance contract is onerous. All loss should be recognized in P&L at inception

• Subsequently after day 1, future changes in assumptions and experience adjustments will affect the level of CSM, instead of flowing thru P&L

• The level of aggregation for determining CSM is therefore a key topic as it determines the cross-subsidy between different policies.

• Each cohort consists of:

• Similar product lines with similar risks (Whole Life, Annuities, …)

• Contracts issued within the same year

• Divided into the following groups at sale: Onerous (Loss Making), Profitable and no significant risk of being Onerous, Other Profitable Contracts

• This could have implications on:

• Cross-subsidy, for eg charging a single male / female premium rate

• Many separate CSM cohorts to track

Contracts with no participation featuresGeneral model - contractual service margin

Risk adjustment

Time value of money

Future cash flows



• Subsequently, the roll-forward calculation of CSM is summarized as follows:

• Locked-in interest rate at the inception of contract is used for accreting interest.

• An entity should recognise the remaining contractual service margin in profit or loss over thecoverage period in a systematic way that best reflects the remaining transfer of the services.For contracts with no participating features, the service represented by thecontractual service margin is insurance coverage that:

• Is provided on the basis of the passage of time; and

• Reflects the expected number of contracts in force

Contracts with no participation featuresGeneral model — contractual service margin

Risk adjustment

Time value of money

Future cash flows


CSM at the beginning of the reporting period

+ Accreted interest

— Amount recognised for services provided in the period

+/— Changes in the estimates of future cash flows (eg changes in mortality assumptions)

= CSM at the end of the reporting period


CSM at the beginning of the reporting period

+ Accreted interest

— Amount recognised for services provided in the period

+/— Changes in the estimates of future cash flows (egchanges in mortality assumptions)

= CSM at the end of the reporting period


Sample P&L presentation: Term InsuranceInsurance Contract Revenue replaces Premium approach

IFRS 17

Year 1 Year 2



• Change in RA 4,324 3,048



Amortization of acquisition cost (31,064) (29,094)









• Changes in assumptions does NOT affect UW result, as it is absorbed into CSM

BEL Expected Claims

Actual Claims Amounts


From Non-participating to Participating contractsGeneral Model and Variable Fee model


IFRS 17 proposed simplified accounting model overview(Applicable for policies with contract boundary <= 12 months)

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ild

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pp

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(B

BA

)P

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allo

ca

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ap

pro

ach

(P

AA

)

Pre-claims liability(unearned premium)

Liability for remaining coverage Liability for Incurred claims

Contractual Service margin

Expected future cash flows Expected future cash flows

Time value of money Time value of money

Risk adjustment Risk adjustment

Expected future cash flows

Time value of money

Risk adjustment


Impact of IFRS 9Aside from IFRS17, IFRS9 (Financial Contracts) will simultaneously come in force

• Fair value through other comprehensive income (FVOCI) no longer an election but the result of two tests (Single Project Professional Indemnity and business model)

• No available-for-sale (AFS) for equity securities; only irrevocable election (FVOCI with no recycling)

• Accounting mismatches

• Insurance liabilities oftenstill locked-in under current IFRS 4

Classification • All debt securities held at FVOCI

or amortised cost in scope of new expected credit loss (ECL) model

• Significant impact on large portfolio of commercial loans (banks)

• A number of systems, processes, governance changes required

• Significant reliance on the existing credit risk modelling capabilities

Impairment • Less rules based

• More economic hedging strategies qualifying for hedge accounting (e.g., aggregated exposures, risk components)

• Accounting for costs of hedging

• Significant disclosures to ‘tell the story’

Hedge accounting (micro)

Test both sides of the balance sheet to ensure IFRS 9 (assets) and IFRS 17 (liabilities) are consistent and do not result in any accounting mismatches

Challengesfor insurers

03


Main impact on life insurers

Performance reporting

• New concept of “Insurance Contract Revenue” very different from “Premium”

• P&L similar to an “Analysis of Surplus”, more complex than current accounting

• More stable P&L – changes to assumptions no longer affect CY P&L result but absorbed in CSM

Accounting for CSM

• Additional work to calculate CSM, including managing multiple groups (level of aggregation) and storage of initial interest rate

• CSM roll forward will need to be understood and explained,

Disclosures

• Significantly more information needs to be provided compared to current IFRS

• Additional processes and data are required to gather the disclosure information

Internal accounting systems

• New IFRS9 and IFRS17 processes and information to be recorded will involve substantial accounting and actuarial system updates

• For multinational groups may help with consistency —although US will be different


Main impact on Non-life insurers

Reserving

• Policies w. Term > 1 year will require using Building Block Approach (Similar to Life)

• Remove PAD - Moving to best estimates may make results more volatile

Discounting

• CF > 1 year will be required to be discounted

• Additional process work to determine time value of money (More significant for long-tailed liability insurers)

• Need to explain to stakeholders

Disclosures

• Additional process/effort

• More explicit margin information available for market for comparison across companies

Internal accounting systems

• Changes, in particular for longer duration liabilities

• New processes and information to be recorded will involve substantial system updates

• For multinational groups may help with consistency —although US will be different


Some additional areas of challenges for Indonesian (life) insurers

Revenue recognition

• Many contracts are Unit Link with contain a large investment component (RPUL, SPUL)

• Investment components will be stripped out, which will have a material impact on “revenue”

Measurement model

• Insurers will have to use a VFA model for Unit Link contracts. This is different from the current Unit Reserve / UPR Non Unit Reserve approach and require enhancement

• Determination of “current discount rate” might be challenging due to lack of market data, and may result in multiple approaches

• This is different from the current GPV discount approach

Regulatory changes

• The IFRS 17 model is different compared to Tax, OJK regulations

• Parts of current Indonesian GPV / RBC models can be used for the new IFRS-17, such as BEL, RA, DAC, experience studies

• Some components are new, such as CSM and Insurance Contract Revenue

• OJK / Tax / PSAK regulations may differ significantly from IFRS 17, forcing insurers to report on multiple bases

• Actuaries will be in high demand.

• In addition to Liabilities, actuaries will also be involved in Revenue Recognition

• We need to work together with accountants to implement the necessary changes.

• Actuarial Systems (Prophet/MoSes) and Finance Systems (SUN/Oracle) will both have to be enhanced

Numerical Example

04


Case study: background

Presentation title

Term product sold in Singapore, pure protection with death and TPD coverage

Total 132 policies incepted since January 2016

No future new business

First valuation at the end of 2016

Approach

All policies are considered homogeneous, hence CSM is aggregated at product level

Amortization of CSM is performed at product level by remaining coverage and number of policies in force

Risk adjustment is set similarly as PAD under current Singapore RBC framework

Economic assumptions remain unchanged for same calendar year

Accretion of interest is calculated based on lock-in yield curve of 2016 at product level

Changes related to future estimates are adjusted directly to CSM


At inceptionInsurance contract liabilities are equal to zero at inception

Contractual

Service MarginExpected contract profit

Best estimate liability

Risk adjustment

= -+

BEL = - 713

RA = 250

CSM = 463

Insurance contract liability = BEL + RA + CSM = 0


InceptionProjected end Year

1Experienceadjustment

Change in non-economic

assumptions

BEL (713) (769) (799) (757)

RA 250 246 255 289

CSM 463 415 435 359

ICL - (109) (109) (109)

463 415 435

359

-

(109) (109)

(109)

Term product (Year 1)Inception Projected

end Year 1

Change in

non-economic

assumption

Experience

adjustment

Analysis:

► CSM is expected to reduce to 415 at the end of 2016 due to amortization

► More contracts remaining in-force at the end of 2016 have resulted in higher CSM than expected (i.e. 435 vs 415)

► Heavier mortality assumption has resulted in lower CSM in order to maintain the level of ICL

► Overall insurance contract liabilities remain unchanged

Scenario 1: changes related to future estimates Changes related to future estimates are absorbed by CSM

► At the end of year 1 (31 Dec 2016)

► The company expected 126 policies to remain in force mainly due to lapse

► In fact, 130 contracts remain in force at the end of 2016.

► This is due to good lapse experience but worsening mortality experience.

► The company has decided to revise mortality assumptions to be heavier at the end of 2016.



Sample P&L presentationInsurance contract revenue replaces premium approach

Current

Year 1 Year 2

Premium Income 178,486 169,688

Claims & Expenses 252,685 105,090

Increase in Reserves - 44

Investment income on underlying items (156) 354

Comprehensive Income (74,355) 64,909

IFRS 4 Phase 2

Year 1 Year 2



• Change in RA 4,324 3,048



Amortisation of acquistion cost (31,064) (29,094)








• Reserves are zeroised at the end of year 1

• Initial strain on surplus due to high acquisition expenses

• No initial strain, less volatile


• Drop in CSM amortization due to change in mortality assumptions


Sample profit signatureSmoother profit signature under IFRS 4 phase 2

(100)

(80)

(60)

(40)

(20)

-

20

40

60

80

100

120

Y1 Y6 Y11 Y16 Y21 Y26 Y31 Y36 Y41 Y46 Y51 Y56 Y61 Y66 Y71 Y76 Y81

Comparison of profit signature

Current IFRS 4 Phase 2


Some practical challenges we encountered

► Availability / granularity of historical data

► Defining homogeneity and grouping of policies (“Level of Aggregation”)

► Ability to capture historical data for all periods in storage element Data

Assumptions

► Setting of assumptions which are not required under the current RBC framework, e.g. split acquisition expense by directly attributable vs non-directly attributable, liquidity premium, risk adjustment, etc

► Storage of locked-in economic assumptions for all historical years (for CSM)

► Storage of non-economic assumptions for previous period

► Interest accreting rate basis – forward rate?

Calculation Mechanism

► Asymmetrical treatment of CSM due to experience change

► Aggregate level calculation complexity – CSM amortization, accreting interest, etc

► Onerous contract treatment and its subsequent measurement

► Discounting approach – forward or shifted spot rate?

Implementation implications

05


IFRS 17/IFRS 9 High Level RoadmapInvolve both Actuaries and Accountants

2017 2018 2019 2020 2021

Potential IFRS 4 Phase II final standard

Jan 2018IFRS 9 effective date*

Jan 2020Potential IFRS 4

Phase II start of comparative period

Q1 2021Potential IFRS 4

Phase II first reporting

• Central and local team structure

• Program governance: decision making and technical support

• Work streams and overall plan

• Budget assessment

• Business case

• Impacts on statements and accounting policies, reporting and other processes of Risk and Finance, data and technology

• 2nd analysis when final ED available

1

2

• Big bang, incremental or minimum efforts

• Accounting & reporting choices

3

• Deep dive analysis in key areas

• Unit of account

• Participating contracts

• Enrichment policy data

• Central vs. local approach

• Adjustment cash flow models

• Implementation strategy

• Impact on processes

• Assessment of data gaps and system changes

4

• Depends on general implementation vision and deep dive analysis

5

• New data gathered, validated and stored

• System changes built (reports & engines)

• Training of Finance, Risk and other personnel

6

• Preparation of opening equity adjustments and comparative information (IFRS 4 Phase II and IFRS 9 elements)

7

• Dry run of IFRS 4 Phase II and IFRS 9 reporting elements on 30 June 2019 numbers

8

Highlevel impact analysis

General imple-mentation vision

Design smart tailored solution

Solution implementation Dry run Restatements and comparatives

Program set up

1 2 3 5 6 7 8

Selected deep dive analysis

2nd

impact analysis

4 2

Full phase II reporting


The themes of analysis we observe ..

… to ensure an optimal implementation strategy Potential bottlenecks

1. Starting question to be analyzed is the unit of account at which reporting will take place

What is the unit of account:

• Loss recognition

• CSM allocation

Given the unit of account, which historically information will be available:

• Transition: Fully retrospectively, Moderate retrospectively, Fair Value, participating contracts

• Current design for IFRS/EEV/RBC is not appropriate for the level of granularity required for IFRS 4 (unit of account) — data — models — reporting.

• Additional storage and enhancements to actuarialsystems will be required

• At transition date a number of legacy source systems will exist, which could impact the unit level of account.

2. Analyze how to treat participation and unit link contracts

• Which contracts fit within the variable fee model?

• How to apply BBA for indirect participating contract?

• How to treat company profit sharing?

Within some insurers different types and variations in profit sharing exist for and within different products. All these types of profit sharing (and their variations) should be analyzed.

3. Analyze different ways to enrich (policy) data (depending on unit of account)

Enrichment of data could take place at different places:

• Source systems

• Data warehouse

• Companies should determine first whether the ‘optimal’ solution is to enrich data and results in the source systems or within data warehouses.

• Although the optimal solution could be source systems, probably some legacy systems can’t adjusted in an appropriate way.

• A hybrid approach could affect auditability.

4. Analyze the pros and cons of centrally (finance) or locally (actuarial) driven solutions

• The pros and cons should be analyzed in different areas: data, models, output, tools (e.g., reporting tools (CSM), general ledger.

• It should also be analyzed whether a hybrid approach is feasible (including pros and cons).

In the centrally finance driven solution, more functionality is necessary with the General Ledger. This functionality is currently not available.

EY has helped clients perform initial Gap analysis on a number of themes around IFRS17, to help clients prepare for the change


The themes of analysis we observe …

… to ensure an optimal implementation strategy Potential bottlenecks

5. In which way should the cash flow models (egProphet) and reporting (output) be adjusted?

• Requirement regarding cash flow models and reporting tools

• How could (source) systems, models and reporting tools be adjusted to required output?

• What are the criteria regarding target architecture (how much manual effort is acceptable)?

Current IFRS/EV/RBC models are not sufficient to meet the requirements for IFRS4 (speed — interaction — level of output necessary).

6. Which implementation strategies can be identified?

Based on the outcome of the previous steps, the following questions should be answered:

• Is the implementation strategy dependent on the unit of account

• Which implementation steps should be performed sequentially or in parallel

• In which way can be leveraged on previous projects optimization?

The number of products, source systems, models complicate the choice (s) regarding the implementation strategy.

7. What is the impact on the processes (including controls) under the different implementation strategies?

• What is the optimal process (depending on the implementation strategy)?

• Which (new) risks and controls should be defined. Which current risks and related controls could be removed?

• Which part of the process could be outsourced?

Including extra risks and controls in the closing path because of IFRS17 reporting without reducing the current risks and controls, will severely impact the manageability of the process.

8. What accounting changes need to be considered?

• Accounting choices will need to be made and updated policies will need to be formalised.

• Examples include whether to accrete interest on liabilities through OCI or P&L, when to apply BBA, PAA, VFA, Contract Boundaries, Onerous Contracts.

Prophet models to be updated to allow for changes to liability valuation methods and accounting policy decisions.

EY has helped clients perform initial Gap analysis on a number of themes around IFRS17, to help clients prepare for the change


Pros

Cons

Incremental approach

Big Bang approach

Potential approaches for implementing IFRS 4 Phase II

Minimum efforts approach

01 02 03• Only implement those changes that are

unavoidable• All lines of businesses and processes are

migrated to new system in a single operation

• Redesign the existing modelling infrastructure and process

• Focus on the changes that benefit the existing process

• Step by step process by which the existing infrastructure is amended towards the desired infrastructure

• Easiest to implement

• Built primarily on SII/RBC approach

• Minimal investment required

• Opportunity to implement the most efficient system setup

• Benefits of migration are realized immediately

• Build upon SII/RBC efforts

• Higher flexibility of the implementation process (easier to prioritize key bottlenecks)

• Can be broken down in subprojects to make it more manageable

• Lower critical path risk

• Potentially does not fit the current reporting timelines

• Inefficient system setup

• Likely to have considerable manual steps, resulting in higher cost and higher risk of errors

• More complex setup leads to complex audit trail

• Complexity of the process leads to major implementation risks

• Huge upfront cost

• Critical path risk

• Takes longer to realize benefits from migration

• Risk of a less (cost) efficient project

For more information, please contact:

Thank You!

Kelvin Yap, FIAAssociate Director Actuarial [email protected]+65 6309 6203

Ponno Jonatan, FSAISenior ManagerPerformance [email protected]+62 21 5289 5307

Sumit Narayanan, FIAPartnerAdvisory [email protected]+65 6309 6452


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EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

© 2017 Ernst & Young Advisory Pte. Ltd.All Rights Reserved.

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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IFRS 17 Update - AKTUARIS IFRS 17... · IFRS 17 Update 2nd Indonesian Actuaries Summit 21 April 2017 Kelvin Yap EY Actuarial Services, ASEAN