Understanding Accounting and Reporting Gaps in the Insurance Industry

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IFRS 17

Understanding Accounting and Reporting

Gap Analysis

CTPRIMA Asosiasi Asuransi Umum Indonesia

(AAUI)

9 November 2021

Dr.Ludovicus Sensi W, CPA, CA

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Agenda

1 Review Previously Topic of IFRS 17

▪ Implication to Management and Stakeholders

▪ Financial Accounting and Reporting Process

▪ Changes in FS Presentation and Disclosure

▪ Improve Financial Reporting

▪ Key focus area of the standard

▪ Measurement Model

▪ Separate Component

▪ Level of Aggregation

▪ Building Block Approach

▪ Exercise

▪ Premium Allocation Approach

▪ Exercise

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Page 2

Agenda

2 Financial Accounting and Reporting Aspects

▪ Business Process and Control in Detail

▪ Accounting Policy Framework

▪ Chart Of Account

▪ How Does IFRS Impact?

▪ Recognition

▪ Measurement

▪ Presentation

▪ Disclosure in Detail

▪ IFRS 17 Financial Accounting Gap Analysis 3 More Understanding Reinsurance Contract

▪ Reinsurance Gap Analysis

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REFERENCE

◼ Insurance Contracts Accounting Standard AASB 17- Issued by Actuary Institute September 2017

◼ IFRS 17 Challenges, Seminar ISEA September 2021, Presented by Palti FTH Siahaan

◼ IFRS 17 for life Insurers June 2018– issued by Ernst & Young Global Limited, a UK Company limited.

◼ IFRS 17 Audit Committee Training Great Eastern Holdings Limited and Subsidiaries July 2019 - issued by Ernst & Young Global Limited, a UK Company limited

◼ IFRS 17: The First Truly International IFRS July 2017– issued Sue Lloyd – IASB

◼ IFRS 17: The First Truly International IFRS – issued Mehul Dave – Director of Actuarial & Insurance Solution, Deloitte Singapore.

◼ KPMG Insurance Contract July 2020 – Illustrative Disclosure for Insurer Guide to annual financial statement IFRS 17 and IFRS 9, September 2020 Edition

◼ KPMG Insurance Contract First Impression: 2020 Edition IFRS 17

◼ Angie Ng - Head of Technology & Software Insurance Consulting And Technology Willis Towers Watson, Singapore

◼ IFRS 17 Implementation by General Insurers in Singapore – Issued by Mehul Dave, Chair of IFRS 17 GI Working Party, 17 January 2020.

◼ PwC Insurance Contract June 2021, An illustration Financial statements presentation and

disclosure.

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CTPRIMA Section 1

Review previously Topic of IFRS 17

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Actuarial

Accounting

IT Systems &

Processes

KPIs Human

Resources

IMPLICATION TO MANAGEMENT AND STAKEHOLDERS

IFRS 17 / IFRS 9

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Business Process

• Marketing

Financial Accounting and Reporting Progress

Recording Classifying Summarizing

Presentation of Financial Statement (Assertion)

• Completeness

• Existence

• Right and Obligation

• Valuation and allocation

• Presentation and Disclosure

Financial Statement

• SOFP (BS)

• SOCI (IS)

• Statement Of Cash Flow

• SOCIN Equity

• Notes to Financial Statement

GAAP / IFRS 17

• Underwriting

• Reinsurance

• Claim Management

• Investment

• Other

• Tax Office

• OJK

• Stakeholder

• Other

• Management

• Employee

• Other internal user EXTERNAL USER

INTERNAL USER

FINANCIAL ACCOUNTING AND REPORTING PROCESS

Information for IFRS 17 Requirement

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CHANGES IN FS PRESENTATION AND DISCLOSURE

Net earned premiums

Interest, dividend and other investment income Incurred claims and benefits

Change in provisions Profit or loss

Key Changes :

▪ Two drivers of profit presented separately

▪ Insurance revenue excludes deposits [written premiums disclosed in the notes]

▪ Revenue and expense are recognized as earned or incurred

▪ Insurance finance expenses are excluded from insurance service result and are presented (i) fully in P&L or (ii) in P&L and OCI, depending on accounting policy

IFRS 17

Total comprehensive income

Discount rate changes on insurance liability (optional)

Insurance revenue

Insurance services expense Incurred claims and expense Acquisition costs

Gain/loss from reinsurance Insurance service result Investment income

Insurance finance expense Net financial result

Profit or loss

IFRS 17 IFRS 4 Statement of Comprehensive Income

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CHANGES IN FS PRESENTATION AND DISCLOSURE (CONT’D) Statement of Financial Position

Assets

Reinsurance contract assets Insurance contract assets

Liabilities

Insurance contracts liabilities Reinsurance contracts liabilities Assets

Reinsurance contract assets

Deferred acquisition costs Premiums receivable

Policy loans

Liabilities

Insurance contracts liabilities Unearned premiums

Claims payable

IFRS 17 IFRS 4

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IMPROVE FINANCIAL REPORTING

Assumptions used in the valuation of insurance contact liabilities reflect 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 and guarantees

Underwriting revenue and expenses are

recognised over time

in comparable way to other non insurance business

Provides separate information about the

investment and underwriting performance

Reflects time value of money

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KEY FOCUS AREAS OF THE STANDARD

Disclosure

Financial instruments and other accounting changes

Contractual service margin Risk adjustment

Discount rate Expected value of future

cash flows Building block approach/ variable feeapproachPremiumallocation approach Liability for

remaining coverage

Risk adjustment Discount rate

Cash flows of claim liability

Risk-Based Capital (RBC)

Separation Component Definition and scope Insurance Contract

Reinsurance Presentation / Disaggregation

Transition

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KEY FOCUS AREAS OF THE STANDARD

(1-9)

(10-13)

(14-24)

(38-39)

(37) (36) (33-35)

(53-59)

(60-62)

(40-46) (47-52) (71) (80-92) (83-86)(87-92)

(29-32) (72)

(74-77)

(97-116)

(117-120)

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MEASUREMENT MODELS

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Accounting under IFRS 17, disaggregation for presentation in income statement notes

1 Disaggregation is the exclusion of an unseparated investment component from insurance contracts revenue

SEPARATED COMPONENTS

Accounting under IFRS 17

Insurance components

Non-distinct

investment components Distinct investment components

Embedded

derivatives, which are not closely related

Distinct performance obligation to provide

goods and services

Separation

Disaggregation¹

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LEVEL OF AGGREGATION

Portfolio

Contracts not onerous at inception

Onerous contracts at

inception

No significant possibility of

becoming onerous Other profitable

contracts

Portfolio = A group of contracts (a) subject to similar risks (b) managed together

Assessment based on:

(a) Likelihood of changes in estimates which, if they occurred, would result in the contracts becoming onerous

(b) Using internal information about changes in estimates

At ContractInception

CSM is recognized and released as insurance service is provided A loss is

recognized in the P&L at inception

Cohorts

1

2

3

Permitted to group only contracts issued no more than one year apart

Assessment is done at contract inception –no subsequent re-assessment

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UNDERSTANDING LEVEL OF AGGREGATION

1

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UNDERSTANDING LEVEL OF AGGREGATION

1

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1

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1

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CTPRIMA

Building block approach

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BUILDING BLOCK APPROACH

18 18

▪ Deferred profit absorbs assumption changes for future coverage (“Unlocking”)

▪ Profit measured and reported based on the delivery of the “insurance coverage service”

▪ The measurement of insurance contracts will

consist of a number of explicitly reported balance which include BEL, RA, and CSM

▪ Discount rates based on market interest rates (currency, duration, liquidity and asset –

dependency)

▪ Need to group contracts by portfolio, year of sale and one of the three possible profitability levels

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18

Example 1: No gain at inception

NIL

PV of future cash outflows

Contractual service margin (CSM)

Example 2:Day one loss

NIL

PV of future cash inflows

Risk adjustment PV of future cash

outflows

Loss Fulfilment cash flows

Risk adjustment

Profit that the insurer expects to make during the life of the

contract

CSM cannot be negative, expected losses recognised in PL immediately.

Need to track separately going forward.

BUILDING BLOCK APPROACH - FULFILMENT CASH FLOWS

Fulfilment cash flows

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◼ 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 (includingtrends)

⚫ Include all CFs within contract boundary

Coverage period

Premium

Acquisition costs

Other expenses/ taxes

Claims payments CashoutflowsCashinflows

Cash flows within contract boundary

Claims payments including claim

handling cost Premium

Time

BUILDING BLOCK APPROACH - FULFILMENT CASH FLOWS

Contractual service

margin Risk adjustment

Time value of money

Future cash flows

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EXPECTED CASH FLOW - Expected Cash Flows of a Group of Insurance Contracts

Premiums and any other costs specifically chargeable to the Policyholder

• Premium adjustments

• Instalment premiums

• Any additional cash flows that result from those premiums Payments to, or on behalf of

policyholder

• Incurred claims that have not yet been paid (IBNP)

• Incurred claims that have not yet been reported (IBNR)

• Future claims

• Payments that vary depending on returns on underlying items Costs of providing benefits in kind • Replacement of stolen articles

Payments in a fiduciary capacity to meet the policyholder’s tax obligations

• Payment of death duties or inheritance tax

Potential cash inflows from recoveries on claims, as long as they have not been recognised as a separate asset

• Salvage and subrogation

Insurance acquisition cash flows attributable to the portfolio

• Acquisition Cost

Claim handling costs–

investigating, processing and resolving claims

• Legal and loss adjusters’fees

• Internal costs of investigating

• claims and processing claims payments

Policy administration and maintenance costs

• Costs of billing premiums

• Costs of handling policy changes (e.g. conversions)

• Recurring commissions expected to be paid to intermediaries if the policyholder continues paying premiums within the boundary.

Allocation of fixed and variable overheads directly attributable to fulfilling insurance contracts

These are allocated to contracts or groups using methods that are systematic, rational and

consistently applied to all costs with similar characteristics.

These include accounting, human resources, IT and support, building depreciation, rent, maintenance and utilities.

Cost of investment activity Costs of managing certain investments

Cash Flow Examples Cash Flow Examples

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◼

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

◼

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

BUILDING BLOCK APPROACH - TIME VALUE OF MONEY

Contractual service margin

Risk adjustment

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BUILDING BLOCK APPROACH - TIME VALUE OF MONEY

Top-down approach

Current market rates of returns: either of own asset portfolio or a reference portfolio

Adjust for risks that are not relevant to the insurance contract, e.g., default risk, market risk

Adjust for duration differences if necessary (No need to adjust for the difference due to liquidity)

Adjust for other characteristics of the insurance contracts if necessary

Illiquidity premium: Adjust for liquidity characteristics of the insurance contracts

Bottom-up approach

Risk-free yield curve with similar characteristics (e.g., duration, currency)

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DISCOUNT RATE - Discounting to Reflect the Time Value of Money

IFRS 17 does not prescribe a single estimation technique to derive discount rates. However, the standard does specify that a ‘top- down’ or ‘bottom-up’ approach may be used. In theory, for insurance contracts with cash flows that do not vary based on the performance of the underlying items, both approaches should result in the same discount rate, although differences may arise in practice. The rate shall reflect the time value of money and the financial risks related to those cash flows (ALMA).

Fulfilment cash flows Current discount rates

CSM interest accretion for contracts without direct participation features

Rates determined on initial recognition of the group Adjustments to the CSM for changes in

the fulfilment cash flows for contracts without direct participation features

Rates determined on initial recognition of the group

Adjustments to the CSM for changes in the fulfilment cash flows for direct participating contracts that do not vary based on the returns on underlying items, excluding the change in the effect of the time value of money and financial risks

Current discount rates

For groups applying the PAA, liability for remaining coverage adjustment for the time value of money

Rates determined on initial recognition of the group

Insurance finance income or expenses Discount rate used for disaggregation

Aspect of Measurement Discount Rate

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◼ 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 measurementin an explicit way (i.e. uncertainty should not be included in the future cash flows)

◼ No prescribed technique so different companies may use differenttechniques

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

BUILDING BLOCK APPROACH - RISK ADJUSTMENT

Contractual service margin

Risk Adjustment

Low frequency but high severity

Knowledge About current

estimate and trend

Duration of Contract

Width of Probability distribution Uncertainty

due to lack Of experience

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RISK ADJUSTMENT - Risk Adjustment for Non-Financial Risk

Risk Adjustment corresponds to the compensation that an entity requires for bearing the uncertainty about the amounts of and timing cash flows related to non- financial risks inherent in insurance contracts The scope of risks associated with the calculation of the RA covers both insurance risks (e.g. mortality risk, P&C reserve risk, longevity, morbidity) and non-financial risks related to insurance contracts (e.g. lapse risk, surrender risk, and expense risk); operational risk is not included in the RA assessment because by nature it is considered more global.

the IASB proposed 3 approaches to measuring RA:

•the Cost of Capital method,

•the Value at Risk (VaR) - (confidence level)

•the Tail Value at Risk approach (TVaR).

Evaluation of non financial/insurance risks Integrated in the Risk

Adjustment

Evaluation of financial risks Integrated

in the Best Estimate

Risko Asuransi: Risiko, selain risiko keuangan, yang dialihkan dari pemegang kontrak kepada penerbit kontrak. Contoh: – death or survival, injury, illness, disability, loss of property due to damage or theft, and failure of a debtor to make a payment when it is due.

Risiko Keuangan: Risiko akibat kemungkinan perubahan masa depan atas factor”

berikut: interest rates, financial instrument prices, commodity prices, currency exchange rates, indices of prices or rates, and credit ratings or credit indices.

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◼

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 CSM is positive)

⚫

To represents the unearned profit that the entity recognizes 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

◼

Objective of the standard is to:

⚫

Provide principles for the measurement of an individual insurance contract, but that in applying the standard an entity could aggregate insurance contracts

provided that it meets that objective; and

⚫

Onerous contracts should not be aggregated with profit-making contracts

BUILDING BLOCK APPROACH - Contractual service margin

Contractual service margin

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

◼ Locked-in 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 the coverage period in a systematic way that best reflects the remaining transfer of the services. For contracts with no

participating features, the service represented by the contractual service margin is insurance coveragethat:

⚫ is provided on the basis of the passage of time; and

⚫ reflects the expected number of contracts in force.

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

+/– Changes in RA relating to future coverage

= CSM at the end of the reporting period

BUILDING BLOCK APPROACH - Contractual service margin

Contractual service margin

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To disaggregate changes in the measurement of the insurance contracts in different line items of the financial statements, depending on the sources of the changes.

Contractual service margin

Future cash flows

Risk adjustment

Discounting Fulfilment cash flows

Change in CFs related to past and

current services

Release of RA related to past and

current services

Effect of changes in discount rates Release of CSM

Interest expense at locked in discount

rate

Profit or loss:

Underwriting result

Profit or loss:

Investment result

Other comprehensive income

Change in estimates relating to future services

BUILDING BLOCK APPROACH - Subsequent measurement

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BASIC METHODS IN MEASUREMENT INSURANCE CONTRACT

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CTPRIMA

Exercise

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◼ Benefits

⚫

2-year term

⚫

Single premium of USD 1,000

⚫

Sum assured = USD 3,000

◼ Assumption

⚫

100 policies sold, with deferrable expenses incurred of USD 10,000

⚫

Best estimate assumption: 10 claims each year

⚫

Risk adjustment (RA) = USD 2,000

⚫

No other cash flows

◼ For simplicity, discount rate = 0%

◼

By applying the building block approach

⚫

At issue: Total cash flows = 100 * 1,000 – 10,000

–

(10+10) * 3,000 – RA 2,000 = 28,000

◼

Therefore, CSM = 28,000

◼

Under these settings, the total IFRS 17 insurance liability at issue is:

⚫

Fulfillment cash outflows = (10+10) * 3,000 + RA 2,000 = 62,000

⚫

CSM = 28,000

⚫

Total IFRS 17 insurance liability = 62,000 + 28,000 = 90,000

EXERCISE - BUILDING BLOCK APPROACH Case study

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Start of Year 1

Accounting entries:

Dr Cr

1.0 Dr Est. future cashflow (Premium) 100,000

Cr Est Future Cash – Claim 60.000

Cr Est Future Cash - DAC 10.000

Cr CSM 28,000

Cr RA 2,000

(Recognition of est. future cashflow [P - Cl - Co], RA and CSM)

2.0 Dr Cash 100,000

Cr Est. future cashflow 100,000

(Premium received)

3.0 Dr Est. future cashflow - DAC 10,000

Cr Cash 10,000

(Payment of deferrable expenses)

Income statement:

Insurance contracts revenue -

Incurred claims and expenses -

Acquisition costs -

Operating result -

Investment income -

Profit -

Balance sheet:

Assets:

90,000 Cash

Liabilities:

Insurance contract liabilities:

Fulfillment cashflow:

Est. future cashflow 60,000

RA 2,000

CSM 28,000

90,000 Equity:

Profits -

90,000

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EXERCISE - BUILDING BLOCK APPROACH

Case study

◼ At the end of year 1,

◼ There are 15 claims (as opposed to the 10 claims expected)

⚫ The Company re-estimates year 2 claims as 8 cases, down from 10 previously

⚫ The updated RA = 1,000

⚫ No other assumption changes

◼ Profit driver assumed to be based on no. of policies in- force:

⚫ The amortization factor = 28,000 / (90 + 80) = 164.7

⚫ Based on the remaining policies at end of year 1 (100– 15), the CSM amortization = 85 * 164.7 = 14,000

⚫ However, there is also a favorable assumption

change, where claims are reduced by (10-8) * 3,000

= 6,000

⚫ Therefore ending year 1 CSM = 28,000 – 14,000 + 6,000 = 20,000

◼ For end of year 1,

⚫ The updated future cash flows = 8 * 3,000 = 24,000

◼ Therefore total IFRS 17 insurance liability

⚫ Fulfillment cash flows = 24,000 + RA 1,000 = 25,000

⚫ CSM = 20,000

⚫ Total IFRS 17 insurance liability = 45,000

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Case study

End of Year 1

Accounting entries:

Dr Cr

1.0 Dr CSM 14,000

Dr RA 1,000

Dr Est. future cashflow (expected incurred claim)

30,000

Dr Acquisition costs 5,000

Cr Insurance contract revenue 50,000

(Revenue recognition)

2.0 Dr Claims incurred 45,000

Cr Cash 45,000

(Claims recognition)

3.0 Dr Est. future cashflow 6,000

Cr CSM 6,000

(Recognition of impact of favorable change in future claims)

Insurance contracts revenue 50,000

Incurred claims and expenses (45,000)

Acquisition costs (5,000)

Operating result 0

Investment income -

Profit 0

Balance sheet:

Assets:

45,000 Cash

Liabilities:

Fufillment cashflow:

Est. future cashflow 24,000

RA 1,000

CSM 20,000

45,000 Equity:

0 Profits

45,000

EXERCISE - BUILDING BLOCK APPROACH

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End of Year 2

Accounting entries:

Dr Cr

1.0 Dr CSM 20,000

Dr RA 1,000

Dr Est. future cashflow (expected incurred claim)

24,000

Dr Acquisition costs 5,000

Cr Insurance contract revenue 50,000

(Revenue recognition)

2.0 Dr Claims incurred 24,000

Cr Cash 24,000

(Claims recognition)

Insurance contracts revenue 50,000

Incurred claims and expenses (24,000)

Acquisition costs (5,000)

Operating result 21,000

Investment income -

Profit 21,000

Balance sheet:

Assets:

21,000 Cash

Liabilities:

Fufillment cashflow:

Est. future cashflow -

RA -

CSM -

- Equity:

21,000 Profits

21,000

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◼ Benefits

⚫

2-year term

⚫

Single premium of USD 1,000

⚫

Sum assured = USD 3,000

◼ Assumption

⚫

100 policies sold, with deferrable expenses incurred of USD 10,000

⚫

Best estimate assumption: 10 claims each year

⚫

Risk adjustment (RA) = USD 2,000

⚫

No other cash flows

◼ For simplicity, discount rate = 5%

EXERCISE - BBA – Case study 2 – Dengan Menggunakan Discount Rate 1

No Projected Cash Flow 1 2

1 Premium 100.000 -

2 Klaim 30.000 30.000

3 DAC 10.000

NET CF - 34.218 28.571

RA 2.000 1.814

FCF - 32.218 30.385 Kalkulasi FCF dan CSM saat Initial

Fulfilment cash flows (“FCF”)

FCF = PV (OUT GO - PV (Premium) - Jika FCF < 0, yaitu bisnis profitable CSM at inception = - FCF + RA

PV Outgo (Claim) 28.571 27.211 55.782

PV Outgo (DAC) 10.000 10.000

PV Premium 100.000 - 100.000

NET CF - 34.218

Awal Tahun 1 PV RA 2.000 1.814 3.814

PV Outgo 28.571 28.571

PV Premium - -

NET CF 28.571

Awal Tahun 2

Proyeksi Sesuai Pada Saat Initial (t=0) Awal Tahun 1

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1

No Debet Kredit

1 Est Future CF (Premium) 100.000

Est Future CF - Claim 55.782

Est Future CF - DAC 10.000

Est Risk Adjustment (RA) 3.814

CSM 30.404

2 Est Future CF - DAC 10.000

Cash 10.000

3 Cash 100.000

Est Future CF (Premium) 100.000

4 Investment (Deposito) - Bungan 6% / Tahun 40000

Cash 40000

Description

Accounting Enties

Fulfilment cash flows (“FCF”)

FCF = PV (OUT GO - PV (Premium) - Jika FCF < 0, yaitu bisnis profitable CSM at inception = - FCF + RA

PV Outgo (Claim) 28.571 27.211 55.782

PV Outgo (DAC) 10.000 10.000

PV Premium 100.000 - 100.000

NET CF - 34.218

Awal Tahun 1 PV RA 2.000 1.814 3.814

PV Outgo 28.571 28.571

PV Premium - -

NET CF 28.571

Awal Tahun 2

Proyeksi Sesuai Pada Saat Initial (t=0) Awal Tahun 1

Asset 90.000

Debet Kredit Saldo Akhir

Cash 100.000 10.000 50.000

40.000

Investment 40.000 40.000

Liabilities

Insurance Contract Liabilities 90.000

-Fulfillment CF

-Est Future CF 10.000 65.782 55.782

-Risk Adjustment 3.814 3.814

- CSM 30.404 30.404

Equity 0

Profit 0

Balance Sheet

EXERCISE - BBA – Case study 2 – Dengan Menggunakan Discount Rate T=0

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1 EXERCISE - BBA – Case study 2 – Dengan Menggunakan Discount Rate T=1

1 100 Fire

2 Term

3000 Sum Assured 1000 Single Premum

2 BEL Assumption at Initial 100

Jumlah Polis 10

Klaim yang terjadi setiap tahun 5% Interest

8 Estimasi klaim tahun 2 3

Other Assumtion 10.000

DAC

2.000

Risk Adjustment

Claim accur at year end 4 Realisasi Klaim

15 Klaim terjadi ditahun 1 1000 Koreksi RA ditahun 1

Projected Realisasi Projected Realisasi

No DIFF

1 Premium 100.000 100.000 - 2 Klaim 30.000 45.000 24.000

3 DAC 10.000 10.000

NET CF - 39.660 22.857 - 5.714 RA 2.000 1.000 907

FCF - 37.660

1 2

Fulfilment cash flows (“FCF”) FCF = PV (OUT GO - PV (Premium) Jika FCF < 0, yaitu bisnis profitable CSM at inception = - FCF

PV Outgo (Claim) 28.571 21.769 - 50.340

PV Outgo (DAC) 10.000 10.000

PV Premium (1) 100.000 - - 100.000

NET CF - 39.660

Tahun 1 PV RA 2.000 907 2.907

Awal Tahun 1

Proyeksi Sesuai Pada Saat Initial (t=0)

PV Outgo 22.857 22.857

PV Premium (1) - - -

NET CF 22.857

Akhit Tahun 1

Awal Akhir Perubahan Klaim 10 Polis Menjadi 8 PolisMutasi Mutasi PV CF 55.782 22.857 5.714 27.211

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RA rollforward

RA b/f 3.814 2.907 Interest (5%* Carry Vallue of RA) 191 145 True Up: Change in CFs -

Investment Comp. Adj Assumtion chang

RA end of period pre allocation (Total 1-6) 4.005 3.052 Allocation of RA (27%) 1.098 3.052 RA c/f 2.907 0 CSM rollforward

CSM b/f 30.404 22.436 Interest (5%* Carry Vallue of CSM) 1.520 1.122 True Up: Change in CFs 5.714

Investment Comp. Adj Assumtion chang

CSM end of period pre allocation (Total 1-6) 37.638 23.558 Allocation of CSM (40%) 15.202 23.558 CSM c/f 22.436 0

1 EXERCISE - BBA – Case study 2 – Dengan Menggunakan Discount Rate T=1

Awal Akhir Mutasi

Mutasi PV OUTGO 28.571 22.857 5.714

Insurance Finance Expenses = 1.711

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No Debet Kredit

1 CSM 15.202

RA 1.098

Estimated Future CF (Claim) 27.211 Acquisition Cost 5.000

Insuran Contract Revenue 48.510

2 inccured Claim 45.000

Cash 45.000

3 Estimated Future CF 5.714

CSM 5.714

4 Insurance Finance Expenses 1.520

CSM 1.520

5 Investment 2.400

Investment Income 2.400

6 Insurance Finance Expeses 191

RA 191

Description

1 EXERCISE - BBA – Case study 2 – Dengan Menggunakan Discount Rate T=1

Amortisasi CSM dan RA

Mutasi Est PV CF

End Year 1

Saldo Awal Debet Kredit Saldo Akhir

Insurance Contracts revenue - 48.510 48.510 Incurred claim and expeses - 45.000 45.000 Acuistion cost - 5.000 5.000

Operating result - - 1.490

Investment income - 2.400 2.400 Insurance Finance Expense (Income) - 1.711 1.711

Net Financial Result 689

Profit - - 800

Saldo Awal Debet Kredit Saldo Akhir

Asset 90.000 47.400

Cash 50.000 45.000 5.000

-

Investment 40.000 2.400 42.400

Liabilities 90.000 48.200

Insurance Contract Liabilities 90.000 48.200 -Fulfillment CF -

-Est Future CF 55.782 32.925 22.857 -Risk Adjustment 3.814 1.098 191 2.907 - CSM 30.404 15.202 7.234 22.436

Equity - 800

Profit - 800

Balance Sheet Income Statement

(45)

1 EXERCISE - BBA – Case study 2 – Dengan Menggunakan Discount Rate T=1

End Year 2

Saldo Awal Debet Kredit Saldo Akhir

Insurance Contracts revenue 54.467 54.467

Incurred claim and expeses 24.000 24.000

Acuistion cost 5.000 5.000

Operating result 25.467

Investment income 2.400 2.400

Insurance Finance Expense (Income) 1.267 1.267

Net Financial Result 1.133

Profit 26.600

Saldo Awal Debet Kredit Saldo Akhir

Asset 47.400 25.800

Cash 5.000 40.000 24.000 21.000

-

Investment 42.400 2.400 40.000 4.800

Liabilities 48.200 0

Insurance Contract Liabilities 48.200 0 -Fulfillment CF -

-Est Future CF 22.857 22.857 - -Risk Adjustment 2.907 3.052 145 0 - CSM 22.436 23.558 1.122 0

Equity - 800 25.800

RE - 800 - 800

Profit - 26.600

Income Statement

Balance Sheet

1 CSM 23.558

RA 3.052

Estimated Future CF (Claim) 22.857 Acquisition Cost 5.000

2 Claim Incurred 24.000

Cash 24.000

3 Insurance Finance Expenses 1.122

CSM 1.122

4 Investment 2.400

RA 145

6 Investment

Investment Income

7 Cash 40.000

Investment 40000

Accounting Enties Description

(46)

1 EXERCISE - BBA – Case study 3 – Dengan Menggunakan Discount Rate T=1

Skenario : Discount rate akhir Y1 dirubah menjadi 4% - Dampak pada OCI

No Projected Cash Flow 1 2

1 Premium 100.000 -

2 Klaim 30.000 24.000

3 DAC 10.000

NET CF - 34.218 23.077

PV Outgo 23.077 23.077

PV Premium - -

NET CF 23.077

Awal Tahun 2

Menggunakan Tinggat Bunga 5% Untuk Klaim 30.000 Pertahun

Menggunakan Tinggat Bunga 4% Untuk Klaim 24.000 Pertahun

Journal Entri 7 (Tujuh)

Awal Akhir Mutasi

Mutasi akibat perubahan discount rate 5% menjadi 4% 22.857 23.077 - 220

(47)

No Debet Kredit 1

CSM 15.202

RA 1.098

Estimated Future CF (Claim) 27.211

Acquisition Cost 5.000

2

inccured Claim 45.000

Cash 45.000

3

Estimated Future CF (Perubahan Klaim) 5.714

CSM 5.714

4

Insurance Finance Expenses 1.520

CSM 1.520

5

Investment 2.400

RA 191

7 Insurance Finance Income (Discount Rate Berubah) 220

Estimated Future CF 220

Description

1 EXERCISE - BBA – Case study 3 – Dengan Menggunakan Discount Rate T=1

▪ Asumsi hasil investasi (IFRS 9) tetap sama(“perfect match”)

▪ Perubahan diskonto tidak berdampak pada future services,selisih FCF (28,571 - 23,077= 5,495) tidak dapat ditunda melalui (tak merubah)CSM.

▪ Hasil deviasi FCF diakui sepenuhnya pada P&L sebagai komponen Insurance Finance Expense (Opsi 1)

Awal Akhir Mutasi

Mutasi akibat perubahan discount rate 5% menjadi 4% 22.857 23.077 - 220

(48)

1 EXERCISE - BBA – Case study 3 – Dengan Menggunakan Discount Rate T=1

▪ Asumsi hasil investasi (IFRS 9) 6% Pertahun

▪ Perubahan diskonto tidak berdampak pada future services,selisih FCF (22.857 - 23,077= 220) tidak dapat ditunda melalui (tak merubah)CSM.

▪ Hasil deviasi FCF diakui sepenuhnya pada P&L sebagai komponen Insurance Finance Expense (Opsi 1)

Saldo Awal Debet Kredit Saldo Akhir Insurance Contracts revenue 48.510 48.510 Incurred claim and expeses 45.000 45.000

Operating result - 1.490

Insurance Finance Income (Discount Rate Berubah) - Insurance Finance Expense (Income) 1.931 1.931

Net financial Result 469

Profit - 1.020

Discount rate changes on insurance liability (optional) -

Total Comprehensive income - 1.020

Saldo Awal Debet Kredit Saldo

Asset 90.000 47.400

Cash 50.000 45.000 5.000

-

Investment 40.000 2.400 42.400 Liabilities 90.000 48.420 Insurance Contract Liabilities 90.000 48.420

-Fulfillment CF

-Est Future CF 55.782 27.211 220 23.077 5.714

-Risk Adjustment 3.814 1.098 191 2.907 - CSM 30.404 15.202 7.234 22.436

Equity - - 1.020

Profit - 1.020

Balance Sheet

(Bunga CSM & RA = 1520 + 191= 1.711 ) + Perubangan Bunga (220) = 1.931

(49)

1 EXERCISE - BBA – Case study 3 – Dengan Menggunakan Discount Rate T=1

1

CSM 15.202

RA 1.098

Estimated Future CF (Claim) 27.211

Acquisition Cost 5.000

2

inccured Claim 45.000

Cash 45.000

3

Estimated Future CF 5.714

CSM 5.714

4

Insurance Finance Expenses 1.520

CSM 1.520

5

Investment 2.400

6

Insurance Finance Expeses 191

RA 191

7

Discount rate changes on insurance liability (optional) 220

Estimate Future CF 220

Accounting Enties Description

▪ Asumsi hasil investasi 6% pertahun

▪ Perubahan diskonto tidak berdampak pada future services,selisih FCF (22,857 - 23,077= 220) tidak dapat ditunda melalui (tak merubah) CSM.

▪ Hasil deviasi FCF diakui pada OCI (Opsi 2)

(50)

1 EXERCISE - BBA – Case study 3 – Dengan Menggunakan Discount Rate T=1

Saldo Awal Debet Kredit Saldo Akhir

Insurance Contracts revenue 48.510 48.510

Incurred claim and expeses 45.000 45.000

Operating result - 1.490

Insurance Finance Expense (Income) 1.710,88 1.711

Net financial Result 689

Profit - 800

Discount rate changes on insurance liability (optional) 220 220

Total Comprehensive income - 1.020

Saldo Awal Debet Kredit Saldo

Asset 90.000 47.400

Cash 50.000 45.000 5.000

-

Investment 40.000 2.400 42.400 Liabilities 90.000 48.420 Insurance Contract Liabilities 90.000 48.420

-Fulfillment CF

-Est Future CF 55.782 27.211 220 23.077 5.714

-Risk Adjustment 3.814 1.098 191 2.907 - CSM 30.404 15.202 7.234 22.436

Equity - - 1.020

Profit - 1.020

Balance Sheet

▪ Asumsi hasil investasi 6% pertahun

▪ Perubahan diskonto tidak berdampak pada future services,selisih FCF (22,857 - 23,077= 220) tidak dapat ditunda melalui (tak merubah) CSM.

▪ Hasil deviasi FCF diakui pada OCI (Opsi 2)

(51)

PREMIUM ALLOCATION APPROACH - ELIGIBILITY CRITERIA

Reasonable approximation

of the group measurement using the core requirements?

Coverage period of each contract

in the group

<= 1 year?

NO NO

YES YES

Must apply core requirements May apply premium

allocation approach

Page 51

1

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CTPRIMA

Premium allocation approach

(53)

PREMIUM ALLOCATION APPROACH - SIMPLIFICATIONS FOR SHORT-TERM CONTRACTS

A B

IFRS 17 Liability

A. Simplified measurement

B. Measurement under the general model, but discounting of claims to be settled within 1 year not required

PV of future

cash flows Risk adjustment PV of future

cash flows

Risk adjustment

Contractual service margin

Split in three blocks not required

Liability for incurred claims Liability for

remaining coverage

Page 53

1

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54

How to calculate Financial Position & Income Statement using Premium Allocation Approach model (PAA)

1

(55)

Assume

Premium received at inception 1200

Coverage period 12 months

Expected future claims (68 per month) 816

Risk premium (20 per month) 240

Acquisition costs 24

Claims expected evenly over coverage period

Risk expected to expire evenly over coverage period

For simplicity, discount of future cash flows and accretion of interest on the liability are ignored

After 1 Month:

Actual claims 60

Risk Adjustment on incurred claims 10

No change in expected claims or the risk assumptions

Exercise 2 : How to Calculate BEL, Financial Position & Income Statement

Question:

1. How to Construct Insurance Liability - Initial ? 2. How to Construct Financial Position - Initial?

3. How to Construct BEL pada saat akhir?

4. How to Calcu