Chapter 9 - Supervisory and Published Reporting Valuations Flashcards
Discretionary margins in published financial reporting may be included if the actuary believes that: (2)
- The compulsory margins are insufficient in a particular case for prudent reserving
- The discretionary margins should be used in order to defer the release of profits consistent with policy design or company practice
Define risk margin:
It represents the premium over and above the best estimate liabilities that one insurer would require to take on the obligations of another insurer
The non-unit reserve must be derived from a discounted CF calculation that allows for: (4)
- Expected future mortality and morbidity experience, including margins
- Plus, expected future commissions, expenses, expense inflation, including margins
- Plus, the cost of any guarantees provided in terms of the contract
- Less expected future risk benefit prms, contractual expense charges, contractual management fees and contractual charges for guarantees
The FSV reserve for group life contracts can be split into 4 parts:
- Unexpired (or unearned) premium reserve
- Incurred but not reprted claims reserve
- Deficiency reserve
- Experience refund (or profit share) reserve
The FSV reserve for group permanent health insurance (PHI) can be split into: (4)
- Unexpired (or unearned) premium reserve
- IBNR (in 2 parts)
a. Part related to potential claims currently in deferred period
b. Part related to “true” IBNR claims - Reserve for claims in payment
- Reserve fornan experience refund
Grouping of contracts under IFRS17: (3)
- Group of contracts that are onerous at initial recognition (loss making at inception)
- Group of contracts that at initial recognition have no significant possibility of becoming onerous subsequently, if any
- Group of all the remaining contracts im the portfolio that do not meet one of the two criteria above
3 Measurement approaches ubder IFRS17:
- General Measurement Model - default valuation method
- Variable Fee Approach - usually for unit linked and contracts with discretionary participating features
- Premium Allocation Approach - simplified approach, relevant to group nusiness and yearly renewable or reviewable individual policies
The BEL under IFRS 17 and Prudential Supervision Reporting Purposes may differ due to differences in: (5)
- The acquisition and maintenance expenses allowed to be included im the expense assumptions
- The discount rate used
- The contract boundary
- The tax related flows included in fulfilment CFs
- Requirement to unbundle certain contracts undwr IFRS 17
Define coverge unit, used in IFRS 17:
Coverage unit is based on how service is expected to be provided over the term of the contracts in the group. (Such as number of policies, sum assured in force etc)
CSM under the GMM is only adjusted for: (2)
- Non financial variances
- Assumption changes
Key difference between the GMM and VFA:
Risk discount rate
GMM: discount rate is based on market observable data, CSM not unlocked when discount rate changes
VFA: discount rate is calculated with reference to the pool of assets, and CSM is unlocked at each future period to absord the change in the value of BEL and RA as a result of change in the discount rate
Define participations:
It is investments in companies in which the insurer owns a significant portion of the issued share capital or over which it exerts significant influence/control
Define risk adjustement:
This adjustment is to reflect the compensation that the entity requires for bearing the uncertainty about amount and timing of cashflows that arises from non-financial risks
How is a bonus stabilisation reserve set up for smoothed bonus policies:
It is equal to the excess of the value of the unit fund asset iver the unit fund reserve
Definition of insurance contract to fall within scope of IFRS 17
Requires that 1 party accepts significant insurance risk from another party.
Insurance risk is significant if, and only if, an insured event could cause the entity to pay additional amounts that are significant in any single scenario
