IFRS 17 Update

2nd Indonesian Actuaries Summit

21 April 2017

Kelvin Yap
EY Actuarial Services, ASEAN
The objectives of today

To provide an To outline To discuss

overview of main particular issues operational
changes and the Indonesian challenges to
rationale for industry may be insurers
IFRS17 face

To outline the To understand what

impact to the other insurers are
insurance industry doing
under IFRS17

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Agenda
1. Introduction
2. Key features of IFRS 17
3. Challenges of IFRS 17
4. Numerical Example
5. Implementation implications

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.
 Introduction
01
Why are changes needed to Insurance Accounting?
IFRS17 brings insurance more in line with other accounting standards

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.

• IFRS 4 allows entities to maintain their existing accounting practices

Little or no Comparability between
• Current FS not comparable (1) across insurers due to different reserving
entities
practices (NPV, GPV wo PAD, GPV w PAD); or (2) across industries, eg
Banking and Wealth Management even for similar products

• Long duration contracts measured using outdated information (eg NPV)

• Economic risks such as options and guarantees embedded in insurance

Does not always reflect the contract are not reflected (eg Minimum Surrender Guarantees)
economic and risks in a timely
manner • 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)

• Information about underwriting activity is often reported on cash / cash-like

basis even when services is delivered in a different period, “change in
Accrual accounting basis
liability” item which is needed to reconcile cash-based amounts to the
accruals-based result of the period

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Simplified Example: Insurance vs Asset Management accounting
IFRS17 results in a more comparable P&L vs other financial institutions

Insurance Company
Simplified Example
IFRS 4 Phase 1 Year 1
• 5 Year Single Premium Unit Link, $10,000,000
Premium Income 10,000,000
• Mutual Fund Commissions (100,000)
• SPUL Initial Allocation of 97.5% OR Increase in Reserves (1,000,000)
• Initial Charges of 2.5% (Asset Manager) Investment income on underlying items 250,000

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

5 years Comprehensive Income 150,000

• Yr 1 UL Returns of 2.56% ($250,000)

• Ignore mortality, lapse IFRS 17 Year 1
Insurance Contract Revenue 50,000
• Fulfilment cashflows 0
• Change in RA 0
Asset Management Company • CSM amortization 30,000
IFRS 15 (Revenue Recognition) Year 1 • Acquisition cost 20,000
Revenue (from initial charge) 250,000 Amortisation of Deferred Acquisition Cost (20,000)
Distribution Costs (100,000) Incurred losses 0

Comprehensive Income 150,000 Underwriting result 30,000

Investment income on underlying items 250,000
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 Interest expense on insurance obligations (250,000)
time Net investment income 0
Other Comprehensive Income -
Comprehensive Income 30,000

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A Standard that better meets the needs of financial statements users

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.

Provides up-to-date market Treats services provided by

consistent information of obligation underwriting activity as revenue and
including value of options expenses in comparable way to other
& guarantees non insurance business

Single
accounting
Reflects time value Provides separate information
of money approach about the investment and
underwriting performance

Reflects the characteristics of the

insurance contract rather than the risk
related to asset/investment activity

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

IFRS 9 and IFRS 15 Effective

Possible IFRS 9 deferred
date 1 Jan 2018 (*)
implementation date
IFRS 9 and 15

First IFRS 9 annual financial

statements (*)

2016 2017 2018 2019 2020 2021

Potential IFRS 17 start

Potential IFRS 17 Final of comparative period (**)
IFRS 17

standard

Potential IFRS 17 effective

date 1 Jan 2021 (**)

Ongoing IASB deliberations Implementation period Reporting

(*) 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

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Adoption in Asia

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 1 January 2019
effective date of IFRS
China Note 2 
Malaysia  
Sri Lanka  
Laos Note 2 Note 2
Korea  
Philippines  
Japan Note 3

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.

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 Key Features of
IFRS 17
02
IFRS 17 ED
Key areas of the proposed model will require Actuarial involvement

Regulatory capital standards

Reserves
Contractual service margin

Building block approach/

variable fee approach
Risk adjustment
Presentation /
disaggregation
Discount rate
Definition and
scope Expected value of future
cash flows
Reinsurance Disclosure

Risk
Premium allocation

Separation adjustment
approach

Liability for
remaining Transition
Discount rate
coverage

Cash flows of
claim liability

Financial Instruments and other accounting changes

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Sample P&L presentation: Term Insurance Actuarial Involvement
Insurance Contract Revenue replaces Premium approach
A simplified statement of comprehensive income is presented below (when experience is similar to assumptions):
Current IFRS 4 Future IFRS 17
Year 1 Year 2 Year 1 Year 2
Premium Income 178,486 169,688 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)
Claims & Expenses 252,685 105,090 Incurred losses (223,437) (105,090)
Increase in Reserves - 44
Underwriting result 53,682 49,277
Investment income on underlying items (156) 354 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 (74,355) 64,909 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

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Contracts with no participation features
General model — overview

A component of the measurement of the

Contractual insurance contract representing the unearned
service margin profit that the entity recognizes as it provides
services

The compensation that an entity requires for

Risk adjustment bearing the uncertainty about the amount and
timing of the cash flows
Fulfilment cash
flows
PV of Time value of An adjustment that converts future cash flows
expected An explicit, unbiased
and probability-
money into current amount
future
cash inflows weighted estimate (ie
expected value) of the
present value of the Best Estimate Liabilities (BEL)
future cash outflows (very similar to GPV wo PAD)
less the present value
of the future cash
inflows that will arise Expected cash flows from future premiums,
as the entity fulfils the Future cash flows expenses, claims and benefit payments
insurance contract,
including a risk
adjustment

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Contracts with no participation features
General 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:
Contractual
service • Current and explicit (separate from discount rate and risk adjustment)
margin • Market variables as consistent as possible with observable market prices
• Incorporate all available information in an unbiased manner (including trends), eg Best Estimate
Risk • Possibly use stochastic models if cashflows are asymmetric
adjustment • Include all CFs within contract boundary

Coverage period
Time value
of money
Cash inflows

Premium Premium

Future cash Cash flows within contract boundary Time

flows
Cash outflows

Claims payments
Claims including claim
Other payments handling cost
expenses/taxes

Acquisition
costs

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Contracts with no participation features
General model - time value of money

• Adjust the estimates of future cash flows for the time value of money using discount rates that:
Contractual • Reflects characteristics of fulfilment cash flows
service • Consistent with observable market prices for instruments with cash flows that have consistent
margin 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
Risk
adjustment • 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
Time value • Bottom Up approach possibly: Risk Free Rate + Illiquidity Premium
of money
• 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

Future cash
flows

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Contracts with no participation features
General model - risk adjustment

• 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
Contractual
service • RA shall be included in the measurement in an explicit way (i.e., uncertainty/PfAD should not be included in
margin 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
Risk
adjustment

Knowledge
Knowledge
Time value about
aboutcurrent
current
of money estimate
estimate
and
Low
Low and
trend
trend
frequency
frequency Duration
Duration
of
but
buthigh
highrisk
risk of
contract
contract
severity
severity

Future cash Uncertainty

Uncertainty Width
Widthofof
flows due
duetotolack
lackofof probability
probability
experience
experience distribution
distribution
Risk
Adjustment

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Contracts with no participation features
General model - contractual service margin

• At initial recognition, the CSM is defined as the negative of fulfilment cash flow, floored by zero.
Contractual • Purpose of recognizing a positive initial CSM:
service • To eliminate any day 1 gains (if initial Fulfilment Cash Flow is negative / CSM is positive)
margin
• Represents the unearned profit that the entity will recognize in future, as it provides services under the
insurance contract.
Risk • If CSM is floored by zero at inception, the insurance contract is onerous. All loss should be recognized in P&L
adjustment 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
Time value • The level of aggregation for determining CSM is therefore a key topic as it determines the cross-subsidy
of money 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
Future cash Contracts
flows
• This could have implications on:
• Cross-subsidy, for eg charging a single male / female premium rate
• Many separate CSM cohorts to track

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Contracts with no participation features
General model — contractual service margin

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

Contractual
service CSM at the beginning of the reporting period
margin
+ Accreted interest

— Amount recognised for services provided in the period

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

= CSM at the end of the reporting period

Time value
of money • 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 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 coverage that:
• Is provided on the basis of the passage of time; and
Future cash • Reflects the expected number of contracts in force
flows

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 Sample P&L presentation: Term Insurance
Insurance Contract Revenue replaces Premium approach
A simplified statement of comprehensive income is presented below (when experience is similar to assumptions):
IFRS 17
Year 1 Year 2
CSM at the beginning of the reporting period Insurance contract revenue 308,183 183,461
• Fulfilment cashflows 223,437 105,090
+ Accreted interest
• Change in RA 4,324 3,048
— Amount recognised for services provided in the period • CSM amortization 49,358 46,228
• Acquisition cost 31,064 29,094
+/— Changes in the estimates of future cash flows (eg
changes in mortality assumptions) Amortization of acquisition cost (31,064) (29,094)
Incurred losses (223,437) (105,090)
= CSM at the end of the reporting period
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
BEL Expected Claims Other Comprehensive Income - -
Comprehensive Income 47,969 52,820
Actual Claims Amounts

• Underwriting results reflect changes in RA and CSM

amortization when actual experience does not deviate from
assumptions
• Changes in assumptions does NOT affect UW result, as it is
absorbed into CSM

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From Non-participating to Participating contracts
General Model and Variable Fee model

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

Liability for remaining coverage Liability for Incurred claims

Expected future cash flows Expected future cash flows

Building block approach

Time value of money Time value of money

(BBA)

Risk adjustment Risk adjustment

Contractual Service margin

Premium allocation

Expected future cash flows

approach (PAA)

Pre-claims liability Time value of money

(unearned premium)

Risk adjustment

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

Classification
 Impairment
• 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 often
still locked-in under current
IFRS 4
 Hedge accounting (micro)
• 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

• 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’

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

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 Challenges
for 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
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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
IFRS17: latest news, implications and challenges faced by insurers |
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
25
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
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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
IFRS17: latest news, implications and challenges faced by insurers |
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
27
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
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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
IFRS17: latest news, implications and challenges faced by insurers | 28
 Numerical
Example
04
 Case study: background

 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

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Presentation title
 At inception
Insurance contract liabilities are equal to zero at inception

Best estimate liability

=-
Contractual
Service Margin
Expected contract profit
+
Risk adjustment

BEL = - 713
RA = 250
CSM = 463
Insurance contract liability = BEL + RA + CSM = 0

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 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.

Term product (Year 1) Analysis:

Change in
Inception Projected Experience
463 non-economic
end Year 1 415 adjustment435
assumption
359 ► 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
(109) CSM than expected (i.e. 435 vs 415)
(109) (109)
- ► Heavier mortality assumption has
resulted in lower CSM in order to
maintain the level of ICL
Change in non- ► Overall insurance contract liabilities
Projected end Year Experience
Inception
1 adjustment
economic
assumptions
remain unchanged
BEL (713) (769) (799) (757)
RA 250 246 255 289
CSM 463 415 435 359
ICL - (109) (109) (109)

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Sample P&L presentation
Insurance contract revenue replaces premium approach
A simplified statement of comprehensive income is presented below (when experience is similar to assumptions):
Current IFRS 4 Phase 2
Year 1 Year 2 Year 1 Year 2
Premium Income 178,486 169,688 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)
Claims & Expenses 252,685 105,090 Incurred losses (223,437) (105,090)
Increase in Reserves - 44
Underwriting result 53,682 49,277
Investment income on underlying items (156) 354 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 (74,355) 64,909 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

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 Sample profit signature
Smoother profit signature under IFRS 4 phase 2

Comparison of profit signature

120

100

80

60

40

20

-
Y1 Y6 Y11 Y16 Y21 Y26 Y31 Y36 Y41 Y46 Y51 Y56 Y61 Y66 Y71 Y76 Y81
(20)

(40)

(60)

(80)

(100)

Current IFRS 4 Phase 2

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 Some practical challenges we encountered

► Availability / granularity of historical data

Data ► Defining homogeneity and grouping of policies (“Level of Aggregation”)
► Ability to capture historical data for all periods in storage element

► 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
Assumptions ► 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?

► Asymmetrical treatment of CSM due to experience change

Calculation ► Aggregate level calculation complexity – CSM amortization, accreting interest, etc
Mechanism ► Onerous contract treatment and its subsequent measurement
► Discounting approach – forward or shifted spot rate?

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 Implementation
implications
05
IFRS 17/IFRS 9 High Level Roadmap
Involve both Actuaries and Accountants
Jan 2020 Q1 2021
Potential IFRS 4 Potential IFRS 4
Potential IFRS 4 Phase Jan 2018 Phase II start Phase II first
II final standard IFRS 9 effective date* of comparative period reporting

2017 2018 2019 2020 2021

Program High General Selected 2nd Design Solution implementation Dry run Restatements Full phase II
set up level imple- deep impact smart and reporting
impact mentation dive analysis tailored comparatives
analysis vision analysis solution

1 2 3 4 2 5 6 7 8

1 3 5 7
• Central and local team structure • Big bang, incremental or minimum efforts • Depends on general • Preparation of opening
• Program governance: decision • Accounting & reporting choices implementation vision equity adjustments and
making and technical support and deep dive analysis comparative information
(IFRS 4 Phase II and IFRS 9
• Work streams and overall plan 4 elements)
• Budget assessment • Deep dive analysis in key areas
6
• Business case • Unit of account • New data gathered,
• Participating contracts validated and stored 8
2 • Enrichment policy data • System changes built • Dry run of IFRS 4 Phase II
• Impacts on statements and • Central vs. local approach (reports & engines) and IFRS 9 reporting
accounting policies, reporting and • Adjustment cash flow models • Training of Finance, Risk elements on 30 June 2019
other processes of Risk and and other personnel numbers
Finance, data and technology • Implementation strategy
• 2nd analysis when final ED • Impact on processes
available • Assessment of data gaps and system changes

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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 ..
1. Starting question to be
analyzed is the unit of
account at which
reporting will take place
2. Analyze how to treat
participation and unit link
contracts
3. Analyze different ways
to enrich (policy) data
(depending on unit of
account)
4. Analyze the pros and
cons of centrally
(finance) or locally
(actuarial) driven
solutions
Confidential — All Rights Reserved — EY
… to ensure an optimal implementation strategy
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
• Which contracts fit within the variable fee model?
• How to apply BBA for indirect participating contract?
• How to treat company profit sharing?
Enrichment of data could take place at different places:
• Source systems
• Data warehouse
• 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).
Potential bottlenecks
• 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 actuarial
systems will be required
• At transition date a number of legacy source systems
will exist, which could impact the unit level of account.
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.
• 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.
In the centrally finance driven solution, more functionality
is necessary with the General Ledger. This functionality is
currently not available.
IFRS17: latest news, implications and challenges faced by insurers | 43
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 …
5. In which way should the
cash flow models (eg
Prophet) and reporting
(output) be adjusted?
6. Which implementation
strategies can be
identified?
7. What is the impact on
the processes (including
controls) under the
different implementation
strategies?
8. What accounting changes
need to be considered?
Confidential — All Rights Reserved — EY
… to ensure an optimal implementation strategy Potential bottlenecks
• Requirement regarding cash flow models and reporting Current IFRS/EV/RBC models are not sufficient to meet the
tools requirements for IFRS4 (speed — interaction — level of
output necessary).
• 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)?
Based on the outcome of the previous steps, the following The number of products, source systems, models
questions should be answered: complicate the choice (s) regarding the implementation
strategy.
• 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?
• What is the optimal process (depending on the Including extra risks and controls in the closing path
implementation strategy)? because of IFRS17 reporting without reducing the current
risks and controls, will severely impact the manageability of
• Which (new) risks and controls should be defined. Which
the process.
current risks and related controls could be removed?
• Which part of the process could be outsourced?
• Accounting choices will need to be made and updated Prophet models to be updated to allow for changes to
policies will need to be formalised. liability valuation methods and accounting policy decisions.
• Examples include whether to accrete interest on
liabilities through OCI or P&L, when to apply BBA, PAA,
VFA, Contract Boundaries, Onerous Contracts.
IFRS17: latest news, implications and challenges faced by insurers | 44
Potential approaches for implementing IFRS 4 Phase II
01 Minimum efforts
approach
• Only implement those changes that are
unavoidable
Pros • Easiest to implement
• Built primarily on SII/RBC approach
• Minimal investment required
Cons • 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
Confidential — All Rights Reserved — EY
02 Incremental 03 Big Bang
approach approach
• Focus on the changes that benefit the • All lines of businesses and processes are
existing process migrated to new system in a single
• Step by step process by which the operation
existing infrastructure is amended • Redesign the existing modelling
towards the desired infrastructure infrastructure and process
• Build upon SII/RBC efforts • Opportunity to implement the most
• Higher flexibility of the implementation efficient system setup
process (easier to prioritize key • Benefits of migration are realized
bottlenecks) immediately
• Can be broken down in subprojects to
make it more manageable
• Lower critical path risk
• Takes longer to realize benefits from • Complexity of the process leads to major
migration implementation risks
• Risk of a less (cost) efficient project • Huge upfront cost
• Critical path risk
IFRS17: latest news, implications and challenges faced by insurers | 45
 Thank You!
For more information, please contact:

Sumit Narayanan, FIA Kelvin Yap, FIA Ponno Jonatan, FSAI

Partner Associate Director Senior Manager
Advisory Services Actuarial Services Performance Improvement
Sumit.Narayanan@sg.ey.com Kelvin.Yap@sg.ey.com Ponno.Jonatan@id.ey.com
+65 6309 6452 +65 6309 6203 +62 21 5289 5307
 About EY: We have the market leading insurance advisory and
actuarial practice in ASEAN

1 We have the largest insurance advisory team in

ASEAN and Asia Pacific: 3 We have the most globally connected insurance
advisory team:

► We have a very strong presence in the insurance industry in Asia
Pacific with over 2,000 insurance professionals working in over
70 offices.
► Our Asia Pacific team advises our clients on a wide range of advisory
services, ranging from M&A transactions to operational performance
improvement.
► We have a global insurance sector dedicated to offering industry
insight and coordinating a network of more than 9,500
insurance professionals
► Our areas of expertise include accounting compliance and reporting,
financial accounting advisory services to work with regulators and
private sectors on the introduction of new and revised requirements
► Our teams are able to connect globally and access any relevant
expertise from around the globe

2 We have the largest actuarial team in ASEAN

and Asia Pacific:
EMEIA
3,900 insurance
professionals
238 offices
Actuaries
► EY’s Actuarial Advisory team in ASEAN has around 30 actuaries, the
300 in Asia Pacific
largest actuarial team in the ASEAN region, serving many life and
non-life insurers in all ASEAN markets. We are part of a wider Asia Americas Over 1,200 globally
Pacific Actuarial Advisory team which has 300+ actuaries, and we 3,500 insurance
work closely with our actuarial teams in Hong Kong, China, Korea, professionals
Australia etc. to assist project delivery in the rest of Asia
► Our team has worked on a variety of projects including appointed
actuary work, Prophet and MoSes development, product development
Asia Pacific
and regulatory approval, actuarial transformation, fund management,
asset liability management, actuarial reviews, transition support, 2,000 insurance
professionals
customer analytics and distribution, and model reviews
70+ offices

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