Client

A large South African bancassurer approached MBE to perform an impact assessment of IFRS 17 for their life and short-term insurance products to compare the calculation requirements and results of IFRS 4 and IFRS 17, under both the General Measurement Model (GMM) and Premium Allocation Approach (PAA).

Challenge

The impact assessment was set up to examine four products, two life and
two short-term. This was to ensure that the range of different factors which could impact results would be captured in the assessment. Two goals were set:

  • Compile a gap analysis to understand the model, systems and methodology requirements of IFRS 17 and assign priorities in the IFRS 17 programme.
  • Investigate the expected profit signatures under IFRS 17 since the main areas of concern were profit emergence under IFRS 17 and the associated tax implications.

Approach

Our project team used MBE’s proprietary Excel-based simulation and modelling tool, IFRS Assess, to assist the client in achieving their goals.

Data Collection

The first step was to collect all of the cashflow data, which indicated
that gaps existed in the current models under IFRS 17. Based on this the
following decisions were made and fully documented:

  • Transitional approach: the available data showed that the best approach
    would be the Modified Retrospective Approach.
  • IFRS 17 groups: Cohorts were split into yearly groups for simplicity and profitability groups were assigned by calculating the VNB of each
    contract at the transition date.
  • Discount rates: for simplicity, the IFRS 4 discount rates were used.
  • Risk Adjustment: A cost of capital method, based on stressed BELs, was selected.

Customising IFRS Assess 

The data was sourced and formatted and MBE configured IFRS Assess to ensure that all material assumptions, data gaps and product features were taken into account. For greater granularity the model was converted to produce quarterly calculations.

Results

The initial results gave an indication of what effect the IFRS 17 methodology, mainly the Risk Adjustment and coverage units, could have on the results. These methodologies could then be adjusted by the client as required.

After all the necessary changes were made to the data and model, numbers were generated for the GMM and the PAA that could be compared to the current results from IFRS 4 for different scenarios.

Testimonial

”I am extremely satisfied with the outcome of our collaboration with MBE. The initial results provided valuable insights into the impact of the IFRS 17 methodology on our business and allowed us to make the necessary adjustments. The final numbers for the GMM and the PAA were very promising and I’m confident that we’ll be able to achieve our goals using this approach.”

Head of Actuarial