IFRS 17: For P&C Insurers

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1 IFRS 17: For P&C Insurers 26th Annual Insurance Conference Tuesday, November 28, 2017 kpmg.ca/insuranceconference2017

2 Objectives for today Benchmarking with your peers Current issues with the standard Constraints and execution challenges 2

3 How to vote Using your phone text to: with KPMG2927 to join the session For each of the poll questions, text A, B, C, D, etc. to KPMG2927 Your responses are completely anonymous. *Standard text messaging fees will apply. 3

4 Which IFRS 17 project phase is your company in? A) Haven t started yet B) Following the developments C) Project start-up phase D) Impact assessment phase E) Design phase F) Implementation phase A, B, C, D, E, F 4

5 KPMG IFRS 17 & 9 Benchmarking Survey Overview In which country is your company headquartered? Is your company a stand-alone entity or part of a large group of companies? Parent company of a group 43% Subsidiary of an insurance group 35% Stand-alone 5% Other 2% Subsidiary of a financial services group 15% 5

6 KPMG IFRS 17 & 9 Benchmarking Survey Overview What is your company s annual global premiums? (in US$) What type of insurer is your company predominantly? $500m or less 22% Insurance and Reinsurance 11% More than $10b 39% Life and Health insurer 36% $501m to $1b 8% Both Life and Health and P&C 36% $5.01b to $10b 11% $1.01b to $5b 20% Reinsurance 7% P&C insurer 10% 6

7 KPMG IFRS 17 Global Results Haven't started yet 7% Following the developments 21% Project start-up phase 24% Impact assessment phase 33% Design phase 13% Implementation phase 1% 7

8 Measurement model 8

9 When can the PAA be applied? YES Eligible for the PAA Is the coverage period of each contract in the group one year or less? NO Is the PAA a reasonable approximation to the BBA? NO YES Apply the BBA Eligible for the PAA 9

10 Where do you think your company will be? A) Only PAA, for sure B) Mostly PAA, few BBA (I hope not material) C) Heck with it, all BBA D) I do not know yet A, B, C, D 10

11 Significant policy decisions for P&C insurers Accounting for non-life insurers may have similarities to current practice, but major impacts may arise around %! Qualifying for the PAA Presentation through P&L or OCI Level of aggregation (Onerous contracts) Reinsurance 11

12 What is your Company most focused on as part of the impact assessment? A) Use of BBA vs. PAA B) P&L or OCI C) Level of aggregation (Onerous contracts) D) Treatment of reinsurance E) Data flow and system readiness A, B, C, D, E 12

13 Statement of Financial Position IFRS 4 IFRS 17 Assets Reinsurance unearned premiums Reinsurance unpaid claims Deferred acquisition expenses Assets Reinsurance contract assets Insurance contract assets Liabilities Unearned premiums Unpaid claims Unearned commission Premium deficiency reserve Liabilities Insurance contract liabilities - remaining coverage (premium liabilities) - incurred claims (claim liabilities) Reinsurance contract liabilities Key messages Groups of insurance (or reinsurance) contracts that are in an asset position are presented separately from groups of insurance (or reinsurance) contracts that are in a liability position Deferred acquisition expense asset no longer exists, as DAC are directly deducted from unearned premiums 13

14 Statement of Profit or Loss Current IFRS IFRS 17 Premiums earned 10,000 Incurred claims and expenses (9,500) Underwriting result 500 Investment income 291 Insurance contract revenue 10,000 Insurance claims and expenses (9,259) Insurance service result 741 Investment income 291 Insurance finance expense (241) Net financial result 50 Income tax (222) Profit or loss 570 Fair value movements on FVOCI assets - OCI related income tax - Total comprehensive income 570 Income tax (222) Profit or loss 570 Discount rate changes on insurance liability - Fair value movements on FVOCI assets - OCI related income tax - Total comprehensive income 570 Simplifying Assumptions No surplus assets: assets are equal to claim liabilities Investment income on invested claim liabilities plus additional insurance cash flows No change in effective discount rate or risk margin Key message The insurance finance expense element isolates the investment income related to investing the claim liabilities (expected unwind of the discount). 14

15 Do you currently expect to experience significant resource challenges in implementing IFRS 17 and 9? A) Yes securing adequate budget B) Yes securing adequate skilled people C) No I have secured the budget I need D) No I have secured the personnel I need A, B, C, D 15

16 KPMG IFRS 17 and 9 Global Results Yes securing adequate budget 58% Yes securing sufficient skilled people 77% No I have secured the budget I need 14% No I have secured the personnel I need 6% Other 5% 16

17 How are companies dealing with the constraints? Outsourcing elements of the project Client-led project; Co-sourcing with external experts Skilled resources (accounting, tax, actuarial, systems) 17

18 Objectives for today Benchmarking with your peers Current issues with the standard Constraints and execution challenges 18

19 Contact us Hudson Lopez Partner Insurance T: E: Pierre Lepage Partner P&C Actuarial T: E: Terri Fotheringham Partner Tax T: E: 19

20 Thank you!

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