IFRS 4 (Life) Modeling the impact on products. Nazir Valani, FSA, FCIA, MAAA KPMG LLP Partner & National Leader, Actuarial Practice

Transcription

1 IFRS 4 (Life) Modeling the impact on products Nazir Valani, FSA, FCIA, MAAA KPMG LLP Partner & National Leader, Actuarial Practice December 5 th, 213

2 1 year Renewable and Convertible Term M Ns Age 4 Priced for 12% ROI using CTFS PPM reserves used as proxy to CALM Assumptions at Issue: PPM Best Estimates PADs Mortality: 65% x CIA 8692 M Ns N 1/e x Interest Rates: 3.9% 44bps (Padded rate is 2.65%) Lapse: 15%, 1%, 9%, 9%, 7% to age 7 (at EOY). 4% bump at renewals. 12.5% x sign[csv - res(no PAD)], use net res Expense: Per Policy (BOY) Acq. Year 1: $16 1% Maint Year 1+: $4 1% Inflation 1.5% none 2

3 1 year Renewable and Convertible Term M Ns Age 4 Best Estimates PPM Reserves PADs Block 1: Expected CFs Block 2: Time Value IFRS Reserves Block 3: Risk Adj. Mortality: 65% x CIA 8692 M Ns N 1/e x Same (PPM BE) n/a Same (PPM MfAD) Block 4: Contr. Serv. Margin Int. Rates: 3.9% 44bps (Padded rate 2.65%) n/a 2.31% none Lapse: 15%, 1%, 9%, 9%, 7% to age 7 (at EOY). 4% bump at renewals. 12.5% x sign[csv - res(no PAD)], use net res Same (PPM BE) n/a Same (PPM MfAD) Expense: Per Policy (BOY) Acquisition Year 1: $16 1% Year 1: $12 n/a Same (PPM MfAD) Maint Year 1+: $4 1% Year 1+: $36 n/a Same (PPM MfAD) Inflation 1.5% none Same (PPM BE) n/a none Unwinding over the life of the contract with Unpadded decrements 3

4 IFRS 4 P2 1Yr R&C Insurance Liability Insurance Contract Liability PPM Insurance Contract Liability -5 4

5 IFRS 4 P2 1Yr R&C Required Capital 6 5 Required Capital (2% Target Ratio) PPM Required Capital (2% Target Ratio)

6 IFRS 4 P2 1Yr R&C Total Balance Sheet Requirement Total Balance Sheet approach (Required Capital + Reserve) PPM Total Balance Sheet approach (Required Capital + Reserve) 6

7 IFRS 4 P2 1Yr R&C Statement Profits IFRS Total Statement Profit excluding tax PPM Total Statement Profit excluding tax 1 5 7

8 IFRS 4 P2 1Yr R&C Contribution to Free Surplus & ROI IRR (on CTFS) - 1years IFRS 8.% Need 15% increase in prem for 12% PPM 12.% Contribution to Free Surplus [CTFS] PPM Contribution to Free Surplus [CTFS] 8

9 IFRS 4 P2 1Yr R&C Free Surplus 8 6 Free surplus PPM Free surplus 4 2 (2) (4) (6) 9

10 1Yr R&C Statement of Comprehensive Income IFRS 4 P2 Liability Measurement IFRS 4 P1 Presentation of the Statement of Comprehensive Income Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Premium Income Net Investment Income (2) Total Revenue Gross Policy Benefits (28) (32) (35) (38) (4) Changes in Provision for Future Policy Benefits 142 (73) (63) (52) (46) Net Policy Benefits 114 (15) (98) (9) (87) Commissions (99) (1) (9) (9) (8) General Expenses (2) (35) (32) (29) (27) IIT and premium tax (5) (4) (4) (4) (4) Total Operating Expenses (34) (49) (45) (42) (39) Income Before Income Taxes Income Tax Expense (17) (17) (15) (14) (12) Net Income Other Comprehensive Income (net of taxes) Total Comprehensive Income

11 IFRS 4 P2 1Yr R&C Proposed Earned Premium Presentation IFRS 4 P2 Liability Measurement Proposed Earned Premium presentation under IFRS 4 P Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Insurance Contract Revenue Claims and Benefits Incurred (28) (32) (35) (38) (4) Repayments of Investment Components Recognized Acquisition Costs (33) (19) (15) (14) (1) Other Expenses (85) (49) (45) (42) (39) Changes in estimates of future CFs Underwriting Result (Gross Margin) Investment Income (2) Interest on Insurance Liability Profit or Loss Corporate Tax on Profit or Loss (17) (17) (15) (14) (12) Net Income Changes in Ins Contract liability due to discount rate Fair Value Movements in FVOCI assets Other Comprehensive Income (net of taxes) Total Comprehensive Income Breakdown of Insurance Contract Revenue Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Expected benefits (latest estimates) Acquisition Costs Recognized Expected Other Attributable Expenses (latest estimates) Contractual Service Margin Recognized Release of Risk Adjustment Insurance Contract Revenue

12 Non Par Whole Life Male NS Age 4 Priced for 12% ROE using CTFS PPM reserves used as proxy to CALM Assumptions at Issue: PPM Best Estimates PADs Mortality: 65% x CIA 8692 M Ns N 1/e x Interest Rates: 4.1% 54bps (Padded rate is 3.47%) Lapse: 1%, 7%, 5% for life (at EOY) 12.5% x sign[csv - res(no PAD)], use net res Expense: Per Policy (BOY) Acq. Year 1: $16 1% Maint Year 1+: $4 1% Inflation 1.5% none 12

13 Non Par Whole Life Male NS Age 4 Best Estimates PPM Reserves PADs Assumptions at Issue Block 1: Expected CFs IFRS Reserves Block 2: Time Value Block 3: Risk Adj. Block 4: Contr. Serv. Margin Mortality: 65% x CIA 8692 M Ns N 1/e x Same (PPM BE) n/a Same (PPM MfAD) Int. Rates: 4.1% 54bps (Padded rate is 3.47%) n/a 2.97% none Lapse: 1%, 7%, 5% for life (at EOY) 12.5% x sign[csv - res(no PAD)], use net res Same (PPM BE) n/a Same (PPM MfAD) Unwinding over the life of the contract (6 years) Expense: Per Policy (BOY) Acquisition Year 1: $16 1% Year 1: $12 n/a Same (PPM MfAD) Maint Year 1+: $4 1% Year 1+: $36 n/a Same (PPM MfAD) Inflation 1.5% none Same (PPM BE) n/a none 13

14 IFRS 4 P2 WL Insurance Liability 12, 1, 8, 6, 4, 2, 31Dec Insurance Contract Liability PPM Insurance Contract Liability -2, 14

15 IFRS 4 P2 WL Required Capital 1,4 1,2 1, Dec Required Capital (2% Target Ratio) PPM Required Capital (2% Target Ratio) 15

16 IFRS 4 P2 WL Total Balance Sheet Requirement 12, 1, 8, 6, 4, 2, Total Balance Sheet approach (Required Capital + Reserve) PPM Total Balance Sheet approach (Required Capital + Reserve) -2, 31Dec

17 IFRS 4 P2 WL Statement Profits IFRS Total Statement Profit excluding tax PPM Total Statement Profit excluding tax 17

18 IFRS 4 P2 WL Contributions to Free Surplus & ROI Dec IRR (on CTFS) - 3years -3 IFRS 9.7% Need 5.5% increase in prem for 12% PPM 12.% Contribution to free surplus [CTFS] PPM Contribution to free surplus [CTFS] -7 18

19 IFRS 4 P2 WL Free Surplus 1, 8, 6, 4, 2, 31Dec Free surplus PPM Free surplus (2,) 19

20 Single Premium Immediate Annuity (SPIA) Male age 65 PPM Reserves IFRS Reserves Best Estimates PADs Block 1: Expected CFs Block 2: Time Value Block 3: Risk Adj. Block 4: Contr. Serv. Margin Mortality: 9% x IAM83 Male 5% Same (as PPM Best Estimate) n/a Same (as PPM MfAD) Improvement: 1% to att age 9 and grading to % by att age 1 1% to att age 9 and then grading to % by att age 1 Int. Rates: 4.1% 54bps (Padded rate is 3.47%) n/a 2.97% none Lapse: n/a n/a Same (as PPM Best Estimate) n/a Same (as PPM MfAD) Expense: Per Policy (BOY) Acquisition Year 1: $16 1% Year 1: $12 n/a Same (as PPM MfAD) Maint Year 1+: $4 1% Year 1+: $36 n/a Same (as PPM MfAD) Inflation 1.5% none Same (as PPM Best Estimate) n/a none Unwinding over the life of the contract with Unpadded decrements 2

21 IFRS 4 P2 SPIA Insurance Liability 12, 1, 8, Insurance Contract Liability PPM Insurance Contract Liability 6, 4, 2, 21

22 IFRS 4 P2 SPIA Required Capital 4,5 4, 3,5 3, Required Capital (2% Target Ratio) PPM Required Capital (2% Target Ratio) 2,5 2, 1,5 1, 5 22

23 IFRS 4 P2 SPIA Total Balance Sheet Requirement 12, 1, 8, Total Balance Sheet approach (Required Capital + Reserve) PPM Total Balance Sheet approach (Required Capital + Reserve) 6, 4, 2, 23

24 IFRS 4 P2 SPIA Statement Profits 2, 1, (1,) (2,) (3,) (4,) IFRS Total Statement Profit excluding tax PPM Total Statement Profit excluding tax (5,) 24

25 IFRS 4 P2 SPIA Contributions to Free Surplus & ROI 2, -2, -4, IRR (on CTFS) IFRS 7.8% Need 1.5% decrease in annuity payments for 9.7% PPM 9.7% -6, -8, -1, Contribution to free surplus [CTFS] PPM Contribution to free surplus [CTFS] 25

26 IFRS 4 P2 SPIA Free Surplus 1, 8, 6, 4, 2, 31Dec Free surplus PPM Free surplus (2,) 26

27 IFRS 4 P2 SPIA Statement of Comprehensive Income IFRS 4 P2 Liability Measurement IFRS 4 P1 Presentation of the Statement of Comprehensive Income Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Premium Income 1, Net Investment Income 4,126 3,87 3,685 3,557 3,423 Total Revenue 14,126 3,87 3,685 3,557 3,423 Gross Policy Benefits (6,78) (6,78) (6,78) (6,78) (6,78) Changes in Provision for Future Policy Benefits (99,216) 3,873 3,989 4,18 4,23 Net Policy Benefits (15,996) (2,97) (2,791) (2,672) (2,55) Commissions (4,) General Expenses (2) (41) (41) (42) (42) IIT and premium tax Total Operating Expenses (4,2) (41) (41) (42) (42) Income Before Income Taxes (6,69) Income Tax Expense 1,821 (258) (256) (253) (249) Net Income (4,249) Other Comprehensive Income (net of taxes) Total Comprehensive Income (4,249)

28 IFRS 4 P2 SPIA Proposed Earned Premium Presentation IFRS 4 P2 Liability Measurement Proposed Earned Premium presentation under IFRS 4 P Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Insurance Contract Revenue 7,92 6,926 6,93 6,934 6,938 Claims and Benefits Incurred (6,78) (6,78) (6,78) (6,78) (6,78) Loss incurred on initial recognition (7,14) Repayments of Investment Components Recognized Acquisition Costs (31) (153) (157) (162) (167) Other Expenses (8) (41) (41) (42) (42) Changes in estimates of future CFs Underwriting Result (Gross Margin) (7,182) (47) (48) (49) (51) Investment Income 4,126 3,87 3,685 3,557 3,423 Interest on Insurance Liability (3,12) (2,9) (2,784) (2,664) (2,541) Profit or Loss (6,68) Corporate Tax on Profit or Loss 1,82 (258) (256) (253) (249) Net Income (4,248) Changes in Ins Contract liability due to discount rate Fair Value Movements in FVOCI assets Other Comprehensive Income (net of taxes) Total Comprehensive Income (4,248) Breakdown of Insurance Contract Revenue Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Expected benefits (latest estimates) 6,78 6,78 6,78 6,78 6,78 Acquisition Costs Recognized Expected Other Attributable Expenses (latest estimates) Contractual Service Margin Recognized Release of Risk Adjustment (34) (43) (44) (45) (47) Insurance Contract Revenue 7,92 6,926 6,93 6,934 6,938 28

29 IFRS 4 P2 SPIA Insurance Contract Revenue vs Premium Income 12, 1, Premium Income Insurance Contract Revenue 8, 6, 4, 2,