Whitepaper: Profit Emergence under IFRS 17

Variable Fee Approach (VFA)

With the introduction of the IFRS 17 accounting standard, it is important that insurers understand the patterns of profit emergence that arise under the standard, and how business and methodology decisions available to the insurer affect such patterns. As a principles-based standard, insurers have several immediate decisions to make in their specific implementation, and such decisions can have a major impact on the timing of reported profit and loss.

This is the second in a series of whitepapers where author Steven Morrison is looking at aspects of profit emergence under IFRS 17. The first whitepaper "Profit Emergence under IFRS 17: Gaining business insight through projection models" focuses on the impact of non-financial (longevity) risk on the IFRS 17 balance sheet and income statement for a group of annuity contracts. In this new paper, we turn our attention to financial risk and its impact on contracts with participation features.

Highlights:

Practical illustration of the impact of changes in the variable fee on the IFRS 17 balance sheet and P&L

Projection of P&L over coverage period under different economic scenarios

Differences in profit emergence between the Variable Fee Approach (VFA) and General Measurement Model (GMM)

The impact of risk mitigation