The Variable Fee Approach (VFA) measurement model is used by the International Financial Reporting Standard (IFRS) 17 for insurance contracts with direct participation features. The VFA measurement model refers to the fact that such contracts are characterized by a variable fee that the entity charges in exchange for investment-related services. The variable fee is treated differently under the VFA than under the General Measurement Model (GMM), resulting in different attribution between the insurance service and finance results, profit timing, and volatility.
Understanding whether existing contracts meet the eligibility criteria for the VFA is important to companies implementing IFRS 17 before 1 January 2022 and after as new contracts are written. This paper discusses the key criteria for VFA eligibility and how they could be assessed using stochastic scenarios.
Read “Using Stochastic Scenarios to assess Variable Fee Approach Eligibility” to learn more.