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IFRS 17: How’s your biggest accounting standard implementation going? Thursday, December 6, 2018 | #KPMGIC
2© 2018 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Contact us
Partner & Accounting
Change Leader
T: 416 777 8695
Partner, Advisory,
Management Consulting
T: 416 777 8803
Dana Chaput Zaid Hoosain
Senior Manager,
Life Actuarial Practice
T: 416 777 3704
Alison Rose
3© 2018 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Implementation challenges for life insurers
Designing an initial recognition process for insurance contracts issued
Responding to
uncertainty and
differences relating to
reinsurance contracts
held
Updating reporting &
analysis
4© 2018 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
“Sets” vs. individual contracts Initial recognition Reinsurance
Reporting & analysis
“If an entity has reasonable andsupportable information to concludethat a set of contracts will all be in thesame group applying paragraph 16, itmay measure the set of contracts todetermine if the contracts are onerous…and assess if the set of contracts todetermine if the contracts have nosignificant possibility of becomingonerous.”
[IFRS 17.17]
Source: KPMG’s First Impressions: Insurance Contracts (July 2017)
5© 2018 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
The journey so far… and yet to come Initial recognition Reinsurance
Reporting & analysis
Settled Items
Separation of components
Initial recognition
Estimates of future cash flows
Issues still to be decided
Initial recognition when underlying contracts are
onerous
Ineligibility for the VFA
6© 2018 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Separation of components Initial recognition Reinsurance
Reporting & analysis
Legal form Substance
In general, IFRS presumes…
However, there might be circumstances where the legal form of a single contract would not reflect its substance… • Are (or are likely to be) the subject of separate transactions; • Expire (or are likely to expire) in different patterns;• Are not used together in the context of business activities; • Lacking interdependent cash flows; • Have dissimilar economic characteristics and risks
A single treaty covering underlying contracts that are included in different groups is not, in itself, sufficient to conclude that the substance is different than the legal form.
[Para. 24, AP 01, February 2018 TRG Meeting]
7© 2018 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Initial recognition & estimates of future cash flows
X Underlying contract within the contract boundaryX Underlying contract outside the contract boundary
For proportional reinsurance, initial recognition occurs at the later of the:• Beginning of the coverage period, OR • At the initial recognition of the underlying contract(s).
Initial recognition Reinsurance
Reporting & analysis
Jan. 1
Jan. 15
Mar. 31
Apr. 15
June 1
90 day termination period
8© 2018 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Initial recognition & estimates of future cash flows
X Underlying contract within the contract boundaryX Underlying contract outside the contract boundary
For proportional reinsurance, initial recognition occurs at the later of the:• Beginning of the coverage period, OR • At the initial recognition of the underlying contract(s).
Initial recognition Reinsurance
Reporting & analysis
Jan. 1
Jan. 15
Mar. 31
Apr. 15
June 1
90 day termination period
9© 2018 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Disclosures of recognized amounts Initial recognition Reinsurance
Reporting & analysis
Reconciliations for remaining coverage and incurred claims explain how line items in the statement of financial performance are linked to changes in carrying amounts.
Source: Illustrative Disclosures for Insurers, pages 136–137
Separate revenue disclosure for contracts under modified retrospective or fair value approach
Analysis of insurance service expenses
Investment components excluded from insurance service result
More transparency into onerous contracts
10© 2018 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Disclosures of recognized amounts Initial recognition Reinsurance
Reconciliations by building block component depict sources of profit
Source: Illustrative Disclosures for Insurers, pages 138–139
Reporting & analysis
CSM from new contracts issued during the period
Separate CSM reconciliation for new contracts under the
various transition approaches
Separation of changes relating to current, future and past services
Changes incomponents that affect future profitability
11© 2018 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Client Journey – OverviewThe following is a journey being taken by a Canadian insurance company to select and implement a centralized IFRS17 engine.
Develop RFP Evaluate RFPVendor(s)
RecommendationPOC and
ImplementationCentralized
IFRS17 EngineDevelop
Requirements
• Overall IT architecture design• Prototyped an IFRS17
calculation engine in Python/Tableau to develop functional and technical requirements
• Worked with the client to develop RFP for IFRS17 calculation engine
• RFP issued to vendors
2 months
6 months
• Developed vendor solution evaluation framework
• Worked with the client to evaluation RFP written responses and vendor demos
2 months
• Preferred vendors are selected for a Proof-of-Concept
• Worked with clients to develop POC data, test scenarios, and expected results using prototype calculator
On-going
Thank you
kpmg.ca
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
© 2018 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 18721
The KPMG name and logo are registered trademarks or trademarks of KPMG International.
