Life insurance business – All life insurance contract and life investment contract business conducted by a life insurer. Here are the specific life insurance contract and life investment contract definitions of terms.
Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured person (often the policy holder). Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policy holder typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral expenses, can also be included in the benefits.
Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot, and civil commotion.
Disclosure items:
Summary of measurement approaches
The Group uses different measurement approaches, depending on the type of contracts, as follows:
| Product classification | Measurement model | |
| Contracts issued | ||
| Term life insurance contracts | Insurance contracts | General Model of Measurement |
| Universal life insurance contracts | Insurance contracts without direct participation features | General model of measurement |
| Reinsurance contracts held | ||
| Term life – quota share reinsurance | Reinsurance contract held | General model of measurement |
For Life Risk and Savings product lines, sets of contracts usually correspond to policyholder pricing groups that the Group determined to have similar insurance risk and that are priced within the same insurance rate ranges. The Group monitors the profitability of contracts within portfolios and the likelihood of changes in insurance, financial and other exposures resulting in these contracts becoming onerous at the level of these pricing groups with no information available at a more granular level. (IFRS 17 17, IFRS 17 19)
Contract boundary
The Group’s quota share life reinsurance agreements held have an unlimited duration but are cancellable for new underlying business with a one-year notice period by either party. Thus, the Group treats such reinsurance contracts as a series of annual contracts that cover underlying business issued within a year. Estimates of future cash flows arising from all underlying contracts issued and expected to be issued within one-year’s boundary are included in each of the reinsurance contracts’ measurement. (IFRS 17 34)
Release of the CSM to profit or loss
The amount of the CSM recognised in profit or loss for services in the period is determined by the allocation of the CSM remaining at the end of the reporting period over the current and remaining expected coverage period of the group of insurance contracts based on coverage units. [IFRS 17 44(e), IFRS 17 45(e), IFRS 17 B5, IFRS 17 B119]
For contracts issued, the Group determines the coverage period for the CSM recognition as follows:
- for term life and universal life insurance contracts, the coverage period corresponds to the policy coverage for mortality risk;
- for direct participating contracts and for investment contracts with DPF, the coverage period corresponds to the period in which insurance or investment management services are expected to be provided; and
- for automobile insurance contracts acquired in the run-off period, management estimates the expected timeframe over which the ultimate cost of the claims is expected to be determined.
The Group determines coverage units as follows:
- for term life and universal life insurance contracts, coverage units are determined based on the policies’ face values that are equal to the fixed death benefit amounts;
- for direct participating contracts, coverage units are based on the fixed death benefits amounts (during the insurance coverage period) plus policyholders’ account values;
- for investment contracts with DPF, coverage units are based on policyholders’ account values;
- for automobile insurance contracts acquired in the run-off period, coverage units are based on the expected amount of claims covered in the period and the expected amount of claims remaining to be covered in future periods.
Coverage units for the proportionate term life reinsurance contracts are based on the insurance coverage provided by the reinsurer and are determined by the ceded policies’ fixed face values taking into account new business projected within the reinsurance contract boundary.
The coverage period for these contracts is determined based on the coverage of all underlying contracts whose cash flows are included in the reinsurance contract boundary. Refer to the Contract boundary section above.
Estimates of future cash flows to fulfil insurance contracts
For the Life Risk and Savings contracts, uncertainty in the estimation of future claims and benefit payments and premium receipts arises primarily from the unpredictability of long-term changes in the mortality rates, the variability in the policyholder behaviour and uncertainties regarding future inflation rates and expenses growth.
Mortality – Life Risk, Savings and Participating contracts (excluding investment contracts without DPF)
The Group derives mortality rates assumptions from the recent credible national mortality tables published by the Life Insurance Actuarial Society. An investigation into the Group’s experience over the most recent five years is performed, and statistical methods are used to adjust the mortality tables to produce the probability weighted expected mortality rates in the future over the duration of the insurance contracts. Mortality rates are differentiated between policyholder groups based on gender and smoker status. [IFRS 17 117(a)]
Assumptions and methods used to derive mortality assumptions have not changed in 20X4. The following mortality assumptions were used: [IFRS 17 117(b)]
A possible increase in mortality rates increases estimates of future cash outflows and thus decreases the CSM. For a sensitivity analysis, refer to note 2.2.4.1.
Persistency – Life Risk, Savings and Participating contracts (excluding investment contracts without DPF)
The Group derives assumptions about lapse and surrender rates based on the Group’s own experience. Historical lapse and surrender rates are derived from the Group’s policy administration data. An analysis is then performed of the Group’s historical rates in comparison to the assumptions previously used. Statistical methods are used to derive adjustments to reflect the Group’s own experience and any trends in the data to arrive at the probability weighted expected lapse and surrender rates. Analysis is performed and assumptions are set by major product line. [IFRS 17 117(a)]
The following assumptions about lapse and surrender rates were used. Changes in assumptions in 20X4 reflect new projections made using the Group’s most recent experience. Methods used to derive these assumptions have not changed in 20X4. [IFRS 17 117(b)]
Possible increases in lapse and surrender rates may increase or decrease estimates of future cash outflows and thus decrease or increase the CSM depending on the product specifics. For a sensitivity analysis, refer to note 2.2.4.1.
Expenses – Life Risk, Savings and Participating contracts (excluding investment contracts without DPF) and Property and Casualty contracts
The Group projects estimates of future expenses relating to fulfilment of contracts in the scope of IFRS 17 using current expense levels adjusted for inflation. Expenses comprise expenses directly attributable to the groups of contracts including an allocation of fixed and variable overheads. In addition, under certain methods used to assess claims incurred for the Property and Casualty contracts, estimates of future claim payments are adjusted for inflation. [IFRS 17 117(a)]
Where asset management services are provided for the insurance operational segments as part of contractual arrangements with policyholders, the Group projects future expenses based on the direct costs as incurred by the Group rather than based on management fees charged explicitly to the policyholder account values or internal fees charged to the insurance operating segments for providing these services.
The expense inflation assumption is based on Oneland’s retail price inflation swap curve adjusted to the Group’s own experience and is considered to be a non-financial risk. The Group has not changed its methods or assumptions used to project expenses in 20X4. [IFRS 17 117(a)-(b), IFRS 17 B128(b)]
Possible increases in expense assumptions increase estimates of future cash outflows and thus decrease the CSM within the LRC for contracts measured under the GMM and increase the LIC for Property and Casualty contracts measured under the PAA. For a sensitivity analysis, refer to note 2.2.4.
2.2.4. Sensitivity analysis to underwriting risk variables
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Sensitivity analysis to underwriting risk variables IFRS 17 128-129 Entities are required to disclose a sensitivity analysis to demonstrate the impact of reasonably possible changes in risk variables at the end of the reporting period on profit or loss and equity. For insurance risk, the standard requires demonstrating the impact of changes in risk variables before and after risk mitigation by reinsurance contracts held. This disclosure is also required by IFRS 4 and IFRS 7. IFRS 17(129) allows entities to provide a sensitivity analysis to risk variables different from those described above provided that entities use such analysis for their risk management purposes. Additional disclosures are required if entities chose to provide an alternative sensitivity analysis. |
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Food for thought – Sensitivity analysis to underwriting risk variables In addition to the IFRS 17(128)(a) requirement to disclose the impacts of reasonably possible changes in risk variables on profit or loss and equity, the Group also provided information on the impacts of changes in risk variables on the contract measurement components (i.e. the FCF and the CSM) and the net impact on insurance contract balances, as well as the CSM remaining after the possible change. The purpose of the additional disclosure is to provide readers with a better understanding of the impacts of possible changes on measurement components within insurance contract balances. The FCF and the CSM are not fully symmetrically impacted by possible changes in assumptions. A few reasons for this are:
The CSM shall be adjusted for possible changes in the FCF relating to future service before CSM amortisation is recognised in profit or loss for the reporting period. Therefore, the impact on the CSM included in the sensitivity analysis above is shown after the impact of changes in the FCF on CSM amortisation for the reporting period. [IFRS 17 44(e), IFRS 17 45 (e), IFRS 17 66(e)] The analysis of Participating contracts sensitivities to changes in mortality assumptions is not provided in the tables above as these contracts of the Group have insignificant sensitivity to mortality risk. |
Definitions in IFRS 17 Insurance contracts
Life insurance contract – An insurance contract, or a financial instrument with a discretionary participation feature, issued by a life insurer.
Life insurance liability – A life insurer’s net contractual obligations under a life insurance contract.
Life insurer – An entity operating under a Life Insurance Act (or similar act, law or rule) in the domicily country and similar entities operating outside that country.
Life investment contract – A contract which is not an insurance contract but is issued by life insurers, and gives rise to a financial asset and financial liability. An investment contract cannot be a contract exempted from the definition of an insurance contract.
Life investment liability – A life insurer’s net contractual obligations under a life investment contract which arise under the financial instrument component of a life investment contract.
Life reinsurance contract – A life insurance contract issued by one insurer (the reinsurer) to compensate another insurer (the cedant) for losses on one or more contracts issued by the cedant.
Policy liability – A liability that arises under a life insurance contract or a life investment contract including any asset or liability arising in respect of the management services element of a life investment contract.
Term life insurance contracts – Term life insurance, also known as pure life insurance, is life insurance that guarantees payment of a stated death benefit during a specified term. Once the term expires, the policyholder can either renew for another term, convert to permanent coverage, or allow the policy to terminate.
Universal life insurance contracts – Universal life insurance is permanent life insurance with an investment savings element and low premiums like term life insurance. Most universal life insurance policies contain a flexible premium option. However, some require a single premium (single lump-sum premium) or fixed premiums (scheduled fixed premiums).
Life insurance business
Life insurance business
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