s2 and ifrs17

[i-actuary]

hello,
just reading the course notes and have the following question.
lets assume we have a product
1. plain vanila ul -benefit account value at any event (death, maturity and surrender)
2. sp pure endowment where the sp earns a gteed interest rate l.

so i was wondeting the following

under s2 both have non market risks including mortality and longevity.

under ifrs9/17 both resemble to ifrs 9(?)
so q1. are these under 9 or can be viewed under 17 as well ?
q2. is it possoble to argue that since there are insurance/non mkt risks these can be viewed as ifrs 17?

thank you

 

[Em Francis]

hello,
just reading the course notes and have the following question.
lets assume we have a product
1. plain vanila ul -benefit account value at any event (death, maturity and surrender)
2. sp pure endowment where the sp earns a gteed interest rate l.

so i was wondeting the following

under s2 both have non market risks including mortality and longevity.

under ifrs9/17 both resemble to ifrs 9(?)
so q1. are these under 9 or can be viewed under 17 as well ?
q2. is it possoble to argue that since there are insurance/non mkt risks these can be viewed as ifrs 17?

thank you

Hi

1. Under IFRS, the plain vanil;a UL benefit would only fall under IFRS1 17 if it meets the definition of an insurance contract (or a financial instrument with a discretionary participation feature) and so involves the insurer accepting a significant insurance risk. So for example, if there was any guaranteed death benefit, the benefit would need to be around 105% of unit fund (or greater). Otherwise it would be classified as an investment contract and fall under IFRS 9 and IAS 18.


2. An endowment involves the insurer accepting a significant insurance risk (think about the size of the sum at risk at early duration) and so will be valued under IFRS 17.

Hope this helps.
Thanks
Em

.

 

[i-actuary]

Hi

1. Under IFRS, the plain vanil;a UL benefit would only fall under IFRS1 17 if it meets the definition of an insurance contract (or a financial instrument with a discretionary participation feature) and so involves the insurer accepting a significant insurance risk. So for example, if there was any guaranteed death benefit, the benefit would need to be around 105% of unit fund (or greater). Otherwise it would be classified as an investment contract and fall under IFRS 9 and IAS 18.


2. An endowment involves the insurer accepting a significant insurance risk (think about the size of the sum at risk at early duration) and so will be valued under IFRS 17.

Hope this helps.
Thanks
Em

.

Thank you EM.

for an Endowment it is pretty clear as you spot. however for a Pure Endowment SP where the maturity benefit is something like SP*(1+i)^n where i a guaranteed interest rate and n the policy term ?

 

[i-actuary]

Hi

1. Under IFRS, the plain vanil;a UL benefit would only fall under IFRS1 17 if it meets the definition of an insurance contract (or a financial instrument with a discretionary participation feature) and so involves the insurer accepting a significant insurance risk. So for example, if there was any guaranteed death benefit, the benefit would need to be around 105% of unit fund (or greater). Otherwise it would be classified as an investment contract and fall under IFRS 9 and IAS 18.


2. An endowment involves the insurer accepting a significant insurance risk (think about the size of the sum at risk at early duration) and so will be valued under IFRS 17.

Hope this helps.
Thanks
Em

.

Hi Em,

if there is a SP endowment is it still under ifrs17 ? i remember in ST2 the notes stating that the investment risk is material (and maybe longevity risk)

 

[Em Francis]

Morning
Sorry, my comments under (2) was for an endowment assurance, whereas I can now see you are referring to a pure endowment. So please ignore my reference to sum at risk. However, the 'insured event' is survivorship and could therefore be argued to fall under IFRS 17.
The Core Reading does not go into this detail so you would not be expected to. There are still many discussions on this within the industry and it is not 100% clear, it will depend on the actual design.
Hope this helps.
Thanks
Em

 

[i-actuary]

Morning
Sorry, my comments under (2) was for an endowment assurance, whereas I can now see you are referring to a pure endowment. So please ignore my reference to sum at risk. However, the 'insured event' is survivorship and could therefore be argued to fall under IFRS 17.
The Core Reading does not go into this detail so you would not be expected to. There are still many discussions on this within the industry and it is not 100% clear, it will depend on the actual design.
Hope this helps.
Thanks
Em

no problem at all. if we go back to your example with sp endowment .i remeber from st2 that it has investment risk and longevity risk. would it be possible the sum at risk at the beggining to be material? in terms of s2 however longevity risk is not sagnificant (-20% in mort).

 

[Em Francis]

no problem at all. if we go back to your example with sp endowment .i remeber from st2 that it has investment risk and longevity risk. would it be possible the sum at risk at the beggining to be material? in terms of s2 however longevity risk is not sagnificant (-20% in mort).

Morning
For the endowment assurance (non-pure) then early on in the contract, mortality risk is more significant as SaR is more significant. I would say there is an investment risk throughout.
Sorry, I am not fully understanding your last pt re longevity and Solvency 2?

 

[lanceann]

Hello there, may I ask a follow-up question here?
is there any updates in SA2 Acted notes about IFRS 17 please? as I'm holding 2017 version, not sure if it's the latest. Thanks!

 

[Lindsay Smitherman]

The SA2 Core Reading and course materials for 2021 exams are significantly different from the 2017 version. Yes, there is now content on IFRS17 - but a lot of other changes too. If you are sitting the exam this year, you definitely need to purchase the updated materials in order to prepare for it.