IFRS17 - GMM and VFA assumption change impact on CSM

[ahtohallan]

Hi there,

In Ch 16, under the GMM approach: the notes refer to the feature of the CSM where changes to the BEL and RM as a result of assumptions changes, are offset by the CSM. Are these specific to non-investment assumptions?

In the VFA section the notes mention that the change in the YC does not unlock the CSM for the GMM approach. Are there any investment assumptions in the IFRS BEL/ RM? Do changes in these assumptions also not unlock the GMM CSM?

For the VFA method, does the CSM not unlock for non-investment assumptions but rather only for the discount rate assumption?
Does the VFA also require a yield curve for the WP business?

Thank you in advance!

 

[Lindsay Smitherman]

In Ch 16, under the GMM approach: the notes refer to the feature of the CSM where changes to the BEL and RM as a result of assumptions changes, are offset by the CSM. Are these specific to non-investment assumptions?

The Core Reading only refers to this unlocking taking place for 'assumption changes', ie a pretty general statement, but in actuality yes this would only be done for assumptions such as mortality, lapses, expenses. The CSM would not be amended if the discount rate changed. [However, since the Core Reading doesn't state this, the Examiners shouldn't expect you to know that detail.]

 

[Lindsay Smitherman]

In the VFA section the notes mention that the change in the YC does not unlock the CSM for the GMM approach. Are there any investment assumptions in the IFRS BEL/ RM? Do changes in these assumptions also not unlock the GMM CSM?

The GMM approach applies to conventional without-profits business, and the only 'investment-related' assumption needed to value such business is the discount rate (which would be the risk-free yield curve under the GMM).

 

[Lindsay Smitherman]

For the VFA method, does the CSM not unlock for non-investment assumptions but rather only for the discount rate assumption?

The rules for CSM unlocking under the VFA are the same as under the GMM, except that under the VFA there is now also unlocking for changes in the discount rate. So the CSM does still get unlocked for changes in mortality etc under the VFA.

 

[Lindsay Smitherman]

Does the VFA also require a yield curve for the WP business?

There still needs to be a discount rate to value such liabilities, but for all contracts under the VFA (whether UL or WP) this is set based on the actual assets held, rather than using the basic risk-free yield curve.

 

[ahtohallan]

Thank you Lindsay! So incredibly helpful