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IFRS17 - Unit linked

A

ahtohallan

Keen member
Hi there

In section 2.5 of CH16 - do these "investment contracts" refer to unit trust investment that do not have any insurance/ life cover element?

Then under the VFA approach, does the BEL for the unit linked contracts here need to be assessed separately as is done for SII?
Under this approach, why is the variable fee treated as a transfer of funds within the insurer and not seen as a cashflow?
Are only premiums/ benefit movements seen as cashflows?

Thanks so much!
 
A policy would be classified as an investment contract if the insurer was not taking on 'significant insurance risk' under it. So there could still be a death benefit, it just wouldn't be one that created 'significant insurance risk'. So, a UL pension accumulation product where the death benefit = unit fund value (say) would be classified as an 'investment contract'.

I'm not sure what you mean by the BEL needing to be 'assessed separately'. Did you mean unbundling the unit and non-unit components? The calculation would still be done in the same way: unit reserve and non-unit reserve components.

I would suggest that you read the following thread to help with your understanding of the variable fee:
https://www.acted.co.uk/forums/index.php?threads/ch-17-variable-fee-approach.15517/
 
Lindsay Smitherman said:
A policy would be classified as an investment contract if the insurer was not taking on 'significant insurance risk' under it. So there could still be a death benefit, it just wouldn't be one that created 'significant insurance risk'. So, a UL pension accumulation product where the death benefit = unit fund value (say) would be classified as an 'investment contract'.
Click to expand...
That means a UL product with a death benefit of max(110% of total premium paid, fund value) would still be considered an insurance contract?
 
Lindsay Smitherman said:
A policy would be classified as an investment contract if the insurer was not taking on 'significant insurance risk' under it. So there could still be a death benefit, it just wouldn't be one that created 'significant insurance risk'. So, a UL pension accumulation product where the death benefit = unit fund value (say) would be classified as an 'investment contract'.

I'm not sure what you mean by the BEL needing to be 'assessed separately'. Did you mean unbundling the unit and non-unit components? The calculation would still be done in the same way: unit reserve and non-unit reserve components.

I would suggest that you read the following thread to help with your understanding of the variable fee:
https://www.acted.co.uk/forums/index.php?threads/ch-17-variable-fee-approach.15517/
Click to expand...
Thanks Lindsay

Apologies, the question is whether the entire Unit linked contract, asset and liability side fall under the VFA of IFRS17. Or does the asset side fall under the IFRS9 and the liabilities side (unit and non unit) fall under IFRS17?
Thanks, it is also useful to know that the BEL is also split for unit and non-unit under IFRS17
 
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