IFRS 17 – Feedback statement

Core measurement approach "The Board confirmed the core measurement approach proposed in the 2010 and 2013 Exposure Drafts and took a number of steps to address the feedback on the determination of the inputs for the measurement of insurance contracts. The following pages include further information about the steps taken by the Board. The Board also developed a simplified approach to measure some simpler insurance contracts (see 5.3—Premium allocation approach)."…

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MCR – Minimum Capital Requirement

The concept of the MCR (Minium Capital Requirement) is rather straightforward. Under the Solvency II regime it is the minimum capital requirement for an insurance company to write business. If the SCR (Solvency Capital Requirement) is breached it is a serious matter. If the MCR is breached it is even worse. Find out how it is calculated below. Calculation The calculation of the MCR follows 5 steps. 1)  Calculate the…

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Binary Events

The concept of Events Not In Data – ENID – is new in terms of terminology. It has also been called Binary Events. It refers to events that may happen in the future and then have a negative impact on the companies loss-ratio. The Low Frequency High Severity events is likely to be included here. Asbestos was an example of a typical ENID. Nowadays since these are in the data…

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Quantitative Reporting Templates

Since implementation of Solvency II on 1 January 2016 insurance companies (in the wider sense) should report QRTs (Quantitative Reporting Templates) quarterly to their supervisor. Some of templates only has to reported yearly. The main templates are: S.02  Balance sheet S.23  Own Funds S.25  SCR S.28  MCR S.12/S.17  Technical Provisions The templates are available here, and through several software programs. Detailed rules are available in the Commission Implementing Regulation, please…

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Non-Life Technical Provisions – Solvency II

Introduction A previous post focused on IFRS reserves. This post is focusing on Solvency II reserves. Some of the Solvency II requirements for technical provisions are challenging compared to the IFRS requirements. The regulation is spread over the Directive – Level 1 and Level 2 and 3. The aim of this text is to provide tidy and useful insights on the subject. The Why Technical provisions are usually the largest…

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Audit – explained in 5 steps

For a financial statement audit the overall objective is to gather enough audit evidence to be able to issue an opinion, on management assertions.   Phases of the work Management Assertions One way to describe these are through the below six items, PCAOB/ASB Key Question Procedures Completeness All transactions recorded? In the right period? Inspection, tracing/vouching Existence Assets really exist? Transactions really occurred? Inspection Accuracy Transactions recorded accurately? Inspection Valuation…

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IFRS 4 – Insurance Contracts

Scope IFRS 4 Insurance Contracts applies, with limited exceptions, to all insurance contracts (including reinsurance contracts) that an entity issues and to reinsurance contracts that it holds. IFRS 4 was issued in March 2004 and applies to annual periods beginning on or after 1 January 2005. Definition of insurance contract An insurance contract is a "contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to…

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Reserving Techniques – Chain-Ladder

The Chain-Ladder is an reserving technique often used to predict future claims for an insurance company. It uses run-off triangle of paid or incurred losses. There are several considerations as not to distort the numbers, for instance changes in premium. This subject can be made arbitrary complex however for the purpose in this text we assume that this has been handled and we focus on the practical steps to be…

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IFRS 9 – Financial Instruments

IFRS 9 is in force as at 1 January 2018. IFRS 9 establishes principles for the financial reporting of financial assets and financial liabilities. At the moment you start selling on credit and issue invoices, you acquire the financial instruments – trade receivables.And IFRS 9 applies. - IFRS 9 does not define financial instruments. - IFRS 9 does not deal with your own equity instruments like your own shares, issued…

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Solvency II – The Directive

Solvency capital requirements are part of the Solvency II Insurance Directive issued by the European Union (EU) in 2009. The directive aims to coordinate laws and regulations of the 28 EU members as they relate to the insurance industry. If the supervisory authorities determine that the requirement does not adequately reflect the risk associated with a particular type of insurance, it can adjust the capital requirement higher. Solvency II bring a market-consistent and risk-based…

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