1. Insurance IFRS Seminar December 2, 2016 Eric Lu Session 34
Discounting Workshop
Insurance IFRS Seminar December 2, 2016
Eric Lu
Session 34

2. Discount rates in the model
Considering the following examples, what is the most appropriate discount rate and why.
Use the following data, assuming flat yield curves and no taxes:
Rate
New money Corp A yields
4.0%
New money Gov’t yields
2.5%
Expected A defaults
0.2%
Risk adj for defaults on A bonds
1.0%
Expected yield on assets
5.3%
Liquidity adjustment for product
???

3. Non-par product Whole life non-par product
All terms are fixed at contract issue as at 31/12/2016
What is the appropriate discount rate?
31/12/2016
New money Corp A yields
4.0%
New money Gov’t yields
2.5%
Expected A defaults
0.2%
Risk adj for defaults on A bonds
1.0%
Expected yield on assets
5.3%
Liquidity adjustment for product
0.3%

4. Non-par product (Cont.)
What is the appropriate discount rate for 31/12/2017?
Change in liability that gets into P&L?
Change in liability that gets into balance sheet?
Interest accretion on CSM?
Is CSM unlocked for the change in discount rate?
31/12/2016
31/12/2017
New money Corp A yields
4.0%
3.8%
New money Gov’t yields
2.5%
2.3%
Expected A defaults
0.2%
Risk adj for defaults on A bonds
1.0%
Expected yield on assets
5.3%
5.0%
Liquidity adjustment for product
0.3%

5. Par product that qualifies for VFA
Whole life par product that qualifies for VFA
All terms are fixed at contract issue as at 31/12/2016
What is the appropriate discount rate?
31/12/2016
New money Corp A yields
4.0%
New money Gov’t yields
2.5%
Expected A defaults
0.2%
Risk adj for defaults on A bonds
1.0%
Expected yield on assets
5.3%
Liquidity adjustment for product
0.3%

6. Par product that qualifies for VFA (Cont.)
What is the appropriate discount rate for 31/12/2017?
Change in liability that gets into P&L?
Change in liability that gets into balance sheet?
CSM accretion?
Is CSM unlocked for the change in discount rate?
31/12/2016
31/12/2017
New money Corp A yields
4.0%
3.8%
New money Gov’t yields
2.5%
2.3%
Expected A defaults
0.2%
Risk adj for defaults on A bonds
1.0%
Expected yield on assets
5.3%
5.0%
Liquidity adjustment for product
0.3%

7. Par product that does not qualify for VFA
Whole life par product that does not qualify for VFA
All terms are fixed at contract issue as at 31/12/2016
What is the appropriate discount rate?
31/12/2016
New money Corp A yields
4.0%
New money Gov’t yields
2.5%
Expected A defaults
0.2%
Risk adj for defaults on A bonds
1.0%
Expected yield on assets
5.3%
Liquidity adjustment for product
0.3%

8. Par product that does not qualify for VFA (Cont.)
What is the appropriate discount rate for 31/12/2017?
Change in liability that gets into P&L?
Change in liability that gets into balance sheet?
CSM accretion?
Is CSM unlocked for the change in discount rate?
31/12/2016
31/12/2017
New money Corp A yields
4.0%
3.8%
New money Gov’t yields
2.5%
2.3%
Expected A defaults
0.2%
Risk adj for defaults on A bonds
1.0%
Expected yield on assets
5.3%
5.0%
Liquidity adjustment for product
0.3%

9. Transition Full Retrospective
What is the appropriate discount rate to determine initial CSM?
What is the appropriate discount rate at transition date?
Modified Retrospective
Fair Value