IFRS17 is a new international financial reporting standard formulated by the International Accounting Standards Board (IASB). The new "Standard" is very different from the currently used accounting standards for insurance contracts. It has many revolutionary changes and is aimed at the insurance industry. Financial reports will be more transparent, increasing the comparability of statements between the insurance industry and other industries.

Applicable to all types of insurance contracts, including life, non-life and reinsurance contracts

Effective from 1 January 2023, replacing existing IFRS 4

Development history

Original address: https://kjs.mof.gov.cn/zt/kjzzss/kuaijizhunzeshishi/202202/t20220224_3790240.htm

The Chinese version of IFRS17 is "Accounting Standards for Business Enterprises No. 25 - Insurance Contracts", which was released by the Accounting Department of the Ministry of Finance in December 2020. Listed insurance companies will implement it from January 1, 2023, and other insurance companies will start from 2026. Effective from January 1, 2020 (advance is encouraged)

The contents of the "Standards" are basically consistent with IFRS17, but implementation is difficult and costly. This reflects my country's determination to converge with international accounting standards and embrace openness.

Development history

The recognition time span of income and expenses of insurance contracts is inconsistent

Income (including investment components) is less comparable across industries

Low profit transparency

Focus on the development of long-term protection products and promote high-quality development of the industry

Premium income has dropped significantly, and only a small part of savings insurance premiums can be recognized as income.

Profit disclosure is more transparent and provides a better understanding of the profit sources of insurance contracts

The implementation cost of switching to the new standard is high, requiring large investment in IT, finance and actuarial science

Need to reassess and measure insurance contracts

Need to adjust accounting policies and procedures

Need to strengthen risk management and internal controls

The financial position and performance of insurance companies need to be reassessed

Need to pay attention to insurance contract classification and measurement methods of insurance companies

Need to pay attention to the insurance contract disclosure information of insurance companies

Operating income is stretched over the entire insurance period to match the timing of operating expenses.

The income from investment components will be eliminated, which will greatly squeeze operating income and have a huge impact on savings insurance, including incremental life insurance.

Use the Contractual Service Margin (CSM) in place of the current standard residual margin (DPL).

CSM is calculated using a rolling approach rather than an amortization approach, which can absorb the future impact of changes in non-economic assumptions such as mortality and disease incidence.

CSM will be gradually unlocked during the period when insurance services are provided in the future, making profits smoother.

Emphasizing the fair value measurement of insurance liabilities, the discount rate assumption is changed from the 750-day moving average to the market spot interest rate based on the reporting time point, which matches the fair value of the asset side of IFRS9.

Financial reporting is more accurate, but can lead to increased volatility.

On the one hand, the caliber of operating income has changed, and on the other hand, the reserve transfer difference under the current standards has been broken down in more detail.

The profits of insurance companies are split into two parts: underwriting profits and investment profits. The black box of reserves is opened, and financial report disclosures are made clearer and more transparent.

The definition of an insurance contract under the new standards is no different from the current standards. It refers to an agreement between the contract issuer and the policyholder to assume significant insurance risks arising from the policyholder when a specific insurance event has an adverse impact on the policyholder. contract.

Insurance risk refers to the non-financial risk transferred from the policy holder to the contract issuer, such as death, longevity, disease risk, etc.

Insurance events refer to uncertain future events that generate insurance risks.

There is no difference between the definition of insurance contract under IFRS17 and the definition under the current standard.

Under the current standards, investment contracts with optional participation in dividends do not transfer significant insurance risks and do not meet the definition of insurance contracts. Therefore, such contracts must be treated in accordance with the Financial Instruments Standard (IFRS9), regardless of whether the enterprise that issues the contract also issues insurance. contract.

The so-called characteristics of camera participation in dividends are to look at the actual operating results based on the timing, and the timing of the summary is uncertain and the amount is uncertain.

However, under IFRS17, investment contracts with camera participation in dividends issued by enterprises that also issue insurance contracts are allowed to apply IFRS17.

The main purpose of this provision is consistency, as such contracts often have similar characteristics to insurance contracts linked to returns on underlying asset projects, such as longer terms, the presence of renewal payments and higher acquisition costs, and sometimes even The same underlying asset items will be linked to the insurance contract.

If consistency is not maintained, such contracts will be classified as equity components according to IFRS9, which will lead to a significant increase in measurement workload and complexity.

At present, there are very few investment contracts issued by domestic insurance companies that automatically participate in dividend features. They are mainly dividend product contracts that have not passed major insurance risk tests. Therefore, different applicable standards for such contracts will not have a significant impact on insurance companies.

In addition, investment contracts that do not have the characteristics of automatic participation in dividends, that is, ordinary product contracts that have not passed the major insurance risk test, will still be subject to IFRS 9 measurement after the implementation of IFRS 17.

Investment contracts with camera dividend features are subject to different old and new standards, but will not have a significant impact on insurance companies

Contracts that meet the definition of an insurance contract, provide services mainly on a fixed fee basis and meet the following three conditions at the same time are allowed but not required to apply the revenue standard (IFRS15) to them under IFRS17. Of course, IFRS17 can also be applied.

Such contracts are commonly seen in medical green passes, emergency rescue contracts, etc. Under the old standards, IFRS15 is applicable, and under the new standards, you can choose between IFRS17 and IFRS15.

For fixed fee service contracts, a choice must be made at each contract level to apply IFRS17 or IFRS15, giving more flexibility to the standard.

This type of contract may meet the definition of an insurance contract. Common types include:

The IFRS17 revision in June 2020 provides exemptions for such contracts, which will allow catastrophe bond investors and lenders of life mortgage products to use IFRS9 instead of IFRS17 for financial assets that meet the exemption conditions.

The amount of compensation is limited to contracts that liquidate the policyholder's payment obligations arising from the contract. A choice needs to be made at the insurance contract portfolio level to apply IFRS17 or IFRS9.

For details on the contract merger requirements of the new Code, please see Article 8

In addition, the implementation of IFRS17 will also have some impact on the measurement of primary and secondary insurance.

Situations for contract merger evaluation include, but are not limited to, the following examples:

In practice, when judging whether primary and additional insurance policies need to be merged, the following perspectives can be considered:

There are two general practices currently practiced in the industry:

For most insurance companies, the first type of "can be dismantled and dismantled" is chosen for the main and attached insurance contracts, which has little impact on the change of the liability model, but it does not rule out that some additional insurances are separately measured as loss-making policies. Which one to choose depends on the company's own preferences and actual situation.

For details on the major risk testing requirements of the new "Code", please see Article 7

The major risk test is not a new concept brought by the new Code. At first glance, it does not change much from the current Code, but in fact there are still major differences.

According to the B18&B19 content of IFRS17 and the "Application Guidelines for the New Insurance Contract Standards" published by the Accounting Department of the Ministry of Finance, it is stipulated that significant risk testing needs to meet two conditions at the same time

Major risk testing is not a new thing, but new wine in old bottles. It is significantly different from the current standards. Both insurance companies and reinsurers need to modify the major risk testing process and plan for this purpose.

The main differences between the requirements of the two standards are as follows:

Since IFRS17 requires material risk testing on a contract-by-contract basis, this will increase the complexity of material risk testing in practice. In order to reduce the monthly settlement time and reduce the operating pressure of the monthly settlement liability assessment model, some companies will consider moving major risk testing to the product pricing stage. That is, when pricing products, all original insurance contracts will be tested for major risks, and the results of whether they pass the major risk tests during product pricing will be recorded at the product level. Then, products with new orders in the coming year will be retested every year.

IFRS17 requires that the testing methods for significant insurance risks in reinsurance contracts are the same as those in original insurance contracts. However, IFRS17 also provides an exemption for reinsurance contracts. Even if a reinsurance contract does not make its issuer likely to suffer significant losses, a contract is still deemed to transfer significant insurance risk as long as it transfers substantially all of the insurance risk in the reinsurance portion of the corresponding underlying insurance contract to the reinsurer. . Even if the original insurance contract is a non-insurance contract that only faces surrender and expense risks, if it transfers part of these non-insurance risks to the reinsurer, it is considered that the reinsurer will face insurance risks. Therefore, IFRS17’s retesting requirements for reinsurance contracts will be more relaxed than the current standards.

The IFRS17 standard demarcates the boundaries of a contract based on the existence of significant rights and obligations, and therefore involves the starting and ending time of the contract.

The contract confirmation requirements of the new Code are detailed in Article 16. The specific requirements are as follows:

Based on the above judgment criteria, once the contract is confirmed, the company needs to evaluate and start calculating the contract service margin (CSM), locking in the confirmation date and spot discount rate.

However, current standards and practices do not clearly explain the confirmation of contracts. Companies generally make judgments based on the beginning of the insurance period.

For policies where premiums are collected in advance but the insurance period has not begun, the contract under IFRS 17 stipulates that the date of premium payment shall be the beginning of the contract boundary. If the contract does not specify this, the date of actual payment of the first premium shall prevail. This situation is common in opener products. The company sells new products for the next year in advance at the end of the year, and collects insurance premiums in advance at the end of the year. The policy liability begins on January 1 of the following year, so under the new standards, the contract boundary start date of the opener product is It is the premium advance payment date. Therefore, it is recommended to print the premium payment date in the insurance contract. This operation can eliminate the impact of the contract boundary start date of the standard switch and remain consistent with the current practice of the standard.

IFRS17's definition of contract boundaries requires that "risks be fully reflected", that is, they can be "repriced to fully reflect the risks after reassessment."

The following two types of contract termination situations are specifically stipulated:

In practice, the contract boundary termination date is often discussed for renewable products and products with annuity options.

1. A contract with guaranteed renewal and guaranteed rates

2. A contract that guarantees renewal but does not guarantee premium rates

3. Annuity products with options (annuity conversion rate is not guaranteed)

4. Annuity products with options (guaranteed annuity conversion rate)

Contract splitting is not a new thing, but the content and sequence are quite different from the current standards.

The spin-off components will be measured using IFRS9 or IFRS15 using corresponding accounting standards.

Q1: Do policyholders’ savings and independent account liabilities need to be split?

Q2: Do policy loans need to be split?

Q3: Does the accumulated interest need to be split?

Q4: Do non-insurance services need to be split?

According to the requirements of IFRS17, the minimum unit of measurement is first determined and then the contract grouping can be determined.

The Transition Resource Group for IFRS17 proposed in the 2018 discussion on the insurance component of a single insurance contract: the lowest unit of account is a contract, or it is divided into obviously different non-insurance components. the final main contract.

The impact of the determination of the minimum measurement unit on the implementation of the standards is mainly reflected in the following three aspects:

According to the definition of IFRS 17 standards, insurance contracts with similar risks and managed together should be classified into the same portfolio. Therefore, if contracts for the same product line are managed together, they are classified into the same portfolio; contracts for different product lines and with different risks are classified into different portfolios.

At the same time, profitable contracts are not allowed to be used to offset loss-making contracts when grouping contracts, and the contract group is established at the time of initial recognition and will not be re-evaluated subsequently.

The company should divide each portfolio into at least the following three groups based on profitability:

In addition, contracts issued more than one year apart shall not be classified in the same group. Therefore, each portfolio should be subdivided into at least annual portfolios (certain circumstances during the transition period may waive this requirement).

The thickness of the divided dimensions is a balanced choice between reflecting the economic essence and improving efficiency. The higher the grouping level, the less pressure the system has to record data, and the model will run more efficiently. The more detailed the grouping, the better it can ensure the reasonable release of policy profits.

Most implementing companies will add additional division dimensions based on the company's operating needs based on the requirements of the above IFRS17 standards.

Generally speaking, there are several main division dimensions, which may include: channel, I17 assessment method, product type, insurance risk, etc.

How to conduct a profit and loss test?

For short-term insurance contracts, a common practice in the industry is to judge based on the profit margin when pricing short-term insurance products. That is, a short-term insurance product has the same profitability. If there are differences in the profitability of products from different channels, it can be further split. Complimentary insurance policies belong directly to the loss group.

According to IFRS17 standards, "investment component" refers to the amount that an insurance contract requires to be repaid to the policyholder regardless of whether the insured event occurs or not.

According to the requirements of paragraphs 11 to 12 of the IFRS 17 standard, entities should apply the standard to all components of the main insurance contract. All subsequent references in the standard to "investment components" refer to those that have not been separated from the main insurance contract. investment component.

If the requirements of the guidelines are followed strictly, one needs to consider the minimum amount that the policyholder will get in each case.

However, life insurance contracts have long terms, numerous responsibilities, and various statuses such as surrender, so it is unrealistic to get the lowest possible amount through exhaustive calculation.

Therefore, in practice, the split plan of investment components needs to take into account operability.

Generally speaking, the steps to specifically consider investment components include:

Therefore, the processing of the investment component of annuity insurance needs to be divided into three stages: before collection, during the period of guaranteed collection, and after the end of guaranteed collection, using different methods.

1. Generally, surrender payments, maturity payments, survival payments, cash dividends, terminal bonuses, partial withdrawals, etc. are all investment components;

2. The investment component of death benefit and critical illness benefit is the corresponding cash value;

3. The investment component of the death and injury medical compensation, if there is a current price, is generally the smaller of the death and injury medical benefit and the surrender charge;

4. The annuity payment depends on whether it is within the guaranteed annuity payment period or is an annuity product without a guaranteed payment period. If so, the investment component is the annuity payment amount.

Finally, the recognition and presentation of insurance income in IFRS17 is one of the difficulties in the implementation of the new standards. Before this, insurance companies’ financial statements often presented the company’s income in terms of premium income or earned premiums, but IFRS17 clearly Enterprises are required to list insurance income and financial income separately, and investment components should not be included in insurance income.

General Model (BBA)

Variable Fee Model (VFA)

Premium Allocation Model (PAA)

Contractual service margin (CSM) refers to the difference between the present value of the cumulative future cash flows that an insurance company expects to obtain from the services of the contract and the expected future costs related to continuing to execute the contract when evaluating the economic benefits of an insurance contract. It is one of the key indicators for insurance companies to evaluate the economic benefits of insurance contracts.

The Contractual Service Margin (CSM) may vary by insurance company and specific insurance contract, but is generally based on a reasonable estimate of future cash flows and the choice of a discount rate.

CSM is the present value of all policy cash flows minus fulfillment cash flows (an estimate of future benefit payments). When the policy is sold, the profit that can be realized in the future is estimated and clearly stated in the reserve.

CSM. As time goes by, CSM gradually amortizes into insurance service income and forms current profits. For example, if an upward adjustment of the incidence assumption leads to an increase in future claims, the CSM will need to be lowered.

There is a relationship between the contractual service margin (CSM) and insurance contract liabilities. CSM can be viewed as the economic benefits an insurance company obtains from an insurance contract after considering future cash flows and service costs. CSM’s assessment helps insurance companies more accurately assess the financial performance and value of their insurance contracts.

Unexpired liability reserves refer to the reserves drawn by insurance companies for non-life insurance policies with an insurance period of less than one year to assume policy liabilities after the statement date. Unexpired liability reserves consist of unearned premium reserves and premium deficiency reserves. The reason for this provision of funds is that the insurance business year is inconsistent with the accounting year.

The unexpired liability reserve UPR refers to the premium income during the period after the insurance contract comes into effect and the insurer has not fulfilled the insurance liability. It represents the potential liability of the insurer when it needs to fulfill its liability in the future, and therefore requires a certain percentage of premiums to be withdrawn as a reserve. The calculation formula of unexpired liability reserve UPR is usually: unexpired liability reserve = current year’s retained insurance premium × unexpired liability reserve withdrawal ratio. Among them, the current year’s retained insurance premium refers to the total premium collected during the year, and the withdrawal ratio of unexpired liability reserves is usually determined by the regulatory agency or the insurance company to comply with relevant laws, regulations and internal risk management requirements. According to the provisions of the Insurance Law of the People's Republic of China, when operating other insurance businesses, unexpired liability reserves should be withdrawn from the self-retained insurance premiums of the current year. The amount withdrawn and carried forward should be equivalent to 50% of the self-retained insurance premiums of the current year.

There is a close relationship between the unearned liability reserve UPR and insurance contract liabilities. At the balance sheet date, unexpired liability reserves may be included in insurance contract liabilities to reflect the risks and liabilities of the insurance contract. Therefore, accurate assessment and calculation of unearned liability reserve UPR is crucial for insurance companies to correctly assess their liabilities and financial position.

Unearned premium reserves refer to the reserves that need to be withdrawn during the period when the insurance contract has come into effect but premiums have not been received. The purpose of this reserve is to ensure that the insurer has sufficient funds to cover future liability. Calculation formula: Unearned premium reserve = Current year’s premium income × Unearned premium reserve withdrawal ratio

There is a certain relationship between unearned premium reserves, unearned liability reserves and premium shortfall reserves. In an insurance company's financial reports, unearned premium reserves may be classified within unearned liability reserves or presented separately. The withdrawal of unearned premium reserves usually requires consideration of the nature of the insurance contract, risk profile, market competition and other factors to ensure the financial stability and solvency of the insurance company.

Premium shortfall reserves refer to reserves that insurance companies need to draw down due to insufficient risk assessment or fierce market competition during the underwriting process, as a result of which it is expected that the amount of future claims may exceed the amount of premiums received. The purpose of this reserve is to cover possible future claims gaps and ensure the financial soundness and solvency of the insurance company. Calculation formula: Premium Deficit Reserve = (Estimated Future Claim Amount - Premiums Received) × Premium Deficit Reserve Withdrawal Ratio

There is a certain relationship between insufficient premium reserves, unexpired liability reserves, and unearned premium reserves. In an insurance company's financial reports, premium shortfall reserves may be classified within reserves for unearned liabilities or reserves for unearned premiums, or may be presented separately. The withdrawal of insufficient premium reserves usually requires consideration of the nature of the insurance contract, risk profile, market competition and other factors to ensure the financial stability and solvency of the insurance company.

Deferred expenses or deferred acquisition costs refer to costs incurred in the process of obtaining or obtaining an insurance contract but that have not yet been paid. These costs often include fees, commissions or other fees associated with obtaining an insurance contract. Because these costs are payable in the future, they are classified as deferred acquisition costs. Calculation formula: Deferred acquisition costs are usually recorded in profit or loss in one lump sum when the insurance contract is initially recognized, and amortized over the term of the insurance contract. The calculation formula is: deferred acquisition cost = (total cost of acquiring the insurance contract - direct costs incurred in acquiring the insurance contract) ÷ term of the insurance contract

Although these expenses are future expenses of the insurance company, they must be paid in order to obtain the insurance contract, so they can be regarded as deferred expenses of the insurance company. Deferred expenses include but are not limited to handling fees, commissions, management fees, insurance premiums, etc.

Deferred acquisition costs are closely related to the recognition and measurement of insurance contracts. In IFRS17, insurance contracts should be initially recognized when acquired or acquired, and deferred acquisition costs are one of the important factors affecting initial recognition. In addition, deferred acquisition costs will also affect the measurement of insurance contracts because they need to be amortized over the life of the insurance contract, thereby affecting the profit and net worth of the insurance contract.

Direct claims expenses (ALAE) refer to the direct costs incurred in processing claims under an insurance contract. These expenses typically include claims staff salaries and benefits, the cost of claim investigation and review, and other direct costs associated with claims processing.

The direct claims expense ratio refers to the proportion of direct claims expenses to the total premium income of an insurance contract. It measures the direct costs incurred by an insurance company in processing claims relative to total premium income. Calculation formula: direct claim expense ratio = (direct claim expense ÷ total premium income) × 100%

Indirect claims expenses (ULAE) refers to the indirect costs incurred in processing claims under an insurance contract. These expenses usually include administrative expenses related to claims processing, marketing expenses and the overall operating expenses of the claims department, including salaries, office expenses and data processing expenses of the claims department. Indirect claims expenses cannot be allocated to specific claims.

The indirect claims expense ratio refers to the proportion of indirect claims expenses to the total premium income of an insurance contract. It measures the indirect costs incurred by an insurance company in processing claims relative to total premium income. The calculation formula is: indirect claim expense ratio = (indirect claim expense ÷ total premium income) × 100%

Direct claims expense ratio and indirect claims expense ratio are one of the important indicators to evaluate the profitability, cost control and operating efficiency of insurance companies. A lower indirect claims expense ratio usually means that the insurance company can better control the indirect costs in the claims processing process, improving profitability. Both are also among the accounting standards that insurance companies need to follow in IFRS17. Insurance companies need to accurately recognize and measure indirect claims expenses in accordance with the provisions of IFRS17, and include them in the cost of insurance contracts for amortization. At the same time, insurance companies also need to consider other related factors, such as market competition, product pricing, reinsurance arrangements, etc., to formulate reasonable premium and expense structures to ensure profitability.

Claim settlement expenses are divided into direct claim settlement expenses and indirect claim settlement expenses.

Claims expenses refer to the related expenses incurred in processing claims under an insurance contract. These expenses typically include claims adjuster salaries and benefits, the cost of claim investigation and review, expert fees, litigation costs, and other indirect costs associated with claim processing. Indirect claims expenses refer to expenses that do not directly occur in a specific claim case, including salaries of claims adjusters, office expenses, etc. Claims expenses are generally recognized and measured based on actual expenses incurred, depending on the insurance company's internal policies and accounting treatments.

Claims fees are closely related to the claims processing of insurance contracts. In IFRS 17, claims expenses are generally recognized and measured as part of the cost of the insurance contract and amortized over the term of the insurance contract. These expenses impact an insurance company's profits and net worth and therefore require accurate recognition and measurement.

Maintenance expenses refer to the expenses incurred by the insurance company to maintain the validity of the insurance contract. This may include costs such as underwriting, renewals, customer service, administration, and more.

In IFRS 17, maintenance expenses are that part of the cost of an insurance contract that is incurred to maintain the validity of the contract during the insurance period. IFRS 17 requires companies to amortize maintenance costs over the policy period, rather than capitalizing them immediately at the inception of the contract.

The calculation of maintenance charges depends on the specific insurance product and the company's operating model. For example, maintenance fees could be based on a percentage of premium revenue, or on actual costs associated with specific business activities. Under IFRS 17, maintenance costs should be amortized over the policy period to more accurately reflect the company's profits and financial position.

Maintenance Expense Ratio is an indicator that measures the proportion of expenses incurred by an insurance company to maintain the validity of insurance contracts as a proportion of premium income. It reflects the insurance company's cost efficiency in maintaining contract validity and providing related services. The calculation formula is: ME% = (maintenance expense ÷ premium income) × 100%.

The maintenance expense ratio (ME%) is closely related to the profitability, operating efficiency and risk management capabilities of the insurance company. A lower ME% generally means an insurance company can better control costs and improve profitability. However, a ME% that is too low may mean that the insurance company has problems maintaining contract validity and providing services, which may affect customer satisfaction and business continuity.

Insurers need to find an appropriate balance to ensure that fees are maintained at a reasonable level, while maintaining the continued validity of the contract and the provision of high-quality services. By monitoring and maintaining appropriate maintenance expense ratios, insurance companies can improve their operational efficiency and profitability and ensure the sustainability of their business.

Outstanding claims reserve (OLR) refers to the reserves set aside by insurance companies to deal with claims that may occur in the future. These claims are due to insurance contracts that have occurred and incurred liability for compensation, but have not yet been fully settled or paid for some reason. The outstanding claims reserve is designed to cover the claims risks that an insurance company may face in the future and ensure its financial soundness and solvency. It is based on a reasonable estimate of possible future claims and related costs. Calculation formula: OLR = Expected Loss on Claims - Paid Claims. Among them, Expected Loss on Claims is the expected compensation loss, and Paid Claims is the paid compensation.

There is a subtractive relationship between the outstanding claims reserve OLR and the expected losses on claims and paid claims. That is, the OLR is calculated by subtracting the expected losses on claims from paid claims. The provision of outstanding claims reserve OLR helps insurance companies cope with possible future claims and maintain the company's sound operations.

Pending claims reserves are closely related to an insurance company's risk management and financial stability. Appropriate levels of outstanding claims reserves can help an insurance company cope with potential claims liabilities and ensure its financial soundness. If reserves for outstanding claims are insufficient, insurance companies may face financial pressure from claims, affecting their operations and solvency. Therefore, insurance companies need to regularly evaluate and adjust the level of their outstanding claims reserves to ensure that they match the current market environment and the company's risk tolerance.

Unexpired risk reserve URR refers to an additional amount accrued by an insurance company on the basis of insurance contract liabilities in order to cope with losses that may occur in the future. It covers losses that may occur from the date of the current assessment to the expiration date of the insurance contract. Calculation formula: URR = BEL × UR %. Among them, BEL is the insurance contract liability, and UR% is the unexpired risk reserve ratio.

There is a multiplicative relationship between the unexpired risk reserve URR and the insurance contract liability BEL, that is, the URR is calculated by multiplying BEL and UR%. The provision of unexpired risk reserves URR helps insurance companies cope with possible losses in the future and protects the stable operations of insurance companies.

Risk margin rate (RM%) refers to the proportional relationship between risk margin and optimal estimated contract liabilities. It reflects the proportion of the risk margin provided by the insurance company to cover additional losses that may occur in the future to the best estimated contract liability. Calculation formula: RM% = RM ÷ BEL. Among them, RM is the risk margin and BEL is the optimal estimated contract liability.

There is a division relationship between the risk margin rate RM% and the insurance contract liability, that is, RMR is calculated by dividing the risk margin RA by the insurance contract liability. The risk margin rate RM% can help evaluate the insurance company's coverage for possible future losses, as well as the company's risk tolerance and solvency status. A reasonable risk margin rate (RMR) helps ensure the stable operation of insurance companies and safeguard the rights and interests of customers.

Risk margin (RM) refers to an additional amount accrued by an insurance company based on the best estimate of contract liabilities in order to cover additional losses that may occur in the future. It is a risk protection measure to ensure the stable operation of insurance companies and meet customer expectations. It is equivalent to a safety cushion. If the actual experience is better than the optimal estimation assumption, this part will eventually be released into profits. Calculation formula: RM = BEL - LAE. Among them, BEL is the best estimated contract liability, and LAE is the reported loss amount. The calculation of risk margin RM is based on currently observable information, estimating the losses that may occur in the future, and subtracting the amount of reported losses from the best estimate of contract liabilities.

There is a subtractive relationship between the risk margin RM and the best estimated contract liability BEL, that is, RM is calculated by subtracting the reported loss amount LAE from the BEL. The reasonable provision of risk margin RM is crucial to the stable operation of insurance companies, which can ensure that the company has sufficient solvency and reduce operating risks caused by over-reliance on premium income. At the same time, there is also a close relationship between the risk margin RM and the optimal estimated contract liability BEL. They jointly reflect the insurance company's estimation and protection measures for possible future losses.

Risk adjustment RA refers to the adjustment made by insurance companies to insurance contract liabilities in order to reflect possible future losses and related costs. It is intended to reflect the insurance company's assessment and consideration of future risks. Risk adjustment RA may vary by insurance company and specific insurance contract, but is generally based on a reasonable estimate of future losses and costs.

There is a relationship between risk adjustment RA and insurance contract liabilities. Risk adjustment is an adjustment to insurance contract liabilities to reflect possible future losses and related costs. Risk adjustment helps an insurance company more accurately assess its liabilities and financial position and maintain the company's sound operations.

Ultimate loss refers to the insurer's compensation for an insured event, including various related expenses, net of the residual value of the subject matter, reinsurance amortization amount and subrogation rights from third parties.

The ultimate loss rate refers to the ratio between the ultimate loss of disaster accidents and premium income of an insurance company within a certain accounting period. Ultimate loss refers to the loss that occurs from the beginning of claims settlement to the final payment of compensation after an insurance accident occurs, including various related expenses, the net value after deducting the residual value of the subject matter, reinsurance amortization amount and the right of subrogation to third parties.

The ultimate loss rate is the basis for calculating the pure rate of property insurance, but the ultimate loss rate cannot be determined by the compensation from an insured incident in one time or in a certain period. In actual business, insurance companies generally select some years when the business is relatively stable, calculate the annual ultimate loss rate respectively, and then calculate the average value to obtain the average ultimate loss rate, and then add a certain degree of safety bonus to finally set the pure rate.

Loss ratio refers to the percentage of compensation expenses to premium income during a certain accounting period. Expressed by the formula: loss ratio = (compensation expenditure ÷ premium income) × 100%. However, in practice, the compensation rate calculated by this formula is seriously distorted and cannot faithfully reflect the extent of losses caused by disasters that occurred during the period, nor can it provide accurate information for future risk control.

Loss ratio refers to the ratio between an insurance company's claim expenditures and premium income within a certain period. It reflects an insurance company's claims performance during a specific period and helps the insurance company understand the efficiency of its risk management and claims process. The higher the claim ratio, the more claims the insurance company pays, and vice versa. At the same time, it also shows that customers buying the company's insurance are more secure and valuable.

Earned premiums refer to the premiums that the insurer has collected and actually assumed insurance liabilities after the insurance contract came into effect. Compared with unearned premiums, earned premiums are premium income that has been realized and determined, and are premiums that the insurer has received, and the insurance liability corresponding to this part of the premium has already occurred, and the insurer needs to bear the corresponding insurance liability. In the financial statements of insurance companies, premiums earned are one of the important indicators to measure the operating performance of the insurance company, because it reflects the income and profits that the insurance company has realized. Earned premiums are also the basis for the insurer to calculate the compensation amount and reinsurance amortization.

Premium income is the income an insurance company receives from providing insurance services. Premium income is the main source of income for insurance companies, which reflects the business scale and operating performance of insurance companies. Premium income is usually calculated by subtracting surrender charges, compensation expenses and other expenses from the total insurance premiums received in the current period. The amount of premium income depends on many factors such as the supply and demand relationship in the insurance market, the type and price of insurance products, the sales strategy and service quality of the insurance company. Premium income is also the basis for insurance companies to assess risks and conduct reinsurance amortization.

The meanings are different: premium income is the actual amount collected by the insurance company from the policy holder to fulfill certain insurance responsibilities; premiums earned, as the name implies, are the premiums that the insurance company has earned, and also refer to the insurance premiums that have been paid in advance at the beginning of the insurance period.

The recognition time is different: the three conditions for the recognition of premium income are that the insurance contract is established and the corresponding insurance liabilities are assumed, the economic benefits related to the insurance contract can flow into the company, and the income related to the insurance contract can be measured reliably; the premiums earned are within the insurance starting period. Confirmation is possible after the insurance premium has been paid in advance.

The progress factor is an indicator used to evaluate the progress of an insurance business. It takes into account the policy's annualized premium income and the growth of premiums earned. This factor helps the evaluator understand the growth rate and trends of the insurance business, thereby gaining a more comprehensive understanding of the company's business performance. Generally speaking, the higher the progress factor, the faster the annualized premium income of the policy grows, the faster the growth of earned premiums, and the business performs well. But at the same time, an excessively high progress factor may mean that the policy is of low quality or there is over-selling, which requires further analysis and attention. Therefore, when evaluating progress factors, it is also necessary to conduct a comprehensive analysis in conjunction with other financial and business indicators.

Expected loss ratio is a measure of insurance business claims costs, calculated as the ratio of expected claims to premium income. This indicator is used to evaluate the compensation costs that insurance companies may face under specific circumstances, thereby helping insurance companies evaluate business risks and formulate corresponding risk management strategies. The higher the expected loss ratio, the higher the loss cost of the insurance business and the greater the risk it may face. Therefore, insurance companies usually set reasonable expected loss ratio ranges for different business types and product lines based on historical data, industry experience, actuarial assumptions, etc., to monitor and control risks in terms of claim costs. At the same time, the expected loss ratio is also an important basis for insurance companies to evaluate reinsurance needs and arrange reinsurance strategies.

The surrender rate refers to the ratio of the number of policies that are terminated or surrendered within the validity period of an insurance contract to the total number of policies. The surrender rate is one of the important indicators to measure the stability and continuity of the insurance business. It is also an important basis for insurance companies to evaluate business risks and formulate corresponding strategies. The level of surrender rate may be affected by various factors, such as economic environment, market competition, product characteristics, customer demand, etc. Therefore, insurance companies need to pay close attention to changes in the surrender rate and take corresponding measures to reduce the surrender rate and improve business stability.

The IBNR reserve refers to the reserve set aside for claims that have been incurred but not yet reported. In the insurance industry, when an insured incident occurs and is confirmed, there may be a delay in reporting it to the insurance company. This period of time may cause the insurance company to have insufficient compensation reserves, so it is necessary to withdraw IBNR reserves to cope with possible compensation needs. . IBNR reserves are one of the important means for insurance companies to assess and manage risks, and are also an important guarantee for ensuring the stable operation of the insurance business.

The calculation method is: IBNR = ∑ (accumulated claims awarded × progress factor of claims decided – accumulated claims awarded – claims pending).

Factor method (Factor)

Implied

Reservation deposit means that in the insurance business, in order to confirm the legality and validity of the insurance contract, the insurance company will require the insured to pay a certain proportion of the insurance premium as a reservation earnest money, which is the BE amount.

The calculation formula of BE amount is usually: BE amount = insurance amount × booking rate. Among them, the booking rate is determined based on insurance product type, risk level and other factors.

BE calculation is a very important part of the insurance business, which involves the legality and validity of the insurance contract. If the insured cannot pay the BE amount on time or the BE amount is insufficient, the insurance contract may be invalid or terminated. Therefore, it is important for both insurance companies and insureds to understand how BE is calculated and how booking rates are determined.

Financial statements are documents that reflect the financial status, operating results and cash flows of an enterprise or institution during a certain period, including balance sheets, income statements, cash flow statements, etc. It is one of the main ways for enterprises or institutions to provide financial information to external information users, helping information users make economic decisions.

The calculation formula for financial statements varies depending on the specific statement, but generally includes several aspects

Financial statements are an important tool for insurance companies in financial management and business operations. They reflect the financial status, operating results and cash flow of insurance companies. Through financial statements, insurance companies can understand their own operating conditions, formulate corresponding financial strategies, assess risks and solvency, etc., to achieve the company's financial management goals. At the same time, financial statements are also an important basis for external information users to evaluate the value and risks of insurance companies.

The best estimate of contract liabilities refers to the best estimate of possible losses that may occur in the future given observable information. It represents the maximum possible future loss amount under an insurance contract and is calculated based on current information and probability distributions. Calculation formula: BEL = BEL1 BEL2 BEL3 ... BELn Among them, BEL1, BEL2, BEL3, ..., and BELn represent the optimal estimated contract liability amount of the first, second, third, ..., and nth reporting period respectively.

BEL is an important indicator that insurance companies need to calculate in each reporting period, and is closely related to insurance companies' risk assessment, premium pricing, reinsurance strategies, etc. The accurate calculation and assessment of BEL is of great significance to the stable operation of insurance companies and the protection of customer rights and interests.

The full English name of direct insurance (direct insurance) is "Direct Insurance", and the abbreviation is "Dir"

Direct insurance refers to the insurance business in which the insurance company directly signs an insurance contract with the policyholder and assumes risk liability. Calculation formula: direct premium income = direct insurance business scale × premium rate

Direct insurance business is the basis of reinsurance. Reinsurance companies may accept part of the risk responsibilities of the direct insurance company to form reinsurance reinsurance business.

The full English name of reinsurance reinsurance (reinsurance reinsurance business) is "Reinsurance Income", and the abbreviation is "Rei"

Reinsurance reinsurance refers to the insurance business in which an insurance company accepts reinsurance business from other insurance companies and assumes their risk responsibilities. Calculation formula: reinsurance reinsurance premium income = reinsurance reinsurance business scale × premium rate

Reinsurance reinsurance is a way for primary insurance companies to diversify risks. Through reinsurance reinsurance business, primary insurance companies can transfer part of their risk responsibilities to reinsurance companies.

The full English name of reinsurance ceding (reinsurance ceding business) is "Reinsurance Outgo", and the abbreviation is "Reo"

Reinsurance ceding refers to the insurance business in which an insurance company transfers part of its risk liability to other insurance companies to spread risks. Calculation formula: Reinsurance ceded premium expense = Reinsurance ceded business scale × premium rate

Reinsurance ceding is a way for insurance companies to diversify risks. Through reinsurance ceding business, insurance companies can transfer part of their risk responsibilities to other insurance companies and reduce their own risk exposure.

The fixed accident period refers to the period during which the insured accident occurs clearly specified in the insurance contract, usually in years, months or days. For insured accidents that occur during this period, the insurance company will pay compensation in accordance with the terms of the contract.

The fixed casualty period is a common clause in insurance contracts that determines the period of insurance liability. Using fixed incident periods can help insurance companies more accurately assess risk and formulate insurance strategies.

The flexible accident period refers to the period during which the insured accident does not explicitly stipulate in the insurance contract, and is usually subject to the actual occurrence. For insured accidents that occur during this period, the insurance company will pay compensation in accordance with the terms of the contract.

The flexible accident period is a relatively flexible clause in an insurance contract and is applicable to certain types of insurance, such as travel insurance. Using a flexible accident period may better meet the needs of the insured, but may also increase the insurance company's risk.

The English full name of a claim case is "Claim Case", and the abbreviation is "Case".

Claims cases refer to claims that have been upgraded to require further investigation and processing. These claims have been reported but have not yet been fully processed and paid. Claims cases are an important link in the compensation processing process and require detailed investigation and approval to ensure the reasonableness and accuracy of compensation. After investigation and approval, some claims cases will be converted into paid compensation (Paid).

The English full name of the determined compensation is "Paid Losses", and the abbreviation is "Paid".

Resolved claims refer to those claims that have been investigated, approved and paid to the insured or beneficiary. These payments have usually settled all claims proceedings and are considered final.

The English full name of reported outstanding compensation is "Reported Losses", and the abbreviation is "Reported".

Reported and pending claims refer to those claims that have been reported to the insurance company and recorded, but have not yet been investigated, approved and paid. These claims remain pending and require further investigation and processing. As the claims investigation progresses, some of the reported and pending claims will be upgraded to claims cases (Case).

Reported vs Case

Case vs Paid

The full English name of claim liability is "Claim Liability", abbreviated as "CL".

Claim liabilities refer to the financial compensation liabilities stipulated in the insurance contract borne by the insurance company for the insured due to insured accidents or losses. Calculation formula: The calculation formula for claim liabilities is usually based on the specific terms of the insurance contract, but usually includes the following aspects: Amount of compensation: Determined based on the nature of the insured accident, extent of loss and relevant regulations. Compensation period: The effective period of compensation is determined according to the provisions of the insurance contract. Deductible: Determine the size of the deductible according to the provisions of the insurance contract.

Claim liabilities are one of the most important parts of an insurance contract, and are directly related to the insurance company's compensation liabilities and the rights and interests of the insured. Understanding what claims liabilities are and how they are calculated is important for both the insurance company and the insured.

The full English name of premium liability is "Premium Liability", abbreviated as "PL".

Premium liabilities refer to the premiums stipulated in the insurance contract that the insurance company should charge to the insured. Calculation formula: The calculation formula for premium liabilities is usually determined based on factors such as the type of insurance contract, the protection content provided, specific additional services, and the risks borne by the insurance company. Its calculation method may include the following aspects: Pure Premium: Calculated based on the coverage provided and the risk assumed by the insurance company. Additional premium: calculated based on specific additional services, insurance company operating costs and other factors. Handling fee: calculated based on the insurance company’s service fees, agency fees, etc.

Premium liability is another important part of an insurance contract, which involves the economic interest relationship between the insurance company and the insured. It is very important for both the insurance company and the insured to understand the specific content and calculation method of premium liabilities to ensure the balance of the rights and interests of both parties and the legal validity of the contract.

The full English name of claim liability assumption is "Claim Liability Assumption", abbreviated as "CLA".

Claim liability assumptions refer to estimates and forecasts of future claim liabilities in actuarial terms. It is based on assumptions and analysis of future risk conditions, historical claims data, market environment and other factors to determine the size and trend of future claim liabilities. Calculation formula: The calculation formula for claim liability assumptions is usually based on actuarial models and related assumptions, and may include the following aspects: Risk assumptions: Based on predictions of future risk conditions, including risk incidence, loss ratio, etc. Historical claims data: Based on historical claims data, analyze the changing trends of claims frequency, claim amount and other indicators. Market environment assumptions: Based on predictions of the future market environment, including inflation rates, changes in laws and regulations, etc.

Claims liability assumptions are an important tool in actuarial science, providing insurance companies with predictions and analysis of future claims liabilities. Through reasonable claims liability assumptions, insurance companies can better plan business development, formulate premium strategies, manage risks, etc., to achieve long-term stable development of the company. At the same time, claims liability assumptions also need to be continuously updated and adjusted to adapt to changes in the market environment and risk profile.

The full English name of premium liability assumption is "Premium Liability Assumption", abbreviated as "PLA".

Premium liability assumptions refer to the estimation and forecast of future premium liabilities in actuarial science. It is based on assumptions and analysis of future risk conditions, market environment, company strategy and other factors to determine the size and trend of future premium liabilities. Calculation formula: The calculation formula for premium liability assumptions is usually based on actuarial models and related assumptions, and may include the following aspects: Risk assumptions: Based on predictions of future risk conditions, including risk incidence rates, loss rates, surrender rates, etc. Market environment assumptions: Based on predictions of the future market environment, including investment returns, inflation rates, etc. Company strategic assumptions: Based on the company's strategic planning and goals, including premium growth rate, market share, etc.

Premium liability assumptions are an important tool in actuarial science, which provide insurance companies with predictions and analysis of future premium liabilities. Through reasonable premium liability assumptions, insurance companies can better plan business development, formulate premium strategies, manage risks, etc., to achieve long-term stable development of the company. At the same time, premium liability assumptions also need to be constantly updated and adjusted to adapt to changes in the market environment and company strategies.

The full English name of claim liability result is "Claim Liability Result", abbreviated as "CLR".

The claims liability outcome is the size and trend of future claims liabilities calculated based on claims liability assumptions. It is based on assumptions and analysis of future risk conditions, historical claims data, market environment and other factors to determine the changes and impacts of future claim liabilities. Calculation formula: The calculation formula for claim liability results is usually based on claim liability assumptions and related factors, and may include the following aspects: Claim liability assumptions: based on assumptions and analysis of future risk conditions, historical claims data, market environment, etc. Related factors: including the impact of market interest rates, inflation rates, changes in laws and regulations, etc. on claim liabilities.

Claim liability results are the application and manifestation of claim liability assumptions, which reflect changes and impacts on future claim liabilities. By analyzing claims liability results, insurance companies can better understand the status of future claims liabilities and formulate corresponding strategies and measures to achieve the company's business development goals. At the same time, the claim liability results are also an important basis for evaluating the risk management and solvency of insurance companies.

The full English name of premium liability result is "Premium Liability Result", abbreviated as "PLR".

The premium liability result is the size and trend of future premium liabilities calculated based on premium liability assumptions. It is based on assumptions and analysis of future risk conditions, market environment, company strategy and other factors to determine the changes and impacts of future premium liabilities. Calculation formula: The calculation formula for premium liability results is usually based on premium liability assumptions and related factors, and may include the following aspects: Premium liability assumptions: based on assumptions and analysis of future risk conditions, market environment, company strategy, etc. Related factors: including the impact of market interest rates, inflation rates, changes in policies and regulations, etc. on premium liabilities.

Premium liability results are the application and reflection of premium liability assumptions, which reflect the changes and impacts of future premium liabilities. By analyzing premium liability results, insurance companies can better understand the status of future premium liabilities and formulate corresponding strategies and measures to achieve the company's business development goals.

Gross represents the total amount of compensation including related expenses. The calculation formula is Gross = Net Expenses.

The net amount refers to the amount actually payable to the insured or beneficiary after deducting relevant fees and taxes from the compensation amount. The calculation formula is Net = Gross - Expenses.

Expenses represent various expenses related to compensation, such as investigation fees, attorney fees, taxes, etc. The calculation formula is Expenses = Gross - Net.

Delay charges usually refer to additional fees that need to be paid due to delays in booking or purchasing a product or service. This fee is usually a penalty or compensation fee due to failure to complete a reservation or purchase within a specified time.

The additional fee is relative to the main fee (basic fee). As the name implies, it refers to the additional contract attached to the main fee contract. It cannot be paid separately. Generally speaking, the main fee paid for the surcharge is relatively small, but its existence is based on the existence of the main fee and cannot be separated from the main fee to form a relatively comprehensive and diverse charge. There are many types of surcharges, such as education surcharges, local education surcharges, tourism development funds, etc.

The insurance duration refers to the period during which the insurance contract is valid and the policyholder needs to continue to pay premiums in accordance with the contract. The insurance duration is one of the important clauses in the insurance contract. Its existence can ensure the continuity and validity of the insurance contract.

Discount rate refers to the rate that converts future limited-term expected income into present value. The discount rate is the cost of investment. The higher the discount rate, the stronger the profitability of the current assets. The calculation formula of discount rate is: discount rate = risk-free rate of return risk-free rate of return.

Base rate is an important financial indicator used to evaluate the interest rate levels of different financial products (such as bonds, loans, deposits, etc.). The 750-day benchmark interest rate refers to the benchmark interest rate with a term of 750 days, which is usually used to evaluate the interest rates of long-term financial products. This interest rate level is determined by various factors such as market supply and demand, macroeconomic conditions, and will have an important impact on the operation of financial markets and economic development.

Premium shortfall reserves refer to funds reserved by insurance companies to cover possible future claims. If the insurance company's premium income is insufficient to cover future claims, it will need to use this reserve to make up the difference. The premium deficiency reserve is an important guarantee for the financial stability of insurance companies and helps maintain the solvency and operational stability of insurance companies. If reserves are insufficient, insurance companies may face the risk of financial crisis or even bankruptcy. Therefore, insurance companies need to regularly evaluate and adjust premium deficiency reserves to ensure their adequacy and reasonableness.

Statutory unearned premiums before reinsurance refer to the premiums that have not yet been earned by the original insurer according to the insurance contract. This part of the premium is the fee that the original insurer needs to pay to the reinsurance company when signing an insurance contract to transfer part of the risk. Before the reinsurance contract takes effect, the original insurer needs to calculate the unearned premiums in accordance with the contract and pay them to the reinsurance company. This approach can help the original insurer reduce risks and ensure operational stability. In financial reports, statutory unearned premiums before reinsurance are usually listed as a liability of the original insurer.

Net unearned premiums before reinsurance refers to the net premiums not yet earned by the original insurer before the reinsurance contract takes effect. This indicator is an important basis for evaluating the future income potential and risk profile of the original insurer. Net unearned premiums before reinsurance is calculated by subtracting premiums from surrendered and lapsed policies from gross premiums. This net amount reflects the original insurer’s unrealized premium income and also reveals potential claims risks. Therefore, net unearned premiums before reinsurance is one of the important indicators for insurance companies to conduct financial analysis and risk management.

Premium refers to the fee paid by the policy holder to the insurance company to obtain insurance protection. Premiums are usually calculated based on the amount insured, the term of insurance, and a specific rate. Calculation formula: Premium = Insurance amount × Premium rate

Premium is the fee agreed in the insurance contract and is the consideration for the insurance company to provide insurance protection. Premiums are related to factors such as insurance amount, insurance term and rate.

Premium rate refers to the amount of insurance premium payable per unit of insurance amount determined by the insurance company based on factors such as the degree of risk and the value of the subject matter insured. Calculation formula: Premium rate = Insurance amount × Premium rate

The premium rate is the basis for calculating premiums. Different insurance subjects and risk levels will have different premium rates. In an insurance contract, the insurance company will determine the corresponding premium rate based on the specific insurance terms and conditions.

Premium rate refers to the rate of insurance premium payable per unit of insurance amount. Calculation formula: premium rate = premium rate ÷ insurance amount

Premium rate is another important parameter used to calculate premiums. The relationship between it and premium rate is a reciprocal relationship, that is, their product is equal to the insurance amount.

Claim, also known as Claim, refers to the compensation request made by the insured or beneficiary to the insurance company based on the insurance contract when the insured subject matter suffers loss or an insured accident occurs. Calculation formula: Claim settlement amount = Actual loss amount × Claim settlement ratio

Claims are one of the rights and obligations stipulated in the insurance contract, and are a way for the insurance company to financially compensate the insured or beneficiary for the losses suffered. Claims are related to factors such as actual loss, claim settlement ratio and insurance contract terms.

The claim settlement ratio refers to the ratio between the actual claim amount paid by the insurance company and the actual loss amount. It is an important indicator used to measure the claims efficiency of insurance companies. Calculation formula: Claim settlement ratio = Claim settlement amount ÷ Actual loss amount

The claim settlement ratio reflects the insurance company's claim settlement ability and service quality, and is the ratio between the actual loss amount and the claim settlement amount. In an insurance contract, the insurance company will determine the claim settlement ratio based on the terms of the contract and the actual situation.

The actual amount of loss refers to the amount of actual economic losses suffered by the insured or beneficiary due to the insured accident or loss. It is the basis for calculating the claim amount. Calculation formula: actual loss amount = direct loss indirect loss

The actual amount of loss is the basis for calculating the claim amount, which includes direct loss and indirect loss. In an insurance contract, the insurance company will determine the scope and standard of compensation based on the terms of the contract and the actual situation.

(General Measurement Model, referred to as GMM) is a measurement model proposed in IFRS17 for evaluating most life insurance contracts. This model measures insurance contract liabilities based on the discounted value of expected future cash flows.

The general model is mainly applicable to non-participating contracts and insurance contracts without direct dividend features, and is the default measurement model used by most life insurance contracts.

The general model is suitable for insurance contracts where investment and insurance risks cannot be clearly distinguished, such as long-term life insurance contracts. These contracts often involve long insurance periods and complex insurance terms, requiring the use of common models to more accurately assess their economic value.

expected future cash flow

discounted value

Service costs and contract costs

Premium Income

Claims Expense

Expense Expense

Investment Income

Tax Expense

1. Initial recognition: Insurance contract liability = fulfillment cash flow Contract service margin.

2. Confirm the change in fulfillment cash flow: Change in fulfillment cash flow = The amount of impact of the contract classified into the contract group on the fulfillment cash flow in the current period The amount of change in fulfillment cash flow related to future services.

3. Calculate the amortization of the contractual service margin: Amortization amount = Contractual service margin ÷ Amortization period.

4. Measurement at the balance sheet date: Unexpired liabilities = Performance cash flows related to unexpired liabilities allocated to the insurance contract group and the contract service margin of the contract group on that day.

5. Disclosure requirements: According to the requirements of IFRS17, provide detailed information about the insurance contract, including fulfillment cash flow, contract service margin, etc.

Insurance Contract Income

Insurance Contract Liabilities

Unbilled Premium Reserves

Reserves for Cancellations and Impairments

Probabilistic Anchor Assignment (PAA) is a measurement method proposed in IFRS17 for evaluating non-life insurance contracts. This model allocates insurance contract income based on the ratio of the current year's premium to the total insurance period, similar to the subtraction algorithm used to calculate unexpired liability reserves in the current standards.

The premium allocation method mainly applies to non-life insurance contracts, such as property insurance, accident insurance and health insurance. These types of insurance contracts typically have relatively stable premium income and defined coverage periods, making premium apportionment possible on an annual basis.

For short-term non-life insurance contracts, due to their short insurance period, the application of the premium allocation method can simplify the measurement process and better reflect the insurance company's estimate of future fulfillment cash flows.

Premium sharing

Unexpired liability reserves

Insurance contract liabilities

Current Premium Received

First-Year Premium

Finance Adjustment

Cash flow from new insurance contracts in the current period (Cash Flow from New Insurance Contracts)

Previously Recognized Insurance Contract Income

Investment Component Paid or Transferred to Incurred Loss Reserves

1. Initial recognition: Insurance contract liability = fulfillment cash flow Contract service margin.

2. Discount: Discounted present value of fulfillment cash flow = present value of future cash flow.

3. Calculate first-day loss: First-day loss = insurance contract liability - insurance contract asset.

4. Confirm the contract group: According to the insurance contract service model, divide the contract group into various responsibility units, and determine the contract service margin of each responsibility unit.

5. Amortized contractual service margin: Amortization amount = Contractual service margin ÷ Amortization period.

6. Measurement at the balance sheet date: unearned liabilities = fulfillment cash flows related to unearned liabilities allocated to the insurance contract group and the contract service margin of the contract group on that day.

7. Disclosure requirements: According to the requirements of IFRS17, provide detailed information about the insurance contract, including fulfillment cash flow, contract service margin, etc.

Unearned Premium Reserve for the current period (Unearned Premium Reserve)

Insurance Contract Income

Insurance Contract Liabilities

Annual Insurance Expenditure

Conclusion one

Conclusion 2

Conclusion three

Conclusion four

Conclusion five

The Variable Fee Approach (VFA) is a measurement method proposed in IFRS17 for evaluating insurance contracts with investment components. The model is designed to more accurately reflect the risks assumed and services provided by the insurance company, particularly when the insurance contract contains a significant investment component.

The sliding fee method is mainly applicable to insurance contracts with a large investment component, such as investment-linked insurance and participating insurance. In these types of insurance contracts, the relationship between the policyholder and the insurance company is not only based on risk protection, but also involves investment management and profit sharing.

This method is suitable for insurance contracts whose investment components can be clearly distinguished and identified. This helps to more accurately assess an insurance company’s financial condition and performance, while also helping investors better understand an insurance company’s business model and risk characteristics.

Through the floating charge method model, IFRS17 aims to provide a more comprehensive and accurate measurement framework to reflect the financial performance and responsibilities of insurance companies when operating complex products such as investment-linked insurance and participating insurance.

investment services

sliding fee

contractual service margin

Premium Revenues

Claim Payments

Expense Expense

Investment Income

Tax Expense

1. Initial recognition: Insurance contract liability = fulfillment cash flow Contract service margin.

2. Confirm the change in fulfillment cash flow: Change in fulfillment cash flow = The amount of impact of the contract classified into the contract group on the fulfillment cash flow in the current period The amount of change in fulfillment cash flow related to future services.

3. Calculate the amortization of the contractual service margin: Amortization amount = Contractual service margin ÷ Amortization period.

4. Measurement at the balance sheet date: Unexpired liabilities = Performance cash flows related to unexpired liabilities allocated to the insurance contract group and the contract service margin of the contract group on that day.

5. Disclosure requirements: According to the requirements of IFRS17, provide detailed information about the insurance contract, including fulfillment cash flow, contract service margin, etc.

Insurance Contract Income

Insurance Contract Liabilities

Unbilled Premium Reserves

Reserves for Cancellations and Impairments

All three models need to calculate the total expected claims and claims expenses, the expected total non-financial risk adjustments, and the expected total insurance contract margin.

Premium Allocation Act (PAA): There is little difference from the old insurance contract standards. It has a smaller impact on non-life insurance companies (such as property and casualty insurance companies) and a greater impact on life insurance companies.

General model (GMM) and variable fee method (VFA): There are certain differences between the CSM under the general model and variable fee method and the DPL under the old insurance contract standards in terms of calculation and presentation of the profit and loss statement.

inside company

outside the company

Minimum measurement unit