(e) a description of how assumptions about future trends, such as changes in mortality,
healthcare costs or litigation awards were developed;
(f) an explanation of how correlations between different assumptions are identified;
(g) the policy in making allocations or distributions for contracts with discretionary
participation features. In addition, the related assumptions that are reflected in
the financial statements, the nature and extent of any significant uncertainty
about the relative interests of policyholders and shareholders in the unallocated
surplus associated with those contracts, and the effect on the financial statements
of any changes during the period in that policy or those assumptions could be
disclosed; and
(h) the nature and extent of uncertainties affecting specific assumptions. In
addition, to comply with IAS 1, an insurer may need to disclose the assumptions
it makes about the future, and other major sources of estimation uncertainty,
that have a significant risk of resulting in a material adjustment to the carrying
amounts of insurance assets and liabilities within the next financial year.
[IFRS 4.IG32].
4384 Chapter 51
Ping An disclose the following assumptions in relation to their insurance liabilities
together with further detail about those assumptions.
Extract 51.19: Ping An Insurance (Group) Company of China Ltd (2016)
Notes to Consolidated Financial Statements [extract]
4. Critical accounting estimates and judgements in applying accounting policies [extract]
(4) Measurement unit and valuation of insurance contract liabilities [extract]
The Group makes significant judgments on whether a group of insurance contracts’ insurance risks are of the same
nature. Different measurement units would affect the measurement of insurance contract liabilities.
At the end of the reporting period, when measuring the insurance contract liabilities, the Group neds to make a
reasonable estimate of amounts of the payments which the Group is required to make in fulfilling the obligations
under the insurance contracts, based on information currently available at the end of the reporting period.
At the end of the reporting period, the Group shall make an estimate of the assumptions used in the measurement of
insurance contract liabilities. Such assumptions shall be determined based on information currently available at the
end of the reporting period. To determine these assumptions, the Group selects proper risk margins according to both
uncertainties and degree of impact of expected future cash outflows. Refer to note 3 (2) for the changes in accounting
policies and estimates.
The main assumptions used in the measurement of policyholders’ reserves and unearned premium reserves are as
follows:
> For long term life insurance contracts where the future insurance benefits are not affected by investment return
of the underlying asset portfolio, the discount rate assumption is based on the benchmarking yield curve for the
measurement of insurance contract liabilities published by China Central Depository and Clearing Co., Ltd.,
with consideration of the impact of the tax and liquidity premium. The current discount rate assumption for the
measurement as at 31 December 2016 ranged from 3.12%-5.00% (31 December 2015: 3.55%-5.29%).
For long-term non-life insurance contracts where the future policy benefits are not affected by investment return
of the underlying asset portfolio, as the risk margin has no material impact on the reserve measurement, the
discount rate assumption is the benchmarking yield curve for the measurement of insurance contract liabilities
published by China Central Depository and Clearing Co., Ltd.
For long term life insurance contracts where the future insurance benefits are affected by investment return of
the underlying asset portfolio, the discount rates are determined based on expected future investment returns of
the asset portfolio backing those liabilities. The future investment returns assumption for the measurement as
at 31 December 2016 ranged from 4.75%-5.00% (31 December 2015: 4.75%-5.50%).
For short term insurance contracts liabilities whose duration is within one year, the future cash flows
are not discounted.
The discount rate and investment return assumptions are affected by the future macro-economy, capital market,
investment channels of insurance funds, investment strategy, etc., and therefore subject to uncertainty.
> The Group uses reasonable estimates, based on market and actual experience and expected future
development trends, in deriving assumptions of mortality rates, morbidity rates, disability rates, etc.
The assumption of mortality rates is based on the industrial benchmark or Group’s prior experience data on
mortality rates, estimates of current and future expectations, the understanding of the China insurance
market as well as a risk margin. The assumption of mortality rates is presented as a percentage of ‘China
Life Insurance Mortality Table (2000-2003)’, which is the industry standard for life insurance in China.
The assumption of morbidity rates is determined based on the Group’s assumptions used in product pricing,
experience data of morbidity rates, and estimates of current and future expectation as well as a risk margin.
The assumptions of mortality and morbidity rates are affected by factors such as changes in lifestyles of national
citizens, social development, and improvement of medical treatment, and hence subject to uncertainty.
Insurance contracts (IFRS 4) 4385
> The Group uses reasonable estimates, based on actual experience and future development trends, in deriving
lapse rate assumptions.
The assumptions of lapse rates are determined by reference to different pricing interest rates, product
categories and sale channels separately. They are affected by factors such as future macro-economy and
market competition, and hence subject to uncertainty.
> The group uses reasonable estimates, based on an expense study and future development trends, in deriving
expense assumptions. If the future expense level becomes sensitive to inflation, the Group will consider the
inflation factor as well in determining expense assumptions.
The expense assumptions include assumptions of acquisition costs and maintenance costs. The assumption
of maintenance costs also has a risk margin.
> The Group uses reasonable estimates, based on expected investment returns of participating insurance
accounts, participating dividend policy, policyholders’ reasonable expectations, etc. in deriving policy
dividend assumptions.
The assumption of participating insurance accounts is affected by the above factors, and hence bears
uncertainty. The future assumption of life and bancassurance participating insurance with a risk margin
based on a dividend rate of 85%.
> In the measurement of unearned premium reserves for the property and casualty insurance and short term
life insurance business, the Group applies the cost of capital approach and the insurance industry guideline
ranged from 3% to 6% to determine risk margins.
The major assumptions needed in measuring claim reserves include the claim development factor and expected claim
ratio, which can be used to forecast trends of future claims so as to estimate the ultimate claim expenses. The loss
claim development factors and expected loss ratio of each measure
ment unit are based on the Group’s historical claim
development experiences and claims paid, with consideration of adjustments to company policies like underwriting
policies, level of premium rates, claim management and the changing trends of external environments such as
macroeconomic regulations, and legislation. In the measurement of claim reserves, the Group applies the cost of
capital approach and insurance industry guideline ranged from 2.5% to 5.5% to determine risk margins.
4386 Chapter 51
Some life insurers give details of the mortality tables used for measuring their insurance
contract liabilities and changes in those tables during the reporting period. AMP provide
an example of the type of disclosures made.
Extract 51.20: AMP Limited (2016)
Notes to the financial statements [extract]
For the year ended 31 December 2016
4.3. Life insurance contracts – assumptions and valuation methodology [extract]
(g) Mortality and morbidity [extract]
Standard mortality tables, based on national or industry-wide data, are used.
Rates of mortality assumed at 31 December 2016 for AMP Life and NMLA are as follows:
– Retail risk mortality rates for AMP Life Australia and NMLA Australia have been reviewed and strengthened for
some business lines from those assumed at 31 December 2015, as indicated in the tables below. Retail risk
mortality rates for AMP Life and NMLA New Zealand are unchanged from those assumed at 31 December 2015.
The rates are based on the Industry standard IA04-08 Death Without Riders;
– Conventional business mortality rates are unchanged from those assumed at 31 December 2015;
– Annuitant mortality rates are unchanged from those assumed at 31 December 2015.
For Australian income protection business, the assumptions have been updated and based on the recently released
AD107-11 standard table modified for AMP Life and NMLA with overall specific adjustment factors. For New
Zealand income protection business, the assumptions are unchanged from those assumed at 31 December 2015. These
assumptions are based on the IAS89-93 standard table.
For Australian TPD and Trauma business, the AMP Life and NMLA retail risk products assumptions have been
strengthened for some business lines from those assumed at 31 December 2015. For New Zealand TPD and Trauma
business, the retail risk products assumptions are unchanged from those assumed at 31 December 2015. These
assumptions are based on the latest industry table IA04-08.
The assumptions are summarised in the following table:
Conventional – % of
Conventional – % of
IA95-97 (AMP Life)
IA95-97 (NMLA)
Conventional Male
Female
Male
Female
31 December 2016
Australia 67.5
67.5
67.5
67.5
New Zealand
73.0
73.0
73.0
73.0
Retail Lump Sum – %
Retail Lump Sum – %
of table (AMP Life)
of table (NMLA)
Risk products
Male
Female
Male
Female
31 December 2016
Australia 94-148
94-148
100-106
100-106
New Zealand
100
82
120
98
Prudential provides the following disclosures about allocations and distributions in
respect of contracts with a DPF.
Insurance contracts (IFRS 4) 4387
Extract 51.21: Prudential plc (2017)
C Balance sheet notes [extract]
C4: Policyholder liabilities and unallocated surplus [extract]
C4.2: Products and determining contract liabilities [extract]
(c): UK and Europe [extract]
Contract type
With-profits contracts in WPSF
Description
With-profits contracts provide returns to policyholders through bonuses that are ‘smoothed’. There are two types of
bonuses: ‘regular’ and ‘final’.
Regular bonus rates are determined for each type of policy primarily by targeting the bonus level at a prudent
proportion of the long-term expected future investment return on underlying assets, reduced as appropriate for each
type of policy to allow for items such as expenses, charges, tax and shareholders’ transfers.
In normal investment conditions, PAC expects changes in regular bonus rates to be gradual over time. However, PAC
retains the discretion whether or not to declare a regular bonus each year, and there is no limit on the amount by
which regular bonus rates can change.
A final bonus which is normally declared annually, may be added when a claim is paid or when units of a unitised
product are realised.
The rates of final bonus usually vary by type of policy and by reference to the period, usually a year, in which the
policy commences or each premium is paid. These rates are determined by reference to the asset shares for the sample
policies but subject to the smoothing approach as explained below.
Material features
Regular bonuses are typically declared once a year, and once credited, are guaranteed in accordance with the terms
of the particular product. Final bonuses rates are guaranteed only until the next bonus declaration.
11.1.5
The effects of changes in assumptions
As noted at 11.1 above, IFRS 4 requires disclosure of the effects of changes in
assumptions used to measure insurance assets and insurance liabilities, showing
separately the effect of each change that has a material impact on the financial
statements. [IFRS 4.37(d)]. This requirement is consistent with IAS 8, which requires
disclosure of the nature and amount of a change in an accounting estimate that has an
effect in the current period or is expected to have an effect in future periods. [IFRS 4.IG34].
Assumptions are often interdependent. When this is the case, any analysis of changes by
assumption may depend on the order in which the analysis is performed and may be arbitrary
to some extent. Not surprisingly, IFRS 4 does not specify a rigid format or content for this
analysis. This allows insurers to analyse the changes in a way that meets the objective of the
disclosure requirement and is appropriate for their particular circumstances. If practicable,
the impact of changes in different assumptions might be disclosed separately, particularly if
changes in those assumptions have an adverse effect and others have a beneficial effect. The
impact of interdependencies between assumptions and the resulting limitations of any
analysis of the effect of changes in assumption might also be described. [IFRS 4.IG35].
The effects of changes in assumptions both before and after reinsurance held might be
disclosed, especially if a significant change in the nature or extent of an entity’s
reinsurance programme is expected or if an analysis before reinsurance is relevant for
an analysis of the credit risk arising from reinsurance held. [IFRS 4.IG36].
4388 Chapter 51
Aviva disclose the impact of changes in assumptions for their insurance business in a
tabular format.
Extract 51.22: Aviva plc (2016)
Notes to the consolidated financial statements [extract]
44 – Effe
ct of changes in assumptions and estimates during the year [extract]
Certain estimates and assumptions used in determining our liabilities for insurance and investment contract business
were changed from 2015 to 2016, affecting the profit recognised for the year with an equivalent effect on liabilities.
This note analyses the effect of the changes. This note only allows for the impact on liabilities and related assets, such as unallocated divisible surplus, reinsurance, deferred acquisition costs and AVIF, and does not allow for offsetting
movements in the value of backing financial assets.
Effect on
Effect on
profit
profit
2016
2015
£m
£m
Assumptions
Long term insurance business
Interest rates
(4,490)
2,053
Expenses
48
248
Persistency rates
(80)
(2)
Mortality for assurance contracts
(11)
1
Mortality for annuity contracts
294
17
Tax and other assumptions
97
48
Investment contracts
Expenses
–
(4)
General insurance and health business
Change in discount rate assumptions
(242)
(100)
Change in expense ratio and other assumptions
–
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 868
