Case study IFRS 17 Case Study

Identify IFRS 17 inventory in each dataset, including:

• Fulfillment cash flow assumptions
• IFRS 17 discount rates
• Level of aggregation
• Measurement model
• Coverage units definition
• Reinsurance
• Transactions data
• Minimum interest rate guarantees and segregated fund guarantee features

Review existing valuation configurations, including:

• SQL schema for inputs and outputs
• Existing AXIS and DataLink configurations

Map out end-state solution, including:

• Deciding on optimal AXIS model configuration
• Building out infrastructure to enable stochastic modeling under IFRS 17 to capture time value of options and guarantees (TVOG) introduced by the guarantee features
• Designing output structures to meet the requirements of downstream contractual service margin calculation engine

Define and coordinate processes and activities to manage project flow, including:

• Identifying workstreams and developing a resourcing plan
• Developing a detailed project plan and project communication protocols
• Coordinating with a third-party ESG vendor to spec out scenario requirements

AXIS model development:

• Reconfigure existing model to facilitate optimal legacy and  IFRS 17 reporting processes
• Build out IFRS 17 objects (e.g. IFRS 17 Group, IFRS 17 Group for Reinsurance Held, IFRS 17 Portfolio, etc.)
• Automate scenario data pulls from SQL for IFRS 17 discount rates
• Develop scenario specifications (sent to ESG vendor) to ensure the accurate quantification of TVOG based on client’s product profile and build reasonableness testing for scenario validation during production
• Build out batches to automatically read and create risk-neutral stochastic scenarios provided by ESG vendor
• Establish DataLink procedures for on-the-fly seriatim data model creation and historical data model definitions
• Develop  AXIS IFRS 17 category and drilldown reports
• Configure global parameters and  report tags for optimized backend reporting, analysis, and validation
• Optimize dataset parameters for run-time efficiency and to eliminate  calculation redundancy
• Advise on partial IFRS 17 Link functionality
• Create batch setups used to automate supplemental IRS17 disclosure requirements, such as explanation of investment results or risk sensitivities
• Co-develop AXIS enhancements with Moody’s to address unique characteristics of the client’s business

Downstream development:

• Develop and optimize customized AXIS CY reports and SQL scripts to meet IFRS 17 reporting needs and requirements of non-Moody’s CSM calculation engine
• Update IFRS 17 Link roll-forward analysis of balance sheet items
• Design and update result templates used for supplemental IFRS 17 disclosures
  • EOIR: Reconciliation of attributed income on various drivers to total the release of BEL/RA due to financial assumptions produced via Link
  • Risk sensitivities: Summary of impacts to BEL/RA from the various market and insurance risk shocks
• Review existing supplementary reporting templates for control deficiencies and their fit for purpose under IFRS 17

Conduct IFRS 17 impact analysis, including:

• Roll-forward analysis of balance sheet items for current reporting period
• Detailed incremental model change analysis to break down reserve impacts moving from IFRS 4 to IFRS 17
• Reasonability analysis on stochastic results that capture TVOG under IFRS 17

Perform supplemental IFRS 17 disclosures analysis, including:

• Granular waterfall analysis of BEL and RA release due to financial and non-financial assumptions
• Comparisons to risk sensitivity results under IFRS 4

Conduct sample policy validation, including:

• Policy audits illustrating conceptual correctness in design (e.g. reserves and cash flows move in the expected direction for a given shock in assumptions)

Carry out user acceptance testing:

• Ensure test results are reproducible within a production environment
• Ensure end-to-end process is valid and appropriate for each use case
• Confirm reporting is sufficient for regulators and management
• Ensure end-to-end process timing aligns with reporting due dates

Deliver model change documentation, including:

• Summary documenting discovery and design decisions with rationale
• Detailed stepwise model change documentation providing all development and validation details per dataset with AXIS batches to reproduce the analysis
• User instructions to update result templates
• Audit trails with instructions to recreate validation results

Provide other change management support, including:

• Continued Q&A support during client’s dual reporting exercise
• Staff training on general IFRS 17 concepts, efficient modeling approaches, and stochastic modeling methodologies

The project was completed on time, within our initial budget range, and with positive feedback from the project’s model stewards. Results included the following:

• Existing processes for EOIR and risk sensitivities have seen core hour runtime reduction by approximately 25% and a significant reduction in number of batches, resulting in a cleaner model compared to the initial prototype developed by the client.
• We assisted Moody’s in improving their AXIS IFRS 17 solution by co-developing and reviewing certain AXIS enhancements:
  • Allowing expected interest on BEL/RA to be at current rates.
  • Roll-forward enhancements to further break out the “Release due to financial assumptions” into various components (e.g., death, lapse, other).
• We implemented scenario testing protocols that significantly reduced third-party assumption risk during production, in particular given the client’s current limited internal expertise on stochastic modeling.
• We provided several recommendations to address new requirements under IFRS 17, for example, discount curve setting for universal life and seg fund products where the use of a different discount rate for cash flows that vary with the underlying items is needed.