Financial Position and Performance in IFRS 17

41 Pages Posted: 28 Apr 2020 Last revised: 11 May 2020

See all articles by Mathias Lindholm

Mathias Lindholm

Stockholm University

Filip Lindskog

Stockholm University

Lina Palmborg

Stockholm University

Date Written: April 3, 2020

Abstract

The general principles for determining the financial performance of a company is that revenue is earned as goods are delivered or services provided, and that expenses in the period are made up of the costs associated with this earned revenue. To follow these principles in the insurance industry is a complex task.

The premium payments are typically made upfront, and can provide coverage for several years, or be paid many years before the coverage period starts. The associated costs are often not fully know until many years later. Hence, complexity arises both in determining how a premium paid should be earned over time, and in valuing the costs associated with this earned premium. IFRS 17 attempts to align the insurance industry with these general accounting principles.

We bring this new accounting standard into the realm of actuarial science, through a mathematical interpretation of the regulatory texts, and by defining the algorithm for profit or loss in accordance with the new standard. Furthermore, we suggest a computationally efficient risk-based method of valuing a portfolio of insurance contracts and an allocation of this value to sub-portfolios. Finally, we demonstrate the practicability of these methods and the algorithm for profit or loss in a large-scale numerical example.

Keywords: IFRS 17, Financial Performance, Valuation, Allocation

JEL Classification: G22, M41

Suggested Citation

Lindholm, Mathias and Lindskog, Filip and Palmborg, Lina, Financial Position and Performance in IFRS 17 (April 3, 2020). Available at SSRN: https://ssrn.com/abstract=3567745 or http://dx.doi.org/10.2139/ssrn.3567745

Mathias Lindholm

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Filip Lindskog (Contact Author)

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Lina Palmborg

Stockholm University ( email )

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

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