2023 is a very important year for the insurance industry: The complex set of rules IFRS 17 will come into force on January 1, 2023, replacing the interim standard IFRS 4 Phase I, which has been in force since 2005. The new standard governs the principles of identification, recognition, measurement, presentation and disclosures for insurance contracts.

Alma will support the implementation of IFRS 17 in the insurance industry. Therefore, Alma will publish short and easy-to-understand articles on IFRS 17 from time to time.

Part 6: Unit of Accounts (UoA)

The valuation of insurance contracts depends not only on the method and the parameters, but also on the formation of groups of insurance contracts – or “solidarities”: Which insurance contracts are treated together with others in a group is an essential question for the valuation of a portfolio, because here “good” rated ones come together with “bad” rated ones in a group or “solidarity” or not.

Ad 1: Contract Combination

The first issue to discuss is whether there are contract combinations or components to be delineated. See also Part 5 “How to get started with IFSR 17?” items 2 and 3.

Ad 2: IFRS 17 Portfolios

Then contracts are to be grouped into portfolios that have a similar risk and are managed together.

Ad 3: Profitability Assessment

Within a portfolio, the following three groups of insurance contracts are to be determined:

    1. “Onerous” contracts
    2. Insurance contracts for which there is no significant probability of becoming onerous
    3. Other contracts

Ad 4: Annual Cohorts

The portfolios are to be distinguished according to annual cohorts (start of the contract).