Valuation Practices of IFRS 17

University essay from KTH/Matematisk statistik; KTH/Matematisk statistik

Abstract: This research assesses the IFRS 17 Insurance Contracts standard from a mathematical and actuarial point of view. Specifically, a valuation model that complies with the standard is developed in order to investigate implications of the standard on financial statements of insurance companies. This includes a deep insight into the standard, construction a valuation model of a fictive traditional life insurance product and an investigation of the outcomes of the model. The findings show firstly that an investment strategy favorable for valuing insurance contracts according to the standard may conflict with the Asset & Liability Management of the firm. Secondly, that a low risk adjustment increases the contractual service margin (CSM) and hence the possibility of smoothing profits over time. Thirdly, that the policy for releasing the CSM should take both risk-neutral and real assumptions into account. 

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