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Insurance Finance & Reporting (IFRS 17, Solvency) – Interview Q&A

InterviewQ&A

A. Fundamentals of IFRS 17

Q1: What is the objective of IFRS 17, and how does it differ from IFRS 4?

What the interviewer tests: The interviewer is evaluating your understanding of insurance accounting standards and the implications of IFRS 17 for financial reporting.

Key elements:
  • Objective of IFRS 17
  • Comparison with IFRS 4
  • Impact on insurance contracts

The objective of IFRS 17 is to provide a more transparent and consistent accounting framework for insurance contracts, enhancing comparability across entities. Unlike IFRS 4, which allowed for diverse accounting practices, IFRS 17 introduces a standardized approach based on the current fulfillment value of insurance liabilities, improving the relevance and reliability of financial statements.

Q2: Define the building block model in IFRS 17.

What the interviewer tests: The interviewer is assessing your knowledge of IFRS 17 and its application in financial reporting.

Key elements:
  • Insurance contract liabilities
  • Current estimates of cash flows
  • Risk adjustment

The building block model in IFRS 17 is a framework for measuring insurance contract liabilities based on three components: the current estimates of future cash flows, a risk adjustment for non-financial risk, and a contractual service margin that represents the unearned profit. This model aims to provide a more transparent and consistent approach to accounting for insurance contracts, enhancing comparability across financial statements.

Q3: How is the Liability for Remaining Coverage (LRC) calculated under IFRS 17?

What the interviewer tests: The interviewer is testing your knowledge of IFRS 17 and your ability to apply its principles to financial reporting.

Key elements:
  • Definition of LRC
  • Components of the calculation
  • Impact on financial statements

Under IFRS 17, the Liability for Remaining Coverage (LRC) is calculated as the present value of future cash flows expected from the insurance contracts, adjusted for risk and discounting. It includes the premiums receivable, the present value of claims, and any acquisition costs. This calculation impacts the financial statements by ensuring that liabilities reflect the expected future obligations accurately.

Q4: What is the role of the Contractual Service Margin (CSM) in IFRS 17?

What the interviewer tests: The interviewer is testing your understanding of IFRS 17 and its implications for insurance contracts.

Key elements:
  • Profit recognition
  • Risk management
  • Measurement of liabilities

The CSM represents the unearned profit of an insurance contract, which is recognized as revenue over the coverage period, helping to manage risk and measure liabilities accurately under IFRS 17.

Q5: How is the Risk Adjustment (RA) determined and disclosed under IFRS 17?

What the interviewer tests: The interviewer is evaluating your knowledge of IFRS 17 and its implications for risk management in insurance contracts.

Key elements:
  • Estimation of future cash flows
  • Risk premium assessment
  • Disclosure requirements

Under IFRS 17, the Risk Adjustment is determined by estimating future cash flows related to insurance contracts, assessing the risk premium required for bearing uncertainty, and ensuring comprehensive disclosures that provide insights into the methods and assumptions used in calculating the RA.

B. Models, Recognition & Presentation

Q6: What are the three measurement models under IFRS 17 and their applicability?

What the interviewer tests: The interviewer is testing your knowledge of IFRS 17 and your ability to apply theoretical concepts to practical scenarios.

Key elements:
  • General Measurement Model
  • Premium Allocation Approach
  • Variable Fee Approach

The three measurement models under IFRS 17 are the General Measurement Model (GMM), which is used for most insurance contracts; the Premium Allocation Approach (PAA), suitable for short-duration contracts; and the Variable Fee Approach (VFA), applicable to contracts with direct participation features. Each model serves different types of insurance products based on their characteristics and expected cash flows.

Q7: When can the Premium Allocation Approach (PAA) be used under IFRS 17?

What the interviewer tests: The interviewer is testing your knowledge of insurance accounting standards and the application of the PAA.

Key elements:
  • Criteria for using PAA
  • Understanding of IFRS 17
  • Comparison with other approaches

The Premium Allocation Approach (PAA) can be used under IFRS 17 for contracts that have a coverage period of one year or less, or for longer-term contracts that meet the simplification criteria. This approach simplifies the measurement of insurance liabilities by allowing insurers to recognize premiums as revenue over the coverage period, making it easier to manage for short-duration contracts.

Q8: What is the Variable Fee Approach (VFA), and in which cases is it applied?

What the interviewer tests: The interviewer is assessing your knowledge of insurance accounting, particularly under IFRS 17.

Key elements:
  • Definition of VFA
  • Application scenarios
  • Impact on profit recognition

The Variable Fee Approach (VFA) is an accounting method under IFRS 17 used for insurance contracts with direct participation features, where the policyholder participates in the returns of a pool of underlying items. It is applied when the insurer's obligation is to pay the policyholder an amount that varies based on the performance of these underlying items, thus linking the profits directly to the investment returns.

Q9: How are changes in discount rates treated under IFRS 17?

What the interviewer tests: The interviewer is evaluating your knowledge of IFRS 17 and its implications on financial reporting and insurance contracts.

Key elements:
  • Impact of discount rates
  • IFRS 17 compliance
  • Financial reporting

Under IFRS 17, changes in discount rates are treated as part of the measurement of insurance contract liabilities. Insurers must update the discount rates used to reflect current market conditions, impacting the present value of future cash flows and potentially affecting profit recognition.

Q10: How is the insurance service result presented in financial statements?

What the interviewer tests: The interviewer is testing your knowledge of financial reporting for insurance services.

Key elements:
  • Presentation format
  • Revenue recognition
  • Claims and expenses

The insurance service result is typically presented in the income statement as net premium income, which is the total premiums earned minus claims and expenses. It reflects the profitability of the insurance operations.

C. Implementation Challenges & Governance

Q11: What are the major implementation challenges for IFRS 17 adoption?

What the interviewer tests: The interviewer is assessing your knowledge of IFRS 17 and its practical implications for financial reporting.

Key elements:
  • Data collection and management
  • System integration and upgrades
  • Training and change management

Major challenges for IFRS 17 adoption include the need for comprehensive data collection and management to meet the standard's requirements, the integration of existing systems with new reporting frameworks, and ensuring that staff are adequately trained to handle the changes in accounting practices.

Q12: How are portfolios and groups of insurance contracts identified under IFRS 17?

What the interviewer tests: The interviewer is evaluating your knowledge of IFRS 17 and your ability to apply its principles in practice.

Key elements:
  • Understanding of IFRS 17
  • Identification criteria for portfolios
  • Assessment of risk characteristics

Under IFRS 17, portfolios of insurance contracts are identified based on similar risks and managed together, while groups are formed by contracts with similar coverage periods and profitability profiles, ensuring consistent measurement and reporting.

Q13: Why is defining contract boundaries important under IFRS 17?

What the interviewer tests: The interviewer is looking for your knowledge on IFRS 17 principles and the significance of contract boundaries in insurance contracts.

Key elements:
  • Contract boundaries
  • Cash flows
  • Risk assessment

Defining contract boundaries under IFRS 17 is crucial because it determines the cash flows that will be included in the measurement of the insurance contract. It helps in assessing the risks and ensures that all relevant cash flows related to the contract are accounted for, providing a clearer picture of the insurer's financial position.

Q14: How should coverage units be determined for CSM amortization?

What the interviewer tests: The interviewer is assessing your understanding of the methodology for determining coverage units in the context of Contractual Service Margin (CSM) amortization.

Key elements:
  • Understanding of coverage units
  • Knowledge of CSM amortization
  • Application of relevant accounting standards

Coverage units for CSM amortization should be determined based on the pattern of transfer of services to the policyholder. This involves assessing the expected cash flows and recognizing revenue in a manner that reflects the service provided over the contract term.

Q15: What is the process for unlocking CSM, and what controls are needed?

What the interviewer tests: The interviewer is evaluating your knowledge of insurance accounting and the management of Contractual Service Margin (CSM).

Key elements:
  • Steps to unlock CSM
  • Regulatory compliance
  • Internal controls

Unlocking the Contractual Service Margin (CSM) involves assessing the fulfillment cash flows and recognizing revenue as services are provided. Adequate controls include regular reviews of financial assumptions, compliance checks with IFRS 17, and robust documentation of the unlocking process to ensure transparency and accuracy.

D. Comparison with Solvency Reporting

Q16: What are the key differences between IFRS 17 and Solvency II frameworks?

What the interviewer tests: The interviewer is assessing your understanding of international accounting standards and regulatory frameworks.

Key elements:
  • IFRS 17 focuses on insurance contracts
  • Solvency II is about insurance company solvency
  • Different measurement and reporting approaches

The key differences lie in their focus and approach: IFRS 17 is primarily concerned with the accounting for insurance contracts, emphasizing the recognition of revenue and expenses over the contract's life. In contrast, Solvency II is a regulatory framework that ensures insurance companies maintain sufficient capital to meet their liabilities, focusing on risk management and capital adequacy. Additionally, IFRS 17 adopts a current value measurement while Solvency II emphasizes a market-consistent valuation.

Q17: How do contract boundaries differ between IFRS 17 and Solvency II?

What the interviewer tests: The interviewer is testing your understanding of insurance contract accounting and regulatory frameworks.

Key elements:
  • Contract boundaries
  • IFRS 17 requirements
  • Solvency II approach

Under IFRS 17, contract boundaries are determined by the rights and obligations arising from the contract, specifically when the insurer can reassess the risks. In contrast, Solvency II focuses on the cash flows that are expected to occur within the contract duration, which may lead to different boundary definitions and implications for capital requirements.

Q18: Why does Solvency II not include a concept like CSM?

What the interviewer tests: The interviewer is assessing your knowledge of insurance regulation and the specific concepts associated with Solvency II.

Key elements:
  • Understanding of Solvency II framework
  • Concept of Contractual Service Margin (CSM)
  • Differences between insurance accounting standards

Solvency II focuses on the overall solvency and risk management of insurance firms rather than on profit recognition, which is where the Contractual Service Margin (CSM) concept is applied under IFRS 17. Hence, CSM is not included in Solvency II as it does not pertain to regulatory capital requirements.

Q19: How does the treatment of risk margin differ under IFRS 17 vs. Solvency II?

What the interviewer tests: The interviewer is assessing your understanding of regulatory frameworks in insurance and financial reporting.

Key elements:
  • IFRS 17 focuses on current estimates
  • Solvency II emphasizes a risk-based approach
  • Differences in discounting methods

Under IFRS 17, the risk margin is determined based on current estimates of future cash flows, reflecting the time value of money. In contrast, Solvency II uses a risk-based approach that incorporates a market-consistent valuation, often leading to differences in the measurement and presentation of liabilities.

Q20: How can Solvency II models support IFRS 17 implementation?

What the interviewer tests: The interviewer is testing your knowledge of regulatory frameworks and their interplay in financial reporting.

Key elements:
  • Understanding of Solvency II
  • Connection to IFRS 17
  • Implications for insurance companies

Solvency II models can enhance IFRS 17 implementation by providing a framework for assessing insurance liabilities and capital requirements. They facilitate the alignment of risk management practices with financial reporting, ensuring that insurance companies can meet both regulatory and accounting standards effectively while improving transparency and consistency in financial statements.

E. Solvency Monitoring & ORSA

Q21: What is the purpose and scope of Own Risk and Solvency Assessment (ORSA)?

What the interviewer tests: The interviewer is assessing your understanding of ORSA and its implications in risk management and solvency regulation.

Key elements:
  • Understanding of ORSA
  • Regulatory compliance
  • Risk management framework

The purpose of ORSA is to ensure that an insurance company assesses its own risk profile and solvency needs comprehensively. It integrates risk management into the strategic planning process, enabling firms to identify, measure, and manage risks effectively while ensuring they hold sufficient capital to meet obligations under various scenarios.

Q22: How does ORSA differ from Pillar I capital requirements?

What the interviewer tests: The interviewer is assessing your understanding of risk management frameworks in finance.

Key elements:
  • Definition of ORSA
  • Pillar I overview
  • Regulatory implications

ORSA, or Own Risk and Solvency Assessment, differs from Pillar I capital requirements in that it is a forward-looking assessment conducted by insurers to evaluate their own risk profile and solvency needs, while Pillar I focuses on the minimum capital requirements set by regulators based on standard formulas. ORSA is more comprehensive and considers a firm's specific risk environment, whereas Pillar I is more prescriptive and uniform across the industry.

Q23: What types of risks are typically included in ORSA frameworks?

What the interviewer tests: The interviewer is evaluating your understanding of risk management and regulatory compliance in the context of insurance operations.

Key elements:
  • Underwriting risk
  • Market risk
  • Operational risk

ORSA frameworks typically include underwriting risk, market risk, credit risk, operational risk, liquidity risk, and reputational risk. These risks are assessed to ensure that the entity holds sufficient capital to cover potential losses and to maintain solvency under various scenarios.

Q24: How can IFRS 17 outputs be used to inform ORSA reports?

What the interviewer tests: The interviewer is evaluating your understanding of the relationship between financial reporting standards and risk management processes.

Key elements:
  • IFRS 17 provides financial insights
  • Link to risk assessment
  • Enhances transparency in reporting

IFRS 17 outputs offer detailed insights into insurance liabilities and expected cash flows, which can directly inform the Own Risk and Solvency Assessment (ORSA) by providing a clearer picture of risk exposure. This enhances the transparency and accuracy of risk assessments in ORSA reports.

Q25: What is the relationship between IFRS 17 disclosures and SFCR requirements?

What the interviewer tests: The interviewer wants to know your knowledge of insurance accounting standards and regulatory requirements.

Key elements:
  • IFRS 17 overview
  • SFCR requirements
  • Impact on insurance companies

IFRS 17 disclosures provide detailed information on insurance contracts, including the measurement of liabilities and the recognition of revenue. The SFCR (Solvency and Financial Condition Report) requirements complement IFRS 17 by ensuring that insurers disclose their solvency position. Together, they provide a comprehensive view of an insurer's financial health and compliance with regulatory obligations.

F. Scenario-Based Considerations

Q26: A contract is expected to generate losses—how should it be recognized under IFRS 17?

What the interviewer tests: The interviewer is evaluating your knowledge of IFRS 17 and how it impacts the recognition of losses in insurance contracts.

Key elements:
  • Loss recognition
  • IFRS 17 compliance
  • Contractual obligations

Under IFRS 17, if a contract is expected to generate losses, it should be recognized immediately by creating a loss component in the liability for remaining coverage. This ensures that the expected losses are reflected in the financial statements promptly.

Q27: How should insurers treat contracts modified post-inception under IFRS 17?

What the interviewer tests: The interviewer is evaluating your knowledge of IFRS 17 and its implications for insurance contracts.

Key elements:
  • Modification of contracts
  • Recognition of changes
  • Impact on financial reporting

Under IFRS 17, insurers must assess modifications to contracts post-inception by determining whether the modification results in a new contract or changes the cash flows of the existing contract. If it’s a new contract, the insurer treats it accordingly; if it modifies existing cash flows, the insurer updates the contract’s measurement and recognizes any effects on profit or loss.

Q28: What accounting entries are made when the discount rate changes under IFRS 17?

What the interviewer tests: The interviewer is assessing your understanding of IFRS 17 and its implications on accounting entries.

Key elements:
  • Understanding of IFRS 17
  • Impact of discount rate changes
  • Relevant accounting entries

When the discount rate changes under IFRS 17, the insurer must adjust the present value of future cash flows, leading to a recalculation of the liability. The accounting entries typically include adjustments to the insurance contract liabilities and corresponding entries to profit or loss, reflecting the changes in the financial position.

Q29: How does CSM volatility affect profit emergence over the life of the contract?

What the interviewer tests: The interviewer seeks to understand your grasp of contract management and its financial implications.

Key elements:
  • Profit recognition timing
  • Contract stability
  • Impact on cash flow

CSM volatility can significantly affect profit emergence by altering the timing of profit recognition, leading to potential cash flow issues and impacting overall contract stability throughout its lifecycle.

Q30: A new product with discretionary participation features is introduced—does it qualify for VFA?

What the interviewer tests: The interviewer is assessing your understanding of insurance contracts and the criteria for Variable Fee Approach (VFA) under IFRS 17.

Key elements:
  • Understanding of VFA
  • Criteria for discretionary features
  • Implications of qualification

Yes, a new product with discretionary participation features qualifies for VFA if it meets the criteria set out in IFRS 17, which includes having a direct link between the fees received and the investment performance of the underlying items.

G. Financial Reporting & Disclosures

Q31: What key disclosures are required under IFRS 17?

What the interviewer tests: The interviewer is testing your knowledge of financial reporting standards specific to insurance contracts.

Key elements:
  • Insurance contract liabilities
  • Revenue recognition
  • Risk adjustment disclosures

Under IFRS 17, key disclosures include the nature and extent of insurance contracts, detailed information about insurance contract liabilities, the revenue recognized from these contracts, and a clear explanation of the risk adjustment used to reflect the uncertainty of cash flows. This enhances transparency and comparability in financial statements.

Q32: How should insurance revenue be presented under IFRS 17?

What the interviewer tests: The interviewer is assessing your understanding of IFRS 17 and its implications on revenue recognition.

Key elements:
  • Understanding of IFRS 17
  • Revenue recognition principles
  • Impact on financial statements

Under IFRS 17, insurance revenue should be presented based on the fulfillment of insurance contracts, reflecting the expected cash flows and the time value of money. This includes recognizing revenue as the insurer provides coverage and services over the contract term, ensuring transparency and comparability in financial reporting.

Q33: How are changes in assumptions reported and disclosed?

What the interviewer tests: The interviewer is assessing your knowledge of reporting standards and the importance of transparency in financial reporting.

Key elements:
  • Reporting standards
  • Assumption changes
  • Disclosure requirements

Changes in assumptions are typically reported in the notes to the financial statements, where the nature of the change, the reasons for it, and its impact on the financial results are disclosed, ensuring transparency and compliance with relevant accounting standards.

Q34: How does IFRS 17 handle acquisition costs compared to previous standards?

What the interviewer tests: The interviewer is evaluating your knowledge of IFRS 17 and your ability to compare it with prior accounting standards.

Key elements:
  • Deferred acquisition costs
  • Expense recognition
  • Impact on profitability

Under IFRS 17, acquisition costs are recognized as an expense when incurred, unlike previous standards where they could be deferred. This change impacts profitability reporting and requires insurers to closely manage their acquisition expenses.

Q35: What are the disclosure requirements for contracts measured under the PAA?

What the interviewer tests: The interviewer is assessing your understanding of the disclosure requirements under the PAA and your ability to communicate complex accounting standards.

Key elements:
  • Understanding of PAA
  • Disclosure requirements
  • Impact on financial statements

Under the PAA, disclosure requirements include providing qualitative and quantitative information about the nature of the contracts, significant judgments made in applying the standard, and the risks associated with those contracts.

H. Model Governance & Data Requirements

Q36: What controls should be in place for actuarial assumptions used in CSM calculations?

What the interviewer tests: The interviewer is probing your knowledge of actuarial processes and the importance of controls in ensuring accuracy and compliance in financial reporting.

Key elements:
  • Robust data validation
  • Regular review and updates
  • Documentation of assumptions

Controls for actuarial assumptions in CSM calculations should include robust data validation processes to ensure accuracy, regular reviews and updates to reflect current market conditions and demographic trends, and thorough documentation of all assumptions made. This ensures transparency and compliance with regulatory standards.

Q37: How should insurers manage data granularity required by IFRS 17?

What the interviewer tests: The interviewer is testing your understanding of data management and the implications of IFRS 17 on insurance reporting.

Key elements:
  • Data accuracy
  • Granularity levels
  • Reporting efficiency

Insurers should manage data granularity required by IFRS 17 by ensuring data accuracy at various levels of granularity, which can facilitate precise measurement of insurance contracts. Implementing robust data management systems and analytical tools is essential to balance the need for detailed reporting with operational efficiency.

Q38: What role does reinsurance accounting play in IFRS 17 compliance?

What the interviewer tests: The interviewer is evaluating your knowledge of IFRS 17 and the significance of reinsurance in financial reporting.

Key elements:
  • IFRS 17 requirements
  • Reinsurance accounting
  • Financial reporting implications

Reinsurance accounting plays a crucial role in IFRS 17 compliance by ensuring that the financial effects of reinsurance contracts are accurately reflected in the financial statements. It allows insurers to recognize the impact of reinsurance on their liabilities and provides clearer insights into risk management and profitability.

Q39: What challenges exist in grouping contracts by profitability under IFRS 17?

What the interviewer tests: The interviewer is assessing your understanding of IFRS 17 complexities and your analytical skills in contract profitability.

Key elements:
  • Complexity of contract categorization
  • Data integrity and accuracy
  • Impact on financial reporting

Grouping contracts by profitability under IFRS 17 can be challenging due to the complexity of categorizing contracts based on their risk profiles and performance metrics. Additionally, ensuring data integrity and accuracy is crucial, as any discrepancies can lead to misreporting. These challenges ultimately affect the overall financial reporting and stakeholder decision-making.

Q40: How do IT systems and actuarial tools support IFRS 17 implementation?

What the interviewer tests: The interviewer is assessing your understanding of the integration of technology in financial reporting.

Key elements:
  • Understanding of IFRS 17 requirements
  • Role of IT systems in data management
  • Importance of actuarial tools for accuracy

IT systems streamline data collection and reporting processes, ensuring compliance with IFRS 17 by providing accurate and timely information. Actuarial tools enhance the precision of projections and assumptions used in financial statements, enabling effective risk assessment and management.

I. Strategic & Operational Implications

Q41: How might IFRS 17 influence insurance product design and pricing?

What the interviewer tests: The interviewer is looking for your understanding of IFRS 17's impact on the insurance industry, particularly in product development and pricing strategies.

Key elements:
  • Understanding of IFRS 17
  • Impact on product design
  • Pricing considerations

IFRS 17 introduces a more transparent and consistent accounting framework for insurance contracts, requiring insurers to recognize profits based on the coverage period and the fulfillment of obligations. This shift may lead to product designs that emphasize long-term value and risk-sharing features, while pricing strategies will need to reflect the new revenue recognition patterns, ensuring they align with the anticipated cash flows and risk profiles.

Q42: How can insurers use OCI presentation to manage P&L volatility?

What the interviewer tests: The interviewer is evaluating your knowledge of insurance accounting and the implications of Other Comprehensive Income (OCI) on financial reporting.

Key elements:
  • Understanding of OCI
  • Impact on P&L
  • Risk management strategies

Insurers can use OCI presentation to smooth out P&L volatility by recognizing certain gains and losses in OCI rather than directly in net income. This allows for a more stable earnings report by deferring the impact of fluctuations in market values of investments or foreign currency translations, thus providing a clearer picture of ongoing operational performance and enhancing stakeholder confidence.

Q43: What are the strategic advantages of IFRS 17’s transparency?

What the interviewer tests: The interviewer is assessing your understanding of IFRS 17 and its impact on financial reporting.

Key elements:
  • Improved comparability
  • Enhanced risk management
  • Increased investor confidence

The strategic advantages of IFRS 17's transparency include improved comparability across financial statements, which allows investors and stakeholders to make better-informed decisions. It also enhances risk management by providing clearer insights into liabilities and cash flows. Furthermore, increased transparency fosters greater investor confidence, as it reduces information asymmetry.

Q44: How can IFRS 17 support better performance analysis and comparability?

What the interviewer tests: The interviewer is looking for your knowledge of accounting standards and their impact on financial reporting.

Key elements:
  • Standardization of reporting
  • Improved transparency
  • Better risk assessment

IFRS 17 standardizes the accounting for insurance contracts, which enhances comparability across companies and jurisdictions. It improves transparency by requiring detailed disclosures about insurance liabilities and performance metrics, thereby facilitating better risk assessment and decision-making.

Q45: How can finance and actuarial teams collaborate effectively under IFRS 17?

What the interviewer tests: The interviewer is evaluating your understanding of cross-functional collaboration and the integration of finance and actuarial functions under regulatory frameworks.

Key elements:
  • Communication channels
  • Data sharing
  • Joint decision-making

Effective collaboration under IFRS 17 requires establishing clear communication channels between finance and actuarial teams, ensuring timely data sharing for accurate reporting. Regular joint meetings can facilitate alignment on assumptions and methodologies, fostering a unified approach to financial reporting and risk management.

J. Risk Management Integration

Q46: How can IFRS 17 metrics be integrated with risk dashboards?

What the interviewer tests: The interviewer is checking your ability to connect financial reporting standards with risk management practices.

Key elements:
  • Understanding of IFRS 17 metrics
  • Risk assessment integration
  • Dashboard design principles

Integrating IFRS 17 metrics with risk dashboards involves aligning financial performance indicators with risk exposures. This can be achieved by incorporating key metrics such as the Contractual Service Margin (CSM) and the Risk Adjustment into the dashboard, allowing for real-time monitoring of profitability against risk factors. By visualizing these metrics together, organizations can better assess the impact of risks on future cash flows and make informed strategic decisions.

Q47: How should insurers align their IFRS 17 and solvency capital management strategies?

What the interviewer tests: The interviewer is evaluating your understanding of regulatory frameworks and risk management in the insurance industry.

Key elements:
  • IFRS 17 compliance
  • Solvency capital management
  • Strategic alignment

Insurers should align their IFRS 17 and solvency capital management strategies by integrating actuarial and financial reporting processes, ensuring that the financial metrics used for IFRS 17 compliance also meet regulatory capital requirements, thereby enhancing decision-making and risk assessment.

Q48: How can insurers manage model risk under IFRS 17?

What the interviewer tests: The interviewer is evaluating your knowledge of risk management practices specific to the insurance industry and IFRS 17 compliance.

Key elements:
  • Model validation processes
  • Regular updates and reviews
  • Use of independent oversight

Insurers can manage model risk under IFRS 17 by implementing robust model validation processes, conducting regular updates and reviews to reflect changing assumptions, and incorporating independent oversight to ensure accuracy and reliability of the models used.

Q49: What considerations are needed for stress testing under IFRS 17?

What the interviewer tests: The interviewer is evaluating your understanding of IFRS 17 and the implications of stress testing for insurance contracts.

Key elements:
  • IFRS 17 requirements
  • Stress testing importance
  • Key assumptions for stress testing

When conducting stress testing under IFRS 17, considerations include identifying key assumptions such as mortality rates, lapse rates, and expense levels, as well as the impact of adverse scenarios on cash flows and profit margins. This process is crucial for assessing the resilience of insurance liabilities and ensuring adequate capital reserves.

Q50: How can insurers reconcile regulatory solvency and IFRS 17 financial results?

What the interviewer tests: The interviewer is assessing your understanding of regulatory frameworks and accounting standards in insurance.

Key elements:
  • Understanding of IFRS 17
  • Knowledge of regulatory solvency requirements
  • Ability to bridge accounting and regulatory perspectives

Insurers can reconcile regulatory solvency and IFRS 17 results by aligning their financial reporting with the capital requirements set by regulators. This involves ensuring that the technical provisions under IFRS 17 reflect the economic reality while also meeting the solvency margins mandated by regulatory bodies. Regular stress testing and scenario analysis can help in maintaining this balance.

Insurance Finance & Reporting (IFRS 17, Solvency) – Interview Q&A Interview Q&A — Interview Q&A · CandiMentor