Lesson 1Where the LIC sits
IFRS 17 splits the carrying amount of a group of contracts into two parts (paragraph 40): the liability for remaining coverage, which relates to future service and includes the contractual service margin, and the liability for incurred claims, made up of the fulfilment cash flows related to past service.
The LIC has no contractual service margin: unearned profit always belongs to remaining coverage. That is why, for a reserving actuary, the LIC is familiar ground: triangles, IBNR methods and variability.
Lesson 2Fulfilment cash flows: estimate, discount and risk
Cash flows are estimated without bias, as the expected value (probability-weighted mean) of the full range of possible outcomes (paragraph 33). They are adjusted for the time value of money and financial risks (paragraph 36), and a risk adjustment for non-financial risk is added: the compensation the entity requires for bearing the uncertainty about the amount and timing of cash flows that arises from non-financial risk (paragraph 37).
\[LIC=\underbrace{PV(\text{expected cash flows})}_{\text{paras. 33 and 36}}+\underbrace{RA}_{\text{para. 37}}\]
Under the premium allocation approach (PAA), the LIC is measured the same way, with fulfilment cash flows, but the entity is not required to discount cash flows expected to be paid in one year or less from the date the claims are incurred (paragraph 59(b)).
Lesson 3The risk adjustment and its confidence level
IFRS 17 does not prescribe a technique for the risk adjustment: a confidence level (a percentile of the cash flow distribution), cost of capital or another technique can be used. What it does require is disclosure of the confidence level used; if another technique is used, the entity discloses the technique and the confidence level corresponding to its result (paragraph 119).
That disclosure makes entities using different techniques comparable. The bootstrap percentiles from mini-course 4 are a direct way to obtain it. Unlike the CNSF risk margin, whose 10% rate is the same for every insurer, the risk adjustment reflects each entity's own view of risk.
Lesson 4Claims development disclosure
Paragraph 130 requires comparing actual claims with previous estimates of the undiscounted amount, that is, publishing a development triangle. It starts with the period of the earliest material claim still subject to uncertainty, without having to go back more than 10 years, and does not apply to claims whose uncertainty is typically resolved within one year. It must be reconciled to the carrying amount.
As transition relief, paragraph C28 allows an entity not to disclose previously unpublished information about claims development that occurred more than five years before the end of the first annual period of application, provided it discloses that fact. IFRS 17 is effective for annual periods beginning on or after January 1, 2023.