??EIOPA analysis: A comparison of IFRS 17 and Solvency II

The recent completion of the first-ever IFRS 17 reporting for the financial year 2023 in the European insurance market is a significant milestone in adopting the new reporting standard.??

Despite the challenges associated with this transition, many reports have been successfully filed. We are pleased to witness the successful implementation of the standard among our clients.?

Building on this initial progress, the European Insurance and Occupational Pensions Authority (EIOPA) has issued a comprehensive report comparing the IFRS 17 and the Solvency II frameworks, highlighting differences and similarities. For the full report, visit EIOPA′s website?

Below are the key messages extracted by cleversoft from the report:?

?

? Provisions:?

Solvency II provisions for life companies were, on average, 2.5% higher than the IFRS 17?reserves (excluding the CSM). In contrast, for non-life business, IFRS 17 provisions were, on average, 9.5% higher.?

?

Key discrepancies identified by EIOPA include:?

?

? Cash Flow Analysis:?

Cash flow estimates under both regimes remained closely aligned. The major difference arises from how expenses are allocated. IFRS 17 tends to show lower reported expenses as it does not include indirect costs in the liabilities.?

?

? Discount Rates:?

42% of survey participants indicated that they used similar discount rates for both frameworks. A significant 75% relied on EIOPA's risk-free rate to calculate the IFRS 17 discount rates, showcasing a high level of dependence on Solvency II benchmarks.?

?

? Risk Adjustment:?

In comparison to Solvency II's risk margin, IFRS 17 risk adjustments tend to be lower. The confidence level for IFRS 17 risk adjustments typically falls between 75%-85%, as IFRS17 generally allows more flexibility and a principle-based approach.?

?

? Contract Boundaries:?

IFRS 17 considers contract boundaries based on the entire contract, not just individual risks. This can lead to longer contract boundaries, especially when unit-linked riders are included. As a result, higher future profits may be accounted for.

?

For more information about our IFRS 17 Services, please visit our website.??

You can also contact Joris van Dam and Lanxin (Kevin) Hu . Our experts will be happy to answer your questions.?