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Definition of an "insurance contract" under IRFS:

A contract under which one party accepts a signfiicant
insurance risk from another party by agreeing to compensate
the policyholder if a specified uncertain future event adversely
effects the policyholder.


List 4 requirements of Phase 1 or IRFS:

1. Elimination of catastrophe & equalization provisions
2. Adequacy test of insurance liabilities & impairment test of
reinsurance assets
3. Prohibition of osetting insurance liabilities with reinsurance
4. Certain disclosures


3 steps to determine liabilities according to IRFS:

1. Calculation of unbiased probability weighted expected cash flows
2. Application of discounting
3. Application of Margins


List factors that would require higher risk margins:

-less is known about the estimate
-low frequency/ high severity
-longer duration
-wide probability distribution
-emerging experience increases uncertainty


Outline 3 approaches to determine risk margins:

1. Confidence level (VaR) technique: the needed load to the expected value to result in a specific probability that the
insurer has suficient funds to pay for the liabilities
2. Conditional Tail Expectation (CTE): probability weighted
average of all scenarios in the tail - Mean estimate
3. Cost of capital method: the amount necessary to produce an adequate return, after factoring in the investment return.