AP Newsletter Q3 2019

MALAYSIAN
INSURANCE AND
GLOBAL TAKAFUL
UPDATE
3rd Quarter 2019
 IFRS17: Deciding Whether to Build Internally or Buy a New System

 Actuarial Partners Consulting IFRS17 Service Bureau
 Focus on Retakaful: The Case of UAE and Malaysia
 Insurance in the Muslim World
 The Potential for Discretionary Takaful in Taiwan
 Mutual Aid Insurance in China
 Product Innovation: Going Beyond Mere Pay-outs
 Product Innovation: Poultry Insurance
 Sanlam Takaful
Malaysian Insurance and Global Takaful Update Q3 Actuarial Partners Consulting
IFRS17: DECIDING WHETHER TO BUILD

INTERNALLY OR BUY A NEW SYSTEM
There are many articles and discussions on IFRS17, but each tends to
touch on very specific issues rather than show the big picture and help
understand the changes coming for the actuary and the decisions which
must be made. This article discusses the changing demands of the
actuary, the flow of actuarial aspects of IFRS17, data and assumption
challenges, actuarial valuation software, CSM and sub-ledger calculation
engine and going beyond compliance.
The changing demands of the actuary:
Traditionally under IFRS4, the actuarial department would use our actuarial models to
produce the actuarial liabilities as of the reporting date. The total actuarial liabilities would
then be provided to the finance department, which would then be included as part of the
balance sheet, and change in actuarial liabilities in the Profit & Loss Statement. The finance
department is happy to use draft reserves in their work whilst waiting for us to finish our
analysis. Our work is just one small part of the financial statements with disclosures such as
gross liabilities and reinsurance assets by type of contracts and sensitivity analysis for key
assumptions on gross and net liabilities, surplus, and profit before taxation and shareholder’s
equity.
www.actuarialpartners.com Page 1 of 40

(Continued from previous page)
Under IFRS17 all of this changes. Instead of premium income (something which backend
systems can directly calculate and the finance team put into the accounts) there is expected
benefits and expenses, a purely actuarial calculation. There is also insurance finance
expenses (required investment income), risk adjustment and contractual service margins
(CSM) which must be released over time. Also the disclosures required under IFRS 17 are
very extensive which include (but not limited to):
• Reconciliation between the opening and closing balances of the future cash flows,
risk adjustments and CSM
• Analysis of insurance revenue by comparing with the changes in Liabilities of
Remaining Coverage
• Analysis of insurance contracts assets/liabilities for group of contracts that are
onerous (separately from other groups)
• Expected recognition of CSM
All of this means a lot more runs of our actuarial software and less ability to hide problems.
Remember all the trouble the finance department goes through because of the yearly audit?
This trouble is now passed to us!
The flow of actuarial aspects of IFRS17:
Our actuarial work starts with the collection of policy data and assumptions, which flow into
our actuarial valuation software. This software produces cash flows which are used in the
IFRS17 calculations. These cash flows are split by cohort, which is according to year of
issue, whether they are onerous (loss making) or not, and major product type. We then need
to use these cash flows to accumulate the contractual service margin, which is a fancy way
of saying the remaining profit which has not been released yet. In IFRS17 a main goal is the
release of profit gradually over time as work is performed. This accumulation takes into
account actual payments of benefits and expenses over time and is then used for several
purposes including:
• Journal entries for the accounts and disclosures

• Data required for the internal audit, external audit and risk management assessment.
• Output needed for business projections
• Management analytics

This is shown in the graph below:
Flow of Actuarial Work
Policy Data Assumptions
Actuarial Valuation Software Projections
Cash flows Output needed for

projections
Actual accounts Cash flows and sub-ledger Data required for

data calculation engine audit
Accounts & Management

Disclosures Analytics
These points will be discussed in the following sections.
Data and assumption challenges:
For insurers who have been reserving under Gross Premium Valuation (GPV) most required
data to perform IFRS17 calculations will be already available. We will need to understand
which policies belong to which cohort though, so an extra field may be required. We will also
need to store profit carrier results, but it is likely this will be based on existing data fields.
One data challenge we have seen though is with some reinsurers who have long term
guaranteed reinsurance under their treaty business, i.e. reinsurance where the rates are
guaranteed. These plans may not have been reserved under a GPV approach in the past so
data is likely going to be a challenge.

Most assumptions we will be able to use similar to what we do for GPV. The lock in rate
(discount rate for CSM) though will need to be set by cohort and remains fixed through the
duration of the policy. This is likely to be the biggest challenge. We need to balance the
desire to be consistent with GPV calculations for statutory reserving and the desire for
simplicity as we will need this for every issue year. As an example, if we decide to use the
risk free yield curve and we still have policies inforce from a 1950 issue year do we really
want to have to find and store the discount rate from 1950? For multinationals there is also
the challenge of maintaining consistency of the risk adjustment by country. For instance if
the insurer has operations in Malaysia, Thailand and Singapore the risk adjustment might be
different for each country, and perhaps different when doing the calculations at a holding
company level (due to diversification).
Actuarial valuation software:
Most larger insurers already perform reserve movement analysis which captures the impact
of change in reserves due to model, data and assumptions. This is not the same as the
various calculations of IFRS17, but it is conceptually similar. For IFRS 17, CSM has to be
calculated retrospectively using locked-in rates (for BBA), hence a few extra runs using the
locked in rate would be required to quantify the change in CSM over the reporting period.

The following run list table outlines the minimum runs required to perform the IFRS17
calculations:
Step Name Descriptions

1 Opening Position For all cohorts using previous year end’s discount rate
2 Opening Position For all cohorts using locked-in discount rate
3 Restated opening position Due to model changes, calculated using previous year
end’s discount rate.
4 Restated opening position Due to model changes, calculated using locked-in rate
5 New Business For cohorts with new business, using locked-in discount
rate
6 Restated allowing for actual For VFA only
asset return
7 Roll forward Not actuarial run but this step is required to calculate
interest accretion, release of cash flows for current service
and future service
8 Experience Adjustment – Current period results based on current period inforce
future service data, using locked-in rate
9 Change in non-financial Current period results based on current non-financial
assumption assumptions, using locked-in rate
10 Change in risk of non- For reinsurance held only, using locked-in rate
performance
11 Change in financial Current period results based on new financial assumptions,
assumption using current period’s discount rate
12 CSM amortisation Or Loss reversal
13 Closing Position For all cohorts using current year end’s discount rate
14 Closing Position For all cohorts using locked-in discount rate
Step 8, 9 and 11 might be further split into more sub-runs if the impact of each assumption
change needs to be quantified separately.
For those of us performing GPV already, it will be much of the same cash flows, but now we
will need to keep track of cohorts and save the cash flows (including profit carrier)
accordingly. Furthermore, we also need to keep track of changes in IFRS 17 liabilities into
different dimensions. For example, we need to keep track of the changes in BEL, RA, CSM
and loss component for each step as this would be fed into the reconciliation of liabilities in
the disclosure. This process of writing and saving these cash flows can easily cause memory
problems, so this is one concern. In the past we might just save the actuarial reserves or a
few key values by plan code, so this is a major change.

There are very few formal comparison sites for actuarial software, so we took a simple
survey, with 37 respondents: 21 Life insurers, 9 General insurers and 7 others (investment
and pensions). The main respondents were from Malaysia but there were respondents from
Thailand, Singapore, Indonesia and around the developing world. The life insurers used the
software mainly for valuation, but also some business projections and pricing, whereas for
general insurers the software was used more heavily for pricing.
Life actuarial software used:
5%
5%
5% Prophet
Axis
10% Excel
48%
Risk Agility
R3S Modeler
14%
Monet
Basys
14%

Comments on Prophet:
Run efficiency is considered the most important characteristic, with some respondents happy
with Prophet and others unhappy. The reality is that good actuarial programmers will be
needed to ensure the coding results in efficient runs. Prophet is considered expensive by
many, a reality unfortunately in developing markets especially. Respondents were happy
with the flexibility of Prophet as well as the availability of the libraries and the responsive
developer team. The ability to run on the cloud is mixed as this is a new feature. As our runs
become longer and longer it will be important to have very powerful computers, which can
get expensive. An alternative is to run on the cloud and pay to use very powerful computers
when needed.

Un-modelled business:
10%
None
43%
24% Under 10%
10 - 20%
20 - 30%
More than 30%
14%
10%
For life insurance un-modelled business tends to be group term life, yearly riders and longer
term plans with inadequate data. Yearly riders might be a challenge under IFRS17 as
policies must be modelled on a contract level, implying that riders must be modelled with the
corresponding base plan. For say yearly medical riders we will need to incorporate medical
inflation as well as company repricing behavior. There is also other business such as
personal loans, which are greater than one year but typically less than five years that might
currently be reserved for on a simplified basis. This might not be allowed under IFRS17.

Life insurer IFRS17 budget:
5%
10%
5% Unsure
Under USD$1 Million
USD$1 - 2 Million
57% USD$2 - 5 Million

Whilst some insurers are still unsure of their IFRS17 budget, for others the range for IFRS17
implementation can be quite wide. Note that these are all for insurers in the developing
world, with the largest budget being for a Thai insurer who is currently using excel for
actuarial valuation.

General insurer IFRS17 budget:
11%
Unsure
Under USD$1 Million
33%
For general insurers as well the variation in budget can be quite large. Those general
insurers with long term business of course will face more significant costs, but even for
general insurers with only yearly business there can be reinsurance which extends beyond
one year and yearly business as well must be modelled in order to prove the simpler PAA
approach is acceptable.
The decision of which valuation software to use is a complex one. For most insurers there
will be a combination of greater memory issues and much longer run times. Considering that
for most IFRS17 valuations there will be 14 times more runs, this can be used to determine if
you can live with your existing software. We will also still need to do statutory reserving and
maybe tax reserving.
It will be important to experiment with different software if possible. Our experience is that
some software is very fast for traditional or straightforward plans, whereas when including
more complex options such as having separate unit funds or Takaful funds some software
works significantly better than others.
The elephant in the room is that the finance department will now be waiting on the actuarial
calculations in order to put their accounts together, so we will need our programs running
very efficiently! It is likely there will be actuaries within the finance team, perhaps called the
Finance Actuarial Team (FAT).

CSM and Sub-ledger calculation engine:
What is a CSM and sub-ledger calculation engine? There are many names we can call this
new aspect of our work, but the underlying need is for something which will collect the cash
flows by cohort and incorporate into the contractual service margins (CSM). Things such as
expected cash flows and required interest are also saved for use in the accounts. These will
then be incorporated into journal entries which will be used in the various lines of the
accounts.
For an insurer who has been around for 20 years, writing various types of business there are
likely to be hundreds of cohorts. The challenge is that each cohort must be accumulated
forward, under base conditions as well as under the various conditions used in the
disclosures. We will need both actuarial cash flows as well as actual accounting items such
as claims and investment income. The disclosures are similar to our analysis of surplus
calculations in the past, where we show step by step how our reserves change due to
assumption and methodology changes and whatnot.
The information in this engine is fed directly into the accounts via journal entries. Most likely
a sub-journal will be created for IFRS17 specific entries and that will need to be integrated
into the main journal of accounts. Thus this will be a key focus in the audit process. Our
methodology and audit trail needs to be robust in order to make this a smooth process. We
may also need to push the CSM back into the actuarial software in order to perform budget
projections, normally on a yearly basis for management purposes as well as Financial
Conditions Reporting.
CSM and sub-ledger calculation engine solutions can be actuarial based, accounting driven
or an intermediate solution. An actuarial based solution would be something along the lines
of the FIS Prophet system (combined with SAP). An accounting driven solution would
include SAP Insurance Analyzer (MSG Global) and Oracle Insurance IFRS17 Analyzer. An
intermediate solution would include Moody’s Riskintegrity IFRS17, SAS and Aptitude
IFRS17 Solution.
The advantage of an actuarial based solution is that with CSM development embedded
within actuarial calculations model office capabilities such as embedded values, projections
and appraisal valuations should be straightforward. Our concern with such a system is that
an ‘all in one’ solution is likely to get rather unwieldy, especially as only subsets of the entire
process might be needed for a particular use. This could result in ‘light’ and ‘heavy’ versions
of the software.

The advantage of an accounting based solution is that it is an all in solution, built especially
for the particular insurer. Costs as well are one off rather than recurring. Our concerns with
such a system is as the rules under IFRS17 get fine-tuned over time these solutions are
likely less flexible and would require reworking by the vendor (who you are hostage to). This
flexibility is important at transition as many CEO’s don’t care about the inner details of
IFRS17 but want no additional capital injections due to IFRS17 and shareholders transfers
under IFRS17 to be similar to the current basis. Achieving this will require significant testing
of various methods and choices.
An intermediate solution could also be called a ‘minimum disruption’ approach. With such a
solution we collect the actuarial cash flows from any actuarial software and outputs results
into sub-ledger journal entries for the accounting system to pick up. Thus this leaves the
actuarial and accounting systems relatively untouched. Such a solution would ideally be
cloud based so as IFRS17 rules change the system changes will be made automatically with
little fuss or headaches. There will also not be the need to maintain the IT infrastructure
required under IFRS17.
A hybrid to the intermediate solution is likely to be the service bureau approach, where one
company runs the actuarial software and data warehouse internally and simply provides the
sub-journal entries to the insurer. This minimizes strain on the insurer’s actuarial resources,
which can be extremely important for small to medium sized insurers. It also allows the
insurer to take a wait and see approach before investing in expensive internal systems.
Going beyond compliance:
Whatever system choices we make (existing versus new actuarial system, building or buying
a data warehouse system) we are going to have an amazing amount of data at our disposal.
IF we can also split our actual claims and expenses by cohort then we have very detailed
profitability indicators for the company and can use this to design management analytics to
assist management and the board in its decision making. We will no longer be looking at top
line growth and position as there is no more top line! Decision makers will need to have new
information available to them, which will be the job of the actuary. This where management
analytics come in, using information from our IFRS17 calculations.

Putting it all together:
The actuary is entering a new world, where our work is central to the development of the
financial statements of the insurance company rather than simply being one line and a
footnote. We have all had our experiences with systems which simply did not do what we
needed it to do and had numerous manual calculations required. With such complex
calculations required of us we simply must have systems which work for us rather than us
working for the system. With a strong understanding of IFRS17 and its nuances we can
ensure whatever systems we choose are right for us or we can choose an intermediate
solution and take a wait and see approach until the dust settles for IFRS17.
We would be happy to discuss this further, please contact us at:

hassan.odierno@actuarialpartners.com or https://www.linkedin.com/in/hassan-scott-odierno/
ACTUARIAL PARTNERS CONSULTING

IFRS17 SERVICE BUREAU
Introducing the Actuarial Partners Consulting IFRS17 Service Bureau.
IFRS17 will be a reality for life as well as general (non-life) insurers,

Takaful, reinsurers alike. This is expected to place huge strains on
actuarial and finance resources as well as extensive changes to back end
IT and accounting systems. Multinational insurance companies will be
able to rely on support from regional office teams for implementation
and calculations but local and especially smaller insurers will be at an
acute disadvantage. It is for this reason Actuarial Partners with the
support of Moody’s Analytics has put together our IFRS17 Service
Bureau.
What is an IFRS17 Service Bureau?
You will provide us with your policy data (on a monthly, quarterly or yearly basis, it’s up to
you), which we will feed into our actuarial software to calculate the fulfilment cash flows on a
cohort level as required by IFRS17. We will then feed these cash flows as well as accounting
data from your accounting system into Moody’s Analytics RiskIntegrity™ IFRS17 solution.
The Solution in turn will generate the sub-ledger of accounts which you will need for your
financial statements. We will produce the fulfilment cash flows on all the different runs
necessary to produce the extensive reporting disclosures.

What can the Actuarial Partners IFRS17 Service Bureau do?
In short we will take this acute disadvantage and turn it into an advantage, allowing you to
focus on your core business activities and feeding you with business intelligence to quickly
adjust your business as required in this new world of IFRS17.
Why choose an IFRS17 Service Bureau?
Using a service bureau also allows you to build up your actuarial and systems resources
over time should you want to handle IFRS17 internally. Traditionally accounting standards
were very much prescriptive, meaning very little was left open for interpretation. IFRS17
standards however are principles based. It will likely be quite some time until IFRS17
becomes standardized, so it is expected that the methodology used in IFRS17 will change
significantly over the next several years. Thus companies investing in an in-house system
now will likely to require costly revamps (variation order) until the dust settles. A service
bureau avoids this need as the software provider will be responsible for any changes in the
system resulting from changes in methodology. Over time you can build your own system at
your own pace yourself in-house or by purchasing your own license from Moody's Analytics
or you can continue to use the service bureau.

Why choose Moody’s Analytics RiskIntegrity™ IFRS17?
Moody’s Analytics has been developing regulatory compliance and accounting solutions for
many years, and is a well-known and established name globally. This provides an assurance
of their commitment for the long term. The IFRS17 product design has been strongly
influenced by previous products, implementation and research and their solution has been
awarded the Chartis Risktech Quadrant Category Leader: IFRS17 Technology Solutions
2019.
I’m interested. What are the next steps?
Some decisions will need to be made before participating our service bureau. Working with
your IFRS17 advisor, a technical accounting paper ('Position Paper') will need to be put
together. The purpose of this is to highlight the various decisions which must be made in
relation to IFRS17 such as calculation methodology, definition of cohorts, and contract
boundary by product as well as coverage units. This paper will be used by us to ensure the
Moody’s Analytics RiskIntegrity™ IFRS17 solution is calibrated exactly to your needs.
Subsequently or in parallel, a gap analysis should be performed to review the quality of the
data and enhancements required to maximize the value of the output from the service
bureau. Normally a financial impact analysis will also be performed at this stage to test the
effects of various decisions arising from the Position Paper. Once these various decisions
are made we will perform the coding of the actuarial valuation software, working with you to
ensure the calculations are correct and implementing the various decisions on assumptions
and scenarios into Moody’s Analytics RiskIntegrity™ IFRS17. Finally we will perform testing
and parallel runs to ensure no surprises during the actual switch over to IFRS17.

Frequently asked questions:

FOCUS ON RETAKAFUL: THE CASE OF UAE

AND MALAYSIA
In UAE the Insurance Authority has set out instructions stating the
conditions under which a conventional reinsurance company can accept
retakaful business. The conditions are:
• The reinsurers articles of association must include the practice of

Takaful reinsurance
• All operations relating to takaful reinsurance must be compliant
with the Shariah.
• It must comply with Takaful insurance regulations issued by the
Insurance Authority to the extent consistent with takaful
reinsurance business.
• There must be complete technical and financial separation
between the conventional and takaful reinsurance business.
In Malaysia new Takaful Operating Framework (TOF) guidelines have been issued by Bank
Negara Malaysia (BNM), inforce July 2020, which also allows for takaful operators to cede to
conventional reinsurers but subject to the following conditions:
• No takaful operator or retakaful operator is known to accept the particular risk;

• No takaful operator or retakaful operator has the capacity or expertise to accept the
particular risk; or
• A retakaful arrangement with takaful operator or retakaful operator creates potential
detrimental effects to the takaful funds.
The term ‘detrimental effects’ is spelled out as those which leave the takaful operator or
retakaful operator unable to meet its financial obligations towards the takaful funds, including
where the takaful operator or retakaful operator is:
• Not established or incorporated in accordance with the laws of its home regulator;
• Not properly regulated or supervised by its home regulator;
• Not managed by a competent board and senior management;
• Not financially strong, as may be evidenced by its financial statements or financial
rating; or
• Based in a country that is experiencing political or financial instability which has the
potential to affect the takaful operator, retakaful operator or industry.
Whenever conventional reinsurance is used senior management must provide justification

and evidence report to the Board on each session.
FOCUS ON RETAKAFUL: THE CASE OF UAE

AND MALAYSIA
Conversely a retakaful operator may accept reinsurance from a conventional insurer if the
risk is permissible under Shariah and is based on a retakaful contract between the retakaful
operator and the insurer or reinsurer.
In line with the concept of mutual assistance and collective ownership of the retakaful risk
fund any profit commission paid to a cedent must be based on the experience of the entire
risk fund. Such profit commission must be fairly redistributed to the relevant funds of the
takaful operator based on the source of the retakaful contributions.
Information on retakaful in UAE can be found here:
https://www.meinsurancereview.com/News/View-NewsLetter-Article/id/46911/Type/MiddleEast/UAE-New-
reinsurance-regulations-stipulate-retakaful-requirements/
The new TOF guideline by BNM can be found here:
http://www.bnm.gov.my/index.php?ch=57&pg=140&ac=807&bb=file
INSURANCE IN THE MUSLIM WORLD
With the release of the Swiss Re Sigma report on world insurance

(3/2019) we can analyze the statistics of the Muslim world. By Muslim
world we mean those countries where Muslims are the majority of the
population. This can be interpreted as a proxy for demand for Takaful as
well as a way to gain insights on insurance purchasing behavior in the
Muslim world.
The ranking of the top 10 Muslim countries by total premiums in 2018 in USD is as follows:
USD Million
2018 2017
1 Indonesia 20,383 20,411
2 Malaysia 16,634 15,408
3 UAE 12,461 12,204
4 Turkey 10,452 12,054
5 Saudi Arabia 9,463 9,734
6 Iran 7,688 9,054
7 Morocco 4,579 3,997
8 Qatar 3,038 2,941
9 Pakistan 2,636 2,614
10 Lebanon 1,604 1,522
Out of these countries only Morocco does not have Takaful in any form, though new
regulations are being finalized which will enable Takaful. In Saudi Arabia there are
cooperative regulations with some insurers considering themselves Takaful and others more
broadly cooperative insurers. In Iran the insurers follow Shi’a law.
Whereas total insurance premiums combines both personal lines as well as commercial
business, comparing life premiums on its own gives a better proxy for awareness and
understanding of insurance. Of course this is not a perfect indicator as there can be wide
variations of product mixes, ranging from mortgage reducing term insurance tying up with
bank loans to medical insurance, savings products and many others. The ranking of the top
5 Muslim countries by life premiums in 2018 in USD is as follows:
Top 5 Muslim Countries by Life premium volume in 2018:
USD Million
2018 2017
1 Indonesia 15,520 15,877
2 Malaysia 11,581 10,660
3 UAE 2,854 2,656
4 Morocco 2,147 1,752
5 Turkey 1,417 1,855
Here there is a significant gap between Indonesia and Malaysia and the Middle East (as well
as other Asian Muslim countries). By looking at life insurance premiums per capita the effect
of the size of the population is taken into account, with both Indonesia and Turkey no longer
being in the top 5. This points to the potential of these two countries in particular.
USD
1 Malaysia 361
2 UAE 299
3 Bahrain 102
4 Lebanon 88
5 Morocco 59
Non-life on the other hand is affected by commercial lines, with the large commercial
contracts helping the results in the Middle East:
USD Million
2018 2017
1 UAE 9,607 9,548
2 Turkey 9,035 10,200
3 Saudi Arabia 9,157 9,430
4 Iran 6,678 7,796
5 Malaysia 5,053 4,747
In terms of total premium growth in 2018 several countries experienced difficult conditions in
2018. The following table is also affected by changes in exchange rate:
Top 5 Muslim Countries by Total premium % growth in 2018:
USD Million
Growth
2018 2017
1 Kuwait 17% 1,307 1,119
2 Morocco 15% 4,579 3,997
3 Bangladesh 9% 1,540 1,410
4 Malaysia 8% 16,634 15,408
5 Jordan 7% 895 836
Finally, looking at premiums as a percentage of GDP:
Top 5 Muslim Countries by total premium as a percentage of GDP:
% GDP
1 Malaysia 4.77
2 Morocco 3.88
3 Lebanon 2.95
4 UAE 2.92
5 Tunisia 2.14
The author is happy to discuss the underlying trends behind these results further and can be
reached at: hassan.odierno@actuarialpartners.com or https://www.linkedin.com/in/hassan-
scott-odierno/
THE POTENTIAL FOR DISCRETIONARY

TAKAFUL IN TAIWAN
An article in the news recently shared the desire of one political

candidate to set up a special insurance company for people with physical
and mental disabilities. This is a market segment which is generally
rejected from insurers, but which the candidate calls social justice to
help them. A major challenge with this is funding such an insurer.
USD321 million was proposed, but in reality a discretionary mutual
(Takaful) structure can be designed with benefits not guaranteed and
ideally significantly lower capital requirements (which would be justified
actuarially). This would make such an insurer much more affordable and
thus increase the likelihood of success.
The original article is here:
https://www.asiainsurancereview.com/News/View-NewsLetter-Article/id/47415/Type/eDaily/Taiwan-Presidential-
election-candidate-proposes-insurer-for-the-disabled/
MUTUAL AID INSURANCE IN CHINA
Lately there have been several news articles on mutual aid programs in
China, programs which look very similar to a cooperative Takaful
structure.
One of the structures is Xiang Hu Bao, a product by Alibaba's financial arm Ant Financial
and Trust Mutual Life covering 100 major illnesses. What makes this product interesting is
that premiums are paid in arrears, i.e. when and to the extent actually needed to cover
claims. The management fee (Wakalah fee?) is 10% of the amount needed to cover claims.
Due to the potential effect of rounding in determining how much each participant needs to
pay there can be a surplus in the fund, which is used to offset claims in the following month.
Claims are paid twice a month and participants have the option of making objections to the
claims (of other participants). The entire process takes place on the blockchain and in their
first 9 days they had 10 million subscribers and currently have 65 million subscribers. The
goal of this structure was to overcome three gaps in insurance currently: the conceptual gap,
the trust gap and the supply gap. Currently insurance policyholders feel like they have ‘lost’ if
they do not get to claim, this is the conceptual gap. There is also a lack of trust in insurance
companies, which the arrears basis of payment can help overcome, and finally this structure
can be used to penetrate market segments not currently being targeted.
MUTUAL AID INSURANCE IN CHINA

A second structure is from Public Mutual, which opened in 2017. The coverage is for chronic
kidney disease patients, in particular those that are mild and stable. In addition to insurance
coverage disease management services are also offered.
With both of these examples it isn’t clear if benefits are guaranteed, and thereby the extent
that a discretionary mutual approach is used. This does point to the potential of a pure
discretionary mutual Takaful operation however, exciting times indeed.
The original articles are here:
https://www.asiainsurancereview.com/News/View-NewsLetter-Article/id/46906/Type/eDaily/China-Xianghubao-
mutual-aid-members-sign-up-parents-for-coverage/
https://www.asiaadvisersnetwork.com/article/aid/44732/China-Mutual-health-product-by-Trust-Mutual-Life-and-
Alibaba-s-Ant-Financial-attracted-10m-subscribers-in-nine-days
https://www.asiainsurancereview.com/News/View-NewsLetter-Article/id/47451/Type/eDaily/China-Insurer-offers-
mutual-insurance-for-chronic-kidney-disease-patients/
PRODUCT INNOVATION: GOING BEYOND

MERE PAY-OUTS
In China, Tencent's affiliate insurance platform, WeSure, aims to make

insurance more holistic by offering cancer-ridden policyholders ancillary
services rather than offering mere pay-outs. WeSure’s latest inclusive
insurance policy for cancer patients, called ‘Yao Shen Bao’ is said to be
the first policy to guarantee that cancer-diagnosed policyholders are able
to seek, obtain and take anti-tumour drugs. The policy was well-received
and developed in collaboration with insurer, Taikang Online, and
medical payment service provider, MediTrust Health.
Ensuring a regular supply of drugs and treatment for over 10 most common types of cancer
such as lung and liver cancer, the policy seeks to complement China’s current basic social
basic social insurance cover as well.
It offers access to 12 kinds of special anti-tumour drugs for two years after a diagnosis which
are currently not included in the national social security system’s medical list and need to be
paid for. These drugs are imported and highly priced which places a significant financial
burden on patients and their families.
https://www.asiainsurancereview.com/News/View-NewsLetter-Article/id/46744/Type/eDaily/China-Tencent-
affiliate-to-deliver-more-inclusive-insurance-plans/
PRODUCT INNOVATION: POULTRY

INSURANCE
In Morocco an agreement has been signed between the Moroccan

Agricultural Mutual Insurance Company (MAMDA) and the
Interprofessional Federation of the Poultry Sector (FISA) for the
distribution of insurance products for the poultry sector. The insurance
plan offers payouts to the farmers if their poultry stock contracts one of
three types of diseases deemed legally contagious, namely, Highly
Pathogenic Avian Influenza (HPAI), Newcastle Disease (NC) and
Salmonella Pulorrum Galinarum (SPG).
https://www.meinsurancereview.com/News/View-NewsLetter-Article/id/46820/Type/MiddleEast/Morocco-
Agricultural-insurer-signs-pact-to-provide-poultry-insurance/
SANLAM TAKAFUL
South African insurer Sanlam has registered a new subsidiary, Sanlam

Takaful, in Morocco in preparation for new Takaful regulations. What in
particular is exciting is the potential reach of Sanlam, as in addition to
South Africa and Morocco Sanlam is also in Tanzania, Kenya, Nigeria,
Ghana, Uganda, Malaysia, India, Botswana, Namibia, Malawi, Zambia,
Rwanda and Mozambique. It will be exciting to see if Sanlam extends its
Takaful operations to more of these countries.
https://www.meinsurancereview.com/News/View-NewsLetter-Article/id/47313/Type/MiddleEast/Morocco-South-
African-insurance-group-eyes-takaful-business/
TOP 5 RISKS FROM THE SWISS RE SONAR

REPORT
The 2019 Swiss Re Sonar report highlighted the top emerging risks and
themes facing the insurance industry. Within the next three years
insurers will deal with old infrastructure being connected to digitized
software causing disruptions, breakdowns and accidents. Insurers will
also deal with genetic testing increasing the information gap between the
insured and the insurer.
Beyond that insurers will deal with the effects of 5G technology such as negative health
effects, privacy issues, security breaches and an increased risk of cyber espionage.
Insurers will also deal with economic challenges due to increasing limitations of central
banks to stimulate the economy. Finally insurers will deal with the effects of climate change
such as increased threats of pandemics from warming temperatures and air pollution.
Other risks mentioned in the report include: vaccination, the retirement skills gap,
concussion injuries in sports, hazards of aesthetic surgery tourism, widening urban-rural
divide and chemicals in our bodies and environment.
https://www.asiainsurancereview.com/News/View-NewsLetter-Article/id/46865/Type/eDaily/Global-Swiss-Re-
Institute-lists-new-risks-that-re-insurers-need-to-watch/
ETIQA SEES A MARKET FOR TAKAFUL IN

PHILIPPINES
A recent article highlighted the potential market Etiqa sees in the

Philippines for both conventional insurance and Takaful. With a
population of over 100 million, and economic growth rate of over 6% and
over 5 million Muslims the potential is clearly there for strong growth,
with a benchmark mentioned of insurance growing at 2 – 2.5 times the
economic growth rate. Certain challenges of Takaful were brought up by
the Philippines Insurance Commissioner, regarding which Etiqa has
expressed a willingness to work with the commissioner.
https://news.abs-cbn.com/business/07/02/19/malaysian-insurer-sees-big-market-in-ph-amid-large-population-
economic-growth
REGULATORY DISRUPTION: THE START OF

INSURANCE PRODUCTS GLOBALLY
One challenge in getting Takaful to all Muslims globally is the lack of

truly global Takaful cover, cover which can be purchased anywhere and
is available to anyone worldwide. Furthermore Takaful is about sharing
risks, which depending on the coverage can be challenging in a particular
market. For instance a drought likely affects all participants in the same
area at the same time. Thus if there is a Takaful fund covering drought in
a country then all participants may claim at the same time, which defeats
the purpose of a Takaful fund with participants helping each other.
However, if there were participants joining together worldwide the spirit
of Takaful remains.
Global earthquake coverage is now available (not Takaful), whereby premiums and payouts
are using Bitcoin via a smart contract on a monthly basis. Coverage is not guaranteed,
meaning it is a discretionary mutual scheme. Whilst the choice of Bitcoin can be questioned,
the risk of volatility is reduced via coverage being monthly. The availability of online global
statistics for earthquakes makes smart contracts efficient and cost effective.
More information can be found here:
https://insharerance.com/
PRODUCT INNOVATION: KANGAROO

CRASH COVER
Huddle Insurance has launched Australia’s first product to cover fully

drivers in the event of a collision with a kangaroo or other animal. This
is an add –on to comprehensive car insurance, with no excess and one
collision claim allowed per year. The policy was introduced after a study
revealed that 7,000 Aussie drivers made insurance claims relating to
kangaroo collisions each year. The excess on these claims cost a total
annual average of more than A$6 million per year, with the average cost
of damage to a vehicle after a kangaroo collision of A$4,000.
The original article can be found here:
https://www.asiainsurancereview.com/News/View-NewsLetter-Article/id/47085/Type/eDaily/Australia-Drivers-can-
now-get-full-kangaroo-crash-cover/
HAPPENINGS AND EVENTS

The SOA Asia-Pacific Annual Symposium – 17 & 18 June 2019, Bangkok
“IFRS 17: Deciding Whether to Build Internally or Buy a Ready Made System”
Presented by Hassan Scott Odierno (actuary and partner), the session focused on
expectations placed on the actuarial team in implementing IFRS17.
The presentation takes a look at the level of sophistication of actuarial software used in the
region ranging from Prophet / Axis / A-Plos which are already extensively using cash flows
similar to what will be required under IFRS 17 to excel based calculations. The presentation
also explained the types of cash flows required under IFRS 17 and the challenges of
continuing to use Excel in particular.
During the event, Hassan Scott Odierno was interviewed for a podcast hosted by R. Dale
Hall. Here is the link to the podcast:
http://researchinsights.libsyn.com/website/soa-asia-pacific-annual-symposium
HAPPENINGS AND EVENTS

9th General Insurance & Takaful Actuarial Seminar “Reimagining the Future” – 25 & 26 June 2019,
Kuala Lumpur
“Malaysia’s Healthcare Ecosystem”
Presented by Aiza Yasmin Benyamin (actuary and partner) and Weng Chiat Ng (senior
consultant), the presentation looked at the current ecosystem and explored the roles of
healthcare providers and TPAs as well as examined government policies that influence
healthcare, elucidate the role of the insurance and takaful sector, and how consumer
behavior may impact the claims experience.
UPCOMING EVENTS
TAKAFUL OPERATORS FRAMEWORK (TOF) – 1 DAY WORKSHOP
This one day workshop is designed to give participants a thorough understanding of the new
Takaful Operational Framework which will come into effect on the 1st of July 2020 and is
applicable to all takaful and retakaful operators in Malaysia.
What changes will be required under this new framework and what will takaful operators
need to do now in preparation?
Among the follow topics that will be covered:
• Product structuring under the new TOF

• Retakaful structuring
• Investment management
• Surplus management
• Governance in Takaful
If you would like more information or updates when the workshop is available please contact:
learn@actuarialpartners.com
ABOUT ACTUARIAL PARTNERS

Actuarial Partners Consulting, formerly a part of the Mercer, Marsh McLennan group, before
a management buy out in 2010, has been active in insurance consulting since 1977. We are
one of the largest actuarial consulting firms in South East Asia (SEA). We are active
throughout the developing world and thus understand the special considerations of these
markets. We are a thought leader in Takaful consulting. In 2016, Actuarial Partners
Consulting was awarded Best International Advisory Firm at the International Takaful
Awards in London. In 2017, our senior partner, Zainal Kassim was further recognised with a
Lifetime Achievement Award. We are a founding member of APACS, the Asia Pacific arm of
a global network of independent actuarial consulting firms (GLOBACS). Actuarial Partners
Consulting was also the first non MNC firm of actuaries outside of the UK to receive
accreditation under the prestigious Quality Assurance Scheme (QAS) from the Institute and
Faculty of Actuaries (IFoA) UK. The award was presented to Actuarial Partners on the 11th of
May during the IFoA Asia Conference 2018 held in Bangkok.
Some of the countries Actuarial Partners have been active in.
PARTNERS
Zainal Kassim
FIA, FASM, FSAS, ASA

Zainal is senior partner and managing director. He is a pioneer in the
actuarial field in Malaysia have been active in the scene since 1982.
Chin Chee Yen

Since joining the company in 1992, Chee Yen has been involved in
various areas of actuarial work, particularly in General Insurance.
Aiza Yasmin Benyamin
FIA, FASM
Aiza has over two decades of experience consulting to insurance

firms and providing advice on social security funding
requirements.
Hassan Scott Odierno
FSA, FASM
Hassan specializes in Life Insurance and Takaful consulting and

is an avid speaker in Takaful conferences from Asia to Africa.
Nurul Syuhada Nurazmi
FCAS, FASM
Syuhada is one of the few Casualty qualified fellows practicing

in Malaysia
CONTACT
Actuarial Partners Consulting Sdn Bhd
(formerly known as Mercer Zainal Consulting Sdn Bhd)
Suite 17.02 Kenanga International
Jalan Sultan Ismail 50150 Kuala Lumpur
MALAYSIA
Phone
+ 603 2161 0433
Fax
+ 603 2161 3595
Websites
actuarialpartners.com
learnatap.com
learnduit.com
Twitter
@apcmy
Facebook
facebook.com/actuarialpartners
Linkedin
linkedin.com/company/actuarialpartners
Email
enquiry@actuarialpartners.com
APPENDICES
Appendix 1
IASB ED/2019/4 Amendments to IFRS 17 – EFRAG

draft comment letter
You can submit your comments on EFRAG's draft comment letter by using the
‘Express your views’ page on EFRAG’s website, then open the relevant news item
and click on the 'Comment publication' link at the end of the news item.
Comments should be submitted by 2 September 2019.
International Accounting Standards Board

7 Westferry Circus, Canary Wharf
London E14 4HD
United Kingdom
[XX September 2019]
Re: IASB ED/2019/4 Amendments to IFRS 17

On behalf of the European Financial Reporting Advisory Group (EFRAG), I am writing to
comment on the Exposure draft ED/2019/4 Amendments to IFRS 17 Insurance
Contracts, issued by the IASB on 26 June 2019 (the ‘ED’).
This letter is intended to contribute to the IASB’s due process and does not necessarily
indicate the conclusions that would be reached by EFRAG in its capacity as advisor to
the European Commission on endorsement of definitive IFRS Standards in the
European Union and European Economic Area.
EFRAG would like to express its appreciation for your consideration of the topics
identified in our letter of 3 September 2018 (“our letter”) as well as those from other
Constituents. EFRAG would also like to commend the IASB for the thorough process to
capture and analyse all the concerns and criticisms received. This course of action
corroborated the willingness you expressed to act speedily as and when required.
EFRAG also notes and acknowledges that during this process, you considered
thoroughly all the issues highlighted in our letter and we appreciate the duty of care
exercised in this regard.
Appendix 1 contains our responses to the questions in the ED. EFRAG is broadly
supportive of many of the changes proposed. However, EFRAG is of the view that the
retrospective application of risk mitigation option on transition is worthy of further
attention. In addition, EFRAG considers that the necessary amendments to IFRS 4
Insurance Contracts extending the optional deferral of IFRS 9 need to be published as
early as possible and, at the latest, before the end of June 2020 so as to enable timely
endorsement within Europe before the current expiry date of 1 January 2021. Appendix
2 addresses topics that were raised in our letter of 4 September 2018 that we consider
warrant further consideration. In particular:
a) EFRAG acknowledges that the annual cohort requirement is a trade-off between
tracking of individual contracts and ensuring the recognition of onerous contracts
even where there are contracts with similar risks but different levels of
profitability. Nonetheless, EFRAG considers that this requirement leads to
unnecessary cost in some fact patterns, in particular for contracts with cash flows
that affect or are affected by cash flows to policyholders of other contracts.
EFRAG believes that it is worth re-considering whether the annual cohorts
requirement is justified for such contracts and recommends that the IASB
consider developing an exception for them, starting from paragraph BC138; the
IASB ED/2019/4 Amendments to IFRS 17 – EFRAG draft comment letter
exception should be reflective of the reporting objectives of the level of

aggregation requirements in IFRS 17.
b) EFRAG also notes the decision not to allow at transition further modifications to
the modified retrospective approach in the interest of comparability. EFRAG
remains concerned about implementation challenges faced by preparers and the
possibility of unduly strict interpretations that restricts the use of retrospective
approaches. Therefore, EFRAG encourages the IASB to confirm in the main text
of the final standard that the use of estimates is allowed, including those needed
to approximate the missing information. EFRAG also suggests that the IASB
clarify that the ‘reasonable and supportable information’ criterion is not intended
to change the judgement ordinarily required in IAS 8 to make estimates.
If you would like to discuss our comments further, please do not hesitate to contact
Didier Andries, Fredré Ferreira, Sapna Heeralall, Joachim Jacobs or me.
Yours sincerely,
Jean-Paul Gauzès
President of the EFRAG Board
EFRAG has recently released a draft comment letter on the IASB’s ED/2019/4 amendments
to IFRS 17 on 15 July 2019. We included the first two pages and the link to the full version of
the letter for reference.
http://www.efrag.org/Assets/Download?assetUrl=/sites/webpublishing/Project%20Documents/289/Amendments
%20to%20IFRS%2017%20-%20DCL%20-%20final%202019-07-15.pdf

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MALAYSIAN

 IFRS17: Deciding Whether to Build Internally or Buy a New System

IFRS17: DECIDING WHETHER TO BUILD

The changing demands of the actuary:

IFRS17: DECIDING WHETHER TO BUILD

The flow of actuarial aspects of IFRS17:

• Journal entries for the accounts and disclosures

IFRS17: DECIDING WHETHER TO BUILD

This is shown in the graph below:

Flow of Actuarial Work

Policy Data Assumptions

Actuarial Valuation Software Projections

Cash flows Output needed for

Actual accounts Cash flows and sub-ledger Data required for

Accounts & Management

These points will be discussed in the following sections.

Data and assumption challenges:

IFRS17: DECIDING WHETHER TO BUILD

Actuarial valuation software:

IFRS17: DECIDING WHETHER TO BUILD

Step Name Descriptions

IFRS17: DECIDING WHETHER TO BUILD

Life actuarial software used:

IFRS17: DECIDING WHETHER TO BUILD

IFRS17: DECIDING WHETHER TO BUILD

IFRS17: DECIDING WHETHER TO BUILD

Life insurer IFRS17 budget:

57% USD$2 - 5 Million

IFRS17: DECIDING WHETHER TO BUILD

General insurer IFRS17 budget:

IFRS17: DECIDING WHETHER TO BUILD

CSM and Sub-ledger calculation engine:

IFRS17: DECIDING WHETHER TO BUILD

Going beyond compliance:

IFRS17: DECIDING WHETHER TO BUILD

Putting it all together:

We would be happy to discuss this further, please contact us at:

ACTUARIAL PARTNERS CONSULTING

Introducing the Actuarial Partners Consulting IFRS17 Service Bureau.

IFRS17 will be a reality for life as well as general (non-life) insurers,

ACTUARIAL PARTNERS CONSULTING

What can the Actuarial Partners IFRS17 Service Bureau do?

Why choose an IFRS17 Service Bureau?

ACTUARIAL PARTNERS CONSULTING

Why choose Moody’s Analytics RiskIntegrity™ IFRS17?

I’m interested. What are the next steps?

ACTUARIAL PARTNERS CONSULTING

Frequently asked questions:

ACTUARIAL PARTNERS CONSULTING

FOCUS ON RETAKAFUL: THE CASE OF UAE

• The reinsurers articles of association must include the practice of

• No takaful operator or retakaful operator is known to accept the particular risk;

Whenever conventional reinsurance is used senior management must provide justification

FOCUS ON RETAKAFUL: THE CASE OF UAE

Information on retakaful in UAE can be found here:

The new TOF guideline by BNM can be found here:

INSURANCE IN THE MUSLIM WORLD

With the release of the Swiss Re Sigma report on world insurance

Top 5 Muslim Countries by Life premium volume in 2018:

Top 5 Muslim Countries by Total premium % growth in 2018:

Finally, looking at premiums as a percentage of GDP:

Top 5 Muslim Countries by total premium as a percentage of GDP:

THE POTENTIAL FOR DISCRETIONARY