OJK PSAK74 - Sep2019

Practical Aspects of
“IFRS 17”:
Insurance Contract
12 September 2019
Agenda
Timing
Set the scene 13.30 – 13.45
What are the new requirements? 13:45 – 14.45
System, data and process - what to change and how? 14:45 – 15.30
Break 15:30 – 15:45
Amendments of IFRS 17 – what’s to come? 15:45 – 16:15
Presentation & disclosures + Concluding remarks 16:15 – 17:00
© 2019 Siddharta Widjaja & Rekan, an Indonesian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
2
Set the scene
IFRS 17: The new standard
IFRS 17: Insurance Contracts was released in May 2017 with an original effective date on 1 January 2021, Effective
date under ED PSAK 74 was 1 January 2022, based on the original effective date of 1 January 2021.
Current
IFRS 17
IFRS 4 PSAK 62
/ PSAK 74
IFRS 17 Implementation Timeline
We are here IFRS 17 IFRS 17/ PSAK 74

effective effective date for
date for Indonesia?
other
IFRS 17 issued countries
Assess / Prepare / Design/ Implement / Compare
2017 2018 2019 2020 2021 2022 2023 2024

Proposed Amendment –
deferral to 2022
4
IFRS 17: Key principles
IFRS 17 intends to enhance comparability between companies, to increase disclosures so movements are clearly
understood, and to recognise profits in line with service provision. This introduces new requirements which impact
data, systems and processes.
Onerous Contract Test Minimum Level of

1 Recognition
Contractual Service Margin
Aggregation
| New recognition rules will apply based Risk of being
Onerous Non-Onerous Inception
on specific requirements and Onerous
Contract Contract
approaches Contract Year
Based on likelihood of Onerous vs
assumption Group of
changes/internal reporting contract Non-onerous
Loss recognized CSM recognized as part of
immediately in liability for remaining Reinsurance / insurance and acquired
P&L coverage business to be modelled separately
2 Measurement
MeasurementModel
Model Liability for GMM / BBA PAA VFA
Underlying items related
| The Standard will introduce three remaining CSM Unearned to policyholder
measurement models: the Building coverage Risk Adjustment Premium participation
(Unearned Discounting Reserve (less
Block Approach (BBA or GMM), the Obligation to
Best Estimate of Acquisition
Variable Fee Approach (VFA) and Business) policyholder
Cash Flows Costs)
the Premium Allocation Approach
(PAA). Liability for Risk Adjustment Risk Adjustment
incurred and Discounting Discounting Fee for service
IBNR claims Best Estimate of Best Estimate of
(Earned Claims Cash Flows Cash Flows
Reserve)
3 Presentation and Disclosures New Disclosures Other Disclosure

| IFRS 17 requirements include a • New P&L Format (Premium income is Requirements
significant number of new disclosures replaced by Insurance contract
that will make actuarial modelling will be revenue) Nature and Extent of
more relevant to the financial statements Significant Risks
• Movement Analysis form Opening to
and will impact accounting data flows from Closing Balance for components of Judgements
source to ledger insurance liability Movement
Analysis
5
The changes could significantly affect insurers’
Volatility of financial Level of transparency

Profitability patterns Equity levels Operational
results and equity about profit driver
Financial and non-

High sales volume will Analyst and Company may want
financial assumption
not result an competitor will have Insurance contract to change the way it
will have different
immediate increase in better view on what liability may increase. operates to optimize
impact to profit
revenue and profit. drive the profit. risk adjusted profit.
volatility.
6
What are the new
requirements?
Pop Quiz
Which of these dates is not required for contract recognition under IFRS 17?
A. Premium due date
B. Risk commencement date
C. The date when becomes onerous
D. Contract sign date
8
Pop Quiz
Which shall be measured under the insurance standard?
A. Distinct investment component
B. Distinct goods and services
C. Non-distinct investment component
D. Both A and C
9
Hot topic
Implications of Principles Based Standard

IFRS 17 is principles based, there are areas of significant subjectivity. Some key
areas of consideration are:
• Contract boundaries
• Level of aggregation
• Onerous Contracts
• Eligibility for the Variable Fee Approach and
Premium Allocation Approach
10
Contract boundaries
Products
Cash flows are within the boundary if an entity:
measurement
• can compel the policyholder to pay the premiums; or approach may
• has a substantive obligation to provide the change from
policyholder with services. long term to
short term
Substantive obligation ends when the entity has the right or
practical ability to reassess the risk of the particular
policyholder or portfolio of insurance contracts and as a result, Review of
can set a price that fully reflects that risk; and for a portfolio of contracts
insurance contracts, the pricing of premium for coverage up to the
date when the risk are reassessed does not take into account
the risks that relate to periods after the assessment date. Alignment of
Contract Boundary product design
with intended
Included in measurement Excluded from measurement accounting
treatment
Future cash flows relating to Future cash flows relating to
existing insurance contract future insurance contract
11
TRG September 2018
Topic: Cash flows that are outside the contract boundary
Fact Pattern
- Five-year insurance contract with an annual repricing mechanism.
- Cover health risks of the policyholder.
- Provides the entity a right to perform further underwriting of the individual policyholder’s risks
every year and annual repricing of premiums, while repricing is limited to a premium increase of
100% of the premium charges in the previous year; and
- Does not provide the entity with a right to compel the policyholder to pay premiums.
Analysis
- At initial recognition at the beginning of Year 1, the entity issuing the contract determines that
expected premiums for Years 2-5 and the related expected claims are outside the contract
boundary because the entity considers restrictions on its ability to reprice the contract to have no
commercial substance.
- Due to significant increase in local currency costs of health care, an increase of 100% in the
premium has commercial substance. The entity reassess the contract boundary to include cash
flows within five years of initial recognition of the contract. The expected premiums for Year 2-5
and the related expected claims are now within the contract boundary.
12
Hot topic
Level of aggregation – Insurance contract

5
4
3
Recognition of loss for group
2 of contracts which are
1 onerous at inception
Annuities
• Data collection, storage

Term
Assurance
and usage will change
• More granular grouping
Portfolio
may be required
Whole life
No significant Other Onerous

risk of contracts
becoming
onerous
Risk of becoming onerous
13
Application of level of aggregation to
reinsurance held
Reinsurance
Contracts which have a
medical (QS) Group A
net gain at inception
Annual cohort Contractual
Group A Contracts that at
service margin
inception have no
Group B Group B significant possibility of
recognised and
Group C having net gain
released as
services are
subsequently
Reinsurance whole provided
life (QS) Other profitable
Group C
contracts
Annual cohort
Group A
Group B
Group C
Reinsurance Group Possible that a group comprises a

(QS)
Annual cohort single contract
Group A
Group B
Group C
14
Pop Quiz
The following components of reinsurance contracts may vary than its ceded
insurance contracts:
A. Profit recognition
B. Measurement model
C. Level of aggregation
D. All of the above
15
Onerous contracts
Fulfilment cash flows greater than zero
Discounting Loss
Risk adjustment
Expected cash out

flows
Expected cash
inflows
An insurance contract is onerous Recognition of loss for group of

at the date of initial recognition if contracts which are onerous at inception
the fulfilment cash flows allocated
to the contract, any previously
• Pricing may be performed at a more
recognised acquisition cash flows granular level
and any cash flows arising from • Data management and analytics
the contract at the date of initial
recognition in total are a net Alignment of pricing strategy with
outflow. intended accounting treatment
16
IFRS 17 measurement models
One comprehensive model for all types of insurance contracts
Measurement required by IFRS 17 results in:

a) the liability for a group of insurance contracts relating to performance
obligations for remaining service – Liability for remaining coverage
b) the liability for a group of insurance contracts relating to incurred claims –
Liability for incurred claims
General Variable fee Premium

measurement approach (VFA) allocation
model (GMM) approach (PAA)
• Default measurement • Applicable for • Applicable for
model insurance contracts contracts with
• Fulfilment objective with direct coverage period of
participation features one year or less
17
Insurance contracts with direct participation
features No Non-participating
Contract allows policyholders to participate contract - General
in returns from a pool of underlying items approach
Yes
Is there a clearly identified pool of No

Unit-linked
underlying items? with
Yes
many riders ?
Is the pool of underlying items specified by
contract, law or regulations (Do the No
policyholders have knowledge of the pool) Indirect-participating
contract - General
Yes approach
Insurer expects to pay policyholders a
No
substantial share of the returns of the
underlying items?
Yes
Substantial portion of any changes in the
No
cash flows to policyholder is expected to
vary with the underlying item
Yes
Careful assessment of existing and future products will be required to identify
Direct participating products eligible for the variable fee approach. Future design of products will
products – Variable require consideration of accounting impact as a direct participating contract or an
fee approach
indirect participating contract.
18
Eligibility for the Premium Allocation Approach
Application of the PAA is optional, subject to certain criteria being met:
When can the PAA be used?
Specific considerations
apply to multi-year Yes
One Year
contracts, which may PAA
Contract?
arise in relation to:
• Inwards reinsurance
No
written on a risk
attaching basis.
• Risks underwritten in Is PAA a Reasonable Yes
industries such as Approximation to
construction, shipping GMM?
and energy. Requirement to
confirm the continued
No eligibility to use PAA
Motor
Vehicles? BBA
GMM
19
Premium Allocation Approach – Initial
measurement
Initial measurement of liability for remaining coverage
Liability for Initial Directly attributable Onerous

remaining
coverage
= premium - acquisition costs + contract liability
• Similar in many ways to current practice for non-life contracts and released on a systematic
basis based on the passage of time unless the expected pattern of the release of risk differs
significantly from passage of time. Then it would be recognised on the basis of the expected
timing of incurred claims and benefits.
• Practical expedient – entities would not need to adjust future cash flows for the time
value of money if those cash flows are expected to be paid or received within one year
(unless there is a significant financing component)
• Directly attributable acquisition costs can be expensed if coverage period is 1 year or
less
• Recognise an onerous contract liability if, at initial recognition or subsequently, facts and
circumstances indicate that the portfolio of insurance contracts containing the contract is
onerous
20
Liability for Incurred Claim
Measurement of liability for incurred claims
Liability for claims incurred is measured at

Fulfilment cash flows the fulfilment cash flows
• When a liability for incurred claims is
discounted - use the discount rate at the
1 Unbiased probability-weighted
future cash flows inception of the contract to determine the
amount of the claims and interest expense
in profit and loss.
2 Discounted at current rates to

reflect the time value of money
• Practical expedient - Discounting is not
required if cash flows are expected to be
paid and received in one year or less
3 Risk adjustment • Adjust the carrying amount for changes to

current market discount rates for incurred
claims
There are still profit element embedded in the claim

liabilities, it is in the form of Risk Adjustment
21
Data, System and
Process changes
Pop Quiz
In what phase are you currently for IFRS 17?
A. Gap Assessment
B. Business Requirement
C. IT Vendor Selection
D. Design & Implementation
23
IFRS17 Challenges
CSM
Actuarial model: Measurement
Grouping to Data Risk Discount
Projection of future Unit of Model
Translation Margin Calculation
cash flows Account
(if necessary)
(Premium, 1 2
Expense, Claims)
Source Data Onerous Contract Engine

Assumptions:
(Discount Rates,
Cost of Capital
Rate) Contractual Service
Client Margin (CSM) for GMM*
Client
Reporting
3 4
Pain points
Disclosure Creation of Review and
Warehouse Financials posting
1 Cash flows with missing data fields
2 Policy data quality and timing

Quantitative Qualitative IFRS17
3 Journal entry mapping disclosures Disclosures Reporting
Data Translation
4 Integrating IFRS 9 journal entries
Client Provides (Inputs) Client Receives (Outputs)
1. Current trial balances 5. Local statutory changes* 1.IFRS17 standard JEs 3.IFRS 17 Financial
2. Cash flow projections and other 6. Support for data / execution issues* 2.IFRS 17 disclosures Statement entries
modelling data 4.Control and
3. Risk margin and CSM parameters* IFRS Calculation Engine
4. Accounting policy / treatment
* Ad-hoc / periodic inputs reconciliation reports
changes*
* General Measurement Model (GMM) is also referred to as Building Block Approach
24
IFRS17 Data &
System Impact
IFRS 17 Requirements Cut across Many
Systems and Areas
Accounting
Level of Unbundling of Acquisition
Source data Contract Movement actuals for
Aggregation non-insurance Transition and service
and systems boundaries flags experience
(LoA) component expenses
adjustments
Key actuarial
Risk
models and Model Cashflow
adjustment Comparatives
manual assumptions modelling
calculation
models
CSM and Define and In-period

CSM Analysis of
data maintain LoA experiences
calculation movements
management grouping variances
Accounting Presentation
and of insurance Disclosures
reporting revenue
26
IFRS17 Data Input Requirements
• Discounted amount
• BOP
• VFA/BBA/PAA • EOP
Portfolio
• Coverage unit method Insurance • Unlocking mvmt
Contract
• Currency Group
PV • Unwinding mvmt
Cashflows
• Discount method Detail • Release mvmt
Insurance Insurance • From Actuarial Engine

Expected
Contract Contract Cash • Expected premium
Details
Groups flows • Expected claims
• Type of change impacting movement

Analysis • GL Account
• Ordering of run of Actuals
Change Market • Actual premiums
Data • Actual claims pain
27
Common IT Insurance Landscape
C
A General Ledger
Account Posting
Source Data / Rules
Manuals
Integration layer
— Policy data
— Investments
— Assumptions B
Actuarial Modelling /
Valuation
— Valuation
— Assumption Mngt
D E
Reporting Submission to Group
And other departments
(Performance reporting…)
Manuals
IFRS Disclosures
Existing flow/ Data Sources Data Storage Data Processing Reports

system
Data category System components Impact category System components
A1. Accounting Source Data D1. Accounting Source Data

AA. Source Data
A2. Actuarial Source Data D2. Actuarial Source Data
D Reporting systems
A.
B1. Reserving principles based on local gaap E1. Aggregation by disclosures (presentation lines)
B
B. Actuarial Modelling
B2. Cost allocation rules E2. Controlling and reconciling
C1. Account Posting Rules Engine & Sub-Ledgers C. Submission to E1. Multi-gaap reconciliation
C E
C. Accounting Systems Group
C2. General Ledger posting pre-controls E2. Controlling
and posting
C3. Late adjustments
28
System Impact by Components
A
Source Data / 3 outstanding impacts to consider:
Integration layer
— Policy data
— Investments
— Assumptions 1 Unit of account / Level of aggregation
• In general, most of data elements are already available with the lowest
granularity level (policy contracts). However, some enhancements are still
required to perform the groupings (LoA) requirements.
• Rules to implement : Onerous contract identification (level of automation ?
Ability to get the data?)
2 Expected Cash Flow Data Extraction

• Determination/identification of the cash-flows that already taking into account
contract boundaries, un-bundling of non insurance component, IFRS 17
measurements (GMM, VFA, PAA).
• Generate policy movements data to support AoM and CSM adjustments.
• Un-modeled (manual) data needs to be taken into consideration for system
enhancement.
3 Transition requirements
• Significant amounts of historical data may be required on transition,

particularly for the full and modified retrospective approaches.
• According to the adopted approach, need to “drill down” through the system
29
B
Actuarial Modelling /
Valuation
3 outstanding impacts to consider:
— Valuation
— Assumption Mngt
1 Expected Cash-flow input / Assumption management
• Storage of additional assumption sets
• Output from model runs produced at IFRS 17 grouping level of granularity
(based on year, product, profitability)
• Adjustments required for unmodelled products will need to be calculated at a
granularity sufficient to support IFRS 17 calculations (i.e. at cohort level) for
CSM calculations
A new component to implement : CSM/Loss component

Manuals
2
calculation engine & Data management
• Ability to track calculated data at aggregation level
IFRS 17 Calculation Rules • Ability to perform calculation rules at an expected
— CSM
— Loss component highly granular level
• Ability to identify movements change at aggregation
level
• Ability to reconcile any differences in-period
cashflows between accounting actuals and
modelled actuals at the LoA grouping level of
granularity
3 Interface with the posting engine and the reporting system
• Ability to derive accounting entries from calculated data

• OR interface with an additional component (posting entries engine
30
C
Account Posting General Ledger 3 outstanding impacts to consider:
Rules
Manuals
1 New chart of accounts & posting entries

• Consideration of every part of the Finance duties (from the financial statements,
to the calculation requirements or other GAAPs)
• Definition of the data entry point, potential hierarchies and dependencies with
other chart of accounts or metadatas
• New balance sheet and income statements impact for every business
transaction and actuarial calculations
• Pre-posting controls to significantly change
2 Accounting Actual Data Extraction

• Data preparation for accounting actuals in-period cashflows for CSM
adjustments calculation (for both BBA and VFA approach
3 Subledger features to consider
• Due to the expected heavy reconciliation process between accounting and

actuarial, additional attributes to the chart of accounts to consider (Unit of
aggregation, type of IFRS 17 approach, source of the transaction…)
31
D
Reporting 3 outstanding impacts to consider:
1 New disclosures
• New data input entries templates to define
• New consistency controls (Balance sheet movements vs. P&L, link technical
liabilities / financial assets) to define
IFRS Disclosures
• New calculation/loading rules to define based on the notes  Data dictionary to
build
E
2 Link General Ledger/CSM Engine and Actuarial models
Submission to Group
And other departments
• Opportunity to build a data management system, as a data reconciliation
(Performance reporting…) repository for all of the different systems
3 Impacts on other systems
• Cost allocation rules to be redesigned as the income statement format is

modified
• Potentially new KPIs and new analytical P&L  new data dictionary to define
(based on source systems and general ledger) and new consistency controls
32
CSM Engine - Potential Options
1. Leverage actuarial modelling tool perform CSM calculation at inception
Approach 1 : and run-off
2. Develop a standalone CSM data management solution to support run-off
Perform CSM and AoC
calculations in 3. Update Financial System accounting engine to enable CSM posting logic
actuarial Recommendation if this approach is considered
modelling tool Start by evaluating if the current actuarial modelling tool is not flexible enough
in terms of configuration (static scripting, limited libraries, no pre-configured
IFRS models) and use (limited features on analysis, drilling-down…)
1. Develop custom solution that enables CSM calculation and data
management capabilities OR buy off-the-shelf solution
Approach 2 : 2. Solution uses actuarial modelling tool’s fulfilment CFs as inputs
Perform CSM 3. Accounting engine needs to be updated separately to enable CSM
posting logic (as in approach 1)
calculations in
Recommendation if this approach is considered
a stand alone Start by assessing which best component can integrate easily with Financial
tool System Financials (in terms of interfaces, data consistency…)
Start early by Licensing cost could be significantly challenging depending on
the adopted solution.
1. Build complete CSM including CSM calculation, data management

Approach 3 : and posting logic
2. Solution uses actuarial modelling tool’s fulfilment CFs as inputs
Integrated 3. Solution is able to generate double entries arising from the CSM
CSM and engine and post it into GL, or leverage the existing accounting engine
accounting Recommendation if this approach is considered
engine Decision to be made on whether to replace or to keep Financial System – As
both of the system might generate redundancies within the architecture (similar
features)
33
IFRS17 – Sample
Solution
System Example:
Governance, Control and Workflow
35
System Example:
Data Quality Check and Validation
36
System Example:
CSM Calculation
37
System Example:
Dashboard Reporting and Disclosure
38
What should you
do now?
A need for a road map
What to do if you haven‘t started yet?
Phase 2
START
Detailed
2 methodology
• But what if – for whatever reason – you have 2018 and design Phase 4
not made as much progress as you might Dry Runs and
1
wish? 4 parallel running
3
• Or have not yet started? Phase 1
Mobilisation,
• Whatever your outlook the time for action is Impact
Assessment and Phase 3 Go
now Planning Building and Live
testing 2021
2019 2020-2021 2022-2023 CRUNCH 2024

Start
Assess impact • Retrospective • Retrospective
Tools, Systems and Processes restatement of restatement of
Build/refresh opening balance H2
plans Design – Configure – Test – Deploy
sheet and
Real time
• Identify transition
delivery of
milestones adjustment
Engage BUs H2
• Select tool • Restatement of • Real time
• Approach to 1. Classify products H1 results on an delivery of H1
updating ledger 2. Group contracts and test if onerous IFRS17/9 basis 2021
• Identify data 3. Identify coverage units for CSM release
gaps and 4. Set discount rates
sources 5. Approach for risk adjustment
• Secure 6. Analyze reinsurance held • Review and refine
resources 7. Address tax & capital impacts • Assurance and audit
• Engage BUs Multiple iterations • Initial investor briefings
before Go Live
40
Pop Quiz
Given the challenge and impact, what should be the most recommended for entities
to do for the first time?
A. Select IT vendor for IFRS 17 system
B. Assess IFRS 17 business requirement
C. Decide methodology approach for transition
D. Perform IFRS 17 gap and impact assessment
41
Amendments of IFRS 17
– what’s to come?
Pop Quiz
What are the considerations being addressed in the proposed amendments?
A. Accounting mismatch between insurance and reinsurance contracts
B. Delay in implementation
C. Allocation of acquisition costs in contract renewal
D. All of the above
43
What have we seen?
Sept - Oct 2018 Nov 2018 Dec 2018 to March 2019
Concerns and Effective date The Board discussed issues,
implementation proposed to be covering a number of areas in the
challenges deferred to 2022 standard:
identified (and for IFRS 9 • Scope
deferral) • Level of aggregation
• Measurement
• Presentation
• Variable fee approach; and
• Transition
Insurers need to start
to evaluate now and
consider how they will
respond.
Insurers would need

to exercise judgement
in new areas.
© 2019 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
44
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
What do we expect to see next?
Final Amended
8-12 April 2019 Standard expected
Board meeting 2020
4 April 2019 Amendments would be

Tentative
subject to the Board’s normal
TRG meeting Effective Date
due process
1 January 2022
Exposure draft published in
June-2019
© 2019 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
45
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved.
Deep Dive - IASB
Proposed
Amendments
Effective date of IFRS 17
The Board is proposing to… IFRS 9
for insurers
— defer IFRS 17’s effective date by a year, and
— extend the temporary exemption from applying IFRS 9,
granted to insurers meeting certain criteria IFRS 17
1 January 1 January
2021 2022
Proposed amendments to seven areas of IFRS 17
1 Accounting for certain types of credit cards and loans
2 Accounting for investment services in an insurance contract
3 Allocating insurance acquisition cash flows
4 Mitigating the financial risk of direct participating contracts
5 Presentation of insurance contract assets and liabilities
6 Reinsurance of onerous contracts
7 Accounting for acquired claims liabilities on transition

Accounting for certain types of credit cards and loans
The Board is proposing to exclude Issuers of certain loans that
certain credit card contracts that transfer significant insurance risk
transfer significant insurance risk from would have the option to apply
the scope of IFRS 17 either IFRS 17 or IFRS 9 to them
Accounting for investment services in an insurance contract
The Board is proposing to amend the pattern of profit recognition to
reflect the provision of…
… investment-related services for Insurance Investment-

direct participating contracts… coverage + related service
… and investment return services for Insurance Investment-

all other insurance contracts coverage + return service
This would better align the accounting with the services provided
Allocating insurance acquisition cash flows
The Board is proposing to require insurers
to allocate part of the insurance acquisition
cash flows directly attributable to a newly
issued contract to expected renewals
outside of the initial contract’s boundary Renewal
premium 2
Renewal
Insurance contracts with high acquisition premium 1
Initial
cash flows (e.g. initial commissions) might
commission
no longer be onerous under IFRS 17, as and other
Initial
insurers would be required to allocate these cash flows
premium
costs to the expected renewals
Mitigating the financial risk of direct participating contracts
The Board is proposing that the risk mitigation option
Changes in
financial risk
applicable to direct participating contracts in IFRS 17

be expanded, allowing insurers to use it when
reinsurance contracts held – as well as derivatives –
Recognise in
are used to mitigate financial risk
profit or loss
This reduces accounting mismatches when reinsurance or
contracts held are used to mitigate the financial risk of direct Adjust the
participating contracts CSM
Mitigating the financial risk of direct participating contracts
Subject to certain criteria, the option could be
applied prospectively from the date of transition, and Changes in
financial risk
the fair value approach to transition could be used
even if a full retrospective approach is possible
Recognise in
profit or loss
This may reduce some accounting mismatches in the or
comparative periods presented, and better reflect the Adjust the

insurer’s past financial risk mitigating activities on transition CSM
Presentation of insurance contract assets and liabilities
The Board is proposing that insurers be Portfolio of insurance contracts
required to present separately on the Assets
balance sheet – at portfolio level rather

than group level – the carrying amounts
of insurance contract assets and
insurance contract liabilities
Liabilities
This would provide practical relief to Many groups would In most cases, the
insurers who may find it difficult to be in a liability portfolio in aggregate
position, some could will be in a liability
allocate cash flows to individual groups of
be in an asset position position
insurance contracts
Reinsurance of onerous insurance contracts
The Board is proposing that if an insurer
recognises a loss on underlying insurance
contracts that are onerous at initial recognition,
then it would also simultaneously recognise a gain
in profit or loss on reinsurance contracts held, to
the extent that the underlying contracts are
covered on a proportionate basis
Gain on
proportionate
reinsurance
contracts held
Recognising a gain under the proposal would avoid Loss on onerous
an accounting mismatch underlying
insurance contracts
Accounting for acquired claims liabilities on transition
The Board is proposing to add a further modification to
IFRS 17’s transition requirements
Contracts issued by the Liability for

insurer incurred claims
Contracts acquired in a Yes

Claims incurred after Liability for
business combination
date of acquisition? remaining coverage
or portfolio transfer No
Eliminates the challenge of recording claims liabilities in different ways if the

information is not available
Maximizing
Opportunities
Using the effective date change wisely
Warning! It’ s not a reset on the Strengthen your roadmap
implementation countdown clock!

• Don’t forget that it brings real change. Scenario plan
• The goal posts are being realigned to reflect

proposed amendments to standard – not for relief.
• Insurers need to assess the changes, update

implementation plans and then execute on them. Practice, practice, practice
Talk to stakeholders
Look for opportunities
58
Using the Time to Drive Value - Commercial
There are a number of areas, both commercially and operationally you can do to
maximize opportunity and drive value, including on the commercial side:
1 Present and understand your Business Plan on an IFRS 17 basis
2 Analyse transition options and methodology choices and develop a better

appreciation on how to tell your story.
3 Review and Revise KPIs and performance metrics under IFRS 17
Develop an improved understanding of the drivers of your future results and

4 potential sources of volatility, and how this interacts with your product mix
Deepen your research on policy choices to identify the best outcomes for your
5 business
Target end-game is:
Better Cheaper Faster , ,
© 2019International
Siddharta Widjaja & Rekan, an Indonesian partnership and a entity.
member firm of the KPMG network
KPMGofnetwork
independent member firms affiliated with KPMG
withInternational
© 2019 KPMG
Cooperative
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International have any such authority to obligate or bind any member firm. All rights reserved.
Different reactions, same end result
Reactions wil be different for insurers.. but the goal should be the same
‘Late ‘Perfectionists’
‘Front Runners’ Adopters’
Maximizing Opportunities
60
Presentation &
Disclosures
Balance sheet – Key changes
An entity separately presents:
• groups of insurance contracts
and groups of reinsurance
contracts; and
• groups that are assets and
groups that are liabilities.
• The Board proposed

requiring companies to
present on the balance
sheet using portfolios of
insurance contract to
reduce implementation
cost.
Source: Illustrative Disclosures for Insurers, pages 18–19
62
New look income statement
An entity separates underwriting

and finance results.
Source: Illustrative Disclosures for Insurers, page16
63
An entity presents insurance
revenue and service expenses in
profit or loss.
• Investment components are
excluded.
• Information about premiums
that are not considered
insurance revenue is not
presented in other line items.
64
Income or expenses from
reinsurance contracts held
are presented separately
from those from insurance
contracts issued:
• as a single amount; or
• with amounts recovered
and allocation of
premiums paid shown
separately.
65
Key change to Other Comprehensive Income
(OCI)
Entities may choose to present the

effect of changes in discount rates and
other financial risks in profit or loss or
OCI to reduce volatility.
66
Level at which disclosure is made
The disclosures are made at a level necessary to satisfy the general disclosure
objective.
Examples of the aggregation bases that may be appropriate are:
Types of contract Geographic areas Reportable segments

(e.g. major (e.g. country or (as defined in IFRS 8
product lines) region) Operating Segments)
67
What to disclose?
• Reconciliations
Recognised amounts • Specific disclosures depending on
measurement model
• Inputs, assumptions and estimation

techniques
Significant judgements
• Disclosures for discount rates and
risk adjustment for non-financial risk
• Similar to current requirements

Nature and extent of risks but more detailed or specific
Many requirements are new or more specific than current ones
68
Disclosures on recognised amounts
• Reconciliations for remaining coverage and incurred claims*
• Disclosure and explanation of insurance finance income and expenses*
Contracts not under PAA Contracts under PAA

• Reconciliations by building block component* • How eligibility
• Analysis of insurance revenue requirements are
• Effect of new contracts satisfied
• Expected timing of CSM release • Policy choices
Direct participating contracts

Composition and fair value of underlying
items and other disclosures
* Additional disclosures on transition amounts apply
69
Reconciliations for remaining coverage and incurred claims explain how line items
in the statement of financial performance are linked to changes in carrying
amounts.
Separate revenue disclosure

for contracts under modified
retrospective or fair value
approach
Analysis of insurance
service expenses
Investment components
excluded from revenue
More transparent
disclosures for
onerous contracts
70
Reconciliations by building block component
depict sources of profit.
Separation of changes
relating to current,
future and past services
Changes in components
that affect future
profitability
Separate CSM reconciliation

for contracts under the modified
CSM from new contracts
retrospective or fair value approach
71
Expected timing of CSM release
The entity’s expectations about CSM recognition provides useful information about
the profitability pattern in future periods for long-term contracts.
Source: Illustrative Disclosures for Insurers, page 153
Note: IFRS 17 does not mandate the number of time bands to be used in the analysis, the entity
has applied judgement to determine the appropriate time bands. Alternatively, an entity may
provide qualitative information.
72
Significant judgement disclosures
New disclosures enhance comparability across entities
Methods and processes for estimating inputs used to

General measure contracts and any changes (including
quantitative information unless impracticable)
Yield curve used to discount cash flows that do not

Discount rates
vary based on returns on underlying items
Confidence level used

Risk adjustment for Yes
non-financial risk Technique used
Determined
using confidence Corresponding confidence level
level technique? No
73
KPMG publications and other resources
When Opportunity Comes Calling In it to Win It: Benchmarking 2.0
A report by KPMG highlighting five key We surveyed more than 160 insurance executives
commercial and five key operational opportunities around the world to benchmark their readiness for
for insurers from the delay to IFRS 17 IFRS 17 and IFRS 9 and examine how they are
(2018). navigating change on the frontline (2018).
Benchmarking 3.0 coming soon!

New!
Insurance contracts: First impressions Can you see clearly now?

This First Impressions’ provides an overview of We surveyed insurance analysts on their
the new standard and how it may affect insurers’ perceptions of insurance reporting and used
financial statements. It includes examples and our this to inform insurers as thy plan how to explain
insightsto help you assess the potential impacts the impact of IFRS17 and IFRS 9 to the users of
and to prepare for 2021 (2018) financial information (2018).
Insurance – Transition to IFRS 17 Introducing IFRS 17

This web page includes summaries of the Insight and detailed analysis on the impact of
discussions at the International Accounting IFRS 17 Insurance Contracts (2018)
Standards Board and the IFRS 17 Transition
Resource Group and observations of the topics
discussed, e.g., Identifying the insurance contract,
Measuring the CSM and Accounting for
For the most
reinsurance contracts held (2019). up-to-date
Thought
Leadership
Click images and Points of
for direct links View from
the sector,
© 2019 Siddharta Widjaja & Rekan, an Indonesian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International click
please 74
here
KPMG’s approach to Insurance Change
Our skilled people Proven methodology and tools
We have a group of global experts with strong We have a proven, simple and effective
technical and market experience at the methodology for IFRS change which is utilised
forefront of IFRS 17, IFRS 9 and Solvency II internationally.
implementation
We use our tools and accelerators to focus
Our skilled individuals come together in effort and accelerate your work, including our
multidisciplinary teams of accounting, actuarial, financial and actuarial modelling tools.
data, systems, business, people and project
management specialists.
Our business-focused experience Global and active network
We have proven experience on complex large Our technical accounting skills are backed up
scale system implementations to ensure the by extensive industry knowledge and a global
successful delivery of IFRS 17. network of specialists who can provide up to
the minute input and advice.
KPMG | Helping make the best insurers better
75
Concluding
Remarks
Recap: What does this mean for Insurer
Different profit profiles,
Fundamentally different Significantly increased
recognition of losses &
accounting model disclosures
revenue presentation
Pervasive and significant impact
Process, IT systems Internal and external Investor relations and

Regulatory and tax
and data reporting rating agencies
KPIs and reward Investment portfolio Product pricing and

Resources and staffing
schemes management development
The impact is more than compliance
77
Timetable pressure growing
Challenge of meeting planned implementation date
% of respondents
Note that 8% Over one-third of insurers

expect to expect a high / extremely high
implement later degree of challenge in meeting
than 1 January planned implementation date
2021
2018
4% 7% 54% 25% 10%
(n=122)
Don't know Low Medium High Extremely high

when IFRS 17
will be implemented
locally
78
The impact on systems is now better
understood …
Level of change expected
• The expected Finance IT System 7% 30% 63%

level of
change for
core Actuarial valuation
administration models/systems/results 3% 23% 74%
databases
systems is
clearly lower Core administration
than in 2017 systems and feeder 36% 42% 22%
• 93% expect system
material
changes to Low Medium High
actuarial
systems
79
What to do next? START
Phase 2
Detailed methodology
2 and design
• Adoption is a long process 2018 Phase 4
Dry Runs and
1
4 parallel running
• Whatever your outlook the time for action is 3
Phase 1
now Mobilisation,
Impact
Assessment and Phase 3 Go
Planning Building Live
and testing 2021
2019 2020 2021 CRUNCH 2022

Start
Assess impact Tools, Systems and Processes • Retrospective • Retrospective

restatement of restatement
Build/refresh Design – Configure – Test – opening balance of H2
plans Real
Deploy sheet and
• Identify transition time
milestones adjustment delivery
Engage BUs • Real time
• Select tool • Restatement of of H2
1. Classify products delivery of H1
• Approach to H1 results on an 2021
2. Group contracts and test if onerous IFRS17/9 basis
updating ledger
3. Identify coverage units for CSM
• Identify data
release
gaps and
sources 4. Set discount rates
• Review and refine
• Secure 5. Approach for risk adjustment
• Assurance and audit
resources 6. Analyze reinsurance held Multiple • Initial investor briefings
7. Address tax & capital impacts iterations
• Engage BUs before Go Live
80
Your impression of IFRS 17…..
Which are the key principles, concepts, requirements that left deep impression?
Which of the requirements you believe will be a concern?
What is the biggest gap?
Which gap will be the most difficult to address?
81
Thank you
Susanto – Susanto@kpmg.co.id
Rialiany Arista Ku – Rialiany.Aristaku@kpmg.co.id
Yusman Kusuma – Yusman.Kusuma@kpmg.co.id
Susiyani Setiowati – Susiyani.Setiowati@kpmg.co.id

OJK PSAK74 - Sep2019

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Practical Aspects of

What are the new requirements? 13:45 – 14.45

Break 15:30 – 15:45

Amendments of IFRS 17 – what’s to come? 15:45 – 16:15

Presentation & disclosures + Concluding remarks 16:15 – 17:00

IFRS 17 Implementation Timeline

We are here IFRS 17 IFRS 17/ PSAK 74

2017 2018 2019 2020 2021 2022 2023 2024

Onerous Contract Test Minimum Level of

3 Presentation and Disclosures New Disclosures Other Disclosure

Volatility of financial Level of transparency

Financial and non-

Implications of Principles Based Standard

Level of aggregation – Insurance contract

• Data collection, storage

No significant Other Onerous

Risk of becoming onerous

Reinsurance Group Possible that a group comprises a

Expected cash out

An insurance contract is onerous Recognition of loss for group of

Measurement required by IFRS 17 results in:

General Variable fee Premium

Is there a clearly identified pool of No

When can the PAA be used?

Liability for Initial Directly attributable Onerous

Liability for claims incurred is measured at

2 Discounted at current rates to

3 Risk adjustment • Adjust the carrying amount for changes to

There are still profit element embedded in the claim

Source Data Onerous Contract Engine

2 Policy data quality and timing

Client Provides (Inputs) Client Receives (Outputs)

* General Measurement Model (GMM) is also referred to as Building Block Approach

CSM and Define and In-period

Insurance Insurance • From Actuarial Engine

• Type of change impacting movement

Existing flow/ Data Sources Data Storage Data Processing Reports

Data category System components Impact category System components

A1. Accounting Source Data D1. Accounting Source Data

2 Expected Cash Flow Data Extraction

• Significant amounts of historical data may be required on transition,

A new component to implement : CSM/Loss component

3 Interface with the posting engine and the reporting system

• Ability to derive accounting entries from calculated data

1 New chart of accounts & posting entries

2 Accounting Actual Data Extraction

3 Subledger features to consider

• Due to the expected heavy reconciliation process between accounting and

3 Impacts on other systems

• Cost allocation rules to be redesigned as the income statement format is

1. Build complete CSM including CSM calculation, data management

2019 2020-2021 2022-2023 CRUNCH 2024

Insurers would need

4 April 2019 Amendments would be

2 Accounting for investment services in an insurance contract

3 Allocating insurance acquisition cash flows

4 Mitigating the financial risk of direct participating contracts

5 Presentation of insurance contract assets and liabilities

6 Reinsurance of onerous contracts

7 Accounting for acquired claims liabilities on transition

… investment-related services for Insurance Investment-

… and investment return services for Insurance Investment-

applicable to direct participating contracts in IFRS 17