European life insurance liabilities under IFRS 17 2.5% lower than SII technical provisions

Written by Adam Cadle

16/04/2024

European life insurance liabilities (excluding CSM) under IFRS 17 were on average 2.5% lower than the corresponding Solvency II technical provisions, latest research by EIOPA has shown.

For non-life insurance contracts, however, IFRS 17 insurance liabilities (excluding CSM, except for contracts under the PAA) are, on average, 9.5% higher than in Solvency II.

In terms of discount rates, while Solvency II prescribes the risk-free interest rate term structures (RFR) calculated and published by EIOPA. Under IFRS 17 insurers are responsible for deriving the risk-free rat themselves. Nevertheless, EIOPA’s research showed that in practice 75% of the insurers surveyed rely on EIOPA’s RFR for their IFRS 17 calculations.

IFRS 17 offers insurers three transition approaches and three distinct valuation methods. Regarding the transition, all three approached (full-retrospective approach, modified retrospective approach and fair value approach) have been used to a similar extent, with the fair value approaches being the most frequently chosen option accounting for 42% of insurance liabilities.

When it comes to valuation methods, EIOPA observed a clear link with the type of the insurance contract. Insurers in the sample valued 86% of their life insurance liabilities using the variable free approach (VFA), while non-life insurance contracts were mostly (90%) valued using the premium allocation approach (PAA). The general model was chosen for the remaining liabilities.

The report was based on 2023 semiannual financial statements from a sample of 53 (re)insurance groups from 17 member states.

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