ia_gov_sa · circular · processed · 15 chunks
تعميم
الموضوع: مشروع المعيار الدولي
للتقرير المالي رقم ۱۷ - خطه
التطبيق.
IFRS 17 – SAMA Instructions
for Phase 3 "Implementation
Plan
الرقم: ت.ع.م/٢٠١٠١٠٢٩
التاريخ: ٢٠٢٠/١٠/٢٩
سعاده الرييس التنفيذي
سعاده مدير الالتزام
السلام عليكم ورحمه الله وبركاته.
Reference is made to SAMA Circular # 172 dated 20 December 2018, wherein SAMA rolled out a four-phase approach for transition of Saudi insurance sector to IFRS17.
The first two phases have now been completed and SAMA provided its feedback to the insurance sector on the results of each of those two phases through Dear CEO letters dated 12 June 2019 and 31 August 2020 respectively.
SAMA now requires all insurance/ reinsurance companies to carry out Phase 3, i.e., design the Implementation Plan.
Scope of Work
اشاره الي تعميم المؤسسه رقم (۱۷) وتاريخ
٢٠ ديسمبر ٢٠١٨، الذي تضمن خطه من
اربع مراحل لتحول شركات التامين و/ او اعاده
التامين العامله في المملكه لتنطبيق المعيار
الدولي للتقارير الماليه رقم (۱۷) "عقود
التامين".
وحيث اكملت شركات التامين و/او اعاده
التامين المرحله الاولي "تحليل收费站" في
الربع الاول من ٢٠١٩، والمرحله الثانيه
" تقييم الاثر المالي" في الربع الثاني من ٢٠٢٠ م،
وقدمت المؤسسه مريياتها وملاحظاتها للقطع
من خلال خاطب الي الرييس التفسيدي/المدير
العام للمرحلتين بتاريخ ١٢ يونيو ٢٠١٩ م و
٢٣ اغسطس ٢٠٢٠ علي التوالي.
Appendix 1 covers the minimum scope of work for each insurance/ reinsurance company for Phase 3. SAMA encourages each insurance/reinsurance company to endeavor to go beyond the minimum scope in order to design the most appropriate Implementation Plan for the company.
Reporting to SAMA
In order to capture the outputs of this phase,
each Company must submit the following
documents to SAMA:
a) Report on the Design of Implementation Plan ("Report")
- The Report shall be produced on the Company letter-head and it shall cover at least the minimum scope items mentioned in Appendix 1 (Attached).
- The description of the Implementation Plan in the Report shall be sufficient to ensure that any independent knowledgeable third party would be able to fully understand the Implementation Plan and form a sound judgement on its compliance with the current
عليه، يتعين علي الشركات البدء بتنفيذ
المرحله الثالثه من هذا التحول وهي "خطه
التطبيق".
نطاق العمل
الملحق رقم (1) يتضمن الحد الادني لنطاق
عمل للمرحله الثالثه لكل شركه تامين و/او
اعاده تامين. وتشجع المؤسسه قيام الشركات
بزياده النطاق عن الحد الادني؛ وذلك من
اجل تصميم خطه تطبيق تكون اكثر ملاعمه
وTECANISا للشركه.
متطلبات المؤسسه
من اجل اتمام مخرجات هذه المرحله، يجب
علي كل شركه تقدمي المتطلبات الاتيه
للمؤسسه:
ا. تقرير عن تصميم خطه التطبيق
(تقرير)
• يجب ان يكون التقرير مكتونا وفقا
لطبوعات الشركه الرسميه، ويجب
ان يغطي علي الاقل الحد الادني من
بنود النطاق الميكوره في الملحق رقم
1 (مرفق).
يجب ان يكون وصف خطه التطبيق
في التقرير كافيا لضمان ان يكون اي
طرف ثالث مستقل علي اطلاع وفهم
كامل لخطه التطبيق وقادر علي
تشكيل حكم سليم بشان امتثالها
للتفسير الحالي لمبادي المعيار الدولي
للتقارير الماليه رقم (١٧) ومدي
ملاءمتها ومناسبها لعمليات الشركه.
interpretation of IFRS17 principles and its suitability for the Company's operations.
- All technical papers produced and results of quantitative analysis performed to support various design-decisions shall be included as appendices to the Report.
- The Audit Committee shall obtain feedback from the Company's external auditors on the design of Implementation Plan. This feedback shall be included in the Report as a separate appendix.
- The Report shall be signed-off by the Company's Appointed Actuary (for the areas falling under his responsibility only) and the Chief Financial Officer before being approved and signed-off by the Company's Audit Committee. The estimated cost of implementation shall be signed off by the Chairman of the Board of Directors and shall be included in the Report as an appendix.
يجب ان تتضمن ملاحق التقرير
جميع اوراق العمل الفنيه التي تم
اعدادها ونتايج التحليل الكمي التي
تم اجراءها لدعم قرارات التصميم
المختلفه.
يجب علي لجنه المراجعه الحصول
علي مرتبات مراجعي الحسابات
الخارجيين بشان خطه التطبيق،
ويجب تضمين ذلك في التقرير
كملحق منفصل.
يجب ان يتم توقيع التقرير بشكل
مشترك من قبل الاكتواري المعين (في
النواحي التي تقع تحت مسؤوليه
ونطاق عمله) والمدير المالي للشركه:
وذلك قبل اعتمادده من قبل لجنه
المراجعه في الشركه. التكلفه
المتوقعه للتطبيق يجب ان توقع من
قبل رييس مجلس الاداره ويتم
اضافهها الي التقرير كصرف.
ب. نموذج المؤسسه (النموذج) – "صرف" - الغرض من النموذج هو تسجيل ومعرفه السمات الرييسيه لخطه التطبيق.
<table><tr><td>b) SAMA Template in MS Excel form("Template") - attachedThe purpose of the Template is to capture the key features of the Implementation Plan.Each insurance/reinsurance company shall strictly adhere to the instructions on filling the Template, which are included within it.SubmissionThe Report and the Template shall be submitted to SAMA at IC.Tec@SAMA.GOV.SA by 31 March 2021</td><td>يجب علي كل شركه تامين و/او اعاده تامين الالتزام بالتعليمات الوارده في النموذج والخاصه باليه تعبيته.التسليم يجب تقدمي المتطلبات (التقرير والنموذج) للمؤسسه بتاريخ ٢٠١ مارس ٢٠١ م علي IC.Tec@SAMA.GOV.SAالعنوان</td></tr></table>
وتقبلوا تحياتنا.
الاداره العامه للرقابه علي التامين
IFRS17 Phase 3 – ‘Implementation Plan’
Appendix 1 - Minimum Areas to be covered in the Report on the design of ‘Implementation Plan’
Part I - Governance and Controls Framework
1. Description of governance framework applied
a. To ensure that the design of Implementation Plan is comprehensive and detailed enough which can be rolled out for implementation immediately upon completion of Phase 3
b. To ensure that all design-decisions of Implementation Plan meet the requirements of IFRS17 considering the Company's current business as well as its immediate business plan
c. To ensure that all significant judgements conform to IFRS17 principles
2. For each design-decision and significant judgement, including but not limited to a accounting policies, actuarial assumptions and methodologies,
a. Identification of the individual with ownership of that design-decision and/or significant judgement; for a actuarial assumptions and methodologies, this shall have due consideration for compliance with Actuarial Work Rules, article 50
b. Identification of the reviewer (individual or a committee) of that design-decision and/or significant judgement,
c. Technical paper produced to support the decision, including (where applicable) a description of quantitative analysis performed and the (range of) results produced
3. Governance framework for future changes to the design of Implementation Plan deemed necessary during the Implementation phase and/or under the 'go-live' state
4. Description of governance and controls designed to monitor progress during the next phase (Phase 4 - 'Implementation & Dry-run') and for ensuring timely corrective actions
5. Materiality-definition and criteria used by the Company to support its design decisions and significant judgements
Part II - Operational
6. Data
a. Data Dictionary, covering at a minimum,
i. Internal data items, along with ownership of each data item
- Clear distinction between insurance and reinsurance data
- Granularity and frequency of data from outsourced functions (e.g., third party administrator for medical claims)
ii. External data items, along with source of each (can be multiple sources, e.g., for reinsurance default probability from rating agencies) and responsibility for procuring the data item
b. Data Policy, covering at a minimum,
i. Tolerance thresholds
ii. Reconciliations required to be performed
iii. Validation checks to be carried out
7. Systems
a. Detailed architectural design, including flow charts, of systems covering each of the following processes:
i. Data preparation
ii. Actuarial modelling
iii. IFRS 17 Calculations
iv. Financial reporting
b. Detailed plan for vendor on boarding
c. Detailed plan for
i. System installation
ii. Deployment
iii. Training
iv. User Acceptance Testing
d. Detailed plan for integration of new system or software with existing systems, covering at a minimum, the following systems and models:
i. Core IT
ii. Underwriting
iii. Accounting
iv. Actuarial, including where the appointed actuary is external to the Company, identifying the reliance placed on the appointed actuary's systems and tools for each calculation
v. Claims
vi. Reinsurance
8. Process
a. Generating fullfilment cash flows (Best Estimate) for Liability for Remaining Coverage (where applicable) and Liability for Incurred Claims
b. Determination of Risk Adjustment (including process followed for determining level of confidence, etc.)
c. Discounting
d. CSM amortization
e. Onerosity determination
i. Including clarity of interaction between underwriting and actuarial functions and the appointed actuary
ii. Including assessment at each subsequent measurement, and where necessary, adjustments to Liability for Remaining Coverage
iii. Assessment of facts and circumstances for contracts measured using Premium Allocation Approach
f. Expected premium determination initially and subsequently
i. Including process for a llowing for policyholder default
g. Estimation of reinsurance held premium, where applicable, including consideration for business to be written in the future
h. Business plan production
i. Experience adjustments at each subsequent measurement
j. Expense allocation
i. Including frequency of review and update
k. Capturing fair value of underlying items (applicable for Variable Fee Approach only)
I. For each new cohort, eligibility assessment for Premium Allocation Approach
m. End-to-end Financial Statement and Disclosures production process, both quarterly and annual
n. Generating and posting accounting entries for general ledger and sub-ledger
o. Allocation of bulk receipts/payments to calculate Liability (or Asset) for Remaining Coverage
p. Transition process
9. Skills and Resources
a. Numbersto be recruited
i. Accounting
ii. Actuarial, including where the appointed actuary is external to the company, this should consider and document the roles and responsibilities for in-house actuarial function and the appointed actuary with due regard for the statutory responsibilities of the appointed actuary as per Actuarial Work Rules 2020
iii. IT
iv. Others (e.g., internal audit, project management, etc.)
b. Trainings and upskilling
i. Detailed plan for training and knowledge transfer
- Board of Directors and Senior management
- Staff and related parties
ii. Plan for assessing the extent and effectiveness of knowledge transfer
10. Timelines for each of the above steps in paras 6-9 above, with due consideration for dry-run exercises planned by SAMA and for parallel run required under IFRS17
Part III - Technical and Financial
11. Contracts within/outside scope of IFRS17
a. Types of contracts written by company falling within IFRS 17 scope, sub-divided into
i. Insurance and reinsurance contract issued by the company
ii. Reinsurance contracts held
iii. Investment contracts with discretionary participating features issued together with insurance contracts
b. Distinction between Insurance risk & Other risks
c. Assessment of 'significance' of insurance risk
12. Combination/Unbundling of Contracts
a. Definition and identification of 'Related Counterparties'
b. Determination and separation of 'distinct' components
i. Investment component
ii. Component for services other than insurance contract services
c. Determination of applicability of IFRS 9
d. Determination of applicability of IFRS 15
13. Contractboundaries
a. Insurance contracts
i. Including onerous contracts
b. Outwards Reinsurance contracts
c. Identification and recording of individual contracts and/or group of contracts by
i. coverage start date and
ii. payment due dates, including consideration for advance receipts
iii. date of becoming onerous (if applicable)
d. Assessment of practical ability to reassess the risk
e. Modifications
i. Criteria for de-recognition of original contract and recognition of modified contract, and gain and losses from modification
ii. Treatment of modified contracts not meeting the de-recognition & re-recognition criteria
14. Level of Aggregation
a. Insurance contracts
i. Co-insurance
b. Reinsurance held contracts
i. Fronting arrangements
15. Eligibility assessment for Premium Allocation Approach
a. Approach, including scenarios considered
b. Materiality threshold used
c. Criteria for significant variability (art. 54)
16. Measurement model
a. Insurance contracts
i. Including a adjustment for onerous contracts
b. Outwards Reinsurance contracts
17. Actuarial Methodology and Assumptions
a. Allowance for full range of possible outcomes
b. Granularity of projections
i. Group of contracts level (or policy level for Protection & Saving, where applicable),
ii. Higher level of aggregation with allocation to individual groups of contracts (or individual policies for Protection & Saving, where applicable)
c. Discounting
i. Approach for non-linked cash flows
- Top-down
a. Adjustments to yield curve
- Bottom-up
a. Illiquidity premium adjustment
- Locked in v current rates
ii. Approach for cash flows that vary with returns on underlying items
- Adjustment for variability
d. Risk adjustment for Liability for Remaining Coverage (where applicable) and Liability for Incurred Claims
i. Methodology, including granularity of approach
ii. Types of risk considered
iii. Diversification between risks
iv. Confidence interval and alignment with company's risk appetite
e. Contractual service margin
i. Basis of a mortization
ii. Order of calculation
f. Onerous contracts
i. Measurement at initial recognition
ii. Onerosity assessment at subsequent measurement
iii. Basis of a mortization for loss component
g. Reinsurance default
i. Probability - Through-the-cycle or Point-in-time
ii. Loss-given-default
h. Insurance Finance Income & Expense
i. Forward v Spot rate
i. Experience adjustments
j. Valuation of options and guarantees
k. Impairment assessment for acquisition costs
18. Accounting Policy Choices
a. Use of Other Comprehensive Income for Insurance Finance Income/Expense
b. Risk Adjustment unwinding within Insurance Service results or split between Insurance Service Result and Insurance Finance Expense
c. Where using Premium Allocation Approach, deferral of a acquisition cost for life and non-life (pre & post-recognition, current service v future service)
d. Expense allocation to groups of contracts
e. Directly Attributable v Other expenses
f. Discounting contracts of one year or lesser duration for determining Liability for Incurred Claims
g. Allocation of premium to periods of insurance service (where applicable) by time or by incidence of insurance service expenses
h. Impact of Financial Risk mitigation
i. Length of cohorts (e.g., annual, quarterly, monthly, etc.)
j. Coverage period assessment for onerous contracts subject to cancellation clauses
k. Allocation of cash flows between loss component and Liability for Remaining Coverage for profitable contracts
I. Adjustment of cash flows for Contractual Service Margin calculations (quarterly v annual basis)
19. Accounting for Onerous contracts
a. Adjustment to insurance service result
b. Adjustment to reinsurance contractual service margin
20. Presentation
a. Reinsurance as 'Net of income and outgo' or two separate line items
b. Chart of Accounts, general ledger, sub-ledger
c. Experience adjustments
i. Exclusion of changes that do not relate to services provided in the period
ii. Other Exclusions (changes in loss component of liability, repayment of investment components, contractual service margin recognised in profit or loss during the period, etc.)
21. Disclosures
a. Reconciliation for changes in Liability for Remaining Coverage, Liability for Incurred Claims, and Loss Components
i. Insurance contracts
ii. Reinsurance contracts held
b. Analysis of insurance revenue (where applicable)
c. Effect of new business on the financial statement (where applicable)
i. Insurance contracts
ii. Reinsurance contracts held
d. Framework for identification, quantification and management of risks
e. Framework for Sensitivity Analysis
f. Disclosures for Transition period
g. Significant judgements
h. Claims development
22. Transition
a. Choice of method (Full retrospective, Modified retrospective, Fair value)
b. Comparatives (choosing between presenting and not presenting earlier periods' adjusted comparative information)
c. Identification of Unadjusted information and basis for its preparation
d. Disclosure of past Claims development
23. Insurance pools
a. Manafeth
b. Haj and Umrah
c. Inherent Defects Insurance
24. Acquisition & Mergers
[This section must be covered by all those companies which are in the process of evaluating merger and a acquisition, whether announced publicly or not]
Part IV - Sign-off and Approval of Design of Implementation Plan
The design of IFRS17 Implementation Plan shall
- be signed off by the Appointed Actuary for methodologies and significant judgements whose ownership is with the Appointed Actuary,
• be signed off by the CFO, and
- be approved and signed-off by the Audit Committee before its submission to SAMA.
In this regard, the Audit Committee shall engage with its external auditors for, at a minimum, the following input:
a. Feedback to the Audit Committee on compliance of the proposed design with the current interpretation of IFRS17 principles and requirements
b. Feedback to the Audit Committee on the documentary evidence available or expected to be available in order to substantiate decisions currently taken as part of the proposed design, covering the following as a minimum [external auditors to include list of decisions and corresponding evidence they consider critical to the design of Implementation Plan].
The Audit Committee shall agree and clearly document the terms of engagement with the Company's external auditors in advance of commencement of work by the external auditors. The above feedback from the Company's external auditors shall be included in the Report on the design of Implementation Plan submitted to SAMA as an appendix.
The estimated cost of implementation shall also be included in the Report as an appendix. This shall be approved and signed off by the Chairman of the Board of Directors.
Part V - Assurance Plan for IFRS17 Implementation
In addition to the requirements set out in Part IV above with regards to the engagement with the external auditors, the Implementation Plan should also set out the assurance plan for the IFRS17 financial statements. This plan should cover the following at a minimum:
- An assessment of the adequacy and appropriateness of data, systems, processes and methodologies
- An assessment of the effectiveness and completeness of governance and controls framework
• Dry-runs as stipulated by SAMA
• One-off transition efforts
• Go-live financial statements, both quarterly and annual
- Periodic feedback to the Audit Committee on the overall readiness of the solution implementation within timeframes
It is expected that the above assurance plan will be designed such that any concentration of audit activities near to IFRS17 go-live date is avoided, thus minimising the risk of non-compliance or of re-designing the solutions or methodologies. In case if the external auditors are due to be rotated before the audit of Year 2023 financial statements, then this assurance plan should also cover the handover process from the existing external auditors to the new external auditors. This assurance plan shall be included in the Report as an appendix.
SAMA IFRS 17 PHASE 3 - Q&A
SAMA Responses to Questions/Comments raised by Insurance Companies regarding Phase 3 Draft Instructions issued on 15th October 2020
<table><tr><td>No.</td><td>Document Reference</td><td>Tab Reference</td><td>Topic (e.g., Discount rate, Onerous contract, Reinsurance, etc.)</td><td>Insurance Company Comment/ Suggestion</td><td>SAMA Response</td></tr><tr><td>1</td><td>Template</td><td>Control</td><td>Actuarial Methodology and Assessment</td><td>On Control sheet, item 17d there shouldn't be a definition of the probability distributions used (IFRS 17 allows any of them if applicable). Also it's missing the non-parametric approaches and some applicable distributions are missing.</td><td>The drop-down list in 17d is non-binding and can be overwritten with the approach selected by the company if different from the given options.</td></tr><tr><td>2</td><td>Template</td><td>Control</td><td>Actuarial Methodology and Assessment</td><td>On Control sheet, item 17d, it should be asked the cost of capital considered (for example, 6%), on the cost of capital methodology.</td><td>This is covered under 17d. Risk Adjustment: Cost of Capital %. We have added a clarification in the relevant cell.</td></tr><tr><td>3</td><td>Template</td><td>Control</td><td>Accounting Policy Choices</td><td>We don't understand the meaning of 18h, Risk Incidence.</td><td>We believe the reference is to 18g which seeks to differentiate between those groups of contracts where risk is linear (e.g., medical, property) and those where risk is non-linear (e.g., engineering, extended warranty, etc.)</td></tr><tr><td>4</td><td>Template</td><td></td><td></td><td>We don't understand the purpose of the dropdown lists identified.</td><td>The purpose is to standardise the insurance companies' responses to the extent possible, while also giving each company the flexibility to tailor its response if none of the given options apply to it.</td></tr><tr><td>5</td><td>Circular</td><td>Deadline</td><td>Deadline</td><td>The requirement set by SAMA for having the system design ready by Q1 2021 would be challenge due to the following:o The company has hired a specialist IT consultant for assisting with the core system evaluation process which would have IFRS 17 capabilities. The decision for the appropriate core system and its compatible IFRS 17 system module is expected to be concluded by January 2021.</td><td>We understand that companies have been working on specifying the details of IT & System requirements system since Q1 2019 when Phase 1 'Gap Analysis' was completed. Since then insurance companies have been providing updates to SAMA regarding their progress with remediating the gaps identified in Phase 1, with IT & Systems being a component of those quarterly updates. Moreover, we believe that Phase 2 'Financial Impact Assessment' has given insurance companies an opportunity to fine-tune the design of their IT & Systems from an informed position. We have also met with a number of IFRS17 system vendors recently, who have confirmed to us that a full design of IT & Systems is achievable by Q1 2021. We are also conscious that deployment and UAT of new systems will likely require a number of iterations/improvements. To avoid any risk to the final delivery, we prefer that companies get on with the implementation of IT and Systems as soon as possible.</td></tr></table>
1 of 2
<table><tr><td>No.</td><td>Document Reference</td><td>Tab Reference</td><td>Topic (e.g., Discount rate, Onerous contract, Reinsurance, etc.)</td><td>Insurance Company Comment/ Suggestion</td><td>SAMA Response</td></tr><tr><td>6</td><td>Template</td><td>Data Dictionary</td><td></td><td>Our understanding is that the data dictionary template provided is trying to capture IFRS17 data points. As such, this deliverable is dependent on the IFRS 17 system and core system vendor selected by the company, who would be able to produce the required data dictionary.</td><td>Partly disagreed. A Data Dictionary enables an insurance company to identify and document all data requirements for implementing IFRS17. The selection of a System should be done such that it meets an insurance company's all data requirements. It is however possible that a given System requires data in a particular form or at a particular level of aggregation/ granularity. Such modifications to Data Dictionary can be made during Phase 4 'Implementation'.</td></tr><tr><td>7</td><td>Appendix 1 Phase 3 Minimum Scope of work</td><td></td><td>External Auditors</td><td>As part of external auditor engagement, the instructions require the external auditors to provide a list of decisions and corresponding evidence they consider critical to the design phase. We find this to be challenging as external auditors are generally reluctant to provide a list of decisions but rather look at management to provide such a list.Are there any other deliverables expected by SAMA from the external auditors other than the assurance plan.</td><td>As per the SAMA Phase 3 instructions, in addition to an Assurance Plan, the Audit Committee shall also obtain the external auditors' feedback on the design of Implementation Plan. This feedback shall form part of Phase 3 Report as an appendix. As regards the list of design decisions, management is responsible for making those decisions. The role of the external auditors is to comment on those design decisions, and where further work is expected to be carried out by company management, specify the type of evidence they would require in the future to fulfill the audit requirements.</td></tr><tr><td>8</td><td>Circular</td><td>Deadline</td><td>Deadline</td><td>It might be difficult to have System design ready by Q1 2021. At our Company, the SAP implementation was in progress but was halted due to some issues with vendor. However, we are planning to acquire IFRS 17 accelerators developed by reputed IFRS 17 consultants as a backup plan to the SAP implementation for IFRS 17.</td><td>Refer to our response in Q5 above</td></tr><tr><td>9</td><td>Circular</td><td></td><td>External Auditors</td><td>Auditors might be reluctant to provide comprehensive feedback by that time as our initial discussion with auditors reveals that auditors are in process of finalizing scope covering this feedback and acquiring the required expertise.</td><td>Representatives of the external auditors are part of SAMA IFRS17 Working Group and are fully aware of the requirements. SAMA is conscious that each insurance company will be spending significant amounts and efforts in implementing IFRS17 solution during Phase 4 covering data, methodology, systems and processes. Not seeking the external auditor's adequate input at Phase 3 can put the entire implementation during Phase 4 at risk. SAMA has no tolerance for this risk. It is therefore imperative for the Audit Committee to liaise with the external auditors at the beginning of Phase 3 to finalise the terms of engagement. The engagement terms shall ensure timely and adequate feedback on the design of Implementation Plan, thus minimising any risk to the implementation of IFRS17 solution. The Audit Committee should also ensure that the external auditors have the necessary IFRS17 expertise to carry out the required task.</td></tr></table>
2 of 2