Sufficient mathematical conditions for identical estimation of the liability for remaining coverage under the general measurement model and premium allocation approach

Timothy Lee and Antonie Jagga

British Actuarial Journal, 2024, vol. 29, -

Abstract: Paragraph 53(a) of the new insurance accounting standard IFRS 17 suggests there is a relationship between the liability for remaining coverage (“LFRC”) calculated under the general measurement model (“GMM”) and premium allocation approach (“PAA”), although it is not immediately obvious how the two are related or could result in a similar estimate for the LFRC. This paper explores the underlying relationship between the GMM and PAA through the equivalence principle and presents a set of sufficient mathematical conditions that result in an identical LFRC when calculated under the GMM and PAA. An illustrative example is included to demonstrate how the sufficient conditions can be applied in practice and the optimisation opportunities offered to actuaries and accountants when conducting PAA eligibility testing.

Date: 2024
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