How ILS can fulfil your model review requirements

Insurers seek independent model reviews for reasons ranging from audit requirements to risk management when implementing new accounting policies, products or bases. In this case study, we demonstrate how Insight assisted a client in making their models more accurate and efficient by performing a thorough model review.

In a nutshell 

Our life insurer client had recently developed IFRS 17 cash flow models for the products measured under the General Measurement Model. As part of their triennial audit process, Insight Life Solutions (ILS) was brought on board to check that the variables and coding used to calculate the present value of future cash flows (PVCF) and risk adjustment (RA) produced results that were in line with the IFRS 17 Standard and the client’s IFRS 17 policy and methodology landscape.

How we did it 

ILS followed these steps to complete the independent model review:

• At kick-off stage, all relevant product literature, reinsurance treaties, IFRS 17 position papers, model point data and assumptions required for review were requested from the client.
• ILS built independent replicator cash flow models in Excel and a second cash flow modelling system to produce the IFRS 17 PVCF and RA for the products in scope.
• ILS constructed a testing workbook to read in results of all relevant variables from both the source and replicator models to compare each model point and results for the book as a whole for each product in scope.
• ILS reviewed the results, updated the replicator models as needed, and documented any identified errors in the source models. Separately, any observations around areas for potential model improvement and optimisation were also documented.
• ILS delivered the report to the client, which included descriptions of the errors and observations identified, recommended updates to the source models and their estimated financial impacts.

The outcome 

By providing a thorough model review and documenting recommended updates and their financial impacts, ILS enabled the client to triage the findings and make changes to the model in line with their capacity, budget and risk appetite. Our detailed report also provided evidence for audit purposes and comfort to the client that all material errors had been identified.