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54 | The South African Insurance Industry Survey 2016
–– The annual period covered by all policies is from 1 April 2020 to –– IBNR for the current basis has been determined using an ultimate
31 March 2021. loss ratio technique.
–– Premium for the year is R1 200 per contract (assuming all contracts –– IBNR for the PAA and BBA is the difference between the estimate of
within the portfolio have the same risk profile). expected incurred claims to date and actual incurred claims to date.
–– Premiums are payable on a quarterly basis, i.e. R300 per contract at –– The risk adjustment is determined for the PAA and BBA using a
the start of each quarter. confidence level technique. The risk adjustment is determined for the
portfolio as a whole, at a point in time, based on all future cash flows.
–– Commission of 20 percent of the premium is payable to the brokers It has been calculated as follows:
on receipt of the quarterly premiums (i.e. 20 percent of the R300
received per contract per quarter). Future expected cash flows at 75th percentile xxx
–– If the insurance policy lapsed after a quarter, no future commission is Less: Future estimated expected cash flows (xxx)
payable to the broker.
Risk adjustment xxx
–– The insurer has made an accounting policy election to defer the
commission expense. Notes
– Cumulative accounts in the income statement and statement of
–– The year-end is 31 December 2020.
financial position (presented to the right) refer to the period starting
–– The insurer has no historic experience of claims. Expected incurred 1 April 2020 and ending on the date as indicated (for example,
claims are estimated on the basis that claims will be consistent 30 April 2020).
throughout the contract period.
Assumptions: –– For the PAA and BBA we have kept the same line items currently
Expected incurred claims as determined at inception of the contracts, used by insurers, for example, outstanding claims provision, etc.
are consistent month on month. The expected incurred claims The new ICS does not specifically require this detail.
and expected future cash flows per month did not change as time
progressed throughout the period. –– Revenue of the BBA includes claims expected to occur in a particular
month, although the cash flows took place over two months.
–– The expected claims include reported claims as well as incurred but
not reported claims. Abbreviations used:
–– The actual incurred claims experience was different to expectations. –– UPP – Unearned premium provision
–– For claims incurred within a month, a portion of the claims was –– CSM – Contractual service margin
reported and paid in that month, a portion was reported but remained
unpaid at month-end (settled in the following month), and a portion –– OCR – Outstanding claims reserve (provision)
will only be reported and paid in the following month.
–– IBNR – Incurred but not reported reserve (provision)
–– Premium and commission cash flows occur on day 1 of the quarter.
–– DAC – Deferred acquisition costs
–– Due to the short duration of cash flows, no discounting was applied
for PAA. To be able to compare results, we have also ignored
discounting for the purpose of the BBA.
