Page 71 - MC14326 all pages

The South African Insurance Industry Survey 2016 | 67

At 31 March 2021, although the contracts have THE DAY BEFORE
concluded, there are still liabilities remaining on SOMETHING IS A
the statement of financial position for all three BREAK THROUGH
methods. These liabilities represent the claims IT'S A CRAZY IDEA.
reported which have not yet been paid, as well
as the claims incurred prior to 31 March which Peter Diamandis
have not yet been reported. By 30 April 2021,
these liabilities would be zero as all claims
have been reported and settled (as per the
assumption of a one month run-off).

How should this example be applied to
insurance contracts?

Many assumptions are used in this example
to simplify the illustrations, however in real life
cases nuances for each contract may create
additional complexities. When reviewing the
example, insurers should evaluate how their
contracts are different, and what impact this
would have.
Specifically, insurers should consider the timing
of cash flows and the level of prudency within
current insurance contract liabilities.

What should insurers do?

As we move closer towards an issued Standard
on Insurance Contracts, insurers should
understand the differences between their
current accounting basis, and the PAA or BBA.

An understanding of how the PAA and BBA
differ will facilitate in the decision as to which
method to apply. It is time to look forward, and
brace the “unusual” as the application of the
PAA may not result in business as usual as
some insurers are expecting.