55 NTU Management Review Vol. 31 No. 2 Aug. 2021 The Impact of IFRS 9 and IFRS 17 on the Regulation and Management of the Taiwan Life Insurance Industry: A Preliminary Analysis Linus Fang-Shu Chan, Department of Financial Engineering and Actuarial Mathematics, Soochow University Jin-Lung Peng, Department of Risk Management and Insurance, National ChengChi University Cheng-Hsien Tsai, Department of Risk Management and Insurance, National ChengChi University 1. Motivation The Taiwan Financial Supervisory Commission (FSC) announced two-phased mandatory adoption of (IFRS) in May 2009 and in general public companies are required to prepare IFRS financial statements from 2013 onward. Following the announcement,Taiwan's insurance industry has already implemented IFRS 9 in 2018 and is expected to implement IFRS 17 in 2026. IFRS 9 specifies the classification ofan entity’s financial assets on the basis of two criteria: the contractual cash flow of the instrument and the entity’s business model for managing its financial instruments. An entity can classify an instrument at Amortized Cost (AC) if: 1. contractual cash flows are solely payments of principal and interest and 2. the business model is to hold instruments to collect contractual cash flows (“business model test”). If an instrument fails to meet both criteria, the financial asset should be measured at fair value (FVTPL and FVOCI). IFRS 17 will require insurers to use fair value to measure insurance contract liabilities. Specifically, insurers operating long-term insurance businesses should use the Building Block Approach (BBA) to measure contract liabilities (BBA has renamed as General Measurement Model (GMM)). The GMM model emphasizes the concept of “current estimation” and is divided into four elements: future cash flows, time value, Risk Adjustment (RA) and Contractual Service Margin (CSM). IFRS 9 has already had an impact on Taiwan’s life insurance industry since 2018 while the impact of IFRS 17 will not appear until its scheduled implenmentation in 2026. Before the two standards are applied at the same time, this study expects to help stakeholders understand the potential impact of IFRS 9 and IFRS 17 on insurers through qualitative interviews and quantitative simulation analysis.
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