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Effect of Discount Rate Selection on Insurance Contract Measurement under IFRS 17

Abstract

Discount rate selection is an important component of insurance contract measurement under IFRS 17 because discount rates are used to determine the present value of future cash flows arising from insurance contracts. The selected rates reflect the time value of money and relevant financial characteristics of the insurance obligations. Differences in discount rate assumptions can therefore produce variations in the measurement of insurance liabilities and influence the financial information reported by insurance companies. This study examines the effect of discount rate selection on insurance contract measurement under IFRS 17. The study will assess how alternative discount rate assumptions influence the present value of future insurance cash flows and the resulting measurement of insurance contract liabilities. It will focus on the relationship between discount rate selection and changes in the estimated value of insurance obligations. The study will consider factors such as discount rate levels, yield curves, timing of future cash flows, contract duration, interest rate movements, liquidity characteristics, expected claims, and other financial assumptions relevant to insurance contracts. Alternative discount rate approaches and assumptions will be examined to determine how changes in the selected rates affect fulfilment cash flows and overall insurance contract measurement. A quantitative research approach will be adopted for the study. Relevant insurance contract, claims, and financial market data will be analysed using present value techniques, actuarial valuation methods, scenario analysis, and sensitivity analysis. Alternative discount rate assumptions will be applied to projected insurance cash flows to determine their effects on measured insurance liabilities and related valuation outcomes under IFRS 17. The study is expected to reveal that discount rate selection may have a significant effect on insurance contract measurement under IFRS 17. Lower discount rates may increase the present value of future insurance cash flows and consequently increase measured liabilities, while higher discount rates may reduce their present value. The findings may also indicate that the effect is more pronounced for contracts with longer durations and cash flows extending further into the future. The study will be useful to actuaries, insurance companies, accountants, financial analysts, auditors, regulators, and other stakeholders involved in IFRS 17 implementation and insurance contract measurement. It may provide useful information for improving discount rate selection, strengthening actuarial valuation practices, enhancing consistency in financial reporting, and supporting better understanding of the sensitivity of insurance liabilities to financial assumptions. The study concludes that discount rate selection is a significant consideration in insurance contract measurement under IFRS 17 because changes in discount rates can materially affect the present value of future cash flows and reported insurance liabilities. It is therefore recommended that insurers apply appropriate discount rate methodologies, use reliable financial market information, document relevant assumptions, and regularly perform sensitivity analysis to assess the effect of changes in discount rates on insurance contract measurement.

Keywords: Discount rate selection, IFRS 17, insurance contract measurement, insurance liabilities, discount rates, present value, fulfilment cash flows, future cash flows, yield curves, interest rates, contract duration, actuarial valuation, financial assumptions, insurance financial reporting, IFRS 17 valuation.