Understanding the

insurance industry in
today’s environment

Presentation by Ruth F. Blasco-Viguilla

13 March 2021

1
Agenda

Insurance at a glance
Industry players and key changes
Accounting, audit and regulatory considerations

2
Insurance at a
glance

3
What is insurance?

Insurance is a means of protection from financial loss. It is a form of risk management

primarily used to hedge against the risk of a contingent, uncertain loss.
What is insurance?

Covered Insured Insurer

loss

Reinsurer

Agent/Broker
5
Basic types of insurance

Life insurance General Reinsurance HMO Pre-need

insurance insurance
A policy or cover Any insurance The practice where A group of medical A type of
where the insurer that is not insurers transfer insurance providers insurance used
promises to pay a determined to be portions of risk that limit coverage to to pay for the
sum of money in life insurance. portfolios to other medical care cost of an
exchange for a parties to reduce the provided through anticipated
premium, upon the likelihood of paying doctors and other event (e.g.
death of an insured a large obligation providers who are memorial plans,
person or after a resulting from an under contract to the educational
set period. insurance claim. HMO. plans)
Common insurance products
─Life insurance products

Term life
● Provides life insurance protection to the insured for a specified period.
● Renewable when policy expires, however, previous rate may no longer be guaranteed
● Premium for this type of insurance plan is usually the lowest.

Whole life
● Covers the whole of the life of the policyholder
● Pays a sum assured to the beneficiary when the insured dies, regardless of when death occurs

Variable universal life

● Provides guaranteed insurance benefit and fund accumulation.
● Gives the investment options (i.e. stocks, bonds, money market funds) as well as the ability to adjust
premiums and death benefit.
Common insurance products
─Non-life insurance products

Marine
● Insurance against loss of or damage to Ship (Hull), Cargo or other insurable interest liability of the
insured for personal injury or damage to the property of another person

Fire
● Covers property against fire, lightning, windstorm, tornado, earthquake, and other allied risks

Engineering
● Covers all kinds of construction, installation of structures, machinery, equipment, systems and
processes against loss, material damage and third party liability

Motor/Car
● Covers damage of car, motor vehicle or persons as a result of an accident
IFRS 4, Insurance contracts

● Issued by IASB which provides guidance for the accounting of insurance contracts by any entity
that issues such contracts (insurer)
● Locally adopted by the FRSC in November 2004 effective on or after 1 January 2005.
● Designed as an interim standard, pending implementation of IFRS 17
● IFRS 4 will be replaced by IFRS 17
● IFRS 17 will apply to annual periods beginning on or after 1 January 2023* (with early adoption
permitted where IFRS 9 is also applied)

On 18 May 2020, IC released CL No. 2020-62 to further defer the implementation of IFRS 17 for life and
non-life insurance industries two years after its effective date,
1 January 2023, as decided by IASB or 1 January 2025

9
IFRS 4, Insurance contracts
IFRS 4 applies to: IFRS 4 excludes:
● Insurance contracts
(including reinsurance
contracts) that an insurer
issues and reinsurance
contracts that it holds.
● Financial instruments that
an insurer issues with a
DPF, regardless of
whether the instruments
transfer insurance risk.
● Assets and liabilities that do not arise from
insurance contracts
● Product warranties
● Employee benefit plans and retirement benefit
obligation
● Contractual rights or obligations that are contingent
on the use of non-financial items
● Financial guarantees within IAS 39 or IFRS 9
● Contingent consideration payable on a business
combination
10
Reinsurance

● A contract of reinsurance is one by ● The transfer of part of the risks that an

which an insurer procures a third
person (typically another insurance
company) to insure him against loss or
liability by reason of such original
insurance. (Sec. 97 of Amended
Insurance Code)
Reinsurance
Insurer
insurer (ceding company) assumes by
way of insurance contract on behalf of
an insured, to a reinsurer (assuming
company), who has no direct
contractual relationship with the
insured.
Retrocession
Reinsurer Retrocessionaire

PH₱50m PH₱49m Insurance/ PH₱20m Insurance/

Insurance Company
Insured Reinsurance Companies Reinsurance Companies

PH₱1m retention PH₱29m retention

11
Reinsurance
Basic terminologies

● Cede - to give or transfer part of a risk

● Cession - the amount or percentage of a risk that is ceded under the terms of a
proportional insurance agreement.
● Ceding Company/Reinsured/Cedant - the original insurance company that transfers
part of the risk it has originally accepted.
● Reinsurer - the company that accepts the reinsurance offer or transfer of risk from the
ceding company.
● Retrocedant - the reinsurer that has retroceded insurance risks under a retrocession
agreement.
● Retrocessionaire - the company that accepts the reinsurance offer or transfer of risk
from the reinsurer.
● Retention - the share of risk or the amount of liability the ceding company retains for
its own account on the original risk.
12
Reinsurance
Types of reinsurance

By type of contracts covered

Facultative reinsurance
● Individual risk review (only covers one
specific policy)
● Right to accept or reject each risk on
its own merit
● Can reinsure a risk that is otherwise
excluded from a treaty
Treaty reinsurance
● One treaty contract encompasses all
subject risks
● No individual risk acceptance by the
reinsurer
● Less costly than “per risk” reinsurance

13
Reinsurance
Types of reinsurance
By coverage
Proportional reinsurance - shares a set
proportion of claims and premiums
● Quota share - pro rata reinsurance
whereby the ceding company is
indemnified for a fixed percent.
● Surplus - pro rata reinsurance treaty in
which the ceding company determines
the maximum amount that it can
retain for each risk in the portfolio
defined as “a line”
Non-proportional - reinsurer is involved
only when retention limit is breached
● XOL - reinsurance that indemnifies the
ceding company for the portion of a
loss that exceeds its own retention.
● Stop loss - reinsurance that is applied
after other types of reinsurance it may
have in excess of either a specified
loss ratio or a predetermined amount.
14
Industry players
and key changes

15
Industry performance for 2020
Life and non-life companies, and mutual benefits associations from 1 January to
30 September 2020 (in million Pesos)

Total premiums Total benefits payment/losses incurred Net income

PH₱216,506 PH₱69,768 PH₱28,618

Decreased by 3.76% versus
PH₱224,971 total premiums for the
same period in 2019.
Breakdown of premiums earned per
insurance sector:
● PH₱173,686 from life insurance
companies, of which PH₱33,209
are new business annual premium
equivalent
● PH₱35,462 from non-life
insurance companies
● PH₱7,358 from mutual benefits
association
Decreased by 10.70% versus
P78,126 total benefits for the same
period in 2019.
Breakdown of benefits
payments/losses incurred per
insurance sector:
● PH₱49,398 from life insurance
companies
● PH₱14,689 from non life
insurance companies
● PH₱5,141 from mutual benefits
association
Decreased by 9.85% versus
31,743.0 net income for the same
period in 2019.
Breakdown of net income per
insurance sector:
● PH₱21,438 from life insurance
companies
● PH₱4,839 from non life insurance
companies
● PH₱2,341 from mutual benefits
association
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Industry rankings
Life insurance companies, based on submitted annual statements in 2019
Assets
1. Philippine American Life & Gen. Ins. Co.
2. Sun Life of Canada (Philippines), Inc.
3. Insular Life Assurance Company, Limited
4. Philippine Axa Life Insurance Corporation
5. Manufacturers Life Insurance Company (Phils.),
Inc.
6. BPI-Philam Life Assurance Corporation
7. PRU Life Insurance Corporation of U.K.
8. BDO Life Assurance Company, Inc.
9. Sun Life Grepa Financial, Inc.
10. Manulife Chinabank Life Assurance Corporation
11. Allianz PNB Life Insurance, Inc.
12. United Coconut Planters Life Assurance
Corporation
13. FWD Life Insurance Corporation
14. Pioneer Life, Inc.
15. First Life Financial Company, Inc.
Invested assets
1. Philippine American Life & Gen. Ins. Co.
2. Sun Life of Canada (Philippines), Inc.
3. PRU Life Insurance Corporation of U.K.
4. Insular Life Assurance Company, Limited
5. Philippine Axa Life Insurance Corporation
6. BPI-Philam Life Assurance Corporation
7. Manufacturers Life Insurance Company (Phils.),
Inc.
8. BDO Life Assurance Company, Inc.
9. Sun Life GREPA Financial, Inc.
10. Manulife Chinabank Life Assurance Corporation
11. Allianz PNB Life Insurance, Inc.
12. United Coconut Planters Life Assurance
Corporation
13. FWD Life Insurance Corporation
14. Pioneer Life, Inc.
15. First Life Financial Company, Inc.
Networth
1. Philippine American Life & Gen. Ins. Co.
2. Sun Life of Canada (Philippines), Inc.
3. Insular Life Assurance Company, Limited, The
4. Manufacturers Life Insurance Company (Phils.),
Inc.
5. BDO Life Assurance Company, Inc.
6. Philippine Axa Life Insurance Corporation
7. BPI-Philam Life Assurance Corporation
8. United Coconut Planters Life Assurance
Corporation
9. PRU Life Insurance Corporation of U.K.
10. Sun Life GREPA Financial, Inc.
11. FWD Life Insurance Corporation
12. Pioneer Life, Inc.
13. Manulife Chinabank Life Assurance Corporation
14. Allianz PNB Life Insurance, Inc.
15. Beneficial Life Insurance Company, Inc.
17
Industry rankings
Life insurance companies, based on submitted annual statements in 2019
Premium income
1. Sun Life of Canada (Philippines), Inc.
2. PRU Life Insurance Corporation of U.K.
3. Philippine Axa Life Insurance Corporation
4. Manufacturers Life Insurance Company (Phils.),
Inc.
5. BPI-Philam Life Assurance Corporation
6. Philippine American Life & Gen. Ins. Co.
7. BDO Life Assurance Company, Inc.
8. Insular Life Assurance Company, Limited
9. FWD Life Insurance Corporation
10. Allianz PNB Life Insurance, Inc.
11. United Coconut Planters Life Assurance
Corporation
12. Manulife Chinabank Life Assurance
Corporation
13. Sun Life GREPA Financial, Inc.
14. Etiqa Life and General Assurance Phils, Inc.
15. Pioneer Life, Inc.
New Business Annual Premium Equivalent
1. Sun Life of Canada (Philippines), Inc.
2. PRU Life Insurance Corporation of U.K.
3. Philippine Axa Life Insurance Corporation
4. Manufacturers Life Insurance Co.(Phils.), Inc.
5. BPI-Philam Life Assurance Corporation
6. BDO Life Assurance Company, Inc.
7. Philippine American Life & Gen. Ins. Co.
8. FWD Life Insurance Corporation
9. United Coconut Planters Life Assurance Corp.
10. Insular Life Assurance Company, Limited
11. Allianz PNB Life Insurance, Inc.
12. Sun Life GREPA Financial, Inc.
13. Pioneer Life, Inc.
14. Manulife Chinabank Life Assurance
Corporation
15. East West Ageas Life Insurance Corporation
Net income
1. Sun Life of Canada (Philippines), Inc.
2. Philippine American Life & Gen. Ins. Co.
3. PRU Life Insurance Corporation of U.K.
4. Philippine Axa Life Insurance Corporation
5. Insular Life Assurance Company, Limited
6. Manufacturers Life Insurance Company (Phils.),
Inc.
7. BDO Life Assurance Company, Inc.
8. BPI-Philam Life Assurance Corporation
9. Sun Life GREPA Financial, Inc.
10. United Coconut Planters Life Assurance
Corporation
11. Manulife Chinabank Life Assurance Corporation
12. FWD Life Insurance Corporation
13. Pioneer Life, Inc.
14. CISP Life and General Insurance
15. Etiqa Life and General Assurance Phils, Inc.
18
Industry rankings
Non-life insurance companies, based on submitted annual statements in 2019
Assets
1. Pioneer Insurance & Surety Corp.
2. Malayan Insurance Company, Inc.
3. Prudential Guarantee & Assurance, Inc.
4. BPI/MS Insurance Corp.
5. Charter Pinq An Insurance Corp.
6. PNB General Insurers Company, Inc.
7. FPG Insurance Co., Inc.
8. AIG Philippines Insurance Inc.
9. Standard Insurance Company , Inc.
10. UCPB General Insurance Company, Inc.
11. MAA General Assurance Phils., Inc.
12. Mapfre Insular Insurance Corp.
13. PGA Sompo Insurance Coro.
14. Paramount Life & General Insurance Corp.
15. Starr International Insurance Philippines Branch
Admitted Assets
1. Pioneer Insurance & Surety Corp.
2. Malayan Insurance Company, Inc.
3. Charter Pinq An Insurance Corp.
4. BPI/MS Insurance Corp.
5. Prudential Guarantee & Assurance, Inc.
6. Philippines First Insurance Company, Inc.
7. AIG Philippines Insurance Inc.
8. MAA General Assurance Phils., Inc.
9. FPG Insurance Co., Inc.
10. Standard Insurance Company, Inc.
11. PNB General Insurers Company, Inc.
12. Cibeles Insurance Corp.
13. Card Pioneer Microinsurance, Inc.
14. UCPB General Insurance Company, Inc.
15. Commonwealth Insurance Company
Net worth
1. Pioneer Insurance & Surety Corp.
2. Malayan Insurance Company, Inc.
3. BPI/MS Insurance Corp.
4. Philippines First Insurance Company, Inc.
5. Standard Insurance Company, Inc.
6. Prudential Guarantee & Assurance, Inc.
7. AIG Philippines Insurance Inc.
8. Cibeles Insurance Corp.
9. Stronghold Insurance Company, Inc .
10. Alliedbankers Insurance Corp.
11. Sterling Insurance Company, Inc.
12. Pacific Cross Insurance, Inc.
13. Charter Ping An Insurance Corp.
14. Card Pioneer Microinsurance, Inc.
15. Commonwealth Insurance Company
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Industry rankings
Non-life insurance companies, based on submitted annual statements in 2019
Gross Premiums Written
1. Malayan Insurance Company, Inc.
2. Prudential Guarantee & Assurance, Inc.
3. Pioneer Insurance & Surety Corp.
4. BPI/MS Insurance Corp.
5. Charter Ping An Insurance Corp.
6. FPG Insurance Co., Inc.
7. Pacific Cross Insurance, Inc.
8. Standard Insurance Company, Inc.
9. UCPB General Insurance Company, Inc.
10. PNB General Insurers Company, Inc.
11. Commonwealth Insurance Company
12. MAA General Assurance Phils., Inc.
13. AIG Philippines Insurance Inc.
14. PGA Sompo Insurance Corp.
15. Mercantile Insurance Company, Inc.
Net Premiums Written
1. Prudential Guarantee & Assurance, Inc.
2. Pacific Cross Insurance, Inc.
3. Malayan Insurance Company, Inc.
4. Charter Ping An Insurance Corp.
5. Pioneer Insurance & Surety Corp.
6. BPI/MS Insurance Corp.
7. FPG Insurance Co., Inc.
8. Commonwealth Insurance Company
9. UCPB General Insurance Company, Inc .
10. Standard Insurance Company, Inc.
11. Mercantile Insurance Company, Inc.
12. MAA General Assurance Phils., Inc.
13. Philiooine British Assurance Company, Inc.
14. Stronghold Insurance Company, Inc.
15. Insurance Company of North America
Net income
1. Pioneer Insurance & Surety Corp.
2. BPI/MS Insurance Corp.
3. Corporate Guarantee & Insurance Company, Inc
.
4. Card Pioneer Microinsurance, Inc.
5. Malayan Insurance Company, Inc.
6. Prudential Guarantee & Assurance , Inc.
7. Pacific Cross Insurance, Inc.
8. Western Guaranty Corp.
9. Alpha Insurance & Surety Company, Inc.
10. Alliedbankers Insurance Corp.
11. Cibeles Insurance Corp.
12. Commonwealth Insurance Company
13. PNB General Insurers Company, Inc.
14. AA Guaranty Assurance Corp. Inc.
15. UCPB General Insurance Company, Inc.
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General industry outlook

Steadily expanding over time Accessibility: Still a challenge

The Philippine insurance industry remains upbeat in recent
years, going hand in hand with the country’s evolving
economy in spite of the coronavirus pandemic. With all
three sectors - life, nonlife and MBAs, posting increases in
the third quarter of 2020, we look into the factors that
contributed to this: improvements in consumer awareness,
Filipinos being more open to investing and insurance
companies adapting and creating products that tailor-fit
specific needs.
Despite the promising performance of the industry,
insurance penetration remains relatively low. Insurance
penetration refers to the share of the insurance industry to
the national economy. In fact, in the same comparative
period, insurance penetration dipped to 1.69%.
Insurance

3% 1.69%
penetration
Q3, 2020 total premiums for Q3, Q3 2019
decrease of life, nonlife and 2020 and
MBAs based on unaudited Q3 2019
quarterly reports submitted based on
to IC. IC.

21
Where are we headed? E-commerce platform
Top e-commerce platform
Lazada, Shopee and Zalora,
top 3 e-commerce platforms,
have a combined monthly traffic
Population of of 40m
108m , insurance Sunlife, FwD, InLife and
Generali have partnered with
penetration is only
Lazada
1.7% of GDP Social media leads
Facebook followers
About 53% of FB page can be an avenue for
market leads, product offering
total health care
and financial literacy campaigns.
spend are out-of-
AZPNB (3.7m), Manulife (0.81m)
pocket
and Sun Life (0.79m) as the top
three with the most number of
followers among life insurance
companies
PwC
Report to the Audit Committee on the Results of Interim Audit
Alternative channels
Top e-payment platform
GCash and PayMaya have
a combined 40m users with
80,000 partner merchants
Singlife and Sun Life
partnered with GCash
Insurtech
Digital life insurance: A
success thus far
On 14 June 2020, IC issued
CL 2020-73 on the adoption of
a regulatory sandbox
framework for InsurTech
Sun Life, Pru Life are spending
up to 100% of IT budgets on
DevOps in 3-5 years. Singlife
entered the market with a fully
digital model
COVID-19 and the insurance industry
Private players turn towards micro-
Based on the results of the 2nd survey conducted by insurance
IC assessing the impact of COVID-19 to the
insurance sector, IC reported that payouts jumped According to a survey of 300 Filipino
from PH₱326.95m recorded in the first survey insurance customers in May, carried out by
conducted from 16 April to 8 May 2020 to insurance company Manulife, 77% of
PH₱1.98bn in September 2020. respondents said they intended to purchase
Source: BusinessWorld Online
additional insurance within the next 18
Life insurance sector (24 players) months–above the regional average of 62%.
Source: Oxford business group
2020 revised forecast
19,337 Gross premiums written (GPW) Q3
20% COVID-19 related claims recorded for life forecast
insurance entities valued at PH₱739.8m
Expected life premiums
decline for 2020 ▪ Average of 806 claims transactions 9.7%
▪ Initial industry projection (PH₱30.8m) Average forecasted growth for 2021-
of PH₱274bn was ▪ 84% of which (16,164 claims) has been paid 2024
reduced to PH₱219bn - PH₱708.5m based from the policy (i.e. ▪ 6.4% forecasted decline in 2020
due to COVID-19 related contractual obligation) (from 2019)
disruptions to the - PH₱31.3m was paid ex-gratia (i.e. payments ▪ 7.2% expected growth in 2021;
economy made outside the terms of the policy) 10.5% (average) through 2022-
2024
Accounting, audit
and regulatory
considerations
Key audit considerations
Key risk area - Underwriting cycle

Risk Assertion(s) Audit response

New products launched are not Existence/ Occurrence Test of controls:
approved by Insurance Commission Accuracy - Independent testing on the validity of new
prior to launching (Revenue Rights & Obligation products
Recognition) Valuation
Test of details:
- Inspection of IC approval of new products
launched during the year.
Risk Assertion(s) Audit response
Restricted access over the Underwriting Completeness Test of controls:
Data Maintenance Accuracy - Consideration of IT General Controls over the
Cut-off system 25

Existence/
Occurrence
Presentation & Disclosure
Valuation
Key audit considerations
Key risk area - Underwriting

Risk Assertion(s) Audit response

Policy acceptance and Issuance Existence / Occurrence Test of controls:
- Underwriters perform assessment as to Rights & Obligations - Consideration of IT General Controls over the system
the validity of cases and approves based
on authority matrix
Risk. Assertion(s) Audit response
Segregation of duties over the underwriting Completeness Test of controls:
process particularly encoding of policy Accuracy - Inspection of organizational chart and observation of
applications, underwriting approval, and Cut-off the process performed
quality control / policy checking Existence / Occurrence
Presentation & Disclosure
Valuation 26
Key audit considerations
Key risk area - Premiums

Risk Assertion Responses

Premiums, commissions, and revenue
and expense amounts recorded may
not relate to policies issued or in force
during the period.
Existence Test of controls
• Test controls over policy issuance and recording
Test of details
• Inspection of signed application and underwriting
approval.
• Validation of policy data to master file.
• Reconciliation of premiums and cash receipts.

Premiums written may not include Completeness and Test of controls

premiums from all policies issued and Existence • Test controls over policy
27
writing and issuances.
are not accurately compiled.
Test of details
• Full-false testing.
Key audit considerations
Key risk area - Premiums

Risk Assertion Responses

Insurance products may not be properly Completeness, Accuracy, Test of controls
classified (Life insurance). and Existence • Test controls over product creation and
classification.

Test of details
• Review and assessment of management’s
product classification assessment.
• Assessment of the appropriateness of accounting
treatment adopted.

Premium revenues and unearned Valuation Test of details 28

premium reserve (non-life insurance) • Understanding of revenue recognition methods
may not be recorded properly. used.
Insurance receivables may not be • Subsequent receipts testing.
collectible. • Assessment of adequacy of allowance set-up.
• Reliance on actuarial valuation report.
Key audit considerations
Key risk area - Claims and benefits

Risk Assertion(s) Audit response

Claims recorded may not relate to the Existence/ Occurrence. Test of controls:
transaction during the period and may not be Accuracy - Validate claims notification and verification controls
accurately recorded. (ex. System checks, limits and authorization).
- Review of claim forms

Claims outstanding (payable) may not be Test of details:

accurate or contested claims have not been
removed from the register.
Risk
The claims register may not include all
claims paid/unpaid as of balance sheet date
and may not be recorded in the appropriate
period.
- Inspection and validation of documents (insurance
policy, police reports, adjusters reports, proof of
payments, quotations, reinsurance agreements, etc.).
Assertion(s)
Completeness, Test of controls:
29
Cut-off - Validate claims notification controls.
Test of details:
- Perform floor to tag procedures (Accept reject)
- Test claims recorded before and after year-end.
- Test paid and unpaid claims.
- Test claims closed without payment.
Key audit considerations
Key risk area - Claims and benefits

Risk Assertion(s) Audit response

Reserves and related balances under Rights and obligations Test of controls:
reinsurance assumed may not be properly - Validate controls over reinsurance transactions (ex.
recorded. Review of reinsurance binders, placement slips, etc.).

Test of details:
- Inspection reinsurance agreements.
- Evaluate the IBNR reserves.

Reinsurance recoverable on paid and unpaid Rights and obligations Test of controls:
losses may not be properly recorded. - Validate controls over claims settlement and
recording. 30

Test of details:
- Confirm balances with reinsurers.
- Evaluate loss reserves.
Key audit considerations
Key risk area - Claims and benefits

Risk Assertion(s) Audit response

Estimates of loss reserves may not be Valuation/ Allocation Test of controls:
reasonable. - Verify review and approval of loss reserves
established

Test of details:
- Validation of assumptions used by the Actuary.
- Test reliability of data (Claims development per line,
losses paid, loss ratios, etc.)
- Understand and evaluate reasonableness of the
reserve estimation process.
- Perform look back testing (estimates established vs
31
actual results in previous years).
Key audit considerations
ISA 540 (Revised) “Auditing Accounting Estimates and Related Disclosures”

ISA 540 (Revised) is the enhanced standard for auditing accounting estimates and becomes effective for periods commencing on or
after 15 December 2019. The revised standard will, in many cases, have a significant impact on the robustness of our risk
assessment procedures and the resulting extent of audit work to perform. The following items below summarize the areas of change
expected to have the most significant impact when addressing the requirements of the revised standard.

Risk assessment Internal control Audit response Disclosure Completion

Expanded understanding
requirements are likely to
mean more time spent for team
meeting with management,
making inquiries of personnel
and performing walkthroughs
of business processes. The
focus on inherent risk factors
(characteristics of an estimate
that drive risks of misstatement)
is likely to mean more time
spent in performing risk
assessment procedures and
may result in additional
identified audit risks or changes
in the audit strategy to respond
to those risks.
The standard emphasises the
importance of the auditor’s
decisions about whether to test
the operating effectiveness
of controls, which, together
with the increased level of
understanding required by the
standard, may result in
changes in our controls testing
strategy.
ISA 540 (Revised) introduces
objectives-based
requirements for testing the
method, significant
assumptions and data used
in developing an accounting
estimate. While these
requirements do not apply for
those estimates where we
determine we can obtain
sufficient evidence from testing
events and transactions up to
the date of our report, for other
estimates the nature, timing
and extent of audit testing and
documentation necessary may
increase, including where the
development of auditor’s own
point estimate or range.
ISA 540 (Revised) places more
emphasis on auditing financial
statements disclosures, in
particular those relating to
estimation uncertainty,
requiring that they are subject
to the same risk assessment
and audit testing as the related
accounting estimates
themselves. This is likely to
mean earlier evaluation of
financial statements
disclosures and may require
more audit work to assess
whether disclosures related
to accounting estimates are
appropriate.
The revised standard reinforces
the existing ISA 260
requirements around matters to
be communicated with those
charged with governance,
building in the need to consider
inherent risk factors in
determining what needs to be
communicated, and also
includes a new appendix of
additional matters that may be
communicated to those
charged with governance.
Key audit considerations
Key risk area - Reserves

Inforce data Assumptions Actuarial model and calculations Actuarial experts

Completeness and Reasonableness of management estimates to Reasonableness of actuarial Competence of
accuracy of inforce arrive at assumptions calculation auditor and
data used
● Review Actual-to-experience analysis of ● Recalculation of reserves management expert
● Test of controls
● Full false testing experience studies balances by auditor’s experts ● Compliance
from policy ● Sensitivity analysis (acturial scientists) with credential
administration ● Industry benchmarking Accuracy of assumption inputs in the requirements
system to ● Reasonableness of compliance with IC calculations/reserves valuation by Actuarial
reserve Completeness and accuracy of information system Society of the
database used in deriving actuarial assumptions ● Agree inputs in the system to Philippines
● Test system ● Test of controls approved assumptions ● Regular
interface ● Test interface/full false testing from ITGC Testing of the reserve meetings with
● Inspect policy
policy administration system to valuation system the experts
contracts
experience study data
 Compliance with IC requirements

Life Insurance Non-life Insurance

● Expected Loss Ratio Approach
● Traditional - GPV (LRA)
● VUL - MV of underlying assets plus unearned ● Incurred Chain Ladder/Development
Valuation method COI Method (IDA)
● Policy with a term of one year or less - Unearned ● Incurred Bornhuetter-Ferguson
Premium Method (BFIA)
● CHE - Best estimate of net claims
● Discount rates - Risk-free discount rate
liabilities
Valuation assumptions ● MfAD - Minimum of 10%
● MFAD - Minimum of 100%
● Other assumptions - Best estimate
● Other assumptions - Best estimate
RBC requirement
● RBC Ratio - minimum of 100% ● RBC Ratio - minimum of 100%
(CL No. 2016-68)

Capitalization ● 2016 - PH₱550m ● 2016 - PH₱550m

requirement ● 2019 - PH₱900m ● 2019 - PH₱900m
(CL 2015-02-A) ● 2022 - PH₱1.3bn ● 2022 - PH₱1.3bn

PwC
Report to the Audit Committee on the Results of Interim Audit
Key IC regulatory updates
Circular No. Title / Details

2020-46 Guidelines governing initiatives of life insurance companies to sell life insurance to the public during ECQ due to COVID-19 pandemic
Until December 31, 2020, all life insurance companies are allowed to launch initiatives that aim to sell their existing life insurance policies by
2020-55 utilizing but not limited to teleconferencing, video conferencing or audio conferencing without prior approval from IC. The insurance company is
required to submit a letter signed by President & mechanics of the initiative

2020-60 Regulatory Relief on Networth Requirements and Guidelines on the Implementation of Amended Risk-based Capital (RBC2)
Framework for Calendar Year 2020
All insurance companies already compliant with the networth requirements as at
31 December 2019 before the declaration of ECQ and adversely affected by the crisis are:
a. relieved from the quarterly compliance of the networth requirements of P900,000,000; and,
b. required to comply with the CL 2016-68 (Amended Risk-based Capital Framework) and revised regulatory intervention (RBC ratio).

2020-62 Deferral of IFRS 17 Implementation (Amendment of Section 1 of CL No. 2018-69)

IC deferred the implementation of IFRS 17 for life and non-life insurance industries by two (2) years after its effective date as decided by the
IASB (or on or after 1 January 2025).

2020-95 Guidelines in the interpretation and application of section 4 (uu) of republic act no. 11494, otherwise known as the “Bayanihan to
recover as one act”
Insurance companies and mutual benefit associations (MBAs) providing life insurance policies and pre-need companies are directed to
implement a one-time sixty (60)-day grace period for the payment of all life insurance premiums or pre-need installments falling due
between the date of effectivity of Republic Act No. 11494 until the prescribed coverage period of 31 December 2020.

2020-109 Guidelines on the institutionalization of “remote selling initiatives” as permanent mode of selling insurance products
Until December 31, 2020, all insurance companies are given the privilege to conduct remote selling regardless of the premium payable of the
policy sold as long as the insured persons and/or risks situated with the Philippines, AML compliance is evident, and quality of sales process
and validation should be observed. Remote selling shall be subject to same rules and regulations as applicable to “face-to-face” selling.
Thank you.

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