IFRS 4 PHASE II Global overview Baltic actuarial days Latvian Actuarial Association – ACTUAM S.à.r.l Date: 23/09/2016 – Time: 02:30 pm – Location : RIGA IFRS 4 PHASE II Global overview ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 This Presentation can be only forwarded for the attendants of the seminar and cannot be used or diffused anywhere else. IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

Table of contents 1. Why IFRS 4 PHASE II? 2. Global Impacts with IFRS 4 PHASE II 3. Technical Impacts with IFRS 4 PHASE II 4. Solvency II with IFRS 4 PHASE II 5. Illustrative BS under IFRS 4 PHASE II 6. Practical example (illustration) on impacts for life and non-life insurers 7. Implementation issues (grey areas to discuss) ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

Table of contents 1. Why IFRS 4 PHASE II? 2. Global Impacts with IFRS 4 PHASE II 3. Technical Impacts with IFRS 4 PHASE II 4. Solvency II with IFRS 4 PHASE II 5. Illustrative BS under IFRS 4 PHASE II 6. Practical example (illustration) on impacts for life and non-life insurers 7. Implementation issues (grey areas to discuss) 1. Why IFRS 4 PHASE II? ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

Expected Effective Date 3 years from the publication 1. Why IFRS4 PHASE II? Regarding the IASB* IFRS 4 PHASE II is expected to transform the insurance industry as it is set to create a new financial language to help insurers and inform investors on the performance of the insurance industry. * IASB: International Accounting Standards Board Timetable: 2016 2017-2018 2019-2021 ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 Issuing IFRS 4 PHASE II (2nd half of the year) Expected Effective Date 3 years from the publication Implementation Phase 2018 IFRS 9 2021 IFRS 4/2 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

Table of contents Why IFRS 4 PHASE II? 3. Technical Impacts with IFRS 4 PHASE II 4. Solvency II with IFRS 4 PHASE II 5. Illustrative BS under IFRS 4 PHASE II 6. Practical example (illustration) on impacts for life and non-life insurers 7. Implementation issues (grey areas to discuss) 2. Global Impacts with IFRS 4 PHASE II ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

2. Global impacts with IFRS 4 PHASE II Capability of analysts about comparing insurance companies What constitues revenue and profit in an insurance company Introduces unprecedented levels of transparency on profit and risk levels embedded in insurance liabilities Operating model is bound to change including new processes and systems for the insurers Transforms how insurers account for income and liabilities from insurance contracts they sell It creates a higher transparency (new standard) with which to inform investors about the performance of the insurance industry ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

Table of contents 1. Why IFRS 4 PHASE II? 2. Global Impacts with IFRS 4 PHASE II 3. Technical Impacts with IFRS 4 PHASE II 4. Solvency II with IFRS 4 PHASE II 5. Illustrative BS under IFRS 4 PHASE II 6. Practical example (illustration) on impacts for life and non-life insurers 7. Implementation issues (grey areas to discuss) 3. Technical Impacts with IFRS 4 PHASE II ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

3. Technical impacts with IFRS 4 PHASE II (1/6) Best Estimate(BE) 1 2 Expected future cash flows:estimate of the current value of expected future cash flows (premiums, claims and benefits…) Discounted at risk free rate:Future cash flows adjusted to take into account the time value of money ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

3. Technical impacts with IFRS 4 PHASE II (2/6) Margins 1 2 Risk Adjustment Margin:adjustment to reflect uncertainty in the amount and timing of the future cash flows Contractual Service Margin: expected contract profit which eliminates any gain at inception of the contract ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

3. Technical impacts with IFRS 4 PHASE II (3/6) Best Estimate (BE): Cash flow projections (Discounted at Risk Free Rate) Risk Margin(RM): Will be adjusted to reflect the uncertainty in the projected cash flows e.g. Expected profit at the t0 of the contract (t0=creation date) Consistency with the other reports (ex: IFRS 15): Impacts (ex: on P&L) Taking into consideration the performance obligations For the UPR (unearned premium reserve) compatibility as investment components related to the premiums and claims no longer flow through P&L Changes in estimates of future cash flows that don’t adjust the CSM** (claim reserves, onerous contracts) will be included in P&L Actual claims and service expenses (ex investment components) included in P&L All changes of insurance contract liability flow through P&L Interest expense (locked-in yield curve w/non-par business, unless FVPL*) will be included in P&L * fair value though profit or loss and as in IFRS9 the underlying items are measured at FVPL ** Contractual Service Margin (to defer profits under IFRS4/P2) ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

3. Technical impacts with IFRS 4 PHASE II (4/6) Insurers cannot use “premium differentiation” to reflect differences in expected claims costs due to the : Regulatory constraints on pricing ( new MT*: unisex tariffs) Reputational: not taking into consideration few ethical considerations in pricing (fear of reputation e.g.: level of education etc.) Cost of price differentiation (e.g.: health checks) CSM will vary depending on unit of account as the cash flows capture the differences in expected claims costs. IASB allows the aggregation of contracts for the measurement of CSM only if a group of contracts is accounted for as “VFA(**)” and the “mutualisation (***)” effect exists among the contracts cash flows from contracts(****) are deemed to be closely interrelated in the following situations: For Par contracts: where the dividends to policyholders are calculated based on an entity’s net earnings, losses from A group of par contracts have an impact on B group’s dividend cash flows. For Renewal premium contracts: where the renewal premium is calculated based on costs of claims made by whole policyholders at the expiration, losses from A group of policyholders have impact on B group’s renewal rates. For ISP(*****) where the accretion rate is based on an entity’s portfolio earning rates, investment losses from A group have an impact on B group’s accretion rate. Insurance liabilities are measured on a cost basis, which means they will significantly increase at transition due to the future profits (CSM) from in-force contracts, which results in a decrease in net assets. (*) Mortality Tables (**) Variable Fee Approach (***) Mutualisation of the risks in the same pool for instance (****)all the contracts are managed in a single pool (e.g.: general fund) (*****) Insurance proposal ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

3. Technical impacts with IFRS 4 PHASE II (5/6) Illustrative example: This example will illustrate the changes in the measurement basis of insurance liabilities from cost to fair value (under IFRS 4 PHASE II) ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

3. Technical impacts with IFRS 4 PHASE II (6/6) Illustrative example: What can we see in the illustrative example of the previous slide? We can see clearly, an insurer A, which measures its liabilities on a cost basis, will be double penalized due to the adoption of IFRS4 Phase II. ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

Table of contents 1. Why IFRS 4 PHASE II? 2. Global Impacts with IFRS 4 PHASE II 3. Technical Impacts with IFRS 4 PHASE II 4. Solvency II with IFRS 4 PHASE II 5. Illustrative BS under IFRS 4 PHASE II 6. Practical example (illustration) on impacts for life and non-life insurers 7. Implementation issues (grey areas to discuss) 4. Solvency II with IFRS 4 PHASE II ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

4. Solvency II with IFRS 4 PHASE II (1/4) SII 01/01/2016 2018? 2021? ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 (*) Classification and valuation of the financial instruments which will replace the actual IAS 39 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

4. Solvency II with IFRS 4 PHASE II (2/4) RAM (*) Discounted Reserves CSM Calculation/ delivery: especially on a quarterly basis Increase due to new contracts being written during quarter vs decrease due to amortization of in-force business Will increase the P&L due to its nature of embedded profits Calculation/ delivery: especially on a quarterly basis Timing constraints for SCR calculation Reporting deadline for IFRS: Y/E for March / April (N+1) IFRS disclosure requirements and consistency with SCR Quarterly calculation needed Calculation/ delivery: especially on a quarterly basis Explanation of the impacts on the discounting regarding the non discounting BE reserves Consideration of the yield curve per currency Historical data (rates) needed as the basis for P&L and current rates for the B&S Impact of any change in discount rates represented in Other(**) Comprehensive Income (OCI) ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 (*) Risk Adjusted Margin (** )Change in Equity (Net Assets) during a period resulting from transaction and other events mainly driven by the valuation method ( revaluation rather than cost model) especially for the long live assets IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

4. Solvency II with IFRS 4 PHASE II (3/4) RAM Discounted Reserves CSM The RM is basically based on the CoC (Cost of Capital) MVM* =CoC ∑i=1m E(SCR(i)]/[1+r0(i+1)]i+1 Assumptions should be taken into consideration such as: Use modified duration of the Liabilities (RDR) Amortization assumptions (simple way) (CSM) Use a benchmark for quarterly calculation In Solvency II and Embedded Value calculation, CSM is regarded as a component of net assets in order to reflect the nature of insurance business. Therefore, in order to provide the economic substance of insurers to stakeholders, insurers should rely on Solvency II and EV reporting. * Market Value Margin ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

4. Solvency II with IFRS 4 PHASE II (4/4) B&S SII B&S IFRS4/P2 Own Funds Free Assets Goodwill (GW) Equities SCR MCR TAX Assets Tangible Assets & others (IFRS9) TAX (IAS12) BE(L)+ RM =TP Residual Margin + RM+ BE(L) ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

Table of contents 1. Why IFRS 4 PHASE II? 2. Global Impacts with IFRS 4 PHASE II 3. Technical Impacts with IFRS 4 PHASE II 4. Solvency II with IFRS 4 PHASE II 5. Illustrative BS with IFRS 4 PHASE II 6. Practical example (illustration) on impacts for life and non-life insurers 7. Implementation issues (grey areas to discuss) 5. Illustrative BS with IFRS 4 PHASE II ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

5. Illustrative BS under IFRS 4 PHASE II (1/3) Discounted impact MVM CSM IFRS 4 Phase II UPR 12.093,75 - 843,75 461,25 1.100,00 Claims Res 10.317,50 - 717,50 Total 22.411,25   NPV (Prem Res) 11.250,00 NPV (Claims Res) 9.600,00 TOTAL This example is just for illustration purpose therefore the calculation are simplified : MVM (Market Value Margin) calculated using CoC method Only reserve risk considered Reserve risk follows a lognormal distribution taking into consideration as parameter the coefficient of variation of the reserves of each individual contract Risk measure is the VaR at 99.5 % Yield curve for each ccy Premium reserves = 100% ULR * unearned premium ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

5. Illustrative BS under IFRS 4 PHASE II (1/3) If for instance we modify the yield curve and the ULR on the QE* we will have impacts on: A mechanical decrease of the claims reserves A decrease of the MVM A mechanical increase of the CSM due to the way in which we estimate it impact of the yield curve change over the ULR movements Consequences a positive P&L impact when ULRs are reduced (actual situation/ IFRS4 Phase I) IFRS 4 Phase II reserve release will increase the CSM, which can be understood as deferred profits transfer of the surplus reserves to the CSM IFRS 4 Phase II accounting standard is closer to an Embedded Value standard CSM will be a key in the B&S in a way how to manage the impact of the P&L resulting from reserves releases ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 (*) Assumptions should be taken into consideration such as: Use modified duration of the Liab (RDR) Amortization assumptions (simple way) (CSM) Use a benchmark for quarterly calculation IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

5. Illustrative BS under IFRS 4 PHASE II (3/3) Few points to have in mind Complexity of explaining quarterly variations Keep attention on the P&L movements A deep knowledge of each portfolio Data quality Actuaries will be more and more involved ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

Table of contents Why IFRS 4 PHASE II? 2. Global Impacts with IFRS 4 PHASE II 3. Technical Impacts with IFRS 4 PHASE II 4. Solvency II with IFRS 4 PHASE II 5. Illustrative BS with IFRS 4 PHASE II 6. Practical example (illustration) on impacts for life and non-life insurers 7. Implementation issues (grey areas to discuss) 6. Practical example (illustration) on impacts for life and non-life insurers ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

What are the main steps to follow under IFRS 4 PHASE II? 6. Practical example (illustration) on impacts for life and non-life insurers (1/8) LIFE INSURERS NON-LIFE INSURERS What are the main steps to follow under IFRS 4 PHASE II? STEP 1: To determine if their contracts are compliant with the IFRS 4 insurance contract definition Definition: « A contract that transfers a significant risk to the issuying company, by agreeing to compensate the policyholder for adverse effects of a specified uncertain future event » STEP 2: To determine which model to use to mesure their contracts STEP 3: To perform re-measurement of their contracts on subsequent periods STEP 4: To present the results in the financial statements ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 Building Blocks Approach (BBA) (Standard Model of IFRS 4) Variable fee approach (VFA) (For insurance contracts that incorporate participation features) Premium Allocation Approach (PAA) (For shorter duration contracts or longer-term contracts that meet certain criteria*) - the coverage period of the contract at initial recognition is one year or less; OR use of the PAA produces measurements that are a reasonable approximation to those of the BBA IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

ENTITY A main features: IFRS 4 PHASE II Expected Effective Date 6. Practical example (illustration) on impacts for life and non-life insurers (2/8) LIFE INSURERS EXAMPLE 1: ENTITY A main features: provides life insurance coverage (15-years contracts) Start date of coverage period: 01/01/2020 (which is in the « Expected» implementation period of IFRS 4 PHASE II) ILLUSTRATION OF THE STEPS TO FOLLOW UNDER IFRS 4 PHASE 2 STEP 1: Are the contracts of ENTITY A compliant with the IFRS 4 insurance contract definition? Definition: « A contract that transfers a significant risk to the issuying company, (ENTITY A) by agreeing to compensate the policyholder for adverse effects of a specified uncertain future event (life insurance coverage) » 2019-2021 IFRS 4 PHASE II Expected Effective Date ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 ENTITY A has to apply IFRS 4 PHASE II IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

6. Practical example (illustration) on impacts for life and non-life insurers (3/8) EXAMPLE 1 (Continued): 2. STEP 2: Which model is appropriate to be used by ENTITY A to measure its contracts? Building Blocks Approach (BBA) (Standard Model of IFRS 4) Variable fee approach (VFA) (For insurance contracts that incorporate participation features) Premium Allocation Approach (PAA) (For shorter duration contracts or longer-term contracts that meet certain criteria*) Block 1 Future cash flows Block 2 Time value of money ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 Block 4 Contractual service margin Block 3 Risk adjustment IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

Contractual service margin 6. Practical example (illustration) on impacts for life and non-life insurers (4/8) LIFE INSURERS EXAMPLE 1 (Continued): 2. STEP 2: Which model is appropriate to be used by ENTITY A to measure its contracts? Block 1 Future cash flows Block 2 Time value of money Block 4 Contractual service margin BLOCK 1 1 000 000 CASHFLOWS OUT 6 000 000 CASHFLOWS IN (premiums) - 5 000 000 Net Liability Block 3 Risk adjustment ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 Discouting of future cashflows with discount curve IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

Value-at-Risk approach 6. Practical example (illustration) on impacts for life and non-life insurers (5/8) LIFE INSURERS EXAMPLE 1 (Continued): 2. STEP 2: Which model is appropriate to be used by ENTITY A to measure its contracts? Block 1 Future cash flows Block 2 Time value of money Block 4 Contractual service margin Value-at-Risk approach Risk adjustment Block 3 Risk adjustment Probability ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 Other approaches: - TVaR - Cost of Capital E(BE liability) VaR (α) IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

IMPACTS of IFRS 4 PHASE II 6. Practical example (illustration) on impacts for life and non-life insurers (6/8) LIFE INSURERS EXAMPLE 1 (Continued): EXAMPLE 1 (Continued): 3. STEP 3: ENTITY A will re-measure its contracts in subsequent periods (e.g: changing underlying assumptions for 2021 given new information) 4. STEP 4: ENTITY A will present the results in the financial statements (reporting of « Profit and Loss » and « Other Comprehensive Income » which reports the PERFORMANCE of the ENTITY A IMPACTS of IFRS 4 PHASE II S Important on DATA and OPERATIONAL ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 Quality data and breakdown of the contracts over the Building Blocks for the contract’s lifetime are needed Operational implification for the CSM which is a new element (not in Solvency II) New aspects from an accouting basis for which the Entity will have to be familiar with (certains aspects of Solvency II can be used but there are some differences of interpretation between Solvency II and IFRS) - Implementation costs IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

ENTITY B main features: IFRS 4 PHASE II Expected Effective Date 6. Practical example (illustration) on impacts for life and non-life insurers (7/8) NON-LIFE INSURERS EXAMPLE 2: ENTITY B main features: provides property coverage (12-months contracts) Start date of coverage period: 01/01/2020 (which is in the « Expected» implementation period of IFRS 4 PHASE II) ILLUSTRATION OF THE STEPS TO FOLLOW UNDER IFRS 4 PHASE 2 STEP 1: Are the contracts of ENTITY B compliant with the IFRS 4 insurance contract definition? Definition: « A contract that transfers a significant risk to the issuying company, (ENTITY B) by agreeing to compensate the policyholder for adverse effects of a specified uncertain future event (property coverage) » 2019-2021 IFRS 4 PHASE II Expected Effective Date ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 ENTITY B has to apply IFRS 4 PHASE II IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

6. Practical example (illustration) on impacts for life and non-life insurers (7/8) EXAMPLE 2 (Continued): 2. STEP 2: Which model is appropriate to be used by ENTITY B to measure its contracts? Building Blocks Approach (BBA) (Standard Model of IFRS 4) Variable fee approach (VFA) (For insurance contracts that incorporate participation features) Premium Allocation Approach (PAA) (For shorter duration contracts or longer-term contracts that meet certain criteria*) Simplier to apply than the Building Blocks Approach as it requires insurers to forecast or risk-adjust the excepted future claims only if they identify contracts as being potentially onerous It is similar to the « Unearned Premium Reserve » Approach which is applied in current accounting for non-life contracts ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

IMPACTS of IFRS 4 PHASE II 6. Practical example (illustration) on impacts for life and non-life insurers (8/8) NON-LIFE INSURERS EXAMPLE 1 (Continued): EXAMPLE 2 (Continued): 3. STEP 3: ENTITY B will re-measure its contracts in subsequent periods (e.g: changing underlying assumptions for 2021 given new information) 4. STEP 4: ENTITY B will present the results in the financial statements (reporting of « Profit and Loss » and « Other Comprehensive Income » which reports the PERFORMANCE of the ENTITY B IMPACTS of IFRS 4 PHASE II S ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 Data quality and processes Could reduce the implementation costs compared to the use of the Buildings Block Approach Maintain consistency with the Buildings Block Approach The inclusion of Risk Margin generally leads to deferment of profits Premium Allocation Approach is a simplification but further analysis needs to be carried (actuarial analysis may be required) IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

Table of contents Why IFRS 4 PHASE II? 2. Global Impacts with IFRS 4 PHASE II 3. Technical Impacts with IFRS 4 PHASE II 4. Solvency II with IFRS 4 PHASE II 5. Illustrative BS with IFRS 4 PHASE II 6. Practical example (illustration) on impacts for life and non-life insurers 6. Implementation issues (grey areas to discuss) ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 7. Implementation issues (grey areas to discuss) IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

7. Implementation issues (grey areas to discuss) The adoption of IFRS 4 Phase II will take place in parallel with several European reforms of insurance risk-based capital regulations that are anticipated to be based on broadly the same principles offering strategic synergy benefits in terms of financial and solvency reporting Implementation time frame is extensive, the implementation costs material and the activities will impact several dimensions of insurers’ operating models. Unit of Account –i.e. Level of Aggregation into Portfolios? What are directly attributable expenses? How will discount curves be determined? How frequently are discount curves updated? Which simplifications will be made in cash flow projections? Which products will be considered in scope of the Variable Fee approach (VFA)? CSM measured based on Lower unit of account Vs. Higher unit of account which one does properly represent the contracts’ profitability?) Does the definition of “mutualisation” proposed by IASB properly capture the nature of insurance business? How to reflect the economic substance of insurers on the financial statements? ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016

We are happy to answer any question: 8. Questions & Answers We are happy to answer any question: Email address: contact@actuam.com Tel: (+352) 27 91 92 30 Website: www.actuam.com ACTUAM S.à.r.l - Actuarial and Risk Services 66, rue du X Octobre ∙ L-7243 Luxembourg Tel : +352 27 91 92 30 E-mail : contact@actuam.com Site: www.actuam.com ©Copyright ACTUAM 2015 « We are here to help you drive change Together we will shape the future » IFRS 4 PHASE II - ACTUAM 23/09/2016 © Copyright ACTUAM 2016