Product Classification Workshop Insurance IFRS Seminar December 1, 2016 Michael Lockerman Product Classification workshop Session 15

Significant Insurance Risk? Date Significant Insurance Risk? a) Identify the insured event b) Establish that the insured event affects the insured adversely Scenario 1 c) Identify a scenario in which the insured event occurs d) Test that that scenario has commercial substance e) Determine the net cash between the insurer and the policyholder Scenario 2 f) Identify a scenario in which the insured even does not happen g) Test that that scenario also has commercial substance h) Determine the benefit under that scenario i) Compare (e) and (h) – Consider time value of money j) Establish if (e) is significantly more than (h). Yes No Insurance contract Not an insurance contract

Policyholder still alive when annuity begins IFRS 4 – Insurance Contracts Example: Deferred Annuity – Policyholder can receive a life-contingent annuity at rates guaranteed at inception (IG 2.1.6) Date Policyholder still alive when annuity begins b) Will it adversely affect the insured? Needs money for retirement period Identify the insured event c) PH survives long after the annuity begins, say 95 f) PH dies earlier, say 70 Scenario 1 Scenario 2 g) Commercial substance? Yes d) Commercial substance? Yes e) What is payable? h) What is paid under (f)? Annuity checks until 95 Annuity checks until 70 Annuity checks to age 95 > Annuity checks to 70 i) Compare (e) and (h) Yes j) Establish if (e) is significantly more than (h). Insurance contract

Products to classify under IFRS 5 year return-of-premium (“ROP”) term insurance for a: 10 year-old 80 year-old 10 year endowment with death benefit equal to: the maturity benefit the present value of the maturity benefit based on market rates the present value of the maturity benefit based on rates determined at the inception of the contract Deferred annuity with annuitization rates: Guaranteed at issue Not guaranteed at issue

Questions For each example, follow the “10-step” approach. What do you define as “significant”? Is there any missing information? What information might change the classification?

Thank You