Hedge Ac­count­ing, IFRS 9 and IFRS 17

In­sur­ers Per­spec­tive

In­tro­duc­tion

In­sti­tu­tional in­vestors man­age wealth on be­half of the share­hold­ers and in­clude var­i­ous types of or­ga­ni­za­tions such as pen­sion funds (de­fined ben­e­fit plans and de­fined con­tri­bu­tion plans), en­dow­ments, sov­er­eign wealth funds, in­sur­ers, and banks. On a global scale, to­tal in­vestable as­sets of the in­sti­tu­tional in­vestors amount to 70 Tril­lion U.S. dol­lars out of which 9 Tril­lion are the net fi­nan­cial as­sets held by banks and in­sur­ance (Berke­laar, Misic and Stimes, 2020). In­sur­ers per­form three func­tions in the econ­omy in­clud­ing risk-bear­ing, risk pool­ing, and fi­nan­cial in­ter­me­di­a­tion. First, the risk-bear­ing func­tion is when in­sur­ers pro­vide mech­a­nisms for in­di­vid­u­als and or­ga­ni­za­tions to trans­fer the risk re­lated to loss of life, health, or loss of prop­erty, usu­ally called the un­der­writ­ing risk, in ex­change for a pre­mium. The sec­ond func­tion of in­sur­ers is that they di­ver­sify the risks of the in­di­vid­ual poli­cies by pool­ing them in one port­fo­lio. The third func­tion of the in­sur­ers is that they use the funds that they gen­er­ate from a spe­cial­ized form of debt con­tract to pur­chase fi­nan­cial as­sets and make a profit from the spread be­tween the as­sets’ re­turns and the li­a­bil­i­ties’ cost (Cum­mins, Phillips, Smith, 1997).

In­sur­ers can be ei­ther life in­sur­ance, prop­erty and ca­su­alty in­sur­ance or a com­bi­na­tion thereof. Each of these busi­nesses has its own dy­nam­ics in terms of as­sets and li­a­bil­i­ties man­age­ment. Life in­surer can, for in­stance, un­der­write term life in­sur­ance that pays death ben­e­fits or an­nu­ities that pay reg­u­lar in­come ei­ther im­me­di­ately or in the fu­ture. These types of li­a­bil­i­ties are sub­ject to fi­nan­cial and non-fi­nan­cial risks. Fi­nan­cial risk is re­lated to in­ter­est rate risk, in the sense that if the in­ter­est rate de­creases, the li­a­bil­i­ties fair value in­creases (This sen­si­tiv­ity to the in­ter­est rate is called du­ra­tion). Fi­nan­cial risk is also re­lated to liq­uid­ity risks which re­late to the cash flows from the claims not hav­ing enough cash in­flows to cover. Non-fi­nan­cial risks of life in­sur­ance li­a­bil­i­ties, on the other hand, for ex­am­ple, are the ex­po­sure of life in­sur­ance to mor­tal­ity risk while an­nu­ities are ex­posed to longevity risk. Over­all, life in­sur­ance li­a­bil­i­ties are usu­ally long term with pre­dictable prob­a­bil­i­ties. As com­pared to life in­sur­ers, prop­erty and ca­su­alty (PC) in­sur­ers un­der­write gen­eral li­a­bil­ity in­sur­ance poli­cies that cover, among oth­ers, prop­erty, gen­eral, en­gi­neer­ing, ma­rine, and mo­tors poli­cies. These types of poli­cies, sim­i­lar to life poli­cies, are ex­posed to liq­uid­ity risk. How­ever, their ex­po­sure to in­ter­est rate risk is lower as they are usu­ally of the shorter term. Fur­ther, these li­a­bil­i­ties are less pre­dictable in terms of their sever­ity and prob­a­bil­ity.

The li­a­bil­i­ties of the in­sur­ers are not man­aged in iso­la­tion of the re­lated in­vest­ment as­sets. They are man­aged un­der an as­set-li­a­bil­ity man­age­ment frame­work. In­sur­ers are highly reg­u­lated com­pa­nies and usu­ally have proper in­ter­nal gov­er­nance struc­tures. Such a gov­er­nance struc­ture may re­quire hav­ing a ded­i­cated as­set-li­a­bil­ity com­mit­tee (ALCO) that is in charge of the man­age­ment of the in­vest­ment de­ci­sions of the as­sets and li­a­bil­i­ties of the in­surer. From an as­set-li­a­bil­ity man­age­ment per­spec­tive, in­sur­ers seek to find an as­set port­fo­lio that mim­ics the per­for­mance of the li­a­bil­i­ties and en­sure man­ag­ing the li­a­bil­i­ties risk ex­po­sures such as in­ter­est rate, mor­tal­ity, sur­ren­der, lapse, and liq­uid­ity. This port­fo­lio can also be called the re­serve port­fo­lio as com­pared to the sur­plus port­fo­lio. The in­surer’s ob­jec­tive is to grow the sur­plus port­fo­lio to en­able bet­ter pric­ing of the new un­der­writ­ten poli­cies. Math­e­mat­i­cally, in­sur­ers seek to match the du­ra­tion of the as­sets and li­a­bil­i­ties. The match­ing en­sures lower eq­uity du­ra­tion ex­po­sure and there­fore in­creases share­holder value.  How­ever, the du­ra­tion is a good mea­sure of sen­si­tiv­ity to the in­ter­est rate when the rate changes are small and does not per­form a good job if the changes in the in­ter­est rate are high due to con­vex­ity (con­vex­ity is the change in du­ra­tion due to changes in in­ter­est rates) (Cum­mins et al., 1997 and Berke­laar et al., 2020). As an al­ter­na­tive to du­ra­tion, Berke­laar et al. (2020) sug­gest us­ing a math­e­mat­i­cal for­mula that mea­sures the volatil­ity of the eq­uity re­turns of the in­surer by link­ing it to the fol­low­ing: The volatil­i­ties in the as­sets and li­a­bil­i­ties’ re­turns, the lever­age, the change in li­a­bil­i­ties’ yield com­pared to the as­sets’ yield and the cor­re­la­tion be­tween the as­sets and li­a­bil­i­ties’ re­turns.  The bot­tom line is that, pro­vided all other vari­ables held con­stant, the closer the cor­re­la­tion be­tween the as­sets and the li­a­bil­i­ties’ re­turns is to 1, the lower the volatil­ity of the eq­uity re­turns. Re­gard­less of the method used to min­i­mize the risk to the share­hold­ers, the man­age­ment of the risk ex­po­sures of the li­a­bil­i­ties in terms of as­sets is an im­por­tant func­tion that in­sur­ers can­not dis­card.

Tucker, Thomp­son, Dicks, Kling, Pryde, and Burger (2020) ar­gue that the match­ing of the as­sets and li­a­bil­i­ties cash flows is called the eco­nomic hedge. Eco­nomic vari­ables af­fect the as­sets dif­fer­ently from how they af­fect the li­a­bil­i­ties, re­sult­ing in an eco­nomic mis­match. In­sur­ers take risk man­age­ment strate­gies that aim at re­duc­ing this eco­nomic mis­match us­ing for in­stance de­riv­a­tives or other fi­nan­cial in­stru­ments. How­ever, even with eco­nomic match­ing, the recog­ni­tion and mea­sure­ment of the fi­nan­cial in­stru­ments used for risk mit­i­ga­tion may be dif­fer­ent from the recog­ni­tion and mea­sure­ment used for in­sur­ance con­tracts, re­sult­ing in ac­count­ing mis­match. For in­stance, de­riv­a­tives change in fair value is rec­og­nized in profit or loss while the un­der­ly­ing as­set be­ing hedged by those de­riv­a­tives may be mea­sured at FV­TOCI.  This ar­ti­cle is in­tended to dis­cuss the pos­si­ble so­lu­tions to this ac­count­ing mis­matches from the per­spec­tive of the IFRS 9 and IFRS17. The ar­ti­cle was in­spired by a pub­li­ca­tion by PwC re­gard­ing this sub­ject (see, Tucker et al., 2020).

The ar­ti­cle is or­ga­nized as fol­lows: First, the ar­ti­cle dis­cusses hedge ac­count­ing un­der IFRS 9. Sec­ond, the ar­ti­cle dis­cusses IFRS 17 main top­ics that are linked to the dis­cus­sion of hedg­ing. Third, the ar­ti­cle dis­cusses the pos­si­ble op­tions avail­able un­der IFRS 9 and IFRS 17 to re­duce the ac­count­ing mis­matches un­der mis­cel­la­neous sce­nar­ios. Fi­nally, the ar­ti­cle con­cludes with a sum­mary.

IFRS 9 hedge ac­count­ing

What is hedg­ing?

Hedg­ing is a risk man­age­ment strat­egy that aims to mit­i­gate risks. Fi­nan­cial risks in­clude liq­uid­ity, credit, price, for­eign ex­change, and in­ter­est rate risks. To man­age these fi­nan­cial risks an en­tity would need to take a counter-po­si­tion to pro­tect against the risk ex­po­sure in its ex­ist­ing po­si­tion. For in­stance, if an en­tity has a vari­able-in­ter­est li­a­bil­ity, the en­tity is at risk of vari­able cash out­flows. There­fore, the en­tity can mit­i­gate this risk by en­ter­ing into a swap con­tract that pays fixed and re­ceive vari­able in­ter­est. The en­tity can de­sign the swap con­tract such that the vari­able in­ter­est re­ceived is equal to the vari­able in­ter­est oblig­a­tion un­der the li­a­bil­ity con­tract as well as set­ting the no­tional amount of the swap con­tract to equal to the li­a­bil­ity amount. Hedg­ing us­ing de­riv­a­tives re­quires con­sid­er­a­tion of the fol­low­ing: the coun­ter­party credit risk if the de­riv­a­tive is over-the-counter or ex­change-traded, the pre­mium paid as the cost of en­ter­ing the con­tract, and fi­nally to con­sider if the con­tract is a right only or a right and oblig­a­tion. An ex­am­ple of the for­mer is the op­tion con­tract while an ex­am­ple of the lat­ter is the for­ward and fu­tures con­tracts. IFRS 9 is the stan­dard that reg­u­lates the fi­nan­cial re­port­ing re­quire­ments re­lated to hedg­ing. The ob­jec­tive of the hedge ac­count­ing model in IFRS 9 is to pre­sent, in the fi­nan­cial state­ments, the ef­fect of the en­tity’s risk man­age­ment ac­tiv­i­ties that use fi­nan­cial in­stru­ments to man­age risks (BDO, 2014).

What are hedge ac­count­ing mod­els?

IAS 39 was deal­ing with hedge ac­count­ing un­til IFRS 9 hedg­ing rules were im­ple­mented. Un­der IFRS 9 there are two ac­count­ing pol­icy choices to make: First, to ap­ply IFRS 9 hedge ac­count­ing rules in full. Sec­ond, to ap­ply IAS 39 hedge ac­count­ing rules in full and con­sider the nu­ances ap­plied by IFRS 9 and not by IAS 39. If one elected to im­ple­ment IFRS 9 in full, then IAS 39 rules re­lated to fair value in­ter­est rate macro hedg­ing model can be also ap­plied. In clar­i­fy­ing the macro hedge ac­count­ing model, BDO (2014) in­di­cate that there are two mod­els for hedge ac­count­ing: The first one is the macro hedge ac­count­ing model which is usu­ally used by fi­nan­cial in­sti­tu­tions. Un­der this model, the fi­nan­cial in­sti­tu­tion man­ages in­ter­est rate risk ex­po­sure of the port­fo­lio of fixed-rate fi­nan­cial as­sets and li­a­bil­i­ties (net po­si­tion), and the amounts of the hedg­ing in­stru­ment and the hedged item change con­stantly. The sec­ond model for hedge ac­count­ing is the gen­eral model that is ap­plied to ei­ther sta­tic or dy­namic hedg­ing. Sta­tic hedg­ing is when the des­ig­nated vol­umes of the hedged item and hedg­ing in­stru­ment are fixed at ini­ti­a­tion and doc­u­mented, while the dy­namic is when delta-hedge is used i.e. when the vol­umes are al­tered to in­crease hedge ef­fec­tive­ness.

Is hedge ac­count­ing manda­tory and what are the type of hedges un­der IFRS 9?

Hedge ac­count­ing is op­tional un­der IFRS 9 and IAS 39. Un­der both stan­dards, there are three hedges: The fair value, the cash flow, and the for­eign op­er­a­tion net hedges. Ba­si­cally, a fair value hedge is ap­plic­a­ble to hedg­ing of ex­ist­ing as­sets or li­a­bil­i­ties or an un­rec­og­nized firm com­mit­ment. The cash flow hedge ap­plies to the hedge of ex­ist­ing as­sets or li­a­bil­i­ties and to highly prob­a­ble fore­cast trans­ac­tions. Net for­eign op­er­a­tion hedge ap­plies to hedg­ing of flori­gen cur­rency ex­po­sure in a par­ent net in­vest­ment in a for­eign sub­sidiary. In gen­eral, the fair value changes of the hedged item and hedg­ing in­stru­ment are rec­og­nized in profit or loss un­der the fair value hedge. Un­der cash flow hedge, for the ef­fec­tive por­tion of the hedge, the fair value changes of the hedg­ing in­stru­ment are rec­og­nized in OCI and re­leased to profit or loss in the same pe­riod or pe­ri­ods the un­der­ly­ing as­set or li­a­bil­ity are rec­og­nized in profit or loss. The same treat­ment of the cash flow hedge ap­plies for hedg­ing of the net in­vest­ment in a for­eign sub­sidiary.

How does the hedge op­er­ate from IFRS 9 point of view?

The ba­sic el­e­ments of hedge ac­count­ing are to iden­tify three things: First, the hedged item which could be des­ig­nated as the as­set or li­a­bil­ity be­ing hedged, the risk com­po­nent of the as­set or li­a­bil­ity that is be­ing hedged e.g. in­ter­est rate risk of a loan port­fo­lio. The ag­gre­gated ex­po­sure of an as­set or li­a­bil­ity with a de­riv­a­tive can also be des­ig­nated as a hedged item and sim­i­larly, an eq­uity in­stru­ment clas­si­fied at FV­TOCI can be des­ig­nated as hedge item when the hedg­ing in­stru­ment fair value changes are rec­og­nized in OCI as well. The sec­ond el­e­ment of hedge ac­count­ing is to iden­tify the hedg­ing in­stru­ment which could be a de­riv­a­tive or part of a de­riv­a­tive. The lat­ter in­cludes cases such as des­ig­nated as a hedg­ing in­stru­ment, the in­trin­sic value of an op­tion con­tract, the spot rates of a for­ward con­tract, and the FX ba­sis spread of the for­eign cur­rency swap. The time value of the op­tion, the for­ward rate of the for­ward con­tract and the FX ba­sis spread of the swap are rec­og­nized in OCI and amor­tized later over the term of the hedg­ing re­la­tion­ship. The hedg­ing in­stru­ment can also be a fi­nan­cial as­set or li­a­bil­ity mea­sured at FVTPL (ex­cep­tion is the fi­nan­cial li­a­bil­i­ties that are des­ig­nated at FVTPL for which changes in fair value are due to the en­tity’s own credit risk are rec­og­nized in OCI). The third el­e­ment of the hedge ac­count­ing is to en­sure that a re­la­tion­ship ex­ists be­tween the hedged item and the hedg­ing in­stru­ment and that this re­la­tion­ship meets three con­di­tions (Singh, 2018): First, an eco­nomic re­la­tion­ship ex­ists be­tween the hedged item and the hedg­ing in­stru­ment i.e. the hedged item and the hedg­ing in­stru­ment move in the op­po­site di­rec­tions in fair value. The sec­ond con­di­tion is that the credit risk is not a dom­i­nant fac­tor in the fair value changes of the hedged item and hedg­ing in­stru­ment and fi­nally that the hedge ra­tio used for risk man­age­ment pur­poses is the same as the one used for ac­count­ing pur­poses (Hedge ra­tio is the per­cent­age of the vol­ume of the hedg­ing in­stru­ment used ver­sus the hedged item). This hedge ra­tio can be re­bal­anced through­out the life of the hedge if the un­der­ly­ing eco­nomic re­la­tions change with­out the need to ter­mi­nate the hedg­ing re­la­tion­ship (BDO, 2014).

As an ad­di­tional risk com­po­nent that can be des­ig­nated as a hedged item, IFRS 9 al­lows un­der spe­cific cir­cum­stances to des­ig­nate in­fla­tion risk which was pre­vi­ously pro­hib­ited un­der IAS 39 for such des­ig­na­tion. More­over, fi­nan­cial in­sti­tu­tions can des­ig­nate as FVTPL a loan port­fo­lio as a hedged item for which the bank has des­ig­nated a credit de­fault swap as the hedg­ing in­stru­ment. Thus, re­duc­ing the volatil­ity in profit or loss.

The en­tity ap­ply­ing IFRS 9 hedge ac­count­ing, should pre­pare doc­u­men­ta­tion of the hedg­ing re­la­tion­ship, hedge strat­egy (high-level doc­u­ments iden­ti­fy­ing the risks fac­ing the en­tity and how risk man­age­ment ac­tiv­i­ties are to ad­dress those risks) and hedge ob­jec­tives (a hedge level re­la­tion­ship that clar­i­fies the hedg­ing re­la­tion­ship and how a par­tic­u­lar hedg­ing in­stru­ment is des­ig­nated to a spe­cific hedged item). (Ernst and Young, 2014).

Is the dis­con­tin­u­a­tion of hedge ac­count­ing op­tional?

There are cer­tain cir­cum­stances un­der which one can cease to ap­ply the hedge ac­count­ing in­clud­ing First, a change in the en­tity risk man­age­ment ob­jec­tives, sec­ond the hedged item or hedg­ing in­stru­ment no longer ex­ist, third there is no longer an eco­nomic re­la­tion­ship be­tween the hedged item and hedg­ing in­stru­ment, and fi­nally the ef­fect of credit risk starts to dom­i­nate the value changes that re­sult from the eco­nomic re­la­tion­ship. (BDO, 2014)

What are IFRS 17 im­por­tant points to re­mem­ber?

The ma­jor change brought by IFRS 17 is the in­tro­duc­tion of three ap­proaches for in­sur­ance con­tracts ac­count­ing in­clud­ing First, Build­ing Blocks Ap­proach “BBA” or the Gen­eral Model, manda­tory and is ap­plied to all in­sur­ance con­tracts is­sued ex­cept those for which the en­tity ap­plies ei­ther of the VFA or the PAA ap­proaches men­tioned be­low. The sec­ond ap­proach is the Vari­able Fee Ap­proach “VFA”. This ap­proach is manda­tory and ap­plies to di­rect par­tic­i­pat­ing con­tracts where the pol­i­cy­holder is en­ti­tled to a sig­nif­i­cant share of the profit from a clearly iden­ti­fied pool of in­vest­ment as­sets (un­der­ly­ing item). There­fore, the li­a­bil­ity is mea­sured based on the oblig­a­tion to pay the pol­i­cy­holder an amount equal to the value of the un­der­ly­ing item net of the in­vest­ment man­age­ment fee (Vari­able fee) charged by the in­sur­ance com­pany. The third ap­proach is the Pre­mium Al­lo­ca­tion Ap­proach “PAA” which is a sim­pli­fied form of BBA, op­tional and is sup­posed to cover in­sur­ance con­tracts that span over one year or less or for those in­sur­ance con­tracts where the ap­pli­ca­tion of PAA ap­proach will not re­sult in Li­a­bil­ity of re­main­ing cov­er­age to be ma­te­ri­ally dif­fer­ent from ap­ply­ing the BBA ap­proach.

On ini­tial recog­ni­tion, an en­tity shall mea­sure a group of in­sur­ance con­tracts at the to­tal of the ful­fill­ment cash flows (FCF) (in­cludes cash flows for fu­ture ser­vice of the con­tract dis­counted at a cur­rent in­ter­est rate (PV) and ad­justed for non-fi­nan­cial risk (RA)) and con­trac­tual ser­vice mar­gin (CSM). Sub­se­quent to ini­tial recog­ni­tion. The li­a­bil­i­ties re­lated to the in­sur­ance con­tracts take two forms in­clud­ing First, the li­a­bil­i­ties of re­main­ing cov­er­age (LRC) which rep­re­sents the li­a­bil­ity re­lated to un­ex­pired risks (i.e. the in­surer li­a­bil­ity to ser­vice the claims to be raised in the fu­ture). The sec­ond form is the li­a­bil­ity of in­curred claims (LIC) which rep­re­sents the ex­pired risk and in­cludes in­curred and re­ported claims and in­curred and not re­ported claims along with re­lated ex­penses. What is im­por­tant in this sec­tion of the para­graph, as re­lated to hedg­ing of in­sur­ance con­tracts, is to high­light that the fi­nan­cial risk of the in­sur­ance con­tracts has been con­sid­ered by the dis­count rate used in cal­cu­lat­ing the pre­sent value of the FCF. Fig­ure (1) be­low pro­vide a vi­sual pre­sen­ta­tion of the in­sur­ance con­tract li­a­bil­i­ties un­der IFRS 17 ver­sus old stan­dards and the po­si­tion of the cash flows.

Ac­cord­ing to IFRS 17, the in­sur­ance fi­nance in­come rep­re­sents the in­come re­lated to the fi­nan­cial in­vest­ments and the in­ter­est ac­cre­tion re­lated to the rein­sur­ance con­tracts. On the other hand, in­sur­ance fi­nance ex­pense re­lates to the ac­cre­tion of in­ter­est on the in­sur­ance con­tract li­a­bil­i­ties. Fig­ure (2) be­low pre­sents an ex­am­ple of how the in­sur­ance fi­nance ex­pense and in­come are pre­sented show­ing the source of each of them and link­ing them to each line of busi­ness.

Ac­cord­ing to IFRS 17, the in­sur­ance fi­nance in­come and ex­penses can be ei­ther elected to be rec­og­nized to profit or loss or to split them be­tween profit or loss and OCI. The in­surer also has a risk mit­i­ga­tion op­tion un­der the VFA ap­proach wherein the in­surer can rec­og­nize the changes in the FCF or the changes in the fair value of the un­der­ly­ing as­set to profit or loss in­stead of ad­just­ing the CSM. This lat­ter op­tion is avail­able pro­vided that the in­surer has a doc­u­mented risk strat­egy and risk man­age­ment ob­jec­tives that demon­strate how that the en­tity mit­i­gates the fi­nan­cial risk us­ing de­riv­a­tives, fi­nan­cial in­stru­ments mea­sured at FVTPL, or rein­sur­ance con­tracts held. The un­der­stand­ing of the afore­men­tioned op­tions un­der IFRS 17 is im­por­tant to see, as dis­cussed sub­se­quently in this ar­ti­cle, how they will be em­ployed for hedg­ing with­out the need for us­ing hedge ac­count­ing i.e. avoid­ing the com­plex re­quire­ment of hedge ac­count­ing.

Sce­nar­ios of eco­nomic risks and eco­nomic hedge and the so­lu­tions pos­si­ble un­der IFRS 9 and IFRS 17

This sec­tion pro­vides a tab­u­lar de­scrip­tion of mul­ti­ple sce­nar­ios that show the eco­nomic risk, the eco­nomic hedge ap­plied the ac­count­ing mis­match, and how it can be solved un­der op­tions avail­able un­der IFRS 9 and IFRS 17 along with the ben­e­fits and lim­i­ta­tions of each so­lu­tion. This sec­tion is heav­ily de­pen­dent on Tucker et al (2020).

Sce­nario one

Sce­nario two

Sce­nario three

Sce­nario four

Sce­nario five

Sum­mary

In­sur­ers have many op­tions to mit­i­gate li­a­bil­i­ties risks rep­re­sented by in­ter­est rates and cash flows. From an eco­nomic per­spec­tive, the hedges might match the risk fully or par­tially due to the in­flu­ence of other risks on the li­a­bil­ity such as in­fla­tion, mor­tal­ity, lapse, and longevity or the mis­match be­tween the fair value and cash flows changes of the in­sur­ance con­tract li­a­bil­i­ties and the back­ing as­sets. How­ever, eco­nomic hedg­ing ac­tiv­i­ties may yield a cor­re­spond­ing ac­count­ing mis­match. This is due to dif­fer­ences be­tween the eco­nomic match­ing method used and how those meth­ods are ac­counted for un­der IFRS 9 and IFRS 17. Both stan­dards have op­tions avail­able to the pre­par­ers to con­sider. The se­lec­tion of some com­bi­na­tion of these op­tions may be a valu­able tool to bridge the gap be­tween eco­nomic hedg­ing and hedge ac­count­ing.  This ar­ti­cle dis­cussed the hedge ac­count­ing un­der IFRS 9 and the hedge rel­e­vant top­ics un­der IFRS 17. More­over, the ar­ti­cle dis­cussed the op­tions avail­able un­der IFRS 9 and IFRS 17 with re­gards to mul­ti­ple sce­nar­ios of eco­nomic hedg­ing that ex­hibit an ac­count­ing mis­match. The im­por­tant points to em­pha­size are that the in­sur­ers should be aware of all the op­tions avail­able un­der both stan­dards and make use of those op­tions to re­duce ac­count­ing mis­match while keep­ing their eco­nomic risk man­aged within the con­text of their risk strat­egy and risk man­age­ment ob­jec­tives. More­over, plan­ning should bet­ter start as early as pos­si­ble to see what are the cur­rent bal­ance sheet ex­po­sures and de­sign the proper ac­tions to be im­ple­mented that are com­men­su­rate with the im­ple­men­ta­tion of the IFRS 17.

Ref­er­ence

• Berkelaar, A.,  Misic, K and Stimes, P, C (2020) Portfolio Management for institutional investors, CFA institute refresher reading Level III, p.p. 1-106.
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