Gross Premium Valuation will be applied to the insurance industry in Indonesia
The net premium reserving regime in Indonesia will soon come to end. In early 2011, Indonesian Accounting Standard Board (DSAK IAI) has issued Exposure Draft on the revision of PSAK 36 on Accounting for Life Insurance, and PSAK 62 (Insurance Contract), the latter adopts currently applicable international GAAP on insurance contract, IFRS 4 (Phase 1). This is part of the convergence process of Indonesian GAAP (PSAK) to International GAAP (IFRS).
In the revised PSAK 36, measurement of liabilities of life insurance companies to their policyholders for future claim is to use discounted cash flow on all possible future cash flow, i.e. familiarly known as the gross premium reserving method.
For most of Indonesia local insurance companies, gross premium method is a new concept, though the terminology has been a point of discussion for several years already. As such, many have voiced out concerns over this transition. Most of them will need to upgrade the skill of their actuarial staff, and consider more sophisticated tool for their actuaries.
If approved, the new PSAK 36 will be effective as of January 1, 2012. In the mean time, the regulator (Bapepam-LK) is also preparing new regulations that will require changes to the reserving method into using Gross Premium Valuation method for all long-term insurance contracts (more than 12 months), both life insurance and general insurance contracts.
To learn more about the Gross Premium Valuation, please write us an email to admin@padmaaktuaria.com.