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Wash SyCip: Rest in Peace

By Benjamin R. Punongbayan

WASH SYCIP was a very well known person, not only in the Philippines, but also in the whole world. He had a huge network which he persistently, untiringly, and continuously created and developed until the very end. He worked very hard and read very widely to make himself knowledgeable about practically everything in business. He was not a commercial or industrial entrepreneur, but he saw himself as the professional adviser to the entrepreneur and he did it exceedingly well. I don’t think we will see the likes of Wash for a very long time.

I consider him my mentor, not in the sense of the relationship between a principal and an apprentice in developing a skill. He was my mentor in the way I saw he conducted himself in business and social gatherings, small and large; sought and acquired knowledge; developed people; made things happen; pursued excellence; entertained guests and friends; and many more. He did these things outstandingly well. I tried to learn from him and emulate him, but I never reached his level of excellence. Wash Sycip is unique; he is one of a kind.

It was Wash who interviewed me for a job at SGV when I was 20. He advised me then to get married soon. I wondered about that. He probably wanted me to become more responsible at that young age. When I was leaving for the US to study as an SGV scholar, I saw him one day in his office to say goodbye. During our brief conversation, he was correcting my English pronunciation.

In one of his visits to SGV Malaysia where I was then assigned, on leaving the office for a client visit, he saw a paper clip lying on the office corridor floor. He picked it up and gave it to me and said that such a stray clip may be a very small thing but such a loss accumulates and therefore I should save it.

Even when Wash was longer actively participating in the operations of SGV, he still wanted all completed audited financial statements routed to him, but at that time each bundle came to me first. One day, he came to my room clutching a bundle and complaining that I was delaying the movement of the bundles as he noticed from the dates recorded on the routing slip. Of course, he told me to get the thing going quickly.

I am sure that many others at SGV had similar experiences with him. I don’t think I need to characterize these experiences any further. These illustrate clearly his strong, tenacious, persistent passion to achieve utmost excellence.

Wash’s strong desire to maintain and develop further his network continued at the same tempo up to the very end. Almost always, I saw Wash on business gatherings and receptions that I attended. And I didn’t go to many.

When Wash turned 96, we met at a dinner reception hosted by Bobby Ongpin on July 31. And behold, I saw him again at the Swiss Confederation reception the following evening. The last time I saw him was during the SGV Alumni Homecoming last month. We had a brief chat and he was telling me in a faint voice that he just met someone who had worked with me at P&A. Amazing!

I wish I was good at superlatives so I can describe Wash as he deserves and truly was. He was sublime, singular, quintessential, full of grit, a truly great man.

Goodbye, Wash. You left to many of us very wonderful and everlasting memories. May you rest in peace.

 

Benjamin R. Punongbayan is the founder of Punongbayan and Araullo, one of the Philippines’ leading auditing firms.

ben.buklod@yahoo.com

Ilijan deal cancellation to raise power prices — SMC

SAN MIGUEL Corp. said a state energy company’s insistence that its Batangas unit should sell power to the spot market “blatantly disregards” the interests of consumers.

“If we sold to the WESM (wholesale electricity spot market), small consumers would have to pay higher electricity bills. Even businesses, which are the largest consumer of energy, would suffer,” said SMC President and Chief Operating Officer Ramon S. Ang in a statement during the weekend.

Mr. Ang was reacting to the “continuing argument” of state-led Power Sector Assets and Liabilities Management Corp. (PSALM) that SMC subsidiary South Premiere Power Corp. (SPPC), the administrator of the Ilijan power plant in Batangas, should have sold its generated power to the WESM instead of Manila Electric Co. (Meralco).

He was referring to the months November and December 2013, during which PSALM said SPPC could have optimized revenue from the high prices at the spot market.

SPPC is the independent power producer administrator (IPPA) of the 1,200-megawatt (MW) Ilijan plant, allowing it to manage the power output from the contracts entered into by the National Power Corp. (Napocor). The IPPAs are appointed through a public bidding conducted by PSALM.

Mr. Ang said Ilijan is a base load plant and its output must not be traded in the spot market to protect consumers.

“The Ilijan power station is used to continuously supply electricity to the grid including hours when the demand is high,” he said.

PSALM’s position has resulted in two different interpretations of the IPPA agreement provisions on how the generation payments should be computed, SMC said.

PSALM claims SPPC has unpaid obligations, but the SMC unit said it honors its contractual obligations under the agreement.

As of August, SPPC said it had paid PSALM P239 billion, representing energy fees and capacity fees. PSALM has also gained P30 billion from its administration agreement with SPPC, it added.

SMC said SPPC has an existing power supply agreement (PSA) with Meralco. The deal was approved by the Energy Regulatory Commission (ERC) in 2012 for 1,180 MW from Ilijan, added.

It cited the ERC as saying that the approval would ensure continuous and reliable supply of electricity to Meralco’s customers and will minimize, if not avoid, its exposure to volatile prices in the WESM. The proposed rate is also lower than the rate under the Napocor transition supply contract.

It also quoted Meralco, in its intervention, as saying that the termination of the Ilijan IPPA “will prevent it from purchasing electricity from SPPC. Consequently, Meralco will lose 1,180-MW of electricity supply from Ilijan under the terms of the ERC-approved Meralco-SPPC PSA which provides cheaper electricity to Meralco’s end-users.”

Meralco would have to buy electricity from the WESM to cover for the lost 1,180-MW worth of electricity, exposing the distribution utility and its customers to the price volatility of the market, it added.

SPPC’s PSA with Meralco accounts for 18.74% of the distributor’s peak power requirements in its franchise area amounting to at least 2.7 million households with 200 kilowatt-hour consumption a month.

“This is a huge volume that has a great impact in bringing cheaper electricity to the public. PSALM’s act in terminating the Ilijan IPPA threatens to remove this benefit from the public. If Meralco is prevented from purchasing power from the Ilijan plant, this will thwart its efforts in bringing down the electricity cost for its end-users causing serious and irreparable damage to Meralco and its consumers,” it said, citing Meralco. — Victor V. Saulon

Galvez to Marawi troops: ‘You all deserve a break after this’

MEMBERS OF the Marine Batallion Team who have been at the forefront of the fight against the Daesh-inspired terror group Maute, which is on its 140th day today, Oct. 9, were visited over the weekend by Lieutenant General Carlito G. Galvez, Jr., head of the Western Mindanao Command (WesMinCom) to give them a morale boost. “I also would like to thank you for your sacrifices and your efforts,” Mr. Galvez said amid the war-torn surroundings in Marawi. The general also reminded the troops to”stay alert… as the fighting is nearing its end.” The marines have been mainly responsible in retaking all three bridges that connect the eastern and westerns parts of Marawi, which have been key in the Maute resistance. “You all deserve a break after this. Appropriate awards will also be accorded to all of you when this is all over. I will see to it that due recognition will be given to every single Marawi liberator,” Mr. Galvez assured the front liners who have orders to attempt to keep the remaining hostages alive as they carry out assaults against the terrorists. The conflict has claimed the lives of 157 soldiers, at least 45 civilians, and more than 700 militants. Some 400,000 people have also been displaced. — Albert F. Arcilla

High fashion trends in high street fashion

MILLENNIALS don’t tend to fork over cash for luxury goods: unless it’s money from Mummy or Daddy, we’re not buying. This generation has been known to become dazzled by the world of high-end luxury, but are usually reluctant to actually pay for it, preferring to borrow Mummy’s Hermes or wisely buying dupes.

The Fall 2017 collection of Guess taps into this by adopting big brand fashion trends and putting them into high-street fashions. The handbags and backpacks seen during a presentation on Sept. 19 in decidedly young BGC haunt Early Night? showed accessible versions of a rich cousin’s bags.

Think, for example, the chain and the quilted chevron in the Chanel boy, translated in some part onto a rectangular handbag, or else the fur, charms,and chains in Dior. Faux croc à la Hermes croc, then nylon of Prada, and the florals of the newly emboldened Gucci can be seen here, all at high-street prices.

In a lookbook we saw styles from Louis Vuitton, YSL, Prada, and Gucci photographed as style pegs for the bags. Clarish H. Barundia, Merchandising Ladies manager, did acknowledge that most average millennials do turn their nose up at the idea of paying the full price for fashion.

“We wanted to tap them (millennials) by showing these handbags,”she said. “They can buy it because it’s accessible.” — JLG

Abe’s rival party leader offers centrist choice to voters

TOKYO — Tokyo Governor Yuriko Koike said on Sunday her new party aims to offer voters a “middle of the fairway” choice, seeking to differentiate her group from ruling, conservative Liberal Democratic Party and smaller, left-leaning opposition parties.

Ms. Koike’s Party of Hope has emerged as a formidable challenge to Prime Minister Shinzo Abe’s Liberal Democratic Party (LDP) at the Oct. 22 election, promising to freeze a planned 2019 sales tax hike and consider a new tax on companies’ retained earnings.

“If I use a golf course metaphor, right now, I believe we have right (wing parties) and left (wing parties) and nothing in between. So we will present ourselves as the fairway, the very center of the way,” Mr. Koike told a policy debate by major party leaders.

Ms. Koike said her party’s policies aim to bring a new idea such as basic income and will be closer to consumers.

“The idea of basic income is still experimental but we think this is something we should consider in the future,” she said.

But Ms. Koike declined to reveal who would lead a government should her party, formed only about two weeks ago by her supporters and some opposition lawmakers, be in a position to form one.

“I will think about it after we see the results of the election,” she said.

Ms. Koike, a former LDP lawmaker, has repeatedly denied she would run for a seat in the election, which means she could not lead a government herself as the constitution stipulates a prime minister has to be selected from elected lawmakers.

That has led to speculation her Party of Hope may tie up with some LDP lawmakers who have been alienated by Mr. Abe, such as former defense minister Shigeru Ishiba.

She told Reuters on Friday that all options were on the table regarding whom her party would back when parliament convenes to vote on a prime minister after the election.

While Party of Hope’s economic policies differ from those of Mr. Abe’s conservative LDP, many of its security and diplomatic policies echo LDP’s agenda, including revision to Japan’s pacifist constitution.

The campaign for the Oct. 22 election kicks off formally on Oct. 10.

The outlook for the election is foggy but some analysts say Ms. Koike’s party may be losing steam because it had too little time to prepare for the snap poll. Her decision not to run for a lower house seat could also deter voters, the analysts said.

Mr. Abe reiterated during the debate that his government would remain in power if the ruling coalition wins a simple majority of the 465 seats up for grabs, although some analysts suggest he himself could face pressure to resign if his LDP fares badly. — Reuters

Lenders set up payments management body

PHILIPPINE BANKS have set up a self-governing body that will facilitate and monitor the clearing of electronic payments, parallel to efforts led by the central bank to spur more digital transactions in the country.

In a statement sent over the weekend, the Bankers Association of the Philippines (BAP) said they have established the Philippine Payments Management, Inc. (PPMI) which will stand as the “supporting body” for the Bangko Sentral ng Pilipinas (BSP) in setting up clearing houses for digital payments.

“PPMI will organize direct clearing participants into a self-governing body and assist the BSP in overseeing the development and operations of the retail payment system. It will help ensure that the country will soon have an interconnected electronic retail payment system,” BAP president Nestor V. Tan, who also heads BDO Unibank, Inc., was quoted as saying.

The PPMI registered with the Securities and Exchange Commission on Aug. 30.

In 2015, the BSP launched the National Retail Payment System (NRPS) with the goal of steering financial transactions gradually away from cash and checks towards electronic fund transfers and e-wallets.

With the greater volume of online payments, the central bank has tapped local banks and e-money issuers to set up clearing houses that will oversee these electronic transactions. As of March, the plan was to establish the PESO Net clearing house for high-value electronic fund transfers, and the InstaPay for real-time credit involving P50,000 or less.

The clearing houses should allow fund transfers within and across banks and financial firms.

A payment system management body composed of industry representatives — now called the PPMI — will oversee the two clearing houses, in coordination with the BSP.

BAP’s Mr. Tan said the PPMI will maintain a “competitive and responsive” playing field among service providers, and will recommend policies to the BSP to improve financial inclusion.

IDENTITY CHECK
In a separate issuance, the BSP said it has required banks and credit card issuers to stop processing high-risk transactions if they have not yet complied with the Sept. 30 deadline which requires them to use a two-step verification process for online payments.

BSP Deputy Governor Chuchi G. Fonacier reminded banks and financial firms to “disable functionalities” that facilitate sensitive communications or high-risk transactions if they have not yet adopted protocols for multi-factor authentication.

The measure requires banks to verify a client’s identity using at least two different methods before one can proceed with high-value fund transfers or payments, as they seek to curb rising cases of card skimming and fraud.

Banks should also implement “acceptable interim or compensating controls” to improve cyber security protocol if they have not yet adopted the tighter standards. — Melissa Luz T. Lopez

Ayala on the lookout for more health care investments

By Anna Gabriela A. Mogato

AYALA Healthcare Holdings, Inc. (AC Health) continues to be on the lookout for new investments, particularly in hospitals, financing and health technology.

“Demand for better health care services remains high, and we are expanding to serve more customers and patients. At the same time, we are also actively looking for new investments to integrate without our portfolio,” AC Health President and Chief Executive Officer Paolo Maximo F. Borromeo was quoted as saying in a statement.

In particular, Mr. Borromeo said AC Health is eyeing investments in hospitals and financing, a move that would complement its existing retail health portfolio which includes Generika Drugstore, FamilyDOC and MedGrocer.

“We see many potential synergies with hospitals and financing. Moving forward, we want to offer a full continuum of quality health care… Health financing would be a key enabler to ensure access to these services,” he said.

In a roundtable interview in Makati City on Saturday, Mr. Borromeo said the company is also looking to boost the use of technology in health care.

He said AC Health is planning to introduce a mobile integrated health care solution where users can access lab results, search for old prescriptions, and contact doctors.

Actimed, Inc. Vice-President for Operations Jay F. Ferrer, who represents Generika Drugstore, said part of the mobile venture is to connect patients with medical professionals, which they plan to “launch hopefully very soon.”

“This is basically what we will call ‘virtual pharmacist’ so it allows you to talk to a pharmacist face-to-face or via chat, or by voice, calling anytime of the day but preferably during working hours when we launch it… They can address your needs that you might have,” Mr. Ferrer said during the same roundtable interview.

However, Mr. Ferrer noted the biggest challenge for this service is Internet access.

“Because it’s easy to go outside but technology becomes useless when you have poor Internet connection. Hopefully we’ll be able to do that and with the help of the government also become a better service so that even if you can’t stand, you can’t leave your house, there’s still a chance for you to speak to a doctor,” he said.

In February, Ayala’s health care unit invested in start-up Wellbridge Health, Inc., the owner and operator of MedGrocer. MedGrocer provides customers a platform to place online orders for medicines certified by the Food and Drugs Administration (FDA), which will be delivered directly to them.

Meanwhile, Mr. Borromeo said AC Health is also considering opening FamilyDOC, its chain of primary care clinics for franchising, particularly for expansion outside Metro Manila and parts of Southern Luzon.

At present, FamilyDOC has 15 sites in the cities of Cavite, Las Piñas, Parañaque and Pateros.

There are plans to open 50 FamilyDOC clinics by next year — where sites in Taguig and Pasig City are already confirmed — and 100 clinics by 2020.

Generika Drugstore, which partnered with AC Health in 2015, is targeting to have 1,000 branches within the next three years. Each branch will serve as a three-in-one facility which includes a pharmacy, laboratory and clinic.

Mr. Ferrer said Generika developed a new store format, Health & Wellness Store, located in Signal Village, Taguig. The branch also features a doctor’s clinic under the FamilyDOC Express pilot project of Generika and FamilyDOC.

FamilyDOC General Manager Raymund Paul H. Darroca said the company is also planning to expand its family medicine practice to include obstetrics.

Tax reform, earnings in focus after record rally

THE APPROVAL of the final blueprint of the tax reform package will be this week’s highlight, with investors looking to this legislative move to drive up the local market.

Last week, the Philippine Stock Exchange index (PSEi) gained 139 points to end at 8,310.88, up 1.71% week on week, reaching a high of 8,406.34, which was also a record for the bellwether.

Investors opted to shrug off negative news last week on the back of optimism on third-quarter earnings and US President Donald J. Trump’s tax overhaul proposal. This, despite the succession battle for Federal Reserve chairman and after Secretary of State Rex Tillerson publicly confirmed his intention to maintain the position.

Meanwhile, Philippine inflation reached 3.4% in September, inching up from August’s 3.1% and bringing the nine-month average this year to 3.1%.

For this week, analysts said investors will watch out for news on the government’s tax reform program, which could help the PSEi sustain its record-breaking rally.

“Market participants will wait with bated breath legislators’ agreement on the final tax reform plan, which should bring about increased disposable income [and] savings,” said 2TradeAsia.com in a statement over the weekend, while noting that sectors seen to benefit the most from the tax plan include retail-related shares, banks and property.

According to 2TradeAsia.com, improved consumer spending will buoy higher capital spending from listed firms ahead of budget planning initiatives for next year.

“Timed with the Yuletide season, sentiment is bound to ride on improved liquidity, especially with the seasonal uptick in remittances.  Increased loan take-up and/or higher fee-based receipts are in store for those engaged in the financial industry,” the online brokerage firm added.

“Because we’re on a new high, we can’t say if [it] can run up,” said Summit Securities, Inc. President Harry G. Liu in a phone interview over the weekend.

“We need additional good news for the investing public to be more aggressive,” Mr. Liu added, noting that the initiatives to finalize the tax reform package and positive corporate earning results are some of the catalysts seen to push the index to a new record high.

“So far…it’s positive. It’s just that we need more positive developments,” he said.

2TradeAsia.com noted the government’s initiative to develop the infrastructure sector will help spur more economic activity.

“This infra rollout is bound to trickle down on key sectors, as it opens up opportunities to expand business investment and employment,” the firm said, adding that shares with solid infra-based directions are seen to benefit from this, while energy-related shares might also post gains as power plant maintenance and/or replacement efforts are fortified in light of the government’s provincial push.

Immediate support is seen at 8,270 points to 8,300, while resistance is pegged between 8,400 and 8,470, according to the analysts. — Janina C. Lim

Questionable decision

The Yankees will be hosting Game Three of their Division Series against the Indians today with one foot out the door. It isn’t just because they’re up against the American League favorites that came to within a play of claiming the World Series last year and ran roughshod against the opposition in the regular season. More importantly, it’s because they squandered a chance to win the other day and thus forge a tie with three matches to go in the best-of-five affair.

Instead of being rewarded for a sterling effort on the road, the Yankees managed to snatch defeat from the throes of victory. Thanks to Joe Girardi, they’re on the brink of elimination. Never mind that they had a five-run advantage at the start of the sixth inning, with their vaunted bullpen waiting to finish off a masterful showing on the mound by starter C.C. Sabathia. Who knows what was going through the manager’s mind when he failed to challenge the hit-by-pitch walk that should have been the final out of the pivotal inning? As things turned out, the erroneous call set up a grand-slam home run that ignited a remarkable Indians comeback.

Hindsight always makes for 20/20 vision, but Girardi’s decision was questionable even in the moment. He should have called for a review of Indian Lonnie Chisenhall’s at-bat, especially since he still had two challenges to use. And his postgame explanations served only to underscore his faux pas. First, he said he didn’t want to disrupt the rhythm of pitcher Chad Green by challenging the call, wrongly giving the impression that the Yankees are constrained from ever issuing a challenge. Not true; they led Major League Baseball in successful challenges. Second, he said there was no indication that the umpire’s judgment of the 0-2 pitch was wrong. Not true as well; catcher Gary Sanchez, who caught the ball, was clearly asking the dugout to step in.

Bottom line, Girardi wasted his charges’ exertions, and the Yankees now appear to have a long vacation ahead of them. And needlessly, too; he pulled still-in-control Sabathia after five and a third innings just because he “prepared” and had a “plan” that he could not — or, rather, refused — to veer from. Which is just too bad, because they deserve better. They left nothing in the tank the other day, and should have been amply rewarded, not compelled to accept an extra-innings loss brought about by an off-the-field blunder.

If there’s any silver lining, it’s that, no matter what happens from here on in the ALDS, the Yankees possess a bright future. They’re said to be ahead of schedule. Hopefully, they’ll continue to be so, Girardi notwithstanding.

 

Anthony L. Cuaycong has been writing Courtside since BusinessWorld introduced a Sports section in 1994. He is the Senior Vice-President and General Manager of Basic Energy Corp.

IFRS 17: In search of better answers

(First of two parts)

According to Kurt Lewin’s Change Management Model: Understanding the Three Stages of Change, the change process includes three steps: unfreezing, change, and freezing. Unfreezing is overcoming a current mindset or accepting that a current state cannot continue; change is when people begin to resolve their uncertainty and look for new ways to do things; and freezing means embracing the new ways of working.

Since International Financial Reporting Standards (IFRS) 17, the new standard on insurance contracts, was issued last May 2017, most, if not all, local insurance companies are understandably still in the process of trying to fully comprehend the significant change that is to come. A good number of insurance companies, though, have already taken steps to get used to the challenge of a totally different way of measuring and accounting for insurance contracts, and have started performing preliminary impact assessment exercises.

In June 2017, we published a BusinessWorld article (https://goo.gl/gPvjyZ) summarizing the requirements of IFRS 17 and the potential impact on local insurers when they adopt the standard. In this article, we will highlight the provisions in the standard that may bring about the biggest operational challenges that insurance companies may need to address on their implementation journey.

CLASSIFYING AND ACCOUNTING FOR INSURANCE CONTRACTS
Under Philippine Financial Reporting Standards (PFRS) 4, the current standard on insurance contracts, companies are required to assess whether the insurance contracts they issue meet the definition of an insurance contract, i.e. these contain significant insurance risk. Although there are certain guidelines, no specific accounting treatment is required under PFRS 4 and therefore the current accounting treatment used for statutory reporting purposes is allowed.

However, under IFRS 17, entities will have to follow one of the three measurement models (depending on the characteristics of the insurance contract) and the corresponding accounting treatment for each model as prescribed in the standard. In the Philippine setting, the valuation models are closer in principle to the newly implemented Gross Premium Valuation (GPV) method for life insurance companies and the previously applied 24th method for non-life insurance companies. However, the accounting treatment poses a significant difference with the current Financial Reporting Framework (FRF) for long-duration contracts.

Insurance companies should assess their current product classification process to determine whether this is robust enough to clearly define which contracts fall under IFRS 17 and which contracts will have to be accounted for under different standards, such as IFRS 9 or IFRS 15, and if the process is flexible enough to supplement the determination of the appropriate accounting treatment for each insurance contract the companies issue.

DEFINING THE UNIT OF ACCOUNT
Insurance companies currently manage their contracts on the basis of portfolios or lines of business. Grouping accounts on this basis will be a good starting point to meet the requirement of level of aggregation or unit of account under IFRS 17. The challenges come when companies start grouping their contracts by cohort and by profitability.

Insurance companies would need to evaluate their data quality and availability to enable them to group the contracts according to profitability.  Companies will also have to establish a process to ensure a seamless flow in grouping the insurance contracts, considering there will always be new groups created at least annually. They may need to obtain additional information from policyholders in order to group the contracts to comply with the standard, possibly requiring modifications to existing application forms. They should also think about whether to align the grouping of insurance contracts with their reporting frequency or keep the group of insurance contracts open up to the maximum allowable period of one year. Companies should revisit their current cost allocation methods to align with the unit of account requirement, i.e. allocate costs to different groups of contracts and may have to undertake a cost analysis/study to determine a systematic and consistent way of allocating expenses.

DETERMINING THE MEASUREMENT MODEL
By default, insurance contracts are assumed to be valued using the Building Block Approach (BBA), also referred to as the general model. But for direct participating contracts, such as the variable or unit-linked insurance contracts which have been popular locally, these contracts will have to be measured under the Variable Fee Approach (VFA). For short-duration insurance contracts that meet the criteria under the Premium Allocation Approach (PAA), the insurance company may opt to use the PAA for valuing its contracts. However, for contracts with terms of over a year, the company will still be required to value the contract under BBA to show that the amounts under both measurement models are approximately the same.

IFRS 17 also introduces the concept of contract boundary, to distinguish the cash flows relating to existing insurance contracts from the cash flows relating to future insurance contracts.

Insurance companies may consider applying BBA to all of their insurance contracts, even if some of their contracts qualify for PAA, given that it will have to set up the process and system to value contracts under BBA. They should also start thinking about how to define the cash flows within and outside the contract boundary.

SETTING AND UPDATING ASSUMPTIONS
In setting discount rates for insurance contracts measured under the BBA, local insurance companies may use, as a starting point, the current rate provided by the Insurance Commission (IC) and add on an illiquidity premium to reflect the characteristics of the insurance contract.

In calculating the risk adjustment, local insurance companies may also initially use the confidence level technique that is currently being applied when they compute for the margin for adverse deviation, taking note, though, to apply the risk adjustment only to non-financial risks.

Insurance companies may have to consider setting one illiquidity premium to be applied across all contracts they issue. Companies should also look at whether a significant amount of judgment required in setting the discount rate and risk adjustment would lead to more variability in the valuation of insurance contracts. They may have to set up a governance committee specifically tasked to review and approve the judgments and estimates applied in setting and updating the assumptions. From the points of view of the IC, the companies’ internal audit function, and their external auditors, there may be the question of what would be the basis for agreeing or disagreeing with the individual insurance company’s judgment regarding the discount rate and risk adjustment when there is no prescriptive guidance provided in the standard. Given this, the IC may have to step in and provide some guidance.

In the second part of this article, we will continue the discussion on the specific provisions of IFRS 17, including its interaction with IFRS 9, Financial Instruments, amortizing and tracking contractual service margins, presenting and disclosing results, and transitioning to the new standard.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.

Charisse Rossielin Y. Cruz is a partner of SGV & Co.

Journey of a titan

PHILIPPINE business icon and philanthropist Washington Z. SyCip passed away on Saturday night, people close to his family confirmed, leaving behind a legacy of excellence and integrity. Read the full story.
‘Mentor of thousands’ runs his course

How PSEi member stocks performed — October 6, 2017

Here’s a quick glance at how PSEi stocks fared on Thursday, October 2, 2017.

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