Variable fee approach (VFA)
IFRS 17 variant for direct participating contracts, where the insurer's fee depends on the performance of underlying items.
The variable fee approach (VFA) is the IFRS 17 variant applied to direct participating contracts, in which the policyholder participates in the performance of a clearly identified portfolio of underlying items and the insurer's remuneration resembles a fee charged on that performance. Typical of unit-linked or participating savings life insurance, it recognizes that the value of the liability varies with that of the underlying items. Its particularity is that changes in the value of the insurer's share of these items adjust the contractual service margin rather than flowing directly to profit, which dampens accounting volatility linked to financial markets. This approach better aligns liability measurement with the economic nature of contracts where insurer and policyholder share financial risk. For the analyst, identifying portfolios under the VFA is essential to understand the sensitivity of profit to markets and the buffering effect of the contractual service margin.
Textbook case: a unit-linked savings contract falls under the VFA: the change in the insurer's share of the underlying items adjusts the margin rather than immediate profit.
VFA, variable fee approach
Follow the research
One letter a week. First, the week's underwriting note, when one is published: a dated, argued decision, signed by Paul Bernardski. Then what the observatory published on cyber risk, political risk and insurance. No account, no tracking.
No spam, one-click unsubscribe, no data ever sold.