PSAK 74

DISCOUNT
RATE
IOTA LASERIA
Actuary
at Indonesia Financial Group
 One of the main requirements of
PSAK 74 is that liabilities must be
measured on a present value basis,

O1 using discount rates.

The standard does not require a

particular estimation technique for
determining discount rates.

Either a “bottom-up approach” or a

“top-down approach” can be
adopted
 Top-down vs bottom-up

02
here is a simple illustration on how to
calculate discount rate on both approach
resulting discount rate from those approach
no need to be reconciled
personally, I think bottom up approach is
easier :)
 Each of the liability
components discounted
using different rate

O3 Liability for remaining coverage

(GMM)
CSM discounted using locked in
discount rate, rate as at initial
recognition
Fulfilment cash flows (FCF) using
updated or current discount rate,
because FCF needs to be
remeasured at subsequent
measurement

Liability for incurred claim

using discount rate determined at the
claim incurred date
 PnL vs OCI
to minimise market impact to the PnL,
PSAK 74 allows us to report the effect
of changes in discount rates (difference
between PV of future CF discounted the
current rate and locked-in rate) either
in OCI or PnL

04 Unwind of the discount at locked-in

rates is always reported in PnL

This is an accounting policy choice at

portfolio level
 Matters needs to be
considered
Is using a single rate for all time

O5 horizons still allowed for operational

simplicity
What formula needs to be applied for
determining illiquidity premium
How frequent discount rate for
fulfilment cash flows should be
updated
What date should the risk free rate be
taken to calculate the locked in
discount rate of the open cohort using
bottom-up approach
Do we have to differentiate discount
rates for different portfolios and
currencies
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IOTA LASERIA

Actuary
at Indonesia Financial Group