Evaluating the impact of stochastic interest rates and COVID-19 on financial performance under IFRS 17

Abstract The emergence of COVID-19 has resulted in a notable rise in mortality rates, consequently affecting various sectors, including the insurance industry. This paper analyzes the reflections of a sudden increase in mortality rates on the financial performance of a survival benefit scenario under the International Financial Reporting Standard 17. For this purpose, we thoroughly examined a single insurance scenario under four different states by modifying the interest and jump elements. We use Poisson-log bilinear Lee–Carter and Vasicek models for mortality and stochastic interest rate, respectively. Integrating the mortality model with a jump model that incorporates COVID-19 deaths we constructed a temporary mortality jump model. As a result, the temporary mortality jump model reflects the effects of the pandemic more realistically. We observe that even in this case mortality has a minor impact, whereas interest rates significantly still affect the financial position and performance of insurance companies.