CIA.IFRS17-1

Question 1

What is the condition for an insurance contract to be onerous at initial recognition?

Answer 1

A contract is onerous at initial recognition if there is a net outflow for the sum of:
- FCFs
- acquisition cash flows
- cash flows arising from the contract at the date of initial recognition

Question 2

How shall en entity, at minimum, divide a portfolio into groups (3)

Answer 2

(a) a group that is onerous at initial recognition
(b) a group that has no significant possibility of becoming onerous
(c) a group of any remaining contracts

Question 3

Identify considerations when estimating the risk on non-performance of a reinsurer (3)

Answer 3

• financial strength of the reinsurer
• history of claims and coverage disputes with reinsurer
• risk of contagion across various reinsurance arrangements

Question 4

Identify 3 options for grouping data when estimating the present value of future cash flows and the RA

Answer 4

• estimate gross & net losses then calculate the ceded as gross - net
• estimate gross & ceded losses then calculate the net as gross - ceded
• estimate net & ceded losses then calculate the gross as net + ceded

Question 5

Briefly describe the role of actuarial input when estimating the RA (4)

Answer 5

• assist in assessing risk aversion of entity
• assist in evaluating variability inherent in the insurance contracts
• assist in assessing compensation for bearing risk
• provide explanations of the process to management so they may execute their oversight role

Question 6

How might insurance revenue for reinsurance contracts issued differ from earned premium (3)

Answer 6

• seasonality adjustments that are reflected if the expected pattern of release of risk differ from the passage of time
• reinstatement premiums collected following an insured event are generally applied against insurance service expense
• some ceding commission expenses on proportional reinsurance treaties might be included as part of insurance revenue, insurance service expense or the investment component

Question 7

How is the CSM concept different for reinsurance contracts held

Answer 7

unlike the CSM for underlying insurance contracts, the CSM on reinsurance held can be positive or negative

there is no unearned profit, instead there is a net cost or net gain on purchasing reinsurance

Question 8

When does an entity should recognize a group of insurance contracts

Answer 8

the earliest of the following:
(a) the beginning of the coverage period of the group
(b) the date when the first payment from a policyholder in the group becomes due
(c) for a group of onerous contracts, when the group becomes onerous

Question 9

Briefly contrast the accounting treatment of the LC in the statement of financial position vs the statement of financial performance

Answer 9

in the statement of financial position:
→ LC is booked as part of LRC

in the statement of financial performance:
→ LC is recognized as insurance service expense

Question 10

Identify situations under PAA method for reclassifying a group from non-onerous to onerous at subsequent measurement (5)

Answer 10

• judicial or legal findings (landmark court cases)
• changes in the regulatory environment
• shifts in the economic environment (trends, interest rates)
• allocation of expenses
• changes in the RA

Question 11

Briefly describe the accounting treatment of Facility Association’s mechanisms

Answer 11

FARM & UAF:
- member companies account for their share of FARM & UAF insurance contracts as direct business
RSPs:
- member companies use reinsurance accounting where the reinsurer is the collective FA membership