CIA.IFRS17-LRC Flashcards
(50 cards)
How does IFRS-17 define LRC (Liability for Remaining Claims).
LRC is an entity’s obligation to:
a. investigate & pay valid claims under existing insurance contracts for insured events that have not yet occurred
b. pay amounts under existing insurance contracts that are not included in (a) and that relate to:(i) insurance contract services not yet provided(ii) any investment components or other amounts that are not related to the provision of insurance contract services and that have not been tran
sferred to the liability for incurred claims
Define Contract boundary.
( CF )
Cash flows that should be included when measuring the insurance liability arising from a contract:
1. the relevant cash flows triggered by the contract during the term of the contract (Ex: 1 year)
2. the cash flows include premiums paid by the policyholder & payments from the insurer to the policyholder (in accordance with the contract)
Briefly explain what it means for a portfolio to be in asset position.
(expected cash inflows) > (expected cash outflows)
Briefly explain what it means for a portfolio to be in liability position.
(expected cash inflows) < (expected cash outflows)
At inception, what is the value of LIC?
0 (at contract inception, all liabilities are part of LRC)
At inception, what is the value of paid claims?
0 (at contract inception, no claims have been incurred so no claims could have been paid)
At contract termination, what is the value of LRC.
0 (at contract termination, all liabilities are part of LIC)
At contract inception, how much of the CSM has been released?
None
At contract termination, what is the value of CSM?
0 (all CSM has been released by contract termination)
Identify the 2 main steps in any discounting procedure (same for IFRS 17 and CIA)
- Determine a payment pattern
- Apply discount factors
Identify a procedure for estimating the timing of LRC cash flows on a group basis under IFRS 17
• estimate a payment pattern on a group basis
• adjust the AY payment pattern used for LIC to a pattern consistent with the average accident date of the group
Formula for: carrying amount of CSM @ end of reporting period
carrying amount of CSM @ ‘'’end’’’ of reporting period =
(carrying amount of CSM @ ‘'’start’’’ of reporting period) + adjustments
Identify 2 adjustments relevant to the CSM carrying amount
• the effect of new contracts added to the group
• interest on the CSM carrying amount during the reporting period
Define coverage units according to IFRS17
The quantity of insurance contract services provided by the contracts in the group (as a simple example, this could just be equal to the # of policies)
What is the key concept that relates coverage units to the CSM?
Coverage units determine how the CSM is released into profit (or loss)
What is the KEY FORMULA for how CSM is amortized?
Let CU = # of Coverage Units:
Proportion of CSM released during the periode =
CUbeg / ( CUbeg + CUend )
and amount CSM released = CSMbeg x prop CSM released
Describe the CSM amortization pattern if the policy limit doesn’t change over the coverage period.
Uniform
Describe the CSM amoritzation pattern if the policy limit descreases over the coverage period.
Declining (so less CSM is released toward the end)
Describe the CSM amortization pattern if the policy limit increases over the coverage period
Increasing (so more CSM is released toward the end)
Identify an example of an insurance product with a declining policy limit over the coverage period
Mortgage
Identify an example of an insurance product with a increasing policy limit over the coverage period
Product warranty with replacement coverage
(replacement costs could increase due to inflation)
What is one way of writing the GMA formula for FCFs at initial recognition of the contract?
FCF = (Future cash in-flows) – (Future cash out-flows) + (effect of discounting) – RA + CSM
Is an entity required to track LRC excluding LC and LC separately?
yes (because they want to keep non-onerous and onerous contracts separate)
Describe the measurement of onerous contracts subsequent to initial recognition (depending on whether there have been changes in underlying assumptions).
if there are no changes in underlying assumptions:
→ LC is expected to be systematically decreased
if there are changes in underlying assumptions that are favourable:
→ allocate changes to the LC until it reaches 0 then a CSM may be re-established
