2. IFRS PWC Ready or Not (Oct 2014)

Question 1

Building Block Approach

Answer 1

1. CSM: represents the future unearned profits of the contract to be recognized in profit and loss over the life of the contract. It eliminates any day one gain on the contract by deferring the recognition to future periods. Expected losses on onerous contracts on day one are recognized immediately in profit or loss.
2. Risk Margin: an adjustment for risk
3. Best estimate liability: the probability weighted estimate of the future CFs to fulfill the contract discounted for the time value of money

Profit is recognized as you release margin, investment earnings or as experience changes

Calculations should be done at portfolio level

Liability = PV(fulfillment CFs) + CSM

Question 2

IFRS asset classifications

Answer 2

1. Amortized cost
2. Fair value through OCI
3. Fair value through Profit or Loss (FVPL)

Question 3

IFRS 4 Phase II A/E experience deviations and assumptions changes

Answer 3

1. Past/current assumptions changes: impact UW gain/loss (Examples are past/curr CFs, release of RM, release of CSM)
2. Future CFs/update to RM: impact CSM if CSM >0
3. Changes to discount rates: Company choice… investment gain/loss or OCI