C - CIA Accounting Standards

Question 1

CIA ACCOUNTING STANDARDS

3 items likely to affect Capital Tests due to implementation of new accounting standards

Answer 1

• Adjustments for XS of market value over current book value
• Capital required for assets
• Capital required for UEP and unpaid claims (because the ActPV may change)

Question 2

CIA ACCOUNTING STANDARDS

Expected investment return rate for calculation of the PV(CF) is that to be earned on assets supporting policy liabilities.

Criterias on which the expected investment return rate depends on:

Answer 2

Method of valuation of assets and reporting investment income

Allocation of assets and income along LoBs

Return on the assets at the balance sheet date

Yield on assets acquired after the balance sheet date

Capital gains and losses on assets sold after the balance sheet date

Investment expenses and losses from default

Question 3

CIA ACCOUNTING STANDARDS

Consequence of selling more than insignificant amount of HELD TO MATURITY assets?

Answer 3

ALL held-to-maturity ASSETS must be RECLASSIFIED as available-for-sale for at least 2 years (which would result in a discontinuity in investment income)

Question 4

CIA ACCOUNTING STANDARDS

2 A and 2 D of Held to Maturity

Answer 4

A
change in market rate have no effect on financial statement

NI not affected by change in fair value, reducing volatility

D
consequence of selling more than an insignificant amount is that all HTM assets must be reclassified as AFS for at least 2 years

less flexibility in managing portfolio

creates significant reporting challenge if asset sales/redeployment becomes attractive

Question 5

CIA ACCOUNTING STANDARDS

1 A and 1 D of Available for Sale

Answer 5

A
separate volatility of fair value change outside of NI

D
income mismatch because A/L change do not flow through the same category (OCI vs NI)

Question 6

CIA ACCOUNTING STANDARDS

1 D of Held for Trading

Answer 6

D

greater volatility of assets and investments gains/losses