Chapter 9 (IFRS17) Flashcards
What is the goal of IFRS17
It aims to standardise insurance accounting globally to help users of accounts make sensible comparisons of financial performance of different insurance companies
How is the loss component dealt with
The loss is recognised at inception in Insurance Service Expenses.
The loss component is the written off by reducing ISR and ISE by the same amount each year.
How is the CSM deemed to be a retrospective reserve?
CSM at POS is calculated using DCF techniques but once it is established it is a retrospective reserve.
Increases by discount rate used at inception and reduces by planned release to revenue. Changes in future cashflows are also calculated using locked in yield curves.
How does interest accretion on the CSM work in the VFA approach.
CSM increases with the expected return on the negative non-unit reserve and decreases with the expected return on positive non-unit reserves and RA.
What is initial recognition?
A group of contracts are recognised from the earliest of:
- beginning of the coverage period
-date at which the first premium is due
-when the group becomes onerous
How should the discount rate be chosen for the BEL under IFRS17
It should reflect the characteristics of cashflows and liquidity characteristics and be derived from observable market data
Definition of a contract boundary
- Period during which the entity can compel PH to pay premiums
- Period in which the entity has an obligation to provide PH with insurance contract services. This ends when
-entity can reasses the risks of the PH and can set a price or level of benefits to reflect those risks
-or both of the following
-entity can reassess risk of portfolio of
insurance contracts
-pricing of premiums up to date when
risks are reassessed does not take into
account risks that relate to periods
after the reassessment date
Top down vs bottom up deductions/additions
Top down requires deductions for market anf credit risk.
Bottom up includes premiums for illiquidity
Can you allow for diversification between risks in risk adjustment
Yes
How are coverage units chosen
based on how quantity of service is expected to be provided over the term of the contract
What does direct participation features mean.
Investment return is promised based on underlying items
What does variable fee element refer to
fee payable to insurer, which varies in line with value of pool of assets
What is the carrying amount
liability for remaining coverage (FCF + CSM) + liability for incurred claims
What are the assumptions for the BEL under Prudential Reporting
-no margins for prudence
-allow for all expected decrements and policyholder lapses
-make use of all data
-can allow for future management actions that are reasonable
-allow for policyholder behaviour
Can diversification be allowed for in the risk margin
Yes
Negative non-unit reserve exposes entity to which risks
Market and surrender risk
When is inflation a financial risk and when is it not
When inflation is linked to an index then it is not financial risk. However, when it is not linked to an index then it is financial risk
How do experience adjustments work in the VFA approach
Changes in the amount of the entity’s share of underlying items relate to future service and therefore adjust the CSM.
Even if in period variances adjust the entity’s share then it will adjust the CSM.
What is the effect of discounted versus undiscounted coverage units
Undiscounted coverage units defers interest on the CSM in the current period and hence inflates CSM remaining to be recognised in future yeats
