CIA.IFRS17-1 Flashcards
What is the condition for an insurance contract to be onerous at initial recognition?
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
How shall en entity, at minimum, divide a portfolio into groups (3)
(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
Identify considerations when estimating the risk on non-performance of a reinsurer (3)
- financial strength of the reinsurer
- history of claims and coverage disputes with reinsurer
- risk of contagion across various reinsurance arrangements
Identify 3 options for grouping data when estimating the present value of future cash flows and the RA
- 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
Briefly describe the role of actuarial input when estimating the RA (4)
- 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
How might insurance revenue for reinsurance contracts issued differ from earned premium (3)
- 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
How is the CSM concept different for reinsurance contracts held
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
When does an entity should recognize a group of insurance contracts
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
Briefly contrast the accounting treatment of the LC in the statement of financial position vs the statement of financial performance
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
Identify situations under PAA method for reclassifying a group from non-onerous to onerous at subsequent measurement (5)
- 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
Briefly describe the accounting treatment of Facility Association’s mechanisms
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