CIA.IFRS17-IC Flashcards
Briefly explain what is an insurance contract
The issuer has to accept significant insurance risk from a policyholder which arises from an uncertain future event that adversely affects said policyholder.
Define Insured event
Uncertain future event covered by an insurance contract that creates insurance risk.
Explain what a significant loss is
A loss is significant if there is a non-zero probability that the insurer will suffer a loss greater than premium received.
Define CFs within contract boundaries
Arise from substantial rights & obligations that exist during the reporting period in which the entity compels policyholder to pay premium and entity has obligation to provide insurance services.
Identify 2 reasons for reinsurance contracts having different boundaries than the underlying contracts
- May cover contracts that already existed before reinsurance coverage goes in effect
- May cover contracts that are going to be issued in the future
When should a contract be recognized under IFRS17?
At the earlier of the:
1. Beginning of coverage period
2. Date of first payment
3. Moment a contract becomes onerous
When should contracts be grouped together? (2 scenarios)
- When rights & obligations are different individually vs collectively
- When one contract cannot be measured without considering another
Define portfolio of insurance contracts
Comprises similar risks that are managed together
Usually the reserving groups used in AAR
Ex: ON Auto, ON Prop, AB Comm Auto, etc.
Identify 6 factors to consider for ‘managed together’
- Distribution channels (direct/broker)
- Regulatory level
- Capital allocation basis
- Entity management structure (comm/pers)
- Presentation in performance reports (AAR)
- How assets & liabilities are managed
Identify 4 impacts of an entity’s portfolio choice
- Whether further subgrouping of contracts are needed within a portfolio
- Level at which entities can make an accounting policy choice
- Level an entity can consider ability to reassess risks for contract boundaries
- Expenses included in measurement
Identify the 6 requirements of Fulfillment Cash Flows (FCFs)
- Include all future CFs within contract boundaries
- Probability weighted average of full range of outcomes
- Unbiased:
- No intention to attain a particular outcome
- No intention to influence behaviour - Reflect the perspective of the entity rather than a market perspective
- Current: based on currently available information
- Explicit
Identify 4 items included in FCFs
- Premiums
- Incurred Losses
- Salvage & Subrogation
- Transaction taxes
- Risk adjustment
- Discounting
What factors to consider when estimating FCFs?
Consider only factors that can be collected without undue cost & are likely to materially impact estimate.
Based on insurer’s judgement
Briefly explain the treatment of inflows in FCFs (3)
- Policy loans & repayments are part of FCFs
- Interest on prepaid premiums are treated as adjustment to premiums
- Extra premiums on substandard risks are treated as other premiums
Briefly explain the treatment of outflows in FCFs (3)
- Input from financial market has to be adjusted to reflect insurer’s characteristics
- Stochastic projections are allowed (not required)
- Consider anti-selection in risk adjustment
Define Insurance Acquisition Cash Flows
CFs arising from selling, underwritting, starting a groups of contracts that are directly attributable to them
Need to include CFs not directly attributable to insurance contracts within the portfolio such as commissions & UW costs
Considered an asset if incurred before reporting period in which contracts are recognized (& acquisition costs is allocated)
Identify 4 examples of insurance acquisition CFs
- Sales commissions
- Payments to managers of agencies/brokerages (iff based on sales)
- UW costs
- Contracts set up costs
Which of the following taxes are included in FCFs?
1. Transaction taxes
2. Wage-based taxes
3. Taxes paid on behalf of policyholder
4. Income taxes & other levies on the insurer
Transaction taxes are included (premium levies, GST)
Wage-based taxes & taxes paid on behalf of policyholder are included
Income taxes & other levies on the insurer are not included
When should FCFs & assumptions be reevaluated?
Every reporting period
Define Level of Aggregation
Insurance contracts may be aggregated into portfolios & groups within portfolios on initial recognition & not reassessed after.
Identify 2 reasons to not reassess groups after initial recognition
- Prevent offsetting onerous groups of contracts with profitable groups
- Report profits in appropriate reporting period
Identify 2 reasons making level of aggregation important
- Ensure accurate profit recognition
- Ensure consistent treatment of cross subsidies between insurance contract reporting
Define group
Subset of portfolio consisting of contracts issued no more than 12 months apart with profitable & onerous contracts separated.
Identify 3 types of groups
- Onerous
- Contract with no significant possibility of becoming onerous
- Any remaining contracts in the portfolio
Identify the initial assumption that should be used when determining groups for PAA approach
Contracts in the portfolio are not onerous unless facts & circumstances indicate otherwise.
What information is required during determination of groups
Requires reasonable & supportable information such as policy disclosure statements, valuation reports & pricing reports
In the absence of required information to determine groups, what are the 2 options for the entity.
- Determine the group to which the contracts belong by considering the FCFs of individual contracts at date of initial recognition
- Reasonably undertake a measurement approach at an individual contract level (this would enable a grouping assessment to be made)