CIA.IFRS17-PAA

Question 1

Describe the carrying amount for LRC using PAA (calculated at initial recognition)

Answer 1

Premiums received (at initial recognition)
minus acquisition cashflows at that date (unless already expensed)
plus any assets for acquisition cashflows derecognized
minus liabilities previously recognized

Prem recv - acq exp + acq CF derocog - liability previously recog

Question 2

Identify differences between GMA and PAA for calculating LRC

Answer 2

• PAA is simpler
• PAA doesn’t require estimation of FCFs (Fulfillment Cash Flows)
• PAA doesn’t require a CSM (Contractual Service Margin)

Question 3

Is a group PAA eligible if an insurer expects significant variability in the FCFs creating a material difference between the PAA and GMA estimates?

Answer 3

No, this disqualifies the use of PAA

Question 4

How can you determine if LRC using PAA differs materially from LRC using GMA?

Answer 4

Quantitative assessment:
- Calculate LRC using PAA & GMA and verify that the difference is ≤ materiality threshold

Qualitative assessment:
- Assess a similar group of contracts (ex: if that similar group uses PAA, then may be safe to assume this one can as well)

Question 5

If a group of onerous contracts is PAA eligible, what further adjustment to LRC is required?

Answer 5

Must add a “loss component”
- Loss Component = (LRC using GMA) - (LRC using PAA)

Therefore, LRC using PAA will equal LRC using GMA and there will be no difference between the two

Question 6

Eligibility criteria for using PAA instead of GMA

Answer 6

1. The coverage period of each contract in the group is ≤ 1 year
2. The entity reasonably expects that such simplification would produce a measurement of the LRC for the group that would not differ materially from the one that would be produced under the GMA approach

If criteria 1 is satisfied, don’t need to check criteria 2

Also, source text mentions that eligibility criteria 2 is not met if an insurer expects significant variability in the FCFs creating a material difference between the PAA and GMA estimates of FCFs

Question 7

Is the PAA eligibility for reinsurance contracts held assessed separately from the PAA eligibility for the related underlying insurnace contracts covered by reinsurance?

Answer 7

Yes, they are assessed separately.

This is because reins. contracts that are on a risk-attaching basis could have a boundary up to 2 years (even though underlying would have 1 year), and therefore such contracts wouldn’t meet criteria 1 for PAA eligibility (term of 1 yr or less)

Loss-Occuring contracts would have a boundary of 1-yr, meaning they would satisfy criteria 1

Question 8

When is a new qualitative assessment for a group required? (to see if they are eligible for PAA)

Answer 8

If market conditions change significantly from the original assessment

For ex: changes in interest rates, inflaiton, auto reforms, etc.

Also, subsequent modifications to the terms of contracts may results in a re-assessment of eligibility