IFRS17-LRC

Question 1

what is a simple formula for ‘insurance contract liabilities’ under IFRS 17

Answer 1

insurance contract liabilities = LIC + LRC

Question 2

what is a simple formula for ‘LRC’ under IFRS 17

Answer 2

LRC = (LRC ex LC) + LC
(LC or Loss Component is required only for onerous contracts)

Question 3

how does IFRS 17 define LRC (Liabilities for Remaining Coverage)

Answer 3

LRC (Liabilities for Remaining Coverage) is an entity’s obligation to:
(a) investigate & pay valid claims under existing insurance contracts for insured events that have not yet occurred
(b) pay amounts under existing insurance contracts that are not included in (a) and that relate to:
(i) insurance contract services not yet provided
(ii) any investment components or other amounts that are…
not related to the provision of insurance contract services and that have…
not been transferred to the liability for incurred claims

Question 4

describe the concept of ‘contract boundary’ under IFRS 17

Answer 4

It defines cash flows that should be included when measuring the insurance liability arising from a contract:
* the relevant cash flows are triggered by the contract during the term of the contract
(Ex: 1 year)
* the cash flows include premiums paid by the policyholder & payments from the insurer to the policyholder
(in accordance with the contract)

Question 5

fill in the blank: policies are subdivided into ________

Answer 5

portfolios

Question 6

fill in the blank: portfoios are subdivided into ________

Answer 6

groups

Question 7

what does it mean for a portfolio to be in an ‘asset position’

Answer 7

(expected cash inflows) > (expected cash outflows)

Question 8

what does it mean for a portfolio to be in an ‘liability position’

Answer 8

(expected cash inflows) < (expected cash outflows)

Question 9

what is a simple formula for LRC that uses cash flows

Answer 9

LRC = FCFs + CSM
(and CSM exists only for non-onerous contracts)

Question 10

at contract inception what is the value of LIC

Answer 10

0 (at contract inception, all liabilities are part of LRC)

Question 11

at contract inception what is the value of paid claims

Answer 11

0 (at contract inception, no claims have been incurred so no claims could have been paid)

Question 12

at contract termination what is the value of LRC

Answer 12

0 (at contract termination, all liabilities are part of LIC)

Question 13

at contract inception how much of the CSM has been released

Answer 13

none

Question 14

at contract termination what is the value of CSM

Answer 14

0 (all CSM has been released by contract termination)

Question 15

identify the main steps in any discounting procedure (same for IFRS 17 and CIA)

Answer 15

• determine a payment pattern
• apply discount factors

Question 16

identify a procedure for estimating the timing of LRC cash flows on a group basis under IFRS 17

Answer 16

• estimate a payment pattern on a group basis
• adjust the AY payment pattern used for LIC to a pattern consistent with the average accident date of the group

Question 17

formula for: carrying amount of CSM @ end of reporting period

Answer 17

carrying amount of CSM @ ‘'’end’’’ of reporting period = (carrying amount of CSM @ ‘'’start’’’ of reporting period) + adjustments

Question 18

identify adjustments relevant to the CSM carrying amount

Answer 18

• the effect of new contracts added to the group
• interest on the CSM carrying amount during the reporting period.