Definition of FCF
What do the term "explicit" means in the following definition : An explicit, unbiased and probability weighted estimate (i.e. expected value) of the present value of
the future cash outflows less the present value of the future cash inflows that will arise as the entity
fulfills insurance contracts, including a risk adjustment for non-financial risk.
Comments
Probably means a real cash flow (i.e. there actually needs to be cash moving to the insurer and moving from the insurer)
Hi,
Future Cash Flows = Fulfilment Cash Flows, is this correct?
they are both referred to as FCFs in different articles, so i wanted to clarify,
Thank you!
Not quite. It really depends on the context. Fulfilment cash flows = PV (Future Cash Flows)
And just to be sure, when we say PV(Future Cashflow), is this PV(Outflow - inflows) or PV(Inflow - Outflow). If I remember well, FCF is a Liability (since it is a compoenent of LRC), so my guess is that it it the former, is it right?
PV(outflow - inflow). Although as I have mentioned in the past, the CAS has defined it as PV(inflow - outflow) in one of their papers
Hi,
Just curious if this diagram summarizes calculation of LIC and LRC, as well as Fulfilment Cash Flows and Future Cash flows under IFRS 17 correctly?:
Yeap it is correct
Interesting. They inserted a "t" in the abbreviation for Future Cash Flows to distinguish it from FCF or Fulfillment Cash Flows.
@rlohoida - Where did you find this diagram? (ChatGPT? Joke.
) But actually, I am curious where you found it.
I leveraged graph used at my workplace as education for IFRS 17, and modified it to add FtCF & FCF distinction.
FtCF is not used anywhere. I came up with this term to separate Future Cash Flows and Fulfillment Cash Flows because it was giving me a headache
That was a good idea to insert the "t".
Hi,
I think there's a bit of mistake on the bottom formula of the provided by me graph above:
It should be "- RA" instead of "+ RA"
Just was going through LRC paper and figured out that since RA is part of outflows it's essentially a negative amount from FCF standpoint (https://battleactsmain.ca/wiki6c/CIA.IFRS17-LRC):
But please correct me if i'm wrong.
No, I think your original diagram is right. I believe your FCF is defined as outflow - inflow so RA should be an outflow - There are a couple of threads on the definition of FCF and whether it is inflow - outflow or outflow - inflow. In summary, it can be both, but you just have to make corresponding adjustments
Oh i see, makes sense. Thank you!