Section 7 - Loss Component Example

tshutetshute
edited October 2022 in CIA.IFRS17-LRC

In the attached example, group A has a PAA LRC of 0. The GMA approach has an LRC of -3376.

One of the requirements of the PAA approach is that the GMA does not differ materially from the PAA, which it appears to do in this example. Am I missing something here?

Additionally, if the PAA LRC is 0, does that mean the contract is over? If thats the case, will the GMA CSM be 3376 ?

Comments

  • jjj820jjj820

    Have a similar question.

    For GMA, the LRC @ initial recognition = FCF +CSM = 0
    For PAA, the LRC @ initial recognition = expected premiums - directly attributable acquisition expenses. It is not 0.

    does it mean that PAA and GMA approach always have material difference?

    Thank you

  • Staff-T1Staff-T1

    Not necessarily. At initial recognition the PAA estimate is also 0 if you have not received any premiums yet. Your formula for PAA should be UEP - DAC. Also, there are normally differences between PAA and GMA due to discounting and revenue recognition. Only if the differences are material would you use the GMA method -> This is the whole purpose of doing PAA eligibility testing

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