Why is there no issue year allocation in the IFRS sample #1?

arbruderarbruder
edited October 2022 in PRACTICE EXAM

Hi @graham

The sample question gives a similar layout to the excel exhibits with the IFRS17-DR reading with accident year and payment year but in the sample question #1 answer, it doesn't seem to allocate the cash flows to issue year to find the present value of the cash flows? Is this not the correct case to use allocation year?

Comments

  • Staff-T1Staff-T1

    When you mean issue year do you mean accident year? If so then the Excel is doing the allocation correctly. However, if you mean policy year we don't ever do that for reserving

  • lawtsmlawtsm

    I think he meant taking the average of two accident years for allocating to issue year, as is done in the calculation example under IFRS17-DR. I would imagine Sample-1 question from CAS would use the issue year for calculating LIC, at least that's what we have learned from the syllabus.

  • adipelinoadipelino
    edited October 2022

    I think there's no real difference to the discounting or anything because whether we look at issue or accident year, they stay at the same payment timing (year of CF). So would it really just be a matter of following whatever payment pattern they give us, whether by AY or IY?
    Beyond this, it would only make a difference to the total PV(CF) if there was a different RA % or yield curve for each issue year.
    I'm not positive though!

  • arbruderarbruder

    @adipelino yes, I did the question both ways in the end and it doesn't make a difference which one is used. I guess because the question didn't explicitly state that we needed to calculate it by issue year, the two approaches are equivalent.

  • Staff-T1Staff-T1

    Oh I see what you guys mean. I don't think it is required to do an allocation to issue year unless explicitly stated and there are different assumptions by IY. If you look at the sample Excel, the final discounted amount is the same regardless of whether the discounting is done by issue year or accident year.

  • bicbicbicbic
    In the sample question, if I were to do the issue year, does the issue year start from 2021?
  • rlohoidarlohoida

    Hi,

    What's a logic behind "issue year" allocation concept. Why to do it to begin with?

  • Staff-T1Staff-T1

    Tbh I am not sure. We don't do it in the industry and it is not really mentioned much in the text. I would just take it at face value

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