Appendix A - GMA LRC

dogechowdogechow
in CIA.IFRS17-PAA

I have 2 questions regarding this example:

  1. Why is group D considered to be non-onerous? The group is not PAA eligible and the GMA LRC is greater than 0. Doesn't a positive GMA LRC at inception mean we expect a net outflow, in which case the group would be onerous?

  2. More generally, does the definition of onerous differ between the PAA and GMA methods? For PAA, it seems that as long as PAA LRC > GMA LRC, there is no loss component. However, for GMA we need to set up a loss component once GMA LRC > 0 (i.e. expected outflows > expected inflows). Does that mean that a group of contracts could be considered onerous under GMA but non-onerous under PAA in the scenario where PAA LRC > GMA LRC > 0 ?

Comments

  • Staff-T1Staff-T1
    1. This is the LRC immediately after the first premium has been received. Once that happens the LRC becomes non-zero. That's my take on this. Otherwise, the estimates will all be zero for PAA and GMA for non-onerous contracts which would defeat the whole point of this exercise
    2. Well if you are PAA eligible and are onerous, but the GMA estimate is less than PAA, then you are still fine to use PAA. Recall that PAA is meant to be a simplification so if your simplification is still more conservative than the GMA estimate despite being onerous, then it is fine to continue using PAA.
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