(PAA): (unexpired coverage for insurance contracts issued)

CatherineGaoCatherineGao
in OSFI.MCT

I had a hard time reconcile these two formulas:

MCT paper (PAA): (unexpired coverage for insurance contracts issued) = ( LRC – LC + unamortized insurance acquisition cash flows + premiums receivable ) x ELR + costs
acquisition cost is added

IFRS17-LRC paper
LRC (ex. LC) at initial recognition =
+ Premiums
- insurance Acquisition cash flows (unless the entity chooses to recognize the payments as an expense)
+/- amounts arising from Derecognition of "certain" assets & liabilities
acquisition cost is deducted

could you elaborate a bit on that?

Comments

  • Staff-T1Staff-T1

    in the MCT paper, they are actually trying to back out the old premium liabilities, it is NOT the PAA estimate of the LRC. This is what will be used to determine the estimate of insurance risk, so you are comparing two different things

  • JConceicaoJConceicao
    edited October 2023

    Could Unexpired Coverage for Insurance Issued be interpreted as the Expected Losses & ALAE,

    Where Expected Losses is capped by the Loss Component for recognized policies?

  • Staff-T1Staff-T1

    Let's break it down

    Unexpired coverage for insurance contracts issued (PAA) = (LRC excl LC + unamortized insurance acquisition CFs + prem receivable) X ELR + costs

    Unexpired coverage for insurance contracts issued (PAA) = (UEP - DAC + DAC + prem receivable X) ELR + costs

    Unexpired coverage for insurance contracts issued (PAA) = (Prem Received - EP + prem receivable) X ELR + costs

    So yes, it is a pure estimate of the Expected losses and ALAE. That said, it is not capped by the loss component

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