RA and CSM Insurance Contracts vs Reinsurance Contracts Held

MickyBMickyB
edited January 14 in CIA.IFRS17-1

Hi,

I am struggling to connect the dots between insurance contracts and reinsurance contracts held in terms of the RA and CSM.

This is an excerpt from the test:

"changes in the fulfilment cash flows that result from changes in the risk of non-performance by the issuer of a reinsurance
contract held do not relate to future service and shall not adjust the contractual service margin.” Therefore, if the risk of non-performance is changed at subsequent measurement, the changes in the FCF that result from changes to the risk of non-performance on the reinsurance contracts held would be recognized immediately in profit or loss.

So is my understanding here correct:

  1. RA for insurance contracts is calculated separately while RA for reinsurance contracts held would be included in the measurement of the estimates of future cash flows for reinsurance contracts held (kind of like for financial risk for insurance contracts)
  2. Related to the excerpt above, the reason this is not captured is because while there is a concept of CSM for reinsurance contracts held, it doesn't reflect unearned profit rather it represents "net cost or net gain" and thus its recognized in profit or loss?
    * something about my understanding of the 3rd point seems off*

Question: Where does non performance risk fall under? Is it a financial risk and is that why it is included in the estimate of the present value of future cash flows for reinsurance contracts held the same way financial risk is?

Comments

  • Staff-T1Staff-T1

    1) No, the risk adjustment is calculated similarly for reinsurance and insurance contracts held. Non-performance risk is not part of the Risk Adjustment. Risk adjustment here refers to the risk adjustment for non-financial risk. It is only the non-performance risk specifically that is estimated in the FCF.

    2) Your understanding here is correct. My understanding is that the reason this doesn't adjust the CSM is because it relates to current service (i.e. a change in non-performance risk affects the current in coverage provided)

    Yes, non-performance risk is a financial risk

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