IFRS 17 LRC GMA and PAA at initial recognition for non-onerous contracts - should they be different?

jaekljaekl
in CIA.IFRS17-LRC

If I have a non-onerous P&C contract that has a coverage period of 6 months, it qualifies for PAA. Under PAA, the LRC for a non-onerous contract is just LRC ex. LC since there is no LC.

And the LRC ex. LC is given as premium received at initial recognition - insurance acquisition cash flow +/- any amount arising from derecognition (assume its 0). For simplicity, let's say the acquisition cash flow (commission and so on) is also 0.

Then under PAA the LRC for this contract at initial recognition is just the premium.

However, under GMA, the LRC for this contract at initial recognition is given as FCF + CSM which is 0 since CSM would negate all the unearned profits.

So we have LRC PAA (i.e. premium) > LRC GMA (i.e. 0).

Is my understanding right? All the formulas are given in the IFRS 17 - LRC reading section 4-5.

Comments

  • Staff-T1Staff-T1

    That's right, but only at time 0. And this makes sense cause the whole purpose of the PAA is to provide a more simplified approach to measuring the LRC that is also more conservative

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