Sample IFRS questions # 17

user1user1
in CIA.IFRS17-LRC

To calculate the direct unearned premium, the formula is prem received + prem receivable - insurance revenue.
To calculate the unearned premium under PAA, the formula is prem received - insurance revenue.

Is this difference because PAA is a simplified method so you don't need to include prem receivable?

Comments

  • Staff-T1Staff-T1

    No, your first formula is the most correct method. In most cases, the latter method refers to a policy after initial recognition but before the effective date, so there would not be any premiums receivable

  • NycxBattleNycxBattle
    edited April 25

    How come in the sample solution, they don't discount the Future Acquisition Cost or DAC?

    Is it because DAC already happened and cost is paid already so nothing to discount and for the Future acquisition for 2024, we are assuming the cost happens at the beginning of period since its acquisition cost (so in this case Jan 1, 2024) and our calculation date is Dec 31, 2023 so we don't need to discount it for one day?

  • user1user1
    edited April 26

    How come premium receivable was not included in the PAA LRC excl LC part of the exhibit?

  • NycxBattleNycxBattle
    edited April 26

    @user1

    This is from the reading in "https://battleactsmain.ca/wiki6c/CIA.IFRS17-PAA"

    For PAA LRC, you don't need to use Premium receivable.

    This is the whole purpose of using PAA, because its much simpler. You don't have to project your future CF. LRC using PAA is a simple calculation

  • user1user1
    edited April 27

    @NycxBattle

    do you know what is the reason for this formula in the battlecard under IFRS 17 -1 for PAA?

  • NycxBattleNycxBattle
    edited April 27

    Your screenshot and my screenshot is pretty much the same thing.

    In this case the CAS solution is actually the same thing.

    Because
    UEP = Premium Received - Insurance Rev + Premium Receivable

    If you substitute the expression above in your screenshot, the premium receivable cancels out each other and you are left with

    LRC = Premium Received - Insurance Rev - Insurance Acq CF.

    However I think this only true for a specific period.

    Alternatively you can use formula in your screen in the excel question and it will give the same answer. Even if you change Premium receivable it will flow through

  • Staff-T1Staff-T1
    Future acquisition costs not being discounted implicitly assumes that all future acquisition costs will be fully incurred at day 1, so there is not need for any discounting. DAC is not used in the GMM and does not need to be discounted. You're confusing DAC with attributable costs
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