PAA considerations
For the Premium Allocation Approach (PAA):
→ There is no CSM but a Loss Component (LC), must be included for onerous contract, and this cannot be offset by future profits so careful consideration must be given to the level of aggregation in an FCT scenario.
Does the above just mean that when we set up our FCT model we need to track onerous and non-onerous contracts separately, as favourable development or new issuance of profitable contracts should not reduce the LC?
Comments
That's right
Is this specific to PAA or also applied to GMA?
It would apply to both, but at least for the FCT models that I have seen it is way easier to do it for GMM which is probably why the note is for the PAA approach