Fall 2017 Q14
Hi Graham,
The way I understood OCI is that it is a synonym for Unrealized Gains. In this problem, Unrealized gains (loss) from Fair Value Option assets is not part of OCI, but rather it is included in the investment income. Maybe that's explained in another paper but that question is in this wiki that's why I am posting here.
Thanks,
Comments
This is confusing because the reading that dealt with recognition and measurement of financial instruments was removed from the syllabus for 2019.Fall. That reading dealt with the bond types:
Chapter 28 of Odomirok (Canadian Annual Statement) in the section entitlted INCOME STATEMENT states the following:
That makes it seem like unrealized gains on Fair Value Option assets would not be included in net investment income. Also, that same chapter of Odomirok has a brief section entitlted STATEMENT OF COMPREHENSIVE INCOME AND ACCUMULATED COMPREHENSIVE INCOME. In that section, they say:
And the reading that was removed from the syllabus explains that only availabe-for-sale assets have an effect on OCI.
Anyway, this is a long way of saying that you probably don't have to worry too much about this anymore. If the CAS had wanted you to know how about the accounting treatment of bond assets, they wouldn't have removed the reading that explains that from the syllabus.
HI @graham,
Maybe I am just a bit tired and not thinking correctly but I have some doubts about how the Net Incurred Loss in this question is being calculated.
To calculate the Net Incurred Loss in 2016 (what will go on the Income statement), we usually do:
Net Incurred Loss = Paid in 2016 + Change in Net Unpaid Claims (Net APV)
= Paid in 2016 + (EOY Net APV - BOY Net APV)
In this question, the BOY Net APV that's being used is coming from the Income statement (47876) which seems wrong.
47876 is the Net Incurred Loss in 2015 but this is not the same as the BOY Net APV since this value would usually need to come from the Income Statement.
Please let me know if I am not thinking straight.
Thank you very much!
Well, it is all a little confusing because the sample quarterly and annual statements given in the syllabus readings don't have any numbers, just the blank forms, so it's hard to see how different exhibits relate to each other.
The income statement (Exhibit 20.30) shows:
which sounds like what the exam question labels Net Claims Liabilities but I don't think that's the case. This income statement item would include both paid and unpaid amounts whereas Net Claims Liabilities would only include unpaid amounts.
The liability side of the balance sheet (Exhibit 20.20) shows:
which I think is supposed to be what they call Net Claims Liabilities in the exam question. If it isn't then you can't solve the problem. It's unfortunate that the labels used in the question aren't consistent with the labels in the annual statement.
Thank you for the detailed comparison @graham!
So if I understand correctly are you saying that:
When I attempted this question, I actually used the information from the triangles as at Dec 31 2015 to come up with the Net Unpaid Claims at the end of 2015 and I did not get the 47,876 given in the question. That's why I assumed the number given was referring to the Income statement Net claims (Paid + Unpaid).
On a side note, do I need to worry about the realized gains and unrealized gains portion of this question (about the different type of bonds) ? I know you said CIA Accounting was removed but I am wondering if there is anywhere else in the syllabus that required knowing how to deal with those.
Thanks you again!
Yes, to your first question: Net Claims Liabilities refers to Unpaid Claims and Adjustment Expenses. (The issue you run into if you try calculating the 47876 value from the triangle is that it wouldn't include PfADs.)
About dealing with the different types of bonds: You don't have to know that anymore. It isn't anywhere else on the syllabus.
For part a, when we calculate the %emergence in 2017 from AY2015... shouldnt we do this: (0.75-0.50)/(1-0.50) = 50%. However the solutions show: (1-0.75)/(1-0.75) ?
Let's go back to AY2016 for a moment. You calculate the emergence for AY2016 just like in this section of the wiki:
But for AY2015, you have to rebase the payment pattern because you are already at age 24. That means we only need the age 24 and 36 rows of the payment pattern table. It looks like you're still trying to use age 12 as the basis, which is not correct.
To understand it better, it might help to look at an example of a payment pattern table that goes up to age 48. Here, the AY2021 emergence would be similar to your question about the AY2016 in the exam problem.
very clear now thank you