Sign of FCF when non-onerous vs onerous at initial recognition
Hi,
I'm quite confused about the sign of FCF in different situations:
From the reading we learned that if non-onerous at initial recognition, then:
FCF<0, representing a front end profit, and it will be offset by a CSM>0 (Actually I wonder if the FCF here means Premium - FCF, not just PV(liab) + RA, the latter is in the context of claims only if I don't misunderstand, otherwise wouldn't LRC always be 0?)
On the other hand, when onerous at initial recognition, an LC needs to be established to increase LRC ex. LC to FCF, does that mean FCF =0 here? If so, thinking about the quantitative test for onerousity, if FCF>LRC ex. LC then onerous, that's saying the LRC ex. LC is negative if onerous, which is contradictory to the bold from the text that losses are positive.
Could you please explain the inconsistency here? Is that because different IFRS 17 paper in the syllabus use different rules?
Comments
I believe there are some inconsistencies in the source texts and I have emailed the Exam 6-Canada exam committee. I will let you know when (if) I receive a response. Thanks for bringing this to my attention. Someone else also just raised similar questions in the forum.
I received a response from the exam committee and have inserted a note into the wiki here: