LRC under GMA for non-onerous contracts
If LRC = FCF + CSM, and CSM = – FCF for non-onerous contracts, does that mean that LRC = 0 if non-onerous?
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If LRC = FCF + CSM, and CSM = – FCF for non-onerous contracts, does that mean that LRC = 0 if non-onerous?
Comments
Yes, it will be 0 at initial recognition
Would the implication then be that the PAA simplification is a conservative estimate of LRC for non-onerous contracts, since (UEP - DAC) should be > 0?
This is not necessarily true. UEP - DAC can be < 0
Hi,
why would LRC be 0 at the initial recognition? I thought LIC is 0 at inception and all liabilities are part of LRC?
It's just because if you are non-onerous, then you are a profitable contract. Being profitable means your FCF is < 0. The CSM is set equal to -FCF which means your LRC = FCF + (-FCF) = 0