Sample Q29 c

fedwal12fedwal12
in CAS Sample IFRS 17 Questions

I have 2 questions for this:
1. Are we accounting for the LC in 2022 because the renewals are issued 2 months in advance, in this case group A2023 are issued in Nov2022?
2.Why is the "LC initial Recognition" of 60 counted as a positive (would've thought negative) for year 2022 for the Insurance service Result calculation?

Comments

  • Staff-T1Staff-T1
    1. That's correct. Onerous contracts are recognized immediately, rather than when premium is received which means that the LC appears on your balance sheet when renewals are issued for the next year.
    2. You are right. Recognition of the loss component will flow into the insurance service expense which should reduce the insurance service result. I believe the answer is correct here. 2022 should be negative, and the release of the LC should increase insurance service result
  • jppass2025jppass2025

    so the insurance service results is 490 for 2022, 950 for 2023 ?

  • Staff-T1Staff-T1

    That's right

  • guillam76guillam76

    In sample problem 22 we use the directly attributable expenses (D) to compute the ISR (E). Why in sample 29 don't we account for expenses in the calculation of ISR? Is it because there is no mention of amortization of expenses?

  • Staff-T1Staff-T1

    In sample 29, they included it in the incurred claims and it flows through into the ISE and correspondingly the ISR

  • sdeibertsdeibert
    edited 12:13AM

    For part B, would it be wrong to label WP as LRC and Incurred Claims as FCF? When calculating the LC that is where my brain first went but I see the solution phrased it as profit or loss and then if loss, then establish a LC. They would both get you the same answer but maybe my way of doing it is not "technically" correct.

  • sdeibertsdeibert
    edited 12:46AM

    Another question related to part C. I thought the loss component can't ever be negative. The purpose of the LC is to be added to premium received so that it equals FCF.

    Would the initial LC not be +60 and the LC recognized in 2023 be -60? Negative in 2023 only because it's being amortized and bringing the overall LC back down to 0...the LC itself would never have a reason to fall below 0.

    This would align with CAS's solution from rows 63-67, but I disagree with their formulas in row 68. Should the ISR formulas not be...
    3500-2950-60=490 (2022) and
    6700-5810-(-60)=950 (2023) ?

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