Question 10

mandatory_coveragesmandatory_coverages
in CAS Sample IFRS 17 Questions

BA commentary - "When calculating the net expenses from reinsurance held, the allocation of reinsurance premiums should be negative. I think this is a typo here"

So should net exp from reins held be = -10000+2500+20000?

Comments

  • Staff-T1Staff-T1

    Yes

  • CanAct06CanAct06

    Thanks, but can you correct the sol'n to show this also (unless you have already)

  • Staff-T1Staff-T1

    I don't correct the CAS solution directly as this could cause a lot of confusion (I like to keep the CAS answers clean as they are) and just provide commentary down below. I find this makes it easier also for me to port comments over when the CAS updates the sample questions, which they do quite frequently

  • kybazzikybazzi

    I want to understand "Effect of changes in non-performance risk".

    Since "Net expenses from reinsurance contracts held" is added to ISR, its components should be (+) added if they increase ISR, (-) if they decrease ISR. Hence:

    • Allocation of reinsurance premiums: since paid to reinsurer, it (-) decreases ISR
    • Amounts recoverable: since recovered, it (+) increases ISR
    • Effect of changes in non-performance risk of reinsurers: this one I don't understand

    What does it mean? How do we make sure we are conceptualizing it correctly to know whether it is (+) added or (-) subtracted above? For example, if its value is "2500", why can't I interpret that as meaning there is an additional effect of 2500 needed to account for non-performance risk (in which case, it should lower ISR and hence be (-) subtracted above).

    Thank you.

  • Staff-T1Staff-T1
    edited October 10
    If it is (+) that means your risk has decreased and if it is (-) that means your risk has increased. This is because a positive number increases the ISR, which means the risk of non performance has decreased and that flows into your NI through the ISR. You know 2500 is supposed to be added because the formula for net expenses from reinsurance held adds the effect of changes in non performance risk of the reinsurers. You should follow the interpretation of the formula otherwise to your point it wouldn't make sense if people just start defining formulas on their own and leads to confusion
  • CatherineGaoCatherineGao

    "If it is (+) that means your risk has increased" following the formula, risk increased and ISR increased not decreased? more counter party risk more revenue?

  • Staff-T1Staff-T1
    Yes you are right I swapped the order around. I'll make the changes above. Thanks!
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