View source for CAS.Sample-IFRS-17-Qs

'''Reading''': Sample IFRS17 Questions

'''Author''': Casualty Actuarial Society

The sample Excel file is probably the most important material and one that you should aim for a 100% mastery for this exam. The questions are practical and realistic example of IFRS17 questions that cover a broad range of topics and provide insights on potential theoretical and calculation heavy questions. Most of the commentary is in the file and I will try to provide a broad picture overview here as well as my high-level thoughts.

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|| Click for [https://battleactsmain.ca/Excel/SampleQuestions_IFRS_17_Commentary_(2025_03_02).xlsx Sample IFRS17 Questions <u>in Excel</u> with Supplementary BattleActs Commentary]
<span style="color: red;">'''(Last Updated: 2025-03-02)'''</span>
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==Pop Quiz==

* Alice the Actuary has finished her first pass through the material. She has a basic understanding of IFRS17 and is looking to hit the sample questions. Let's help her out with some refreshers.

# What are the two criterias used to determine PAA eligibility? 
# How do you determine discount rates to be used under IFRS17? 
# Provide a few examples of lines of P&C products that have coverage periods greater than 1 year? 
# How does the CSM for reinsurance differ from the CSM for direct contracts? <u>Hint:</u> Think about the range of possible values for the CSM. Also think <span style="color: red;">'''why'''</span> this is the case.

==Keywords==

PAA, LRC, Discount Rates, Risk Adjustment, IFRS17

==In Plain English!==

===My First Thoughts===

* On first glance, this paper can seem overwhelming and I'd encourage you to take the time to really absorb and ponder on the paper. Go through the CAS sample solutions, read the comments and try to really understand the key purpose and concept that is being tested in each question. The alternative solutions are a great resource to help you further your understanding on IFRS17

* '''First question!''' Which questions are '''THE''' most important from the list of questions... (The answer is they are all important! In the past we used to have past years but this is pretty much all we have now so know them like the back of your hand)

* Now click the following link to download the Battleacts version of the sample Excel questions

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|| (Click for [https://battleactsmain.ca/Excel/SampleQuestions-IFRS17_202410_Commentary_(2025_01_23).xlsx Sample IFRS17 Questions <u>in Excel</u> with Supplementary BattleActs Commentary])
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====Sample 1====

A simple starter question which is basically just a Present Value calculation. One of my most emphasized points for candidates is to always <span style="color: red;">'''STATE'''</span>  your assumptions. If pressed for time, you do not need to conduct your calculations in a very meticulous line-by-line solution (it helps the examiner of course and you'd want them to be in a good mood) to get full marks. Refer to Sample 5 for an example of how you can do a quick calculation that will still receive full credit

====Sample 2====

Relatively simple memory question from the discount rate paper. There's some good BA commentary to help you understand the selection of a portfolio that is used to derive discount rates. Understanding the differences between IFRS4 (where you can use your own asset portfolio to determine discount rates) and IFRS17 (reference portfolio which may or may not be your own asset portfolio) is important. 

:{| class='wikitable'
|-
|| '''Industry Perspective''': My experience is that there is a good mix of insurers who choose to use their own asset portfolio vs a reference portfolio. The former:
:* helps bring IFRS17 discount rate closer to IFRS4
:* helped minimize volatility in the financials moving from IFRS4 to IFRS17
:* requires more justification to the auditor during transition
|}

====Sample 3====

This is a very good example of how a PAA eligibility test would go in practice. Calculations are relatively light and similar to what I would expect in an exam. It's possible that the CAS may require that candidates calculate the FCF estimate by hand, but those should usually be in other questions rather than in a PAA eligibility one.

====Sample 4====

Similar to sample 1, but this time you are required to calculate the RA using the cost of capital approach and then the LIC. This is quite a simplified approach to the cost of capital calculation which is probably what you can expect on the exam. For the CoC method, remember that the RA is on a <span style="color: red;">'''pre-tax basis'''</span> while the cost of capital is usually on a <span style="color: red;">'''post-tax basis'''</span> so remember to adjust for that in the exam if it is stated that the cost of capital is on a post-tax basis. If nothing is said, similar to this question that you can just proceed as is.

====Sample 5====

Very similar to question 1 again, but this time you are required to calculate the discount rate using a top-down or bottoms-up approach. The top-down approach is the only one that works and is relatively simple. Sample 18 is a more complicated version of this question but this sets up the basis. A sample calculation of something that will quickly get you full marks is provided.

====Sample 6====

A knowledge question straight from the discount rate paper. Some additional commentary around liquidity is provided in the sample but nothing much to talk about here.

====Sample 7====

This section deals with the concept of a significant financing component. This was not one of the topics that I would have expected to be tested on a calculation problem but is clearly seen as important by the CAS. I do not like the method provided by the CAS and have wrote up an alternative solution that is more intuitive to me and have added commentary explaining each step of the process.

For part (b) in layman's terms a financing component just means you are receiving premium way in advance of service which allows you to earn substantial interest income on it. Thus, this needs to be accounted for in your LRC.

====Sample 8====

A more complicated version of sample 3. This question was not particularly well written and had a couple of mistakes which are addressed in the commentary. An important question to understand well .

====Sample 9====

A very long question indeed and one that I am a big fan of given that it covers a broad scope of papers. When approaching questions with a large text and a large amount of marks, I always recommend highlighting important statements to ensure no information is missed. Also, candidates are not penalized twice for the same mistake. If you are stuck in a given section and the next part requires a number from the prior section, just make an assumption as to what that is and continue with your calculations.

Back to the question:

* part (b) is really open ended. Any method that can be justified will be accepted. Be coherent and concise and back up your argument with acceptable statistics.
* While I could see VAR being accepted in (b) I do not see it being accepted in (c) as it is not a coherent risk measure. Coherence is something discussed in the ERM exam and Exam 9 but I think you would still be penalized here for allocating based on VAR.
* part (d) is a big one with an error in the provided solution. An alternative solution that could be accepted is provided of which I'm not a particular fan personally.
* Again, it is surprising that they would test effective duration in (e) which seems like a rather minor topic. A corresponding modified duration calculation is provided. It is always important to read the question carefully as a candidate who calculated the modified duration instead of the effective duration when asked and vice versa will receive minimal partial credit.

====Sample 10====

This question is a bit tricky because I believe that the signs are incorrect (more detail in the excel file) but is a good example of how to calculate the Insurance Service Result. Pay more attention to the formula for net expenses from reinsurance (C31) and make sure you understand how to adjust the signs in the exam.

====Sample 11====

Simple Excess (Deficiency) calculation under IFRS17. Pretty much the same as IFRS4 with tsimilar pitfalls to watch out for.

====Sample 12====

Part (b) is no longer on the syllabus, but this is quite an important part of IFRS17 which shouldn't be too difficult to recall so I recommend remembering the list. The CAS could be thinking that this is an important list to be aware, or they could simply have forgotten to update their questions (more likely).

A common theme among the questions is the difference between a risk-attaching vs loss-occurring contract under IFRS17 so it's safe to say that is an important topic to focus on.

You can probably expect that questions about MSA ratios will be <span style="color: red;">'''harder'''</span> than what is in this sample (See past years)

====Sample 13====

Honestly, people will complain but I really like this question and is a very good question to ask on the exam. I'd recommend really understanding the mechanics of the 3 unwinding methods:

* Constant Yield Curve
* Using Spot Rates
* Using Expectations Hypothesis.

They will not necessarily be equal in each <span style="color: red;">'''period'''</span>, but the total unwind across <span style="color: red;">'''all'''</span> periods will be equal

====Sample 14====

Same comment about risk attaching vs loss occurring reinsurance contracts

====Sample 15====

This is a pretty simple version of obtaining a discount rate curve. I don't think you can expect the exam question to be similar to this, it'll probably be more akin to sample 18

====Sample 16====

Questions like these can easily be justified either way as long as you think logically and draw on your own experience at work. There are no "set in stone" answers. There are a few other possible answers provided in the commentary

====Sample 17====

A very long question which is basically just the sample LRC Excel in an exam question format. I would recommend just focusing on this rather than the sample Excel as I do not think there are any additional concepts that can be tested in the sample Excel that are not in this question.

You don't necessarily need to lay out your work in as organized a manner as the sample solutions.

I usually get plenty of questions about the sample LRC file which is why I have added detailed commentary highlighting the logic in each cell and why the calculations are done in that way. Hopefully '''fingers crossed''' most of the key questions surrounding the LRC calculation has been addressed.

You should know how to calculate the LIC and LRC fully from scratch at this point. As always, feel free to post on the forum if there are any aspects of this question that is not clarified by the commentary.

====Sample 18====

:{| class="wikitable"
|-
| '''Part (a)'''  || A more realistic question that you can expect on the exam when it comes to calculating the discounting curve. It is not too difficult, just a few more steps are necessary.
|-
| '''Part (c)'''  || We need to apply an AAD adjustment which  is always <span style="color: blue;">'''1/3'''</span> and is best to just memorise it. The derivation is not important. I believe in the CIA.Duration paper, an AAD was not applied when calculating the LRC and this is incorrect. Every LRC calculation requires it.
|-
| '''Part (d)'''  || A good question to test whether you really understand the mechanics of reinsurance under IFRS17.
|-
|-
| '''Part (e)'''  || I am really surprised that the CAS thinks testing conceptual questions about a NDIC is relevant as it would have been really low on my list of testable relevant material.
|-
|}

====Sample 19====

Part (b) is pretty tricky and I doubt many candidates would have gotten this correct in the actual exam. The two keys to determine onerousity is whether:

* The groups of contracts are expected to be <span style="color: red;">'''loss-making'''</span>
* On a <span style="color: red;">'''going-forwards'''</span> basis

If the statement does not imply both of the above, then you cannot conclude that a group of contracts is onerous

====Sample 20====

A good CoC RA question which is based on the MCT. If I had to guess, an exam question for the CoC would be based on the MCT. Remember the following points when dealing with the MCT.

For LRC RA, include the following in capital:

* Underwriting Risk
* Reserve Risk

For LIC RA, only include in capital:

* Reserve Risk

This is because the policies have already been written for the LIC, which means there is no longer any underwriting risk.

I have seen arguments that you can include operational risk as long as it is directly related to the servicing of policies (I do not know how you would break that out though!)

====Sample 21====

Nothing new that has not been covered in the prior PAA eligibility question

====Sample 22====

This is the first question that provides an example of how to calculate the CSM. Unfortunately for us, it isn't correct. I've provided a breakdown of what I think should be the correct calculation in Excel.

Part (d) is actually pretty technical and I am surprised that candidates are expected to have this depth of knowledge of coverage units. I kinda feel that there are these random really technical questions spread across the sample solution set which seems quite unfair.

I would focus on the core principles rather than try to go down every possible rabbit hole for IFRS17.

====Sample 23====

Very basic question. Part (c) is just a repeat of an earlier question

====Sample 24====

This is a good question that touches on the criteria for grouping contracts. It's strange that they removed the paper that deals with the grouping of contracts, but this is still covered in the reinsurance contracts paper.

As always, there are more nuances to a reinsurance contract as compared to a direct contract.

I like this question, especially part (d) which should help you in terms of thinking outside of the box with regards to the impact of external events and their interaction with IFRS17 

====Sample 25====

You've seen the LIC calculation before. I like when they make an easy calculation long which means there are plenty of opportunities to scoop up easy marks!

For part(b), just remember the two points that were mentioned above in terms of knowing when a contract is onerous and you will be good.

====Sample 26====

This is another cookie cutter PAA eligibility test question that is good practice. 

I like that the CAS does iterate on prior types of questions, adding more nuances and maybe organizing their solution in a different/better way.

For this question specifically, I highly recommend focusing on how they organize their eligibility table and using it as a template for yourself.

====Sample 27====

You have seen this question a couple of times by now. I do think part (c) is quite interesting though and tests how well you understand the illiquidity premium.

First, what is (c) actually asking for? In simple English, they are just asking for the advantages of using the same set of discount rates for both the LRC and LIC.

Second, let's list the <span style="color: red;">'''disadvantages'''</span> of using the same set of discount rates for both the LIC and LRC.

* Potential issues with auditors questioning the usage of a single set of discount rates, especially when the liquidity characteristics of the LIC and LRC are substantially different
* Makes it more difficult to compare results vs other firms if they are using a different set of discount curves for both LRC and LIC. Although this would be a minor disadvantage as the selection of the reference portfolio itself already makes it difficult to compare between two firms
* Oversimplification of discount rates as we do know that the LRC and LIC have different liquidity characteristics.

====Sample 28====

You should be able to do this question based on your experience from sample 4 and sample 20. 

The main difference here is they are using a different method of obtaining the capital required (Liability to Surplus ratio)

====Sample 29====

Pay close attention to part (c) and make sure you really understand how the loss component interacts with the income statement.

==BattleCodes==

* Memorize:
** I don't really think there are many things to memorize specifically in the sample questions
** You should have memorized what you needed to when going through the material

* Conceptual:
** Focus on the general themes and question types; with an emphasis on what similar questions on the exam could look like

* Calculational:
** Everything here is testable - Focus on understanding all the calculations in the paper like the back of your hand

'''No battlequiz for this topic, but here's a cookie for making it through everything''' :D

[[File: Cookie.jpg | 400px]]

==POP QUIZ ANSWERS==

# Coverage period of less than a year, reasonable approximation to the GMA model
# Using a top-down, bottoms-up or hybrid approach together with a reference portfolio of assets
# Surety, Warranty and Title insurance
# The CSM for reinsurance can be negative and represents a net cost rather than a net profit