Sample 19

cornedovcornedov
in CIA.IFRS17-LRC

I am a little confused for part B.

i. Worse than planned bottom line results (could this not be interpreted as unfavourable experience trends) which would trigger the need to evaluate whether a contract is onerous.
ii. Indication of 5% may mean inadequate pricing or UW which would trigger the need to evaluate whether a contract is onerous.
iii. Higher loss trends than industry (unfavourable experience trends) which may indicate the need to test for onerosity
iv. Past losses on portfolio indicates the need to test for onerosity

The answer key seems to suggest in all these scenarios, they are not onerous (and that you had to say no to get points). I get that you cannot conclude onerosity from a qualitative test alone, however on the other end do we really have enough information to conclude that these contracts are not onerous? Wouldn't you want to conduct a quantitative test to confirm in each of these cases given the qualitative considerations?

I don't really understand what this question is testing,it seems like a trick question to me.

Comments

  • Staff-T1Staff-T1

    Answer key is right and the arguments provided makes sense to me. The question is testing to see if you understand when exactly a contract would be onerous (groups of contracts are expected to generate a net loss going forwards)

    None of those statements indicate that the group of contracts are loss making going forwards. In terms of onerosity, nothing precludes you from testing your group of contracts going forwards. You do not necessarily have to wait for some form of deterioration to test.

    Honestly, onerosity is on a prospective basis and most companies can just claim that they don't expect a group of contracts to be onerous on a forward looking basis as they price for profitability which the auditor usually accommodates. The only situation where I could see there being no wriggle room around onerosity is when a book is consistently unprofitable and the actuary is unable to take rectifying forwards looking action due to regulation (such as with the Alberta good driver cap)

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