IFRS17 Sample 8

cornedovcornedov
in General

I have two semi-related questions:

a. Sample 8 suggests grouping 3 and 5 because they are not onerous and both property exposures. I assume this is a simple mistake and what they really mean is 3 and 4 because 5 is onerous. However, this contradicts their answer key to 12b.

Groups 3 is PAA eligible while group 4 is not PAA eligible. On the answer to Sample 12 b they reference a paper (not on the syllabus) where they suggest you would segment based on measurement model.

Taken from page 104 from https://www.casact.org/sites/default/files/2022-05/6C_CIA_IRFS_Ins_Contracts.pdf

Im wondering would you actually segment based on measurement model? And if so, is the CAS answer wrong? Or would you simply use GMA for the combined group 3 and 4?

b. If we assess individual contract groups 1 and 2 they are both PAA eligible. If we combine the 2 groups (Annual revenue = 30, PAA estimate = 12.50 and GMA estimate = 10), the group is no longer automatically PAA eligible since group 2 has coverage period >12 months. The PAA vs GMA difference is now 8.3% which is well above our threshold for PAA eligibility.

So while there is no need to project FCF and CSM when they are grouped separately, if we combine 1 and 2 we would need to project FCF and CSM. Could you make an argument for not grouping 1 and 2 together? Would the fact that the combined group no longer qualifies for PAA factor into your decision?

Comments

  • Staff-T1Staff-T1

    Grouping 3 and 5 together is straight out wrong. You cannot group onerous contracts with non-onerous contracts.

    Group 4 is PAA eligible so you can combine 3 and 4 together using PAA (Through the materiality threshold). In general, yes you should not combine a GMA contract with a PAA contract as there is usually a reason one of the GoCs are measured with the GMA method (Usually significant variability in FCF).

    b. Yes, but they are asking whether you can group them together -> You can group them together and then use GMA.

    Yes, that would be a consideration but would probably be too technical for the exam. I would grant marks for that in an actual exam, but it would probably not be on the grading scheme

Sign In or Register to comment.