Error in Battle Quiz ?
Hello !
I am wondering if there is an error in one of the Battle Quiz question.
The question ask us if a "group is PAA eligible if an insurer expects significant variability in the FCFs". The answer is "No, this disqualifies use of PAA".
However, my answer would have been:
First, we need to look if the coverage period is less than one year. If it is, the group is PAA eligible. If it is not, then the group is not eligible.
Would my answer be good ?
Comments
No, the criteria for PAA eligibility is an if an only if statement. Which means if one of the statements doesn't hold (either > 1 year, or significant variability) then the group is not PAA eligible
I am not sure to understand why this an if and only if statement.
IFRS.17-53 effectively says "if, and only if" but when we look at the graph of decision, it looks like this is more a "or" condition (so first you need to look at the coverage period condition and then the materiality difference / significant variability)
You are right in that is what the graph is implying.
For IFRS17 implementations, what we would do is similar to the above graph.
However, we would not carry out a PAA eligibility test on those contracts < 1 year in length. So, how would you know that there is significant variability in cash flows?
Only contracts with coverage period > 1 year are subjected to the PAA eligibility test for significant variability in cash flows which means that the scenario that you have described (< 1 year and significant variability in cash flows) cannot occur
Ohhhhh I understand now !
Good point thank you