CAS Sample Questions IFRS 17 - #22

ChrisChris
in CIA.IFRS17-1

I'm trying to calculate the LRC and CSM at initial recognition but I obtain LRC = 0 instead of 2500 which is the correct answer. Could you please help me understand the issue with my calculation?

Comments

  • cornedovcornedov

    I also had a similar question:

    FCF = Losses + Expenses + RA - Discounting - Premium = -392.5
    CSM = 392.5

    GMA LRC = FCF + CSM

    I am wondering if it is because the question says premiums paid at inception which for non-onerous contracts inception = initial recognition?

    Therefore to calculate CSM we consider ALL cash flows including premium (CSM = -FCF = 392.5), but then to value LRC at initial recognition we EXCLUDE premium as it has already been received at inception (FCF = Losses + Expense + RA - Discounting = 2017.5). This way at initial recognition LRC = 2017.5 + 392.5

    In the wiki I recall reading that LRC under GMA = 0 at initial recognition but is it possible that this statement needs a qualification - UNLESS premiums are paid at inception/initial recognition?

    This is the only way I can make sense of the the answer to 22a.

    But then if we do this for premiums, why do acquisition expenses also paid at inception not get the same treatment? A key benefit of deferral of acquisition expense is that it will reduce our LRC. If directly attributable acquisition costs of 250 are paid at inception then I would argue we could only have 2 potential values of LRC:

    1) Before anything is paid LRC = 0
    2) Once premium and acquisition is paid LRC = FCF + CSM where FCF = 1625 + 70 + 162.5 = 1857.5 and CSM = 392.5 so LRC = 2250 (same result as PAA estimate)

  • VadimSemVadimSem

    I saw it the same way as you two.

  • Staff-T1Staff-T1

    For non-onerous contracts, inception = initial recognition.
    In general, all cash flows are always considered to establish the initial CSM.
    The correct answer should be that LRC = 0 here and this is always true for any non-onerous group of contracts measured under GMM at initial recognition.
    What they are doing here is calculating LRC immediately after premium has been received which I don't think is correct.

    For your second question, acquisition costs are clearly stated in the question that they are to be deferred and amortized over two years.

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