Decision Tree Example 2 Answer (CIA.IFRS17-LRC)

Example 2: Given the following information about a group of contracts, asses whether the group is onerous and take appropriate action (if any) company is growing by implementing aggressive underwriting and pricing no unfavourable trends are projected FCF = 100 LRC ex. LC = 80 LC = 20

Answer:

• Based on the decision tree, a qualitative assessment of facts & circumstances indicates that this group of contracts may be onerous.
• A quantitative assessment comparing FCF = 100 to LRC ex. LC = 80 indicates the groups is onerous because FCF > LRC ex.LC.
• Required action: Book an LC of 20 on the P&L and increase the LRC of 80 to match the FCF of 100.