IFRS

Question 1

Board that promulgates IFRS

Answer 1

IASB or Int’l Accounting Standards Board

Question 1

Board that promulgates GAAP

Answer 1

FASB (Financial Accounting Standards Board)

Question 2

why FASB and IASB cooperating to create financial reporting standards

Answer 2

• increase transparency and consistency among insurers operating in different countries
• align standards with company economics (vs regulatory prudence)

Question 3

Define insurance contract according to IFRS

Answer 3

contract under which one party accepts significant insurance risk from another party by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder

Question 4

2 valuation methods under IFRS 17

Answer 4

GMA (General Model)
- default approach
- balance sheet liab = FCF +CSM

PAA (Prem Allocation Approach)
- simplified version of general model
- certain eligibility requirements must be met (assessed at contract inception)

Question 5

What is FCF (fulfillment cash flow)

Answer 5

FCF = PV(prem - losses - expenses) + adj for timing and risk of these cashflows

Question 6

What is CSM (Contractual Service Margin)

Answer 6

CSM = expected profit for providing future insurance coverage

Question 7

Define liability incurred claims

Answer 7

insurer’s obligation to pay claims for events that have already occurred (LIC)

Question 8

define liability for remaining coverage (LRC)

Answer 8

insurer’s obligation to provide insurance coverage for events that have not yet occurred

Question 9

Where PAA might be used instead of GMA for measuring IFRS 17 liabilities

Answer 9

• short-term contracts (policy term <= 1 yr)
• longer-duration contracts if PAA is reasonable approximation of General model (both apply only to LRC component liabilities

Question 10

Formula for contract liability in terms of LIC and LRC

Answer 10

LIC + LRC