IFRS 17-PAA

Question 1

Describe the Carrying Amount for LRC using PAA (calculated at initial recognition).

Answer 1

• premiums received (at initial recognition)
• MINUS acquisition cash flows at that date (unless they are already expensed)
• PLUS any assets for acquisition cash flows derecognized MINUS liabilities previously recognized

Question 2

Identify differences between GMA and PAA for calculating LRC. (3)

Answer 2

• PAA is simpler
• PAA doesn’t require estimation of FCFs (Fulfilment Cash Flows)
• PAA doesn’t require a CSM (Contractual Service Margin)

Question 3

Is a group of PAA eligible if an insurer expects significant variability in the FCFs?

Answer 3

No, this disqualifies the use of PAA.

Question 4

How can you determine if LRC using PAA differs materially from LRC using GMA?

Answer 4

Quantitative assessment:
- calculate using PAA and GMA; then verify that the difference is less than the materiality threshold
Qualitative assessments:
- assess a similar group of contracts

Question 5

If a group of onerous contracts is PAA eligible, what further adjustment to LRC is required?

Answer 5

• must add a ‘loss component’ (LC)

- loss component = (LRC using GMA) - (LRC using PAA)