Exam 6C Practice Question 9
Study guide: Exam 6C
A P&C insurer issues one-year commercial property policies effective January 1, 2027. To win a large account, it guarantees in the contract that the rate for the 2028 renewal will be the 2027 rate, whatever the insured's 2027 loss experience. The policyholder may decline to renew.
How does the rate guarantee affect the contract boundary?
- A) The boundary likely extends past 2027, because the insurer cannot fully reprice the 2028 renewal
- B) The boundary stays at December 31, 2027, because the policyholder is not obliged to renew
- C) The boundary stays at December 31, 2027, because a P&C contract's boundary is always its stated term
- D) The boundary ends at inception, because the guarantee makes the contract a financial instrument outside IFRS 17
- E) The boundary is shortened, because the insurer can cancel the contract at any time on notice
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