Exam 6C Practice Question 12
Study guide: Exam 6C
A P&C insurer measures a group of one-year contracts, all issued October 1, under the premium allocation approach. It pays directly attributable acquisition cash flows of 300 at issue. It is deciding whether to make the IFRS 17.59(a) election to expense these costs when incurred, or to defer them and amortize them evenly over the coverage period. Its financial year ends December 31.
Determine which of the following statements are true.
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I. Making the election increases the year's insurance service expenses by 225 relative to deferral.
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II. Making the election makes it more likely that the group is classified as onerous at initial recognition.
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III. Under deferral, the December 31 liability for remaining coverage is reduced by the 225 of acquisition cash flows not yet expensed.
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A) I only
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B) I and II only
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C) I and III only
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D) II and III only
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E) The answer is not given by (A), (B), (C), or (D)
Answer this question and see the worked solution
Concepts tested
- Insurance Acquisition Cash Flows
- Premium Allocation Approach
- Liability for Remaining Coverage
- Onerous Contract
- Insurance Service Expenses