IFRS 17 · Case studies (Step 3 of 5)
Case study
Lorvane Assurances SA (fictitious entity) issued on 1 January 20X6 two groups of two-year group protection contracts: group A (the workshop sector) and group B (the shop sector). You prepare the measurement of each group at initial recognition.
Your assignment
For each group, discount each flow separately, compute the discounted net outflow, the fulfilment cash flows, the contractual service margin and any loss; record the recognition entry of each group; distinguish what is case data from what is a rule; present the cumulative effect on the financial statements and conclude. One document is not useful.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Advanced level: no help, the work is grouped by kind.
6 documents: open each one to read it.
Document 1Memo
Lorvane Assurances SA (fictitious entity) issues two-year group protection contracts. Initial recognition takes place on 1 January 20X6, the start of coverage. Case conventions (pedagogical assumptions, not attributed to IFRS 17): amounts in EUR; flows at year end; each flow discounted separately; acquisition commissions included in the flows of the group and paid at the end of the first year; no flow before recognition and no currency effect.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Premium of group A received at issue | €70,000.00 | |
| Premium of group A receivable at the end of the first year | €73,500.00 | |
| Claims expected for group A, first year | €52,500.00 | |
| Claims expected for group A, second year | €55,125.00 | |
| Management expenses of group A, first year | €10,500.00 | |
| Acquisition commissions of group A | €8,400.00 | |
| Risk adjustment of group A | €6,000.00 | |
| Premium of group B receivable at the end of the first year | €105,000.00 | |
| Claims expected for group B, first year | €52,500.00 | |
| Claims expected for group B, second year | €55,125.00 | |
| Acquisition commissions of group B | €5,250.00 | |
| Risk adjustment of group B | €7,000.00 | |
| Annual discount rate | 5% | |
| Due date of the first year | 1 year | |
| Due date of the second year | 2 years | |
| Floor (zero) | €0.00 | |
| Legal advice invoice | €9,500.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Company profile and case conventions
Group A: estimated flows
Group B: estimated flows
Discounting parameters
Actuarial note: nature of the estimates
Legal advice invoice
18 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
What do the fulfilment cash flows consist of, and which of their elements are case data?
Task 2Calculation
Group A: discount each outflow.
Part 1 · Calculation
Group A: discount each outflow.
Result: Present value of the acquisition commissions (8,400 ÷ 1.05)
Task 3Calculation
Group A: discount the premium receivable.
Part 1 · Calculation
Group A: discount the premium receivable.
Task 4Calculation
Group A: compute the discounted net outflow before risk adjustment.
Part 1 · Calculation
Group A: compute the discounted net outflow before risk adjustment.
Task 5Calculation
Group A: compute the fulfilment cash flows.
Part 1 · Calculation
Group A: compute the fulfilment cash flows.
Task 6Calculation
Group A: compute the initial contractual service margin.
Part 1 · Calculation
Group A: compute the initial contractual service margin.
Result: Initial margin of group A (max(0; 16,000))
Task 7Calculation
Group A: compute any loss at initial recognition.
Part 1 · Calculation
Group A: compute any loss at initial recognition.
Task 8Journal entries
Group A: record the premium received and the liability.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 9Calculation
Group B: discount each outflow.
Part 1 · Calculation
Group B: discount each outflow.
Result: Present value of the acquisition commissions (5,250 ÷ 1.05)
Task 10Calculation
Group B: discount the premium receivable.
Part 1 · Calculation
Group B: discount the premium receivable.
Task 11Calculation
Group B: compute the discounted net outflow before risk adjustment.
Part 1 · Calculation
Group B: compute the discounted net outflow before risk adjustment.
Task 12Calculation
Group B: compute the fulfilment cash flows.
Part 1 · Calculation
Group B: compute the fulfilment cash flows.
Task 13Calculation
Group B: compute the initial contractual service margin.
Part 1 · Calculation
Group B: compute the initial contractual service margin.
Result: Initial margin of group B (max(0; -12,000))
Task 14Calculation
Group B: compute the loss at initial recognition.
Part 1 · Calculation
Group B: compute the loss at initial recognition.
Task 15Journal entries
Group B: record the loss of the onerous group.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 16Professional judgement
Are the 5% rate, the risk adjustment and the estimates rules of the standard or case data?
Task 17Effects on the financial statements
What is the cumulative effect of the two entries on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 18Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 20).
Document this file
These working papers use the data and results of this case.