Wikilah admin: Created page with "{{Quiz/start}} {{Quiz | topic = When contract terms change: derecognize or continue? | question = AXA France holds a group of 15,000 annual home insurance contracts covering properties in the Lyon metropolitan area. A policyholder asks to update the beneficiary name on their policy. Under IFRS 17, how should the insurer treat this change? | option_a = Derecognise the original contract and recognise a new one | option_b = Continue the existing..."

2026-03-31T16:42:06Z

Created page with "{{Quiz/start}} {{Quiz | topic = When contract terms change: derecognize or continue? | question = AXA France holds a group of 15,000 annual home insurance contracts covering properties in the Lyon metropolitan area. A policyholder asks to update the beneficiary name on their policy. Under IFRS 17, how should the insurer treat this change? | option_a = Derecognise the original contract and recognise a new one | option_b = Continue the existing..."

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{{Quiz
| topic = When contract terms change: derecognize or continue?
| question = AXA France holds a group of 15,000 annual home insurance contracts covering properties in the Lyon metropolitan area. A policyholder asks to update the beneficiary name on their policy. Under IFRS 17, how should the insurer treat this change?
| option_a = Derecognise the original contract and recognise a new one
| option_b = Continue the existing contract because the change does not alter the risk profile or group assignment
| option_c = Remove the contract from its current group and place it in a new annual cohort
| option_d = Suspend measurement of the contract until the administrative change is processed
| correct_answer = b
| explanation = A beneficiary update is a minor administrative amendment that does not change the contract's risk profile, coverage scope, or expected profitability. It would not cause the contract to belong in a different group, so the existing measurement simply continues. Option a is reserved for far more substantial changes.
}}

{{Quiz
| topic = When contract terms change: derecognize or continue?
| question = Another policyholder in the Lyon group asks to double their sum insured from €200,000 to €400,000 and pays an additional premium. The insurer confirms the contract still belongs in the same profitability group. What is the correct accounting treatment?
| option_a = Derecognise the old contract and recognise a new contract at initial recognition
| option_b = Keep the existing contract and adjust the fulfilment cash flows and CSM to reflect the higher sum insured and additional premium
| option_c = Recognise the additional premium as immediate profit in the income statement
| option_d = Create a separate contract group for the increased coverage
| correct_answer = b
| explanation = Because the contract still belongs in the same group after the change, the modification does not trigger derecognition. The insurer updates the estimated future cash flows and the additional premium inflow, with the net effect adjusting the CSM. Option c is wrong because changes relating to future service adjust the CSM rather than hitting the income statement immediately.
}}

{{Quiz
| topic = The criteria and consequences of modification
| question = A third policyholder in the Lyon group asks to convert their one-year home insurance policy into a ten-year comprehensive property and liability package, including earthquake cover. The risk profile changes substantially and the modified contract would not belong in the same group. Under IFRS 17, what must the insurer do?
| option_a = Continue the existing measurement and simply update the fulfilment cash flows
| option_b = Derecognise the original contract and recognise a new contract, measuring it at initial recognition on the modification date
| option_c = Keep the original contract and add a separate overlay contract for the new risks
| option_d = Defer any accounting until the original contract's coverage period expires
| correct_answer = b
| explanation = When a modification is so significant that the contract would belong in a different group, the insurer must derecognise the original and recognise a new contract. The modification date becomes the initial recognition date for the replacement contract. Option a applies only when the contract stays in the same group.
}}

{{Quiz
| topic = The criteria and consequences of modification
| question = When the original one-year policy from the previous question is derecognised, what happens to its remaining contractual service margin?
| option_a = It is written off as a loss in the income statement
| option_b = It is transferred directly to the policyholder as a refund
| option_c = It is accounted for at the modification date and feeds into the day-one measurement of the replacement contract
| option_d = It remains on the balance sheet as a separate reserve
| correct_answer = c
| explanation = The remaining CSM and other balances of the derecognised contract are not simply lost. They are accounted for at the modification date, and the difference between the derecognised amounts and the premium charged for the new contract becomes part of the new contract's initial measurement. Option a incorrectly treats the CSM as a write-off.
}}

{{Quiz
| topic = The criteria and consequences of modification
| question = Suppose a regulatory change in France mandates that all home insurance policies in the Lyon region must include a new natural disaster benefit. The insurer determines that adding this benefit does not cause any contract to move to a different group. How should the insurer handle this change under the general model?
| option_a = Derecognise all affected contracts and recognise new ones with the added benefit
| option_b = Treat the change as an update to future cash flow estimates, with the net effect adjusting the CSM
| option_c = Ignore the regulatory change until policy renewal
| option_d = Recognise the cost of the new benefit immediately as a loss in the income statement
| correct_answer = b
| explanation = Because the contracts remain in the same group, the modification does not trigger derecognition. The added benefit changes future expected cash outflows, and since this relates to future service, the net impact adjusts the CSM. Option d would only be correct if the change related to current or past service, which is not the case here.
}}

{{Quiz
| topic = Portfolio transfers: measuring at the transaction date
| question = A competing insurer decides to exit the Lyon property market and sells its block of 8,000 home insurance contracts to AXA France for €4,200,000. Under IFRS 17, when does AXA recognise these contracts on its balance sheet?
| option_a = On the date the contracts were originally written by the selling insurer
| option_b = On AXA's next annual reporting date
| option_c = On the transaction date, which AXA treats as its own initial recognition date for the transferred contracts
| option_d = On the date the last policyholder consents to the transfer
| correct_answer = c
| explanation = IFRS 17 requires the receiving insurer to treat the transaction date as its initial recognition date. AXA measures the contracts using current assumptions and current discount rates on that date. The original recognition date used by the selling insurer is irrelevant to AXA's measurement.
}}

{{Quiz
| topic = Portfolio transfers: measuring at the transaction date
| question = AXA estimates the fulfilment cash flows of the acquired Lyon block (including discounting) at €3,650,000 and the risk adjustment at €200,000. The purchase price was €4,200,000. What is the CSM at initial recognition for AXA?
| option_a = €4,200,000
| option_b = €350,000
| option_c = €550,000
| option_d = €0, because the purchase price exceeds the fulfilment cash flows
| correct_answer = b
| explanation = The CSM equals the difference between the consideration paid and the fulfilment cash flows including the risk adjustment: €4,200,000 minus (€3,650,000 + €200,000) = €350,000. This represents the expected profit AXA anticipates from the acquired contracts. Option c incorrectly omits the risk adjustment from the calculation.
}}

{{Quiz
| topic = Portfolio transfers: measuring at the transaction date
| question = The acquired block contains contracts originally issued across three different years. A colleague suggests placing all of them in a single annual cohort dated at the transaction date for simplicity. Is this correct under IFRS 17?
| option_a = Yes, because the transaction date resets the cohort for all transferred contracts
| option_b = No, the receiving insurer must assign contracts to annual cohorts based on their original issue dates, keeping each vintage separate
| option_c = Yes, but only if all contracts have remaining coverage of one year or less
| option_d = No, annual cohorts do not apply to transferred contracts at all
| correct_answer = b
| explanation = IFRS 17's grouping rules, including annual cohorts, apply fully to the receiving insurer. Contracts issued more than one year apart must remain in separate cohorts based on their original issue dates, not the transfer date. This preserves the transparency IFRS 17 is designed to achieve.
}}

{{Quiz
| topic = When contract terms change: derecognize or continue? / The criteria and consequences of modification
| question = Consider two simultaneous events affecting the Lyon home insurance book: a policyholder converts their annual policy into a ten-year package (triggering derecognition), and a separate policyholder increases their sum insured within the same product structure (no change in group). Which statement best describes the combined accounting outcome?
| option_a = Both changes adjust the CSM of the original group, since both involve existing policyholders
| option_b = The first change leads to derecognition and a new contract measured at initial recognition, while the second updates the existing group's fulfilment cash flows and CSM
| option_c = Both changes trigger derecognition because both alter the terms of existing contracts
| option_d = Neither change has any effect until the next reporting date
| correct_answer = b
| explanation = The two changes receive different treatments because they fall on opposite sides of the modification threshold. The ten-year conversion is substantial enough to move the contract to a different group, triggering derecognition and fresh measurement. The sum insured increase keeps the contract in the same group, so the existing measurement is updated. Option c incorrectly applies derecognition to a change that does not meet the threshold.
}}

{{Quiz
| topic = Portfolio transfers: measuring at the transaction date / The criteria and consequences of modification
| question = After acquiring the Lyon block, AXA discovers that the selling insurer had a CSM of €500,000 on those same contracts. AXA's own CSM calculation yields €350,000. A team member asks which figure AXA should use. What is the correct answer and why?
| option_a = AXA should use €500,000 because it must honour the selling insurer's measurement under IFRS 17
| option_b = AXA should use the average of both figures (€425,000) for a balanced approach
| option_c = AXA should use €350,000 because the receiving insurer measures from its own assumptions and the price it actually paid, not the transferring insurer's balances
| option_d = AXA should use €0 because portfolio transfers never generate a CSM for the buyer
| correct_answer = c
| explanation = Under IFRS 17, the receiving insurer builds its measurement from scratch at the transaction date using its own discount rates, expense assumptions, and the actual consideration paid. The selling insurer's CSM is irrelevant to AXA's books. The two figures differ precisely because each insurer applies its own assumptions and has paid a different effective price for the cash flows.
}}

{{Quiz/end}}

Wix:Training/IFRS17/Contract modifications and portfolio transfers/quiz - Revision history