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Created page with "{{Quiz/start}} {{Quiz | topic = Passage of time: unwinding discount, releasing RA, releasing CSM | question = AXA insures a group of property contracts covering 3,000 apartments in the coastal city of Nantes, France. At the start of 2026, the group's fulfilment cash flows have a present value of €10 million, discounted at 3%. One year passes with no change in assumptions. What happens to the liability solely due to the passage of time? | option_a..."
 
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{{Quiz
{{Quiz
| topic = Passage of time: unwinding discount, releasing RA, releasing CSM
| topic = Passage of time: unwinding discount, releasing RA, releasing CSM
| question = AXA insures a group of property contracts covering 3,000 apartments in the coastal city of Nantes, France. At the start of 2026, the group's fulfilment cash flows have a present value of €10 million, discounted at 3%. One year passes with no change in assumptions. What happens to the liability solely due to the passage of time?
| question = AXA issues a group of 3,000 ten-year disability income contracts to employees of several large employers in Lyon, France. At the start of 2026, the group's fulfilment cash flows have a present value of €10 million, discounted at 3%. One year passes with no change in assumptions and no claims. What happens to the liability solely due to the passage of time?
| option_a = It decreases by €300,000 because the coverage period is shorter.
| option_a = It decreases by €300,000 because the remaining coverage period is shorter.
| option_b = It increases by approximately €300,000 due to the unwinding of the discount.
| option_b = It increases by approximately €300,000 due to the unwinding of the discount.
| option_c = It stays the same because no claims have occurred.
| option_c = It stays the same because no claims have occurred.
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{{Quiz
{{Quiz
| topic = Passage of time: unwinding discount, releasing RA, releasing CSM
| topic = Passage of time: unwinding discount, releasing RA, releasing CSM
| question = For the same Nantes property group, the risk adjustment at the start of 2026 was €600,000. During the year, a portion of risk is borne without adverse experience. Where does the released portion of the risk adjustment appear?
| question = For the same Lyon disability group, the risk adjustment at the start of 2026 was €600,000. During the year, a portion of risk is borne without adverse experience. Where does the released portion of the risk adjustment appear?
| option_a = Insurance finance income or expense.
| option_a = Insurance finance income or expense.
| option_b = It reduces the contractual service margin.
| option_b = It reduces the contractual service margin.
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{{Quiz
{{Quiz
| topic = Passage of time: unwinding discount, releasing RA, releasing CSM
| topic = Passage of time: unwinding discount, releasing RA, releasing CSM
| question = The Nantes property group has a CSM of €2 million at the start of 2026 and provides equal coverage over four remaining years. Approximately how much CSM is released into insurance revenue for 2026?
| question = The Lyon disability group has a CSM of €2 million at the start of 2026 and provides roughly equal coverage over its eight remaining years. Approximately how much CSM is released into insurance revenue for 2026?
| option_a = €2 million, because the insurer has earned all its profit by surviving the year.
| option_a = €2 million, because the insurer has earned all its profit by surviving the year.
| option_b = €500,000, based on the coverage units for one of four remaining years.
| option_b = €250,000, based on the coverage units for one of eight remaining years.
| option_c = Nothing, because the CSM is only released when claims are paid.
| option_c = Nothing, because the CSM is only released when claims are paid.
| option_d = €250,000, because only half the risk adjustment has been released.
| option_d = €125,000, because only half the risk adjustment has been released.
| correct_answer = b
| correct_answer = b
| explanation = The CSM is released using coverage units. With four years of equal coverage remaining, one-quarter of the €2 million CSM (€500,000) is released in 2026. The CSM is not linked to claim payments (option c) nor to the risk adjustment release (option d).
| explanation = The CSM is released using coverage units. With eight years of equal coverage remaining, one-eighth of the €2 million CSM (€250,000) is released in 2026. The CSM is not linked to claim payments (option c) nor to the risk adjustment release (option d).
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{{Quiz
{{Quiz
| topic = Passage of time: unwinding discount, releasing RA, releasing CSM
| topic = Passage of time: unwinding discount, releasing RA, releasing CSM
| question = A new analyst in the Nantes office classifies the €300,000 discount unwinding as part of insurance revenue when preparing the quarterly report. Is this correct?
| question = A new analyst in the Lyon office classifies the €300,000 discount unwinding as part of insurance revenue when preparing the quarterly report. Is this correct?
| option_a = Yes, because all changes in the liability are part of insurance revenue.
| option_a = Yes, because all changes in the liability are part of insurance revenue.
| option_b = No, the unwinding of the discount is a financing effect and belongs in insurance finance income or expense.
| option_b = No, the unwinding of the discount is a financing effect and belongs in insurance finance income or expense.
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{{Quiz
{{Quiz
| topic = Changes in estimates: future service adjusts CSM, current/past service hits P&L
| topic = Changes in estimates: future service adjusts CSM, current/past service hits P&L
| question = In mid-2026, new weather data for the Nantes coast suggests milder winters ahead. AXA's actuaries reduce the expected future claims for the property group by €400,000. The change relates entirely to coverage not yet provided. How is this favourable change treated?
| question = In mid-2026, updated epidemiological data suggests that long-term disability incidence rates among the insured workforce in Lyon are trending lower than originally assumed. AXA's actuaries reduce expected future disability benefit payments for the group by €400,000. The change relates entirely to coverage not yet provided. How is this favourable change treated?
| option_a = It is recognised immediately as a profit in the income statement.
| option_a = It is recognised immediately as a profit in the income statement.
| option_b = It increases the CSM by €400,000, to be released over remaining coverage periods.
| option_b = It increases the CSM by €400,000, to be released over remaining coverage periods.
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{{Quiz
{{Quiz
| topic = Changes in estimates: future service adjusts CSM, current/past service hits P&L
| topic = Changes in estimates: future service adjusts CSM, current/past service hits P&L
| question = Now suppose the opposite scenario: an unusually severe autumn storm season causes the actuaries to increase expected future claims by €2.8 million. The CSM for the group currently stands at €2.4 million (after the earlier adjustments). What happens?
| question = Later in 2026, a new occupational illness linked to a chemical exposure at a major Lyon employer sharply increases projected long-term disability claims. The actuaries raise expected future claims by €2.6 million. The CSM for the group currently stands at €2.2 million (after the earlier adjustments). What happens?
| option_a = The CSM decreases to zero, and the remaining €400,000 is recognised as a loss in profit or loss.
| option_a = The CSM decreases to zero, and the remaining €400,000 is recognised as a loss in profit or loss.
| option_b = The CSM decreases to negative €400,000, to be recovered later.
| option_b = The CSM decreases to negative €400,000, to be recovered later.
| option_c = The entire €2.8 million is recognised as insurance service expense immediately.
| option_c = The entire €2.6 million is recognised as insurance service expense immediately.
| option_d = The CSM absorbs the full €2.8 million because the change relates to future service.
| option_d = The CSM absorbs the full €2.6 million because the change relates to future service.
| correct_answer = a
| correct_answer = a
| explanation = The CSM absorbs unfavourable changes relating to future service, but it cannot go below zero. The CSM absorbs €2.4 million, and the remaining €400,000 that would push it negative is recognised immediately as a loss. The group becomes onerous at that point. Option (d) is wrong because the CSM has insufficient capacity to absorb the full amount.
| explanation = The CSM absorbs unfavourable changes relating to future service, but it cannot go below zero. The CSM absorbs €2.2 million, and the remaining €400,000 that would push it negative is recognised immediately as a loss. The group becomes onerous at that point. Option (d) is wrong because the CSM has insufficient capacity to absorb the full amount.
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{{Quiz
{{Quiz
| topic = Changes in estimates: future service adjusts CSM, current/past service hits P&L
| topic = Changes in estimates: future service adjusts CSM, current/past service hits P&L
| question = During the same autumn storms, a batch of 150 claims is incurred in Nantes from damage that has already occurred. A month later, the estimated cost of these incurred claims is revised upward by €200,000 due to higher repair costs. Where does this €200,000 adjustment land?
| question = Separately, 45 members of the Lyon group are already receiving disability payments when, in late 2026, updated medical assessments raise the estimated cost of their ongoing benefits by €200,000. Where does this €200,000 adjustment land?
| option_a = It adjusts the CSM because it changes the insurer's fulfilment cash flows.
| option_a = It adjusts the CSM because it changes the insurer's fulfilment cash flows.
| option_b = It is deferred until the claims are actually settled.
| option_b = It is deferred until the benefit payments are actually made.
| option_c = It goes directly to insurance service expenses in the income statement as a cost of past service.
| option_c = It goes directly to insurance service expenses in the income statement as a cost relating to past or current service.
| option_d = It reduces insurance revenue in the current period.
| option_d = It reduces insurance revenue in the current period.
| correct_answer = c
| correct_answer = c
| explanation = The claims have already been incurred, meaning the service (being on risk during the storm) has been provided. Re-estimates of incurred claims relate to past service and bypass the CSM, flowing directly to insurance service expenses. Only changes relating to future service can adjust the CSM.
| explanation = The disabilities have already occurred, meaning the service (being on risk when the disabilities were incurred) has been provided. Re-estimates of incurred claims relate to past service and bypass the CSM, flowing directly to insurance service expenses. Only changes relating to future service can adjust the CSM.
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{{Quiz
{{Quiz
| topic = Claims incurred, settled, and derecognition
| topic = Claims incurred, settled, and derecognition
| question = Of the 150 storm claims in Nantes, 30 homeowners have not yet reported their damage by the December 2026 reporting date. Should these unreported claims be reflected in the financial statements?
| question = At the December 2026 reporting date, AXA's claims team knows from historical patterns that roughly 20 additional members of the Lyon group are likely disabled but have not yet filed claims. Should these unreported disabilities be reflected in the financial statements?
| option_a = No, because the insurer cannot recognise what has not been reported.
| option_a = No, because the insurer cannot recognise what has not been reported.
| option_b = Yes, the insurer must estimate incurred but not yet reported (IBNR) claims using actuarial methods and include them in the liability.
| option_b = Yes, the insurer must estimate incurred but not yet reported (IBNR) claims using actuarial methods and include them in the liability.
| option_c = Only if the homeowners file before the financial statements are published.
| option_c = Only if the members file before the financial statements are published.
| option_d = They are included only if the insurer has received informal notice of the damage.
| option_d = They are included only if the insurer has received informal notice of the disability.
| correct_answer = b
| correct_answer = b
| explanation = Under IFRS 17, the liability must reflect all claims that have been incurred, regardless of whether they have been reported. The insurer uses actuarial techniques to estimate IBNR claims each reporting period. Waiting for formal notification (options a, c, and d) would understate the liability and mislead users of the financial statements.
| explanation = Under IFRS 17, the liability must reflect all claims that have been incurred, regardless of whether they have been reported. The insurer uses actuarial techniques to estimate IBNR claims each reporting period. Waiting for formal notification (options a, c, and d) would understate the liability and mislead users of the financial statements.
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{{Quiz
{{Quiz
| topic = Claims incurred, settled, and derecognition
| topic = Claims incurred, settled, and derecognition
| question = In early 2027, AXA settles a Nantes storm claim for €15,000 when the previous estimate was €13,500. How is the €1,500 difference treated?
| question = In early 2027, one member of the Lyon group who had been receiving disability benefits returns to work earlier than expected. The remaining benefit reserve for this member was €15,000, but only €13,500 was ultimately paid. How is the €1,500 difference treated?
| option_a = It adjusts the CSM because it changes fulfilment cash flows.
| option_a = It adjusts the CSM because it changes fulfilment cash flows.
| option_b = It is recognised as insurance finance expense.
| option_b = It is recognised as insurance finance income.
| option_c = It is recognised as an adjustment to insurance service expenses in the current period, since it relates to past service.
| option_c = It is recognised as a favourable adjustment to insurance service expenses in the current period, since it relates to past service.
| option_d = It is carried forward and netted against future favourable claim settlements.
| option_d = It is carried forward and netted against future unfavourable claim settlements.
| correct_answer = c
| correct_answer = c
| explanation = The claim relates to an event that has already occurred (past service), so the difference between the estimate and the actual payment goes directly to insurance service expenses. The CSM is not involved because there is no future service to adjust. Netting against future settlements (option d) is not permitted under IFRS 17.
| explanation = The claim relates to a disability that already occurred (past service), so the difference between the estimate and the actual payments goes directly to insurance service expenses as a favourable variance. The CSM is not involved because there is no future service to adjust. Netting against future settlements (option d) is not permitted under IFRS 17.
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{{Quiz
{{Quiz
| topic = Claims incurred, settled, and derecognition
| topic = Claims incurred, settled, and derecognition
| question = By mid-2030, all claims from the Nantes property group have been settled and the coverage period has ended. A small residual balance remains in the fulfilment cash flows due to a final estimation adjustment. What should the insurer do?
| question = By 2036, all contracts in the Lyon disability group have expired and all benefit payments have been completed. A small residual balance of €18,000 remains in the fulfilment cash flows due to a final estimation adjustment. What should the insurer do?
| option_a = Keep the contract group on the balance sheet until the next reporting cycle in case late claims emerge.
| option_a = Keep the contract group on the balance sheet until the next reporting cycle in case late claims emerge.
| option_b = Transfer the residual balance to the CSM of a new contract group.
| option_b = Transfer the residual balance to the CSM of a new contract group.
| option_c = Derecognise the contract group, releasing any remaining balance to the income statement.
| option_c = Derecognise the contract group, releasing the remaining balance to the income statement.
| option_d = Reclassify the residual balance as a provision under IAS 37.
| option_d = Reclassify the residual balance as a provision under IAS 37.
| correct_answer = c
| correct_answer = c

Latest revision as of 01:28, 7 April 2026

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