1. (9 points) ABC Insurance Group is a US-based corporation that sells only nonparticipating whole life...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
1. (9 points) ABC Insurance Group is a US-based corporation that sells only nonparticipating whole life and accident policies. ABC reports GAAP financials based on FAS 60. ABC is being acquired by an insurance group based in the European Union and will report financials on both an IFRS and US GAAP basis. (a) (2 points) Compare the methodology and assumptions used to calculate ABC's liabilities under IFRS 17 and ASU 2018-12. You are given: Present value of cash flows Risk Adjustment Contractual Service Margin Liability for Incurred Claims Incurred But Not Reported (IBNR) Other Assets Liability for future policyholder benefits GAAP - DAC 1,000 250 100 475 500 2,000 1,280 100 (b) (3 points) Calculate ABC's equity under both ASU 2018-12 and IFRS 17. Assume that the basis of Other Assets is the same under both regimes. Show all work. (c) (4 points) Critique the following statements regarding the Insurance Capital Standard (ICS) guided by International Association of Insurance Supervisors (IAIS). A. The main objectives of the ICS are protection of shareholders and to contribute to financial growth. B. The ICS reflects only insurance and investment risks to which an International Active Insurance Group (IAIG) is exposed. C. The capital requirement in the ICS is intended to represent a three-year 95 percentile Conditional Tail Expectation (CTE) level of risk. D. Currently, the only approach being considered to estimate margin over current estimates (MOCE) is the Cost of Capital MOCE approach, which is based on an assumed cost of holding ICS required capital. 2. (9 points) DEF, a Canadian Life Insurance Company, specializes in UL products. Recently, they decided to launch their first participating product, First Par. First Par is a whole life product with a guaranteed death benefit and annual cash dividends. (3 points) DEF is planning the following dividend determination process for First Par: • First Par dividends will be updated every three years in order to smooth experience over time. • A single interest rate will be used for all First Par policyholders. regardless of issue date or other policyholder characteristics. Claims experience gains and losses from all products will be considered. • Comment on how well the above dividend determination process reflects the contribution principle. (b) (6 points) You are given the following statements: A. Initial sales projections do not justify creating a separate participating account. Hence, there is no need for DEF to create a Par Account Management Policy. B. First Par will have several advantages over the existing UL products: • DEF may claim qualifying par status, reducing LICAT required capital. • • DEF can hold lower PfADs on First Par compared to UL products. DEF will be able to realize a profit margin at 12% regardless of experience, as the full amount of any losses can be offset by reducing dividends. C. DEF will create a Dividend Policy, but it will not be disclosed publicly to reduce the risk of a lawsuit. D. The Appointed Actuary does not need to sign any additional opinions related to the dividends and the company's dividend policy, since there is no Par Account Management Policy. Evaluate the above statements. 3. (11 points) You are given the following information about the currency risk exposure for a Canadian life insurance company: Currency (b) USD EUR GBP CNY CHF GOLD (c) Total Value of Assets Denominated in Foreign Currency 800 270 400 850 80 50 Par Liability 2,450 450 105 170 100 40 20 885 All values in the table above have been converted to Canadian dollars. Non-Par Liability 540 115 130 700 60 10 1,555 Solvency Buffer 40 10 12.5 55 5 12 (a) (7 points) Calculate the par and non-par allocations of the company's currency risk capital requirement. Show all work. 134.5 (3 points) Describe how the following actions reduce required capital for currency risks under LICAT: (i) Divest or reduce operations in foreign currency (ii) Purchase Options (iii) Purchase Forwards (1 point) Define three market risks in LICAT other than currency risk. 1. (9 points) ABC Insurance Group is a US-based corporation that sells only nonparticipating whole life and accident policies. ABC reports GAAP financials based on FAS 60. ABC is being acquired by an insurance group based in the European Union and will report financials on both an IFRS and US GAAP basis. (a) (2 points) Compare the methodology and assumptions used to calculate ABC's liabilities under IFRS 17 and ASU 2018-12. You are given: Present value of cash flows Risk Adjustment Contractual Service Margin Liability for Incurred Claims Incurred But Not Reported (IBNR) Other Assets Liability for future policyholder benefits GAAP - DAC 1,000 250 100 475 500 2,000 1,280 100 (b) (3 points) Calculate ABC's equity under both ASU 2018-12 and IFRS 17. Assume that the basis of Other Assets is the same under both regimes. Show all work. (c) (4 points) Critique the following statements regarding the Insurance Capital Standard (ICS) guided by International Association of Insurance Supervisors (IAIS). A. The main objectives of the ICS are protection of shareholders and to contribute to financial growth. B. The ICS reflects only insurance and investment risks to which an International Active Insurance Group (IAIG) is exposed. C. The capital requirement in the ICS is intended to represent a three-year 95 percentile Conditional Tail Expectation (CTE) level of risk. D. Currently, the only approach being considered to estimate margin over current estimates (MOCE) is the Cost of Capital MOCE approach, which is based on an assumed cost of holding ICS required capital. 2. (9 points) DEF, a Canadian Life Insurance Company, specializes in UL products. Recently, they decided to launch their first participating product, First Par. First Par is a whole life product with a guaranteed death benefit and annual cash dividends. (3 points) DEF is planning the following dividend determination process for First Par: • First Par dividends will be updated every three years in order to smooth experience over time. • A single interest rate will be used for all First Par policyholders. regardless of issue date or other policyholder characteristics. Claims experience gains and losses from all products will be considered. • Comment on how well the above dividend determination process reflects the contribution principle. (b) (6 points) You are given the following statements: A. Initial sales projections do not justify creating a separate participating account. Hence, there is no need for DEF to create a Par Account Management Policy. B. First Par will have several advantages over the existing UL products: • DEF may claim qualifying par status, reducing LICAT required capital. • • DEF can hold lower PfADs on First Par compared to UL products. DEF will be able to realize a profit margin at 12% regardless of experience, as the full amount of any losses can be offset by reducing dividends. C. DEF will create a Dividend Policy, but it will not be disclosed publicly to reduce the risk of a lawsuit. D. The Appointed Actuary does not need to sign any additional opinions related to the dividends and the company's dividend policy, since there is no Par Account Management Policy. Evaluate the above statements. 3. (11 points) You are given the following information about the currency risk exposure for a Canadian life insurance company: Currency (b) USD EUR GBP CNY CHF GOLD (c) Total Value of Assets Denominated in Foreign Currency 800 270 400 850 80 50 Par Liability 2,450 450 105 170 100 40 20 885 All values in the table above have been converted to Canadian dollars. Non-Par Liability 540 115 130 700 60 10 1,555 Solvency Buffer 40 10 12.5 55 5 12 (a) (7 points) Calculate the par and non-par allocations of the company's currency risk capital requirement. Show all work. 134.5 (3 points) Describe how the following actions reduce required capital for currency risks under LICAT: (i) Divest or reduce operations in foreign currency (ii) Purchase Options (iii) Purchase Forwards (1 point) Define three market risks in LICAT other than currency risk.
Expert Answer:
Answer rating: 100% (QA)
1 ABC Insurance Group a Comparison of Methodology and Assumptions under IFRS 17 and ASU 201812 Under IFRS 17 and ASU 201812 both standards aim to provide guidance on the recognition measurement presen... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
What would be the best interview answer to this interview question using the STARR approach: Tell us about a time you had to make a quick choice using limited information. Please describe the...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Kindly solve both the question. Thanks in advance.Question 1Question 2 Below are the transactions for Baste SewIng Shop for March, the first month of operations. March 1 Issue common stock in...
-
You are a project engineer on a high-technology program. As the project begins to wind down, your boss asks you to write a paper so that he can present it at a technical meeting. His name goes first...
-
Megan Gibbons owns a sports apparel company in Columbia, South Carolina. She just attended a seminar where one of the speakers said, Participating in business partnerships can help firms lessen the...
-
Help for Insomniacs A recent study shows that just one session of cognitive behavioral therapy can help people with insomnia. In the study, forty people who had been diagnosed with insomnia were...
-
The following relative frequency ogive represents the lengths of a random sample of tornadoes in the United States. (a) What is the class width? (b) Approximately 92% of all tornadoes are less than...
-
Write a job advertisement for an External Auditor. Be sure to include the necessary skills and qualifications, duties and responsibilities for the auditor.
-
The October 31, 2017, bank statement of Jazzera Distributors has just arrived. To prepare Jazzera Distributors' bank reconciliation, you gather the following data: a. The October 31 bank balance is...
-
What are the three Belmont Principles? Provide a definition of each principle, its elements, and application.
-
8. Suppose all hotels in a destination are owned by a single firm (a Monopoly). If virtually all guests in the hotels are tourists, is the lack of competition beneficial to the local area? (hint: how...
-
3. Starting from this equation: - [U(X) U (XB,YB)] 8 < = Derive the probability of winning the election for candidate A that is given by the following equation: Pr (IIA > ) = Pr ( 8 < ) = + [, a'd'...
-
Brown v. Board of Education was a landmark case in the United States. Conduct brief research into the aftermath of this case, and how it affected education, culture, or society in general. What were...
-
Coffee suppliers have been dealing with shortage due to coffee leaf rust and drought. Therefore, there are some changes in supply and demand of this product, people is starting consuming tea as a...
-
Halvorson (2009) states "What kind of health plans and care teams should be competing in America?" Since this was before the Affordable Care Act was in place, in what ways might his observations not...
-
The electric field due to an electric quadrupole varies with distance r as O 1 O none of these
-
Diamond Walker sells homemade knit scarves for $25 each at local craft shows. Her contribution margin ratio is 60%. Currently, the craft show entrance fees cost Diamond $1,500 per year. The craft...
-
What was the net impact on Keefer Companys Year 1 income as a result of this fair value hedge of a firm commitment? a. $0. b. An $860.60 decrease in income. c. A $1,100.00 increase in income. d. A...
-
A foreign subsidiary of Wampoa Ltd. has one asset (inventory) and no liabilities. The subsidiary operates with a significant degree of autonomy from Wampoa and primarily uses the local currency (the...
-
An entity must adjust its financial statements for an event that occurs after the end of the reporting period if a. The event occurs before the financial statements have been approved for issuance...
-
Stan rented an office building to Clay for \($3,000\) per month. On December 29, 2022, Stan received a deposit of \($4,000\) in addition to the first and last months rent. Occupancy began on January...
-
Sally W. Emanual, a teacher, had the following dividends and interest during 2022: Additional information pertaining to Sally Emanual includes The taxable portion of the pension is \($7,000.\) Sally...
-
Jim and Linda are your tax clients. They were divorced in 2018, and the divorce decree stated that Jim was to make monthly payments to Linda. The court designated \($300\) per month as alimony and...
Study smarter with the SolutionInn App