Is question 2 part (i) no longer examinable? I think it's hard to get 10 marks worth of information from what is in the core reading. Are any of the other questions in the two 2018 papers no longer examinable?
The level of detail wouldn't be expected now. The 2018 Core Reading covered the RDR. There wasn't much, only a page, but there was lots of other UK background on the build up to the RDR too. All this Core Reading has been deleted for 2019. So no longer examinable. I would however make sure you appreciate what the RDR was trying to achieve, ie protecting consumers from commission bias intermediaries, and how the regulator went about it, ie prohibiting commission within premium and trying to increase transparency within the fee structure. Most of the rest of the paper is still examinable. I appreciate Old UK GAAP is no longer on syllabus, so if you could replace this with IFRS 17. ie (ii) Explain how the two products sold by the company would be classified under IFRS 17 (iii)Compare the accounting approaches under IFRS17 for the two products. Hope this helps. Best of luck
Hi, I am trying to answer your questions: (ii) Explain how the two products sold by the company would be classified under IFRS 17. Would they still be classified as insurance and investment products (like in IFRS 4)? I'm not sure how to know the classification under IFRS 17... (iii) Compare the accounting approaches under IFRS17 for the two products. By accounting approaches, does that mean the valuation approaches? So TA would be valued via BBA (BEL, RA, CSM), and UL would be via VFA? Looking at similarities and differences? Thank you
Hi - I think perhaps what Emma meant to suggest was to replace the references to Old UK GAAP with IFRS throughout the main body of the question, and then leave question parts (ii) and (iii) unchanged from how they appear in the paper - ie they can continue to refer to IFRS generally. I personally don't think that having these two question parts referring to just IFRS 17 would work, because it only applies to one of the two products. So part (ii) continues to be about splitting between insurance and investment products - and the solution still holds true, except that it would now likely also refer to moving towards using IFRS 17 for the insurance product, rather than only referring to IFRS 4. [The classification approach to split between insurance vs investment products once IFRS 17 comes into force is as it is under IFRS 4 now.] The term assurances would be classified as insurance contracts, and so be subject to IFRS 4 at present, soon to be replaced by IFRS 17. The UL bonds would be classified as investment contracts, and so be valued under IFRS 9 (or IAS 39) and IAS 18. And part (iii) would now require us to compare the UL valuation approach as is currently described in the solution (under IAS 18 and IFRS 9 / IAS 39) with the IFRS 17 approach that would apply to the term assurances, ie the BBA. So this solution would need to be adjusted in terms of the latter. In this scenario, the UL contracts wouldn't be subject to the VFA because they wouldn't be classified as insurance contracts (the death benefit isn't high enough) - and remember that IFRS 17 only applies to insurance contracts. However, there could well be another scenario arising in a question that could ask for a comparison between the BBA and VFA approaches. Hope that helps to clear this up.
Thank you very much Lindsay, so for (ii): The UL SP contract is valued with IFRS 9 valuation (assets at MV, cashflows separated at investment management services component, financial instrument component at fair value). The TA is valued with IFRS 17 (BBA, time value of money, fulfilment cashflows, BEL, RA, CSM). Can you give me an example of a product that would be valued via VFA under IFRS 17 please? Since we still need it to be an "insurance" contract, I would imagine this to be any contract with a guaranteed death benefit which also has a UL/WP product base => eg. UL endowment with guaranteed SA at death within the term. Is this correct?
My understanding is that all WP contracts ('contracts with discretionary participation features') fall under the scope of IFRS 17 - provided the company also issues insurance contracts (this latter point being an extra bit of detail that goes beyond the SA2 Core Reading). They would then be subject to the VFA valuation method. In terms of UL business, to be classified as an insurance product (and therefore fall under IFRS 17), the issuer has to determine whether or not it is subject to 'significant insurance risk' under that product. If so, it would be valued using the VFA method. So yes, a product with a guaranteed sum assured payable on death that is significantly in excess of the fund value sounds like it would meet that assessment.
