2022-23 SGI CANADA Annual Report
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The Corporation will cohort its new business using annual cohorts. When an insurance contract is written, it
will be assigned a profitability group based on the expected profitability on the date of initial recognition. The
level of aggregation requirements do not permit the offsetting of gains and losses between groups of insurance
contracts.
Measurement models: Insurance contract liabilities for each group of insurance contracts represent the sum of
the liability for incurred claims and liability for remaining coverage. The Corporation expects that substantially
all of its liabilities will be measured using the premium allocation approach (PAA). When measuring liabilities for
remaining coverage, the PAA is similar to the Corporation's previous accounting treatment for short duration
contracts and therefore the Corporation does not expect a significant impact to measurement. The Corporation
primarily issues insurance contracts with a coverage period of 12 months or less, which automatically qualify for
the PAA. When a portfolio contains policies that are greater than one year in length, the Corporation will complete
an analysis to assess whether the measurement of the liability for remaining coverage differs significantly
from the measurement under the general measurement model (GMM). If the quantification shows immaterial
differences between the two models, the Corporation will use the PAA for those portfolios as well.
Acquisition costs: For Insurance contracts that are recognized using the PAA and less than one year in length,
IFRS 17 provides the option to expense acquisition costs (broker commissions, premium tax, administrative
expenses) as incurred. The Corporation has chosen not to elect to expense acquisition cashflows, they will be part
of the cashflows of the group of contracts.
Liability for incurred claims: when measuring the liabilities for incurred claims, IFRS 17 requires:
Estimates of future cash flows to be discounted to reflect the time value of money and financial risk related
to those cash flows, unless the Corporation expects claims to be paid in one year or less from the date it was
incurred. The Corporation has elected to discount all claims regardless of the expected settlement date.
The methodology for determining the discount rate is not prescribed, there are two primary methods to
apply, namely the top-down or bottom-up approach. Under each approach applicable yield curves are
adjusted to reflect the liquidity characteristics of insurance contacts. The Corporation has elected to apply a
hybrid approach using elements of both the top-down and bottom-up approach to determine the illiquidity
premium. The illiquidity premium is determined using the spread between risk-free rates and the result of
the top-down approach. The illiquidity premium will then be used to adjust risk-free rates to determine the
applicable discount rates.
An explicit risk adjustment for non-financial risk which replaces the risk margin under IFRS 4. The IFRS 4
risk margin reflects the inherent uncertainty in the net discounted claim liabilities estimates, whereas the
IFRS 17 risk adjustment for non-financial risk is the compensation the Corporation requires for bearing the
uncertainty that arises from non-financial risk. IFRS 4 required a risk margin for financial risks which is not
permitted by IFRS 17.
Onerous contracts: IFRS 17 requires the identification of groups of onerous contracts when facts and
circumstances indicate a loss for PAA contracts. When onerous contracts are identified, the Corporation is
required to recognize a loss immediately in the Consolidated Statement of Operations along with an increase
in the insurance contract liability known as a "loss component" to appropriately reflect the timing of losses. The
amount of loss from onerous contracts written in a year is a required disclosure. The Corporation is finalizing its
evaluation of onerous contracts initially recognized at transition in 2022 and has established a mechanism for
identifying onerous contracts beyond the transition date.
Reinsurance contracts held: The Corporation will apply the PAA to its reinsurance contracts held which is similar
to how they are measured under IFRS 4. When measuring the asset for reinsured claims, the expected future
cashflows will include any risk of non-performance of the reinsurer.
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