Blog posts

A positive CSM is released to the income statement over the coverage period.

What about groups of insurance contracts that are onerous, and therefore expected to be loss-making?

In this post, we will consider three cases:

1. Contracts with reduced CSM
2. Initially onerous contracts
3. Contracts that become onerous

Contracts with reduced CSM

The group of contracts might have a positive CSM at inception. It means that the insurer expected to make a profit on them.

Over time, there might be changes in non-financial assumptions. Let's assume that changes in non-financial assumptions have a negative impact on the CSM, but it …

In life insurance under IFRS 17, there are two main valuation approaches: the General Measurement Model (GMM) and the Variable Fee Approach (VFA). This post focuses on the Variable Fee Approach - what it is and when it applies.

List of content:

1. Direct participating contracts
2. VFA assessment criteria
3. Pool of underlying items

The VFA is a modification of the GMM, specifically for direct participating contracts. These contracts must meet certain conditions at inception.

Direct participating contracts

Only direct participating contracts fall under the VFA in IFRS 17.

These contracts involve a significant level of investment-related services. The policyholder receives …

In this post, let's take a look at the initial and subsequent accounting for the Contractual Service Margin (CSM). We will focus on products without direct participating features.

Initial recognition

Let's take an example of a contract with a 3-year coverage period without any investment component.

The policyholder pays a premium of €500 at initial recognition. The expected claims and expenses amount to €400 at the end of the third year of coverage. For simplicity, there is no surrender option and no expected lapses.

The discount rate at initial recognition is 3%. The present value of the expected claims …

IFRS 17 has introduced the concept of fulfilment cash flows. Fulfilment cash flows are the building blocks of the general model.

Fulfilment cash flows consist of inflows and outflows, discounting and an explicit risk adjustment for non-financial risk. What remains after this calculation (if anything) is the CSM.

Let's take a close look at each component of the fulfilment cash flows.

Future cash flows

Future cash flows can be split into inflows and outflows.

Inflows are mainly premiums within contract boundary.

Outflows consist of:

• insurance acquisition costs,
• administration expenses,
• claims and benefit payments.

Future cash flows are discounted to …