39.2.7. Contractual service margin (csm)

The contract margin is part of the liabilities (or assets) under insurance and reinsurance contracts. The contract margin reflects the outstanding profit for a group of insurance contracts and is therefore released as income in the income statement. The amount of margin release in a reporting period is determined as the value of unrecognised expected future profit attributable to the period in accordance with a pattern of so-called coverage units, which determine the volume of insurance service provided in each period.

The pattern of coverage units provided was estimated on the basis of sums insured (life insurance) or premiums earned assuming a pro rata approach (property insurance)

In contrast to the valuation of other components of the liability for remaining coverage, the CSM is determined in a recursive manner, i.e. its value at the end of a given reporting period depends on the value on the opening balance sheet.

The initial value of the contract margin for groups of non-onerous contracts is determined on initial recognition as the value that balances the liability for remaining coverage, i.e. such that the total liability for remaining coverage equals 0 and thus does not generate income or expenses. For onerous contracts, the CSM on initial recognition is equal to zero.

For insurance contracts without direct participation features, the carrying amount of the contractual service margin of a group of contracts at the end of the reporting period equals the carrying amount at the start of the reporting period adjusted for:

• the effect of any new contracts added to the group;
• interest accreted on the carrying amount of the contractual service margin during the reporting period, measured at the discount rates at the time of initial recognition;
• the changes in fulfilment cash flows relating to future service, except to the extent that:
  • such increases in the fulfilment cash flows exceed the carrying amount of the contractual service margin, giving rise to a loss; or
  • such decreases in the fulfilment cash flows are allocated to the loss component of the liability for remaining coverage;
• the effect of any currency exchange differences arising on the contractual service margin; and
• the amount recognised as insurance revenue because of the insurance contract services provided in the period, determined by the allocation of the contractual service margin remaining at the end of the reporting period (before any allocation) over the current and remaining coverage period.

Changes in expected future cash flows relating to a past or current service do not modify the CSM, but are recognised immediately in the income statement.

For groups of insurance contracts with direct participation features, the carrying amount of CSM of a group of contracts at the end of the reporting period equals the carrying amount of the CSM at the start of the reporting period adjusted for:

• the effect of new contracts added to the group;
• the amount of the entity’s share of the fair value of the underlying instrument;
• he changes in fulfilment cash flows relating to future service;
• the effect of any currency exchange differences;
• the amount of the CSM recognised in the income statement as insurance revenue because of the insurance contract services provided in the period.