A central feature of IFRS 17 is the Contractual Service Margin (CSM) — a balance sheet item that represents the unearned profit an insurer will receive over time as it provides services under its insurance contracts. Specific mechanisms surrounding the CSM can create mismatches between assets and liabilities, leading to volatility in either the profit and loss (P&L) statement or in equity (net assets/capital).
This article describes these mechanisms, the measures introduced by the IASB to address them, and how and to what degree insurance companies are applying them in practice.
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