J
jack
Member
Hi there,
I am struggling to get my head around what the “ unlocking” means when we say:
“ for the VFA approach, the csm is unlocked at each future period to absorb the change in the value of BEL and RA as a result of the change in the discount rate “
and related to that, for the GMM approach, I don’t understand what it is meant by:
“ another feature of the CSM is that ut offsets the change in the value of the BEL and RA due to assumption changes”.
I understand why the BEL and RA will change if assumptions and/or discount rate is changed. But I don’t understand how that impacts the CSM.
I understand that initial CSM at the point the contract is written is
= initial premium - initial expenses - BEL - RA
Then this particular CSM value calculated at inception is released throughout the contract term.
(Very basic example) but I had interpreted this to mean that if for a 5 year contract at time 0 our CSM was 100, then 20 would be released as profit in IFRS accounts in each of the 5 years. Which is why I can’t understand how if the BEL/RA changes in future then why would th CSM change.
does this mean we re calculate the CSM each year.
possibly a numerical example might help me to make sense if this unlocking/assumption change feature.
thanks very much in advance, appreciate the help.
cheers
I am struggling to get my head around what the “ unlocking” means when we say:
“ for the VFA approach, the csm is unlocked at each future period to absorb the change in the value of BEL and RA as a result of the change in the discount rate “
and related to that, for the GMM approach, I don’t understand what it is meant by:
“ another feature of the CSM is that ut offsets the change in the value of the BEL and RA due to assumption changes”.
I understand why the BEL and RA will change if assumptions and/or discount rate is changed. But I don’t understand how that impacts the CSM.
I understand that initial CSM at the point the contract is written is
= initial premium - initial expenses - BEL - RA
Then this particular CSM value calculated at inception is released throughout the contract term.
(Very basic example) but I had interpreted this to mean that if for a 5 year contract at time 0 our CSM was 100, then 20 would be released as profit in IFRS accounts in each of the 5 years. Which is why I can’t understand how if the BEL/RA changes in future then why would th CSM change.
does this mean we re calculate the CSM each year.
possibly a numerical example might help me to make sense if this unlocking/assumption change feature.
thanks very much in advance, appreciate the help.
cheers