Hi there, two question regarding csm. 1. suppose we change lapse assumptions does this affect the writting off pattern of csm ? 2. the total liability is equal to the following after inception (t>0) BEL+RA+CSM? thanks
Hi Yes, as when we use the BBA valuation method: The pattern will change if the company is using number of policies in-force as the coverage unit. This is because the CSM will be written down by proportioning between the actual number of policies in-force over the current period and the expected future policies in-force. This will change if the lapse assumption changes, impacting the write down pattern. Also, the amount of CSM to write off will change as when there is a change in non-investment assumptions, this gets absorbed by the CSM (if it is large enough) which subsequently will impact how much gets written down. Yes. broadly speaking.
Hi Em , many thanks for this. i am reading the sa2 notes and they write : that the csm offsets any change in BEL and RA. So if the liability is what i wrote (in a trivial case where we dont write down the csm) the Liability will remain the same. I suppose that my interpretation is wrong (or the trivial case that i am thinking - no write down is not valid). Having said that if there is a writing down of the csm if the liability (in the balance sheet) is BEL +RA+csm will change only by the writting down effect of the csm. I am obviously missing sth but i cannot figure what. In S2 in the BS for TPs we have for example BeL + RM in ifrs17 bs as Liability we put BEL + RA + CSM ? or csm is shown somewhere else ?
Under IFRS 17, the total liability can be split per Liability for remaining coverage (BEL+RA+CSM) and Liability for incurred claims. So yes, the CSM is a component of the insurance liabilities. Now, the idea that the CSM offsets changes in the BEL/RA works when these changes relate to future service. For example, if you change lapse assumptions and this results in a BEL+RA increase of 100, the CSM will be reduced by 100 (assuming the CSM before the adjustment was at least 100. If not, loss is recognised immediately in the P&L and CSM set to 0). So in this case the impact on the liability for remaining coverage is indeed 0. In general, however, the total liability for remaining coverage (BEL+RA+CSM) will change from period to period. Release of profits from BEL will very unlikely match the CSM amortisation pattern. Also, there will be changes in the roll-forward of BEL not unlocked in the CSM at all (e.g. impact of discount rate changes in the general model, expected vs actual variance in claims/expenses incurred in a given period, etc.)
