# csm

Discussion in 'SA2' started by dimitris13, Jun 9, 2019.

1. ### dimitris13Very Active Member

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

Last edited: Jun 10, 2019
2. ### Em FrancisActEd TutorStaff Member

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.

3. ### dimitris13Very Active Member

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 ?

4. ### MateuszMember

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.)

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