Point 2: This is talking about the OCI option for recognizing in P&L/AOCI the change in FCFs due to changes in the discount rate.
Point 3: It's just saying your portfolio choice will determine the contract boundary of your contracts
Can you please elaborate on point 2 explanation that you provided?
Changes in FCFs due to discount rate warrant a change in CSM. (for example there is an increase in CSM). Does this mean that the extra CSM can be recognized as Profit OR it can be recognized as Other Comprehensive Income.
So to sum it up:
At initial recognition CSM Is always recognized as profit
But at subsequent measument, an increase in CSM can be recorded as profit OR OCI
The CSM will not change due to discount rates as it is measured using the locked-in discount rate.
In other words, the difference between the PVFCF at locked-in-rate and PVFCF at current discount rates will give you the insurance finance expense. That can either go into OCI or P&L.
As to your conclusion; this is not correct.
A CSM is recognized as a negative liability at initial recognition and gradually earned as service is provided.
At subsequent measurement, a change in CSM due to changes in expected future service is not recorded as profit but the CSM is instead readjusted and gradually earned again as service is provided.
Comments
Point 2: This is talking about the OCI option for recognizing in P&L/AOCI the change in FCFs due to changes in the discount rate.
Point 3: It's just saying your portfolio choice will determine the contract boundary of your contracts
Can you please elaborate on point 2 explanation that you provided?
Changes in FCFs due to discount rate warrant a change in CSM. (for example there is an increase in CSM). Does this mean that the extra CSM can be recognized as Profit OR it can be recognized as Other Comprehensive Income.
So to sum it up:
At initial recognition CSM Is always recognized as profit
But at subsequent measument, an increase in CSM can be recorded as profit OR OCI
Am I understanding this correctly?
The CSM will not change due to discount rates as it is measured using the locked-in discount rate.
In other words, the difference between the PVFCF at locked-in-rate and PVFCF at current discount rates will give you the insurance finance expense. That can either go into OCI or P&L.
As to your conclusion; this is not correct.
A CSM is recognized as a negative liability at initial recognition and gradually earned as service is provided.
At subsequent measurement, a change in CSM due to changes in expected future service is not recorded as profit but the CSM is instead readjusted and gradually earned again as service is provided.