Confusion regarding release of CSM into profit
I'm still very confused about the concept of CSM, and how it interacts with the statement of profit or loss.
My understanding is that, if we use GMA and if FCF < 0 at initial recognition, then we establish CSM = -FCF. And at each subsequent measurement, the CSM would be gradually reduced. I think I'm ok with this part (and please point out if my understanding is incorrect)
My confusion is how does this reduction of CSM actually flows into the profit calculation. The statement of profit or loss has a line item called Insurance Service Result, and I understand this is Total Insurance Revenue - Insurance Service Expenses. I'm under the impression that as insurance services are provided, the CSM would be recognized in the ISR, but I can't quite see how it fits in the components (i.e. TIR and ISE). Any help would be appreciated.
Comments
Hello David,
Just so you know, our staff monitors the forum less often during this time in the exam cycle but your question will be answered according to this schedule:
Hi, sorry for the delay.
Your understanding about the CSM in your first part is correct.
The CSM release flows into the Insurance Service Result through the Total Insurance Revenue. CSM release is considered a part of the Total Insurance Revenue (as well as changes in the Risk Adjustment). The reason it is in ISR instead of ISE is because it is considered profit and not an expense