AASB 17 Glossary
Contractual Service Margin (CSM) Fulfilment cash flows (FCF)
A liability which is established at the outset of a contract to offset new business profits at issue. The CSM liability is gradually amortised as services are provided. An explicit, unbiased, and probability weighted estimate (i.e. expected value) of the present value of the future cash flows that will arise as the insurer fulfils its insurance contract obligations, including a risk adjustment for non-financial risk. Under IFRS 17, an insurance contract is measured under one of three measurement models. The General Measurement Model (GMM) is the 'default' model, which applies to insurance contracts with limited, or no pass-through of investment risks to policyholders. A contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.
General Measurement Model (GMM)
Insurance contract
Insurance risk
Risk, other than financial risk, transferred from the holder of a contract to the issuer.
Insurance service result
Reflects profit earned from providing insurance coverage and includes the release of the risk adjustment and CSM as well as insurance related experience variances.
Refers to the accounting of a contract at its outset.
Initial recognition
Loss Component
For contracts which have a loss at issue, a loss is recognized in earnings, and a loss component (a notional amount) is established. The loss component must be tracked over time and disclosed. Furthermore, the loss component impacts the presentation in the Income Statement. Investment income from managing financial assets; less the effects of discount rates and other financial variables on the value of insurance obligations. An insurance contract is onerous at the date of initial recognition if the fulfilment cash flows allocated to the contract and premiums, acquisition expenses and commissions arising from the contract at the date of initial recognition, in total are a net outflow (i.e. if there is a loss at initial recognition).
Net investment result
Onerous contracts
Portfolio of insurance contracts
Insurance contracts subject to similar risks and managed together.
Premium Allocation Approach (PAA) Risk adjustment for non-financial risk
Under IFRS 17, an insurance contract is measured under one of three measurement models. PAA is a simplification which can be applied to short-term contracts, or contracts where PAA produces similar results to a FCF plus CSM measurement. The compensation an entity requires for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk as the entity fulfils insurance contracts.
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