Notes to the Financial Statements
For all contracts issued by the Group, the coverage period is determined by insurance coverage. The total number of coverage units in a group is the quantity of coverage provided by the contracts in the group over the expected coverage period. The coverage units are determined at each reporting period-end prospectively by considering: • the quantity of benefits provided by contracts in the group; • the expected coverage duration of contracts in the group; and • the likelihood of insured events occurring, only to the extent that they affect the expected duration of contracts in the group. The Group uses the amount that it expects the policyholder to be able to validly claim in each period if an insured event occurs as the basis for the quantity of benefits. The Group reflects the time value of money in the allocation of the CSM to coverage units. For reinsurance contracts held, the CSM is released to profit or loss as services are received from the reinsurer in the period. Coverage units for the reinsurance contracts are based on the insurance coverage provided by the reinsurer and are determined by the ceded policies’ coverage units taking into account new business projected within the reinsurance contract boundary. The coverage period for these contracts is determined based on the coverage of all underlying contracts whose cash flows are included in the reinsurance contract boundary.
• The effect of any new contracts added to the group; • Interest accreted on the carrying amount of the CSM; • Income recognised in profit or loss when the entity recognises a loss on initial recognition of an onerous group of underlying insurance contracts or on addition of onerous underlying insurance contracts to that group. A loss-recovery component is established or adjusted within the remaining coverage for reinsurance contracts held for the amount of income recognised; • Reversals of a loss-recovery component other than changes in the FCF of reinsurance contracts held; • Changes in the FCF, to the extent that the change relates to future service, unless the change results from a change in FCF allocated to a group of underlying insurance contracts that does not adjust the CSM for the group of underlying insurance contracts; and • The amount recognised in profit or loss for insurance contract services received during the period, determined after all other adjustments above. Refer to the Reinsurance contracts held – Loss recovery component section below for loss-recovery component accounting. Interest accretion on the CSM Under the GMM, interest is accreted on the CSM using discount rates determined at initial recognition that are applied to nominal cash flows that do not vary based on the returns of underlying items (locked-in discount rates). If more contracts are added to the existing groups in the subsequent reporting periods, the Group revises the locked-in discount curves by calculating weighted-average discount curves over the period that contracts in the group are issued. The weighted-average discount curves are determined by multiplying the new CSM added to the group and their corresponding discount curves over the total CSM. Adjusting the CSM for changes in the FCF relating to future service The CSM is adjusted for changes in the FCF measured applying the discount rates as specified above in the changes in fulfilment cash flows section. Release of the CSM to profit or loss The amount of the CSM recognised in profit or loss for services in the period is determined by the allocation of the CSM remaining at the end of the reporting period over the current and remaining expected coverage period of the group of insurance contracts based on coverage units. The coverage period is defined as a period during which the Group provides insurance contract services.
Onerous contracts - Loss component
When adjustments to the CSM exceed the amount of the CSM, the group of contracts becomes onerous and the Group recognises the excess in insurance service expenses and records it as a loss component of the LRC. When a loss component exists, the Group allocates the following between the loss component and the remaining component of the LRC for the respective group of contracts, based on the ratio of the loss component to the FCF relating to the expected future cash outflows: • expected incurred claims and expenses for the period; • changes in the risk adjustment for non-financial risk for the risk expired; and • finance income (expenses) from insurance contracts issued.
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ClearView Wealth Limited
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