Contractual Service Margin Under IFRS 17: From Initial Recognition to Profit Recognition

Abstract

The purpose of this paper is to analyze the role of Contractual Service Margin (CSM) within IFRS 17 and its implications for the quality of financial reporting in the insurance industry. The study adopts a conceptual approach, supported by illustrative examples, to highlight the mechanisms for recognizing and measuring CSM. The results show that the introduction of CSM eliminates the immediate recognition of profits and requires their distribution over the life of the contracts, contributing to a better correlation between revenues and services provided. Thus, the relevance and faithful representation of financial information are improved. The paper highlights the role of key components, such as fulfillment cash flows, risk adjustment and coverage units, as well as the particularities of the treatment of reinsurance contracts. At the same time, challenges related to complexity, actuarial estimates and implementation are identified. UDC: 368.03:657.37; JEL: M41