BC18 An insurance contract typically combines features of a financial instrument and a service contract in such a way that those components are interrelated. Hence, the Board concluded that entities should not unbundle the components and account for them separately, except as discussed in paragraphs BC98-BC114. Instead, the Board developed requirements to account for both the financial and service components without unbundling them. Measurement at current value is consistent with the requirements for comparable financial instruments. Recognising profit at the same time services are provided is consistent with IFRS 15. Therefore, IFRS 17 requires an entity to measure insurance contracts at:

(a) a current risk-adjusted present value that incorporates all reasonable and supportable information available without undue cost or effort about the future cash flows, in a way that is consistent with observable market information (the fulfilment cash flows (see paragraphs BC19-BC20)); and

(b) an amount representing the unearned profit in the contracts relating to services still to be provided (the contractual service margin (see paragraphs BC21-BC26)).

Fulfilment cash flows (paragraphs 33-37 of IFRS 17)

BC19 The current value of the fulfilment cash flows allocated to a group of insurance contracts includes: