(paragraphs 38, 43-46 and B96-B119 of IFRS 17)

BC218 The contractual service margin depicts the unearned profit the entity expects to generate from a group of insurance contracts (see paragraph BC21). The contractual service margin is determined on initial recognition of a group as the amount that eliminates any gains arising at that time. Subsequent adjustments to the carrying amount of the contractual service margin and its recognition in profit or loss determine how profit and revenue are recognised over the coverage period of the group.

BC219 The contractual service margin cannot depict unearned losses. Instead, IFRS 17 requires an entity to recognise a loss in profit or loss for any excess of the expected present value of the future cash outflows above the expected present value of the future cash inflows, adjusted for risk (see paragraphs BC284-BC287 on losses on onerous contracts).

BC220 IFRS 17 requires the carrying amount of the contractual service margin to be adjusted for (see paragraphs 44 and 45 of IFRS 17):

(a) changes in estimates of the future unearned profit (see paragraphs BC222-BC269);