(paragraphs 44, 45 and B96-B118 of IFRS 17)

BC222 The key service provided by insurance contracts is insurance coverage, but contracts may also provide investment-related or other services. The measurement of a group of insurance contracts at initial recognition includes a contractual service margin, which represents the margin the entity has charged for the services it provides in addition to bearing risk. The expected margin charged for bearing risk is represented by the risk adjustment for non-financial risk (see paragraphs BC206-BC214C).

BC223 IFRS 17 requires an entity to measure the contractual service margin, on initial recognition of the group of insurance contracts, as the difference between the expected present value of cash inflows and the expected present value of cash outflows, after adjusting for uncertainty and any cash flows received or paid before or on initial recognition. IFRS 17 also requires an entity to update the measurement of the contractual service margin for changes in estimates of the fulfilment cash flows relating to future service, for the following reasons: