(paragraphs 44(b) and 45(b) of IFRS 17)

BC270 IFRS 17 requires an entity to adjust the contractual service margin for a financing effect. The contractual service margin is one part of an overall measure of insurance contracts, and including in it a financing effect is consistent with the measurement of the other part (the fulfilment cash flows), which is adjusted for the time value of money and the effect of financial risks. Some argued that the contractual service margin should not be adjusted for a financing effect on the grounds of simplicity and because they view the contractual service margin as being a deferred credit rather than a representation of a component of an obligation. However, adjusting the contractual service margin for a financing effect is consistent with IFRS 15.

BC271 The way in which a financing effect is included in the contractual service margin differs between insurance contracts without direct participation features and insurance contracts with direct participation features.