Is CSM starting to move centre stage for investors?

13 July 2018

We have seen interest and focus on IFRS 17 by the investor and analyst community increase over the past year, with some publishing their own research and educational papers on its impact.

As we would expect comparability still remains a major focus and they are already starting to place the Contractual Service Margin (CSM) center stage to give deeper insight into the relative performance of insurers. In addition and certainly not a surprise, how IFRS 17 may or may not compare to actual cash and dividend policy is an area of focus. They are watching carefully as insurers grapple with the key issues surrounding IFRS 17 and move forward with implementation.

These were among the clear messages from a recent investor and analyst seminar hosted by our IFRS 17 implementation team.

Investors and analysts want better comparability and see IFRS 17 as having the potential to deliver that but are worried that the different policy choices available to insurers will dilute some of the potential benefits. There are a raft of important decisions to be made, such as how unearned profit (CSM) gets recognised over the life of a long term policy, the discount rate and risk adjustment methodology and how back books of business will be treated on transition to IFRS 17.

Many of these tough questions will have to be tackled by insurers during the transitional phase of IFRS17. Decisions made for back books of business will impact performance for years following the transition to IFRS17. This may impact comparability among insurers and investors and analysts are starting to understand this.

How far are insurers engaging with their investor community on these issues? It varies considerably, say analysts and investors.

Around half of those attending the seminar said they were already in discussions about IFRS 17 with insurers at some level while others said they expected insurers to open up soon.  However, a significant minority said insurers were holding off until nearer the implementation date. With this looming ever closer, the feeling was that earlier engagement is better to unlock the benefits and explain any limitations of IFRS 17.

Our IFRS 17 implementation team will continue the dialogue with analysts and investors over 2018 to understand more about their perspectives on IFRS 17 as insurers continue on their implementation journey.  

Alex Bertolotti

Alex Bertolotti | Partner
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