Page 198 - India Insurance Report 2023- BIMTECH

186 India Insurance Report - Series II

apply a different approach to a different group of contracts. Therefore, there would be challenges from
assumptions to account posting stages. Moreover, at the first-time application, the calculation and
estimation of (Contractual Service Margin) CSM as at inception is challenging.

4.1. How an Insurer Manages its Business will Impact How Ind AS 117 is Applied and
Implemented.

The Standard provides guidance and examples of where judgements and decisions will be based on
insurer-specific information and/or circumstances. How the insurer’s business is managed today impacts
the implementation of the accounting standard. With a few years to implement the Standard, insurers
have the opportunity to consider how they manage their contracts. This will need to be demonstrated
and evidenced by current day management information. For example:
• Whether the insurer manages its insurance contracts as one—in portfolios or in different, more granular
lines of business or business units;

• The performance metrics of the business, whether at an aggregated or more granular level of reporting
to key stakeholders;

• The performance metrics used to determine incentive remuneration for management and leaders
could influence the determination of which insurance contracts are managed together as one.

4.2. Implementation Challenges for Indian Insurers

Some of the key issues considered controversial and requiring special focus by participants of recent
discussions regarding the new standard are:

• Selecting a measurement model and calculating contractual service margins (CSM);
• Determining groups of contracts to be treated as a single unit of account;
• Adapting accounting, actuarial and IT systems to allow calculation of CSM and its amortization for
each unit of account;
• Defining Risk Adjustment methodology;

• Changes in reinsurance contract reporting; selecting the optimum methodology of recognizing the
existing portfolio pursuant to the new reporting principles (transition)

4.3.Selecting a Measurement Model

The General Model introduced in the Standard assumes that insurance liabilities shall be measured
as a summation of expected future cash flows (including discounts based on market return rate curves)
increased by risk adjustment and CSM.

The first two components shall be calculated based on current assumptions regarding biometrics,
costs and economic conditions. CSM shall be arrived at through amortization of the initial amount