The Contractual Service Margin (net) is a balance sheet item, that represents the net unearned profit embedded in reinsurance contracts and therefore indicates the future profits of the business underwritten in the past. The CSM (net) represents the (risk-adjusted) difference between the present value of the expected future cash inflows from these contracts (e.g. premiums) and the present value of the expected cash outflows (e.g. claims and expenses). The "net" aspect accounts for any expected future recoveries or expenses that may offset or contribute to the profit. The Contractual Service Margin (net) is recognized as revenue over time as the reinsurer provides services and assumes risks over the contract's duration.
The discounting effect represents the adjustment made to the estimated future cash flows from reinsurance contracts to reflect their present value. It considers the time value of money and helps ensure that the liability amounts accurately represent their current value over time.
Interest accretion is the process of gradually recognizing and adding interest income over time on the carrying amount of insurance contract liabilities. It reflects the time value of money and ensures that the liability amount reflects its present value as the contract progresses. It can be regarded as reversal of discounting over time and is included in the P&L position Reinsurance finance result (net).
The New Business Contractual Service Margin (net) is the expected net unearned profit related to newly underwritten reinsurance contracts. The new business CSM is distinct from the CSM associated with existing contracts and is recognized as revenue over time, mirroring the provision of services and assumption of risks over the life of the new reinsurance contracts. It does not include extensions on existing contracts (prolongation).
The New business Loss Component (net) is recognized from newly underwritten contracts when a group of insurance contracts is onerous, meaning that the expected outflows plus risk adjustment are greater than the expected inflows, including expected future recoveries from retrocession. The amount is recognized immediately as expenses in the reinsurance service result.
The Risk Adjustment is an amount added to estimated cash flows from reinsurance contracts to account for inherent uncertainty and risk. It represents the potential financial impact of adverse events and ensures accurate portrayal of the risk in the reinsurer's portfolio, aiding in pricing, reserving, and financial transparency.
Reinsurance revenue is the income generated from providing reinsurance services to ceding insurers. It encompasses the insurance service expenses like claims and expenses as expected at the beginning of the period, as well as the release of contractual service margin and the risk adjustment for the period, representing the revenue component of the reinsurer's financial performance.
The Reinsurance Service Result is the financial outcome of providing reinsurance services to ceding insurers. It includes the net result from premiums, claims, and expenses, reflecting the performance and profitability of the reinsurance operations.