36. 36.1 36.1.1 • • • The CSM is a component of the asset or liability for the group of insurance contracts that represents the unearned profit the Group will recognise as it renders insurance services in the future for the nonparticipating portfolio. An amount of the CSM for a group of insurance contracts is recognised in profit or loss as insurance revenue in each period to reflect the insurance contract services provided under the group of insurance contracts in that period. The amount is determined by: identifying the coverage units in the insurance group; allocating the CSM at the end of the period (before recognising any amounts in profit or loss to reflect the insurance contract services provided in the period) equally to each coverage unit provided in the current period and expected to be provided in the future; and recognising in profit or loss the amount allocated to coverage units provided in the period. The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities at reporting date as well as affecting the reported income and expenses for the year. Estimates and judgements are evaluated annually and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Critical accounting estimates and judgements in applying accounting policies Valuation of insurance contract liabilities For reinsurance contracts held, the CSM amortisation is similar to the reinsurance contracts issued up to December 2022 and reflected the expected pattern of underwriting of the underlying contracts because the level of service provided depended on the number of underlying contracts in-force. Reinsurance contracts issued is relevant up to 31 December 2022 when the reinsurance treaty between PPS Namibia and PPS Insurance Company concluded. The determination of the liabilities under insurance contracts is dependent on estimates and assumptions set by the Group. In determining the value of these insurance policy liabilities assumptions regarding mortality, persistency, investment returns, expense level and inflation, tax and future profit allocations have been made. For detail on these assumptions refer to Note 10.3. No allowance was made for any assumed deterioration in mortality and morbidity due to HIV/AIDS. Contractual Service Margin (CSM) The number of coverage units in a group is the quantity of insurance contract services provided by the contracts in the group, determined by considering the quantity of the benefits provided and the expected coverage period. For groups of life insurance contracts, the quantity of benefits is the contractually agreed sum insured over the period of the contracts. The total coverage units of each group of insurance contracts are reassessed at the end of each reporting period to adjust for the reduction of remaining coverage for claims paid, expectations of lapses and cancellation of contracts in the period. These are then allocated based on probability-weighted average duration of each coverage unit provided in the current period and expected to be provided in the future. For reinsurance contracts issued, the number of coverage units in a group reflects the expected pattern of underwriting of the underlying contracts because the level of service provided depends on the number of underlying contracts in force. The quantity of benefit is the maximum probable loss. The remaining coverage units are reassessed at the end of each reporting period to reflect the expected pattern of service and the expectations of lapses and cancellations of contracts. The remaining coverage is allocated based on probability-weighted average duration of each coverage unit provided in the current period and expected to be provided in the future. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2023 197 Notes to the Consolidated Financial Statements
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