Strategic Report | Governance | Financial Statements | 163
2. INSURANCE REVENUE
Year ended 31 December 2022 (restated) £m
Year ended 31 December 2023 £m
156
Contractual service margin recognised for services provided Change in risk adjustment for non-financial risk for risks expired Expected incurred claims and other insurance service expenses
120
11
13
1,369
1,184
19
Recovery of insurance acquisition cash flows
8
Total
1,555
1,325
Insurance revenue measured by transition type:
Year ended 31 December 2022 (restated) £m
Year ended 31 December 2023 £m
310
Fully retrospective approach and General measurement model applied since inception
150
1,245 1,555
Fair value measurement at the date of transition
1,175 1,325
Total
Contractual service margin recognised The contractual service margin (“CSM”) release of £156m (2022: £120m) is based on the coverage units, at cohort level, representing services provided in the year as a proportion of current and future coverage units, (see note26(f)). The increase compared with 2022 reflects the inclusion of an additional year’s cohort of business, and the increase in the CSM balance in 2023 as a result of favourable changes in estimates of future cash flows following demographic assumption changes. The CSM release represents 6.0% (2022: 5.8%) of the CSM reserve balance immediately prior to release. Change in risk adjustment for non-financial risk for risks expired The risk adjustment release of £11m (2022: £13m) represents the value of the release of risk as insurance coverage expires. Expected incurred claims and other insurance service expenses This amount represents the expected claims and maintenance expense cash flows in the period based on the assumptions within the opening liability for future cash flows excluding the value of investment components and other non-insurance cash flows. As the business continues to grow and mature, more of the Group’s claims payments are for policies that are beyond guarantee periods. This together with the increase in business mix towards DB business results in an increase in expected claims and expenses recorded as part of insurance revenue. Recovery of insurance acquisition cash flows Acquisition costs are deducted from the CSM at point of sale, with the result that as the CSM release is recognised in the income statement, there will be an implicit allowance for acquisition costs made each year over the life of contracts. The amount recognised in each period represents the portion of past and current acquisition expenses in respect of insurance contracts that are allocable to the current period based on the services provided (coverage units). Insurance revenue and insurance service expenses are grossed up by this annual value of acquisition expenses so that the full value of the premium is recognised as insurance revenue over the lifetime of contracts. The growth in the value in the year to £19m (2022: £8m) reflects the inclusion of an additional new business cohort. Only the cohorts measured on a fully retrospective basis at transition to IFRS 17 and cohorts of business written since transition (i.e. underwriting years 2021 onwards) have insurance acquisition cash flows. The recovery percentage recognised in the period is consistent with the CSM release percentages.
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