Margin on services
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Under MoS, the value of future surpluses expected to emerge under the life contract is first determined, and then spread over the projected life of the policy. The spreading is normally done as a percent of projected claims in each future year, although other measures can be used, such as premium or expenses.
It is this approach to spreading which resulted in the approach being called "Margin on services".
Other characteristics of the MoS framework include:
- realistic projections
- policies can be assets
- a risk-free discount rate is used (unless there is market risk in the projections)
- future surpluses are recalculated at each reporting date, but are not capitalised to/from profit at that date, although loss-recognition events are possible
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