Coverage units (IFRS 17)

A three-year borrower insurance contract protects a capital of EUR 100,000 in year one and 60,000 in year two, as the loan amortizes. How much of the service may the insurer recognize as profit each year? Paragraph B119 of IFRS 17 answers with coverage units. The contractual service margin, at the end of each period, is spread equally across each coverage unit provided in the period and each one expected in the future; the period's share goes to profit. A unit reflects the quantity of benefits the contract provides and the expected coverage duration, which is reducible neither to duration alone nor to capital alone. The standard leaves the entity some judgment: how to measure quantity for an annuity, for a savings contract that covers a death and a return, for a cyber contract that covers a risk of varying intensity? It does not say either whether future units should be discounted, and companies have different practices, which alter the pattern of profit recognition. The choice weighs on the pace of results and has to be detailed in the notes. The risk adjustment is released in parallel on its own logic, and does not go through the units.