The Science of Trust.

The CSM represents the unearned profit in an insurance contract. It is calculated as:

CSM = Fulfilment Cash Flows - Risk Adjustment - Loss Component

Where:
- Fulfilment Cash Flows = Expected Premiums - Expected Benefits - Expected Expenses
- Risk Adjustment = Compensation for non-financial risk
- Loss Component = Recognition of onerous contracts

The CSM is released over the service period in proportion to the services provided.

Risk Adjustment compensates for the non-financial risk inherent in insurance contracts. It is calculated using:

Risk Adjustment = Σ(Probability × Risk-free Value × Risk Factor)

Where:
- Probability = Likelihood of each scenario
- Risk-free Value = Present value of cash flows
- Risk Factor = Risk adjustment factor for each scenario