Margin on Services

Margin on Services

Margin on Services, also referred to as "MoS", is the financial reporting method developed by the Australian Accounting Standards Board which relates to life insurance companies in Australia.

Under MoS, the value of future surpluses expected to emerge under the life contract is first determined, and then is 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

The method is specified in prudential standard LPS1.04 issued by the Australian Prudential Regulatory Authority.[1]

See also

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