Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p27
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 27/101)
Character Range: 105069–108224

the market.

Practical ability

     BC65            The Boards observed that the levy/premium and benefit decision-making power may reside with the public sector entity itself, or more commonly, resides with the government, for example, the relevant Minister(s) or regulatory pricing supervisor.

     BC66            The Boards noted that a typical public sector model involves:

          (a) benefits largely being determined by reference to regulation or legislation, which would be the product of consultation and review; and

          (b) levies/premiums being set under a process where the public sector entity makes recommendations to a government regulatory pricing supervisor or Minister for approval. The recommendations may be approved with or without alterations.

     BC67            In these circumstances, literally, the public sector entity (itself) does not have the practical ability to set prices/levies and benefits. A strict interpretation of AASB 17/PBE IFRS 17.34 might mean that the public sector entity's arrangements are open-ended and coverage is virtually perpetual. The Boards noted a flow on consequence of this would be that, under AASB 17/PBE IFRS 17, a public sector entity may need to account for arrangements as if they were issuing very long-term multi-year contracts with the need to estimate cash flows over long forecast periods.

     BC68            The Boards considered the main alternative perspective to be that the entity and its controlling government,[13] including any relevant Minister(s) or regulatory pricing supervisor, would be regarded collectively as having the practical ability to fully price for risks/benefits. The Boards noted a flow on consequence of this perspective is that, under AASB 17/PBE IFRS 17, a public sector entity's arrangements would be regarded as having contract boundaries based on the timing (often annual) of pricing/benefit reviews by government, rather than being open-ended.

     BC69            The Boards also considered whether the practical ability of a government or public sector entity should be affected by constraints imposed by the political and economic environment. However, they noted that:

          (a) all entities face political and/or economic constraints of some kind; including, for example, competitive pressures facing private sector insurers; and

          (b) the practical ability benchmark needs to be applied in the context of AASB 17.B64/ PBE IFRS 17.AG64, which says (in part): "An entity has that practical ability in the absence of constraints that prevent the entity from setting the same price it would for a new contract with the same characteristics as the existing contract issued on that date …".

     BC70            Accordingly, provided the constraints (political or commercial) apply to new (current) arrangements as well as existing arrangements, they are not regarded as constraints that affect an insurer's practical ability to fully price for risks/benefits in relation to the existing arrangements. The Boards considered that, instead, the focus should be on the constraints operating under existing and substantively