Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p23
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 23/101)
Character Range: 94132–97178

of the coverage period of the group of contracts;

          (b) the date when the first payment from a policyholder in the group becomes due; and

          (c) for a group of onerous contracts, when the group becomes onerous.

     BC51            The Boards observed that, for the onerous contract trigger in AASB 17/PBE IFRS 17.25(c) to be the earliest date, the insurer would have already accepted the insured's risk before coverage commences and before premiums are due and there are facts and circumstances indicating a group of insurance contracts is onerous.[12] Accordingly, there would need to be up-front loss recognition for any onerous contracts that have been entered into as at the balance date, even though the coverage period may only commence in the subsequent reporting period. This reflects the emphasis in AASB 17/PBE IFRS 17 on the early recognition of onerous contract losses.

     BC52            The Boards observed that the differing circumstances of public sector entities compared with their private sector counterparts would potentially mean that applying AASB 17/PBE IFRS 17.25(c) would have unhelpful accounting consequences.

          (a) Private sector for-profit insurers would typically only by exception knowingly issue onerous contracts [see the perspective in IFRS 17.BC135]. However, most public sector entities routinely issue onerous contracts (because levies/premiums charged are inadequate to cover expected claims).

          (b) Private sector insurers will typically have contracts commencing throughout their reporting period and, therefore, only a relatively small portion of contracts that commence in the following year would typically be enforceable on the entity at any given reporting date. However, some public sector entities have a large portion of their contracts covering periods that coincide with their reporting period. Accordingly, for these entities, all or most of next year's contracts could be enforceable on the entity at each reporting date.

     The Boards noted that, for an entity that has enforceable arrangements in the weeks before year end for the following 1 July to 30 June coverage period, applying AASB 17/PBE IFRS 17.25(c) would mean all of the onerous contract losses associated with next year's arrangements would need to be included in the current year's results. While this may not have a major impact year-on-year, the Boards thought it would be a counter-intuitive outcome.

Initial recognition when contracts are onerous – proposals for AASB ED 319/NZASB ED 2022-3

     BC53            Based on the above deliberations, the Boards decided to propose an exemption for all public sector entities from applying the requirements in AASB 17/PBE IFRS 17.25(c). The Boards considered this exemption is justified for the following reasons.

          (a) The consequences of applying AASB 17/PBE IFRS 17.25(c) to some public sector insurers would be potentially burdensome from a practical viewpoint, since their systems are not currently set up to capture this