Document ID: chunk:federal_register_of_legislation:F2023C00382:front:0:p51
Version: federal_register_of_legislation:F2023C00382
Segment Type: other
Provision Reference: 
Character Range: 134490–137505

basis of information obtained including:
(a) information about claims already reported by policyholders.
(b) other information about the known or estimated characteristics of the insurance contracts.
(c) historical data about the entity's own experience, supplemented when necessary with historical data from other sources. Historical data is adjusted to reflect current conditions, for example, if:
(i) the characteristics of the insured population differ (or will differ, for example, because of adverse selection) from those of the population that has been used as a basis for the historical data;
(ii) there are indications that historical trends will not continue, that new trends will emerge or that economic, demographic and other changes may affect the cash flows that arise from the existing insurance contracts; or
(iii) there have been changes in items such as underwriting procedures and claims management procedures that may affect the relevance of historical data to the insurance contracts.
(d) current price information, if available, for reinsurance contracts and other financial instruments (if any) covering similar risks, such as catastrophe bonds and weather derivatives, and recent market prices for transfers of insurance contracts. This information shall be adjusted to reflect the differences between the cash flows that arise from those reinsurance contracts or other financial instruments, and the cash flows that would arise as the entity fulfils the underlying contracts with the policyholder.

Market variables and non-market variables
B42 AASB 17 identifies two types of variables:
(a) market variables – variables that can be observed in, or derived directly from, markets (for example, prices of publicly traded securities and interest rates); and
(b) non-market variables – all other variables (for example, the frequency and severity of insurance claims and mortality).
B43 Market variables will generally give rise to financial risk (for example, observable interest rates) and non-market variables will generally give rise to non-financial risk (for example, mortality rates). However, this will not always be the case. For example, there may be assumptions that relate to financial risks for which variables cannot be observed in, or derived directly from, markets (for example, interest rates that cannot be observed in, or derived directly from, markets).

Market variables (paragraph 33(b))
B44 Estimates of market variables shall be consistent with observable market prices at the measurement date. An entity shall maximise the use of observable inputs and shall not substitute its own estimates for observable market data except as described in paragraph 79 of AASB 13 Fair Value Measurement. Consistent with AASB 13, if variables need to be derived (for example, because no observable market variables exist) they shall be as consistent as possible with observable market variables.
B45 Market prices blend a range of views about possible future outcomes and also reflect