Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p19
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 19/101)
Character Range: 83182–86134

sector insurers that take a long view on pricing. That is, for example, grouping by annual cohort is irrelevant when the insured risk is for highly uncertain and infrequent events where the entity is a monopoly provider (and cannot withdraw from the market).

Analysis of sub-grouping of contracts issued no more than a year apart

     BC38            The Boards noted that the IASB decided to require sub-grouping of contracts issued no more than a year apart because it considers annual grouping by the underwriting year to be important to ensure that trends in the profitability of a portfolio of contracts are reflected in the financial statements on a timely basis [IFRS 17.BC136].

     BC39            In the context of the Australian and New Zealand public sectors, the Boards observed the following.

          (a) Many public sector entities would only issue contracts with one year of coverage and the difference between the portfolio perspective versus sub-grouping by annual cohort would not be particularly relevant. However, some public sector entities issue contracts that provide multi-year coverage – for example, in respect of domestic building risk coverage arrangements, and there may exist onerous versus non-onerous annual cohorts of contracts.

          (b) When relevant, the requirement in AASB 17/PBE IFRS 17.22 to identify separate groups of contracts by their year of issue is expected to result in insurers identifying their reporting period as the relevant period. Australian and New Zealand public sector entities have 1 July to 30 June reporting periods and, if they were to comply with AASB 17/PBE IFRS 17.22, would be expected to regard all contracts issued between 1 July and 30 June as being within one group of contracts.

     BC40            The Boards noted that the AASB 17/PBE IFRS 17.22 requirement to determine groups of contracts based on the underwriting year as the unit of account for the liability for remaining coverage could have flow-on consequences for the information that needs to be produced to manage the liability for incurred claims (unless insurers operate two parallel systems). This might be the case for the following reasons.

          (a) Claims are usually monitored in the context of the related levies/premiums 'earned', and premium 'earning' under AASB 17/PBE IFRS 17 would be based on the underwriting year used for the liability for remaining coverage under AASB 17/PBE IFRS 17.22.

          (b) Many public sector entities tend to manage claims on an accident year basis because claims management plays such a prominent role for public sector entities, rather than profitability and underwriting performance.[9] Under an accident year basis, all claims arising from incidents/accidents within a particular annual period are tracked over time and compared year-on-year with levies/premiums earned in that year for the related contracts, regardless of when those contracts were