Document ID: chunk:federal_register_of_legislation:F2023C00382:front:0:p61
Version: federal_register_of_legislation:F2023C00382
Segment Type: other
Provision Reference: 
Character Range: 161030–163803

profit or loss and other comprehensive income (see paragraph 88), to determine the amount of the insurance finance income or expenses included in profit or loss:
(i) for groups of insurance contracts for which changes in assumptions that relate to financial risk do not have a substantial effect on the amounts paid to policyholders, applying paragraph B131 – discount rates determined at the date of initial recognition of a group of contracts, applying paragraph 36 to nominal cash flows that do not vary based on the returns on any underlying items;
(ii) for groups of insurance contracts for which changes in assumptions that relate to financial risk have a substantial effect on the amounts paid to policyholders, applying paragraph B132(a)(i) – discount rates that allocate the remaining revised expected finance income or expenses over the remaining duration of the group of contracts at a constant rate; and
(iii) for groups of contracts applying the premium allocation approach applying paragraphs 59(b) and B133 – discount rates determined at the date of the incurred claim, applying paragraph 36 to nominal cash flows that do not vary based on the returns on any underlying items.
B73 To determine the discount rates at the date of initial recognition of a group of contracts described in paragraphs B72(b)–B72(e), an entity may use weighted-average discount rates over the period that contracts in the group are issued, which applying paragraph 22 cannot exceed one year.
B74 Estimates of discount rates shall be consistent with other estimates used to measure insurance contracts to avoid double counting or omissions; for example:
(a) cash flows that do not vary based on the returns on any underlying items shall be discounted at rates that do not reflect any such variability;
(b) cash flows that vary based on the returns on any financial underlying items shall be:
(i) discounted using rates that reflect that variability; or
(ii) adjusted for the effect of that variability and discounted at a rate that reflects the adjustment made.
(c) nominal cash flows (ie those that include the effect of inflation) shall be discounted at rates that include the effect of inflation; and
(d) real cash flows (ie those that exclude the effect of inflation) shall be discounted at rates that exclude the effect of inflation.
B75 Paragraph B74(b) requires cash flows that vary based on the returns on underlying items to be discounted using rates that reflect that variability, or to be adjusted for the effect of that variability and discounted at a rate that reflects the adjustment made. The variability is a relevant factor regardless of whether it arises because of contractual terms or because the entity exercises discretion, and regardless of whether the entity