Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p93
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 93/101)
Character Range: 289130–292031

reasons for modifying AASB 17/PBE IFRS 17 in accounting for such coverage.

     BC319        The Boards concluded that there is no need for public sector modifications in respect of adverse development coverage on the basis that:

          (a) while a public sector entity might have contracts providing adverse development coverage that, for example, might arise from a government restructuring of administrative arrangements, that form of coverage is not expected to be common in the public sector and possibly less common than in the private sector;

          (b) while there may be concerns that the accounting does not reflect the manner in which the contracts are managed, the same issues arise in the private sector; and

          (c) the potentially long coverage period would not affect eligibility for applying the premium allocation approach given that the Boards concluded public sector entities would have an accounting policy choice to apply that approach.

     BC320        However, the Boards also noted that the transition provision in AASB 17.C9A/PBE IFRS 17. 132.9A applies to an entity using a modified retrospective approach in accordance with AASB 17.C8/PBE IFRS 17.132.8 and involves classifying as a liability for incurred claims a liability for settlement of claims incurred before an insurance contract was acquired in a transfer of insurance contracts. Such a transfer may not form a business or may be in a business combination within the scope of AASB 3 Business Combinations /PBE IPSAS 40 PBE Combinations. The Boards observed that there is an additional dimension to such transfers in a public sector context because some liabilities acquired by public sector entities in their claims settlement stage are being accounted for under AASB 137/PBE IPSAS 19. The existing AASB 17/PBE IFRS 17 transition provision requires the continued use of claims liability accounting under AASB 17/PBE IFRS 17, but would not enable the continued use of AASB 137/PBE IPSAS 19.

     BC321        Given that the arrangements concerned are in their settlement phase, the Boards considered that any benefit to users of a public sector entity changing its accounting to apply AASB 17/PBE IFRS 17 rather than AASB 137/PBE IPSAS 19 in the event that the relevant arrangement was within the scope of AASB 17/PBE IFRS 17[30] would be likely to be outweighed by the costs. Accordingly, the Boards concluded that, on transition to AASB 17/PBE IFRS 17, in respect of an arrangement that constitutes a liability for settlement of claims incurred before the liability was acquired in a transfer, a public sector entity would be required to:

          (a) classify the liability as a liability for incurred claims and apply AASB 17/PBE IFRS 17 when the entity has previously asserted explicitly that it regards the liability as an insurance liability; and

          (b) classify the liability as