Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p67
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 67/101)
Character Range: 216255–219294

as an indicator of public sector arrangements to be accounted for as insurance contracts that the entity has objectives, policies and processes for managing risks associated with those arrangements and for its financial performance to be assessed based on how the entity meets those objectives and how successfully it applies those policies and processes. The Boards decided that, in this context, the public sector entity would be expected to conduct the following activities (either itself or via outsourcing):

          (a) underwriting and risk assessment;

          (b) the measurement of risks and uncertainties and their impacts; and

          (c) fair and prudent claims management and, when relevant, engage in remediation work.

     BC210        The Boards decided that the presence of all three of these factors would be an indicator of public sector arrangements to be accounted for as insurance contracts; and, conversely, the fewer of these three factors that are present, the less likely it would be for arrangements to be accounted for as insurance contracts.

Assets held to meet benefits

     BC211        IPSAS 42 identifies the existence of assets being held in a separate fund, or otherwise earmarked, and restricted to being used to provide benefits as being an indicator of insurance contracts [IPSAS 42.AG25(b)]. Similarly, the AASB Discussion Paper (2017) proposals identified that assets and liabilities arising from the arrangements being held in a separate fund, or otherwise specifically identified as used solely to provide benefits to beneficiaries as indicating an insurance arrangement [AASB DP.E14(d)]. However, the AASB Discussion Paper proposals also noted that the absence of separately allocated assets is not necessarily an indicator the arrangement is not insurance.

     BC212        The Boards noted that there is a link between the indicator on 'Source and extent of funding' (discussed above) and 'Assets held to meet benefits' because funds that are sourced from an arrangement's participants are more likely to be set aside in an arrangement fund than would be the case for funds sourced from general taxation.

     BC213        The Boards also noted that there is a link with the indicator on 'Management practices and assessing financial performance' (discussed above) because public sector entities that manage their own assets intended to meet claims would be more likely to have management practices that more generally mirror those of private sector insurers. The Boards observed that this perspective is supported by feedback received in recent stakeholder outreach, with many public sector entities having been established to be self-sustaining and having responsibility for overseeing an area of risk while achieving a breakeven result from all of their activities, including investment performance. This is a characteristic of private sector insurers, some of which routinely operate on a long-term sustainable basis by generating underwriting losses that are more than offset