Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p7
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 7/101)
Character Range: 49191–52188

that fall within the scope of AASB 17.

     E27                In some cases, there will be a clear similarity between the risks being accepted and the benefits being provided by a public sector entity and private sector insurers, and this is highly indicative of an arrangement that gives rise to insurance contracts that fall within the scope of AASB 17.

     E28                Public sector entities often fill gaps in a market left by the private sector because they pose the greatest risks and might generally be unprofitable or unsustainable for the private sector to cover. Of itself, the level of riskiness generally is not relevant to determining whether there is similarity between the risks covered and the benefits provided by public sector entities and private sector insurers. The similarity of the nature of the risks covered and benefits provided is the key focus. Accordingly, the nature of a risk covered by a public sector entity and private sector insurers could be the same, even though the level of risk borne by the public sector entity is more extreme.

     E29                Many of the risks covered by private sector insurers are also the subject of social benefits provided by governments. Accordingly, while in some cases, the similarity of risks covered and benefits provided by a public sector arrangement to the risks and benefits under a social benefit program may help indicate whether that arrangement would be excluded from the scope of AASB 17, in many cases it may not.

     E30                It would be indicative of providing benefits that are the same as, or similar to, those offered by private sector insurers when an entity manages claims in order to provide benefits commensurate with participants' losses, rather than simply dispensing a fixed amount of compensation based on participants meeting specified eligibility criteria.

Other consideration: Management practices and assessment of financial performance

     E31                Consideration is given to the extent to which a public sector entity has objectives, policies and processes for managing risks associated with its arrangements and has its financial performance assessed against those objectives and how successfully it applies those policies and processes in determining whether an arrangement gives rise to insurance contracts that fall within the scope of AASB 17. In that context, an entity that has insurance contracts would be expected to conduct the following activities (either itself or via outsourcing):

          (a) underwriting and risk assessment;

          (b) managing the entity's capital based on the measurement of risks and uncertainties relating to coverage and incurred claims and their potential future impacts; and

          (c) fair and prudent claims management.

     E32                In general, any public sector entity that is responsible for dispensing compensation (as an insurer or non-insurer) would be expected to have sound practices