Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p59
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 59/101)
Character Range: 194026–197192

and remeasures insurance liabilities based on updated expectations. However, these contract options are at the discretion of the insured and are different from changes to existing contract terms made by an issuer.

Contract versus statute

     BC180        The Boards noted that the AASB Discussion Paper (2017) proposals included the following [page 5].
The AASB's view is that although AASB 17 applies only to contracts, the Framework for the Preparation and Presentation of Financial Statements (Conceptual Framework) does not limit liability recognition to that arising from contracts, and specifically indicates that obligations may arise from statute. In applying its principle of transaction neutrality, the AASB considers that public sector entities with insurance risk created by statute, that are in substance similar to public and private sector entities with insurance risk created by contracts, should account for insurance risk in the same way.

     The respondents to the Discussion Paper either explicitly or implicitly accepted the view that AASB 17 could apply when there is an insurance arrangement based on statute (and not contracts).

     BC181        The Boards also noted PBE IFRS 17.BC5 explains that, when developing NZASB ED 2018-7, the NZASB observed some public sector PBEs were applying the requirements of PBE IFRS 4 for 'insurance-like' activities that arose from statute rather than contract.

     BC182        The Boards observed that the stakeholder outreach conducted in 2020-21 and the field testing of the indicators conducted in 2021-22 identified three broad types of response from stakeholders.

          (a) The manner in which the arrangement has been established (contract versus statute) is a matter of form rather than substance. These stakeholders have observed that:

               (i) virtually identical forms of coverage are provided under either statutory or private sector (contractual) arrangements (such as comprehensive third-party motor coverage) – accordingly, the insurance Accounting Standards would apply by analogy to statutory arrangements under the accounting policy hierarchy;[21]

               (ii) the purpose of having a statutory (rather than contractual) arrangement is generally to mandate that people obtain coverage from the one entity (usually a public sector entity); and

               (iii) individuals and entities are required by statute to pay for some types of insurance coverage from private sector insurers (such as workers' compensation coverage) and the arrangements are effectively a combination of contractual and statutory terms.

          (b) Literally, the insurance Accounting Standards are considered to apply only to contracts, and entities' activities in respect of relationships based only on statute are (strictly interpreted) not within the scope of the insurance Accounting Standards. These stakeholders have observed that: AASB 15/NZ IFRS 15 and AASB 16/NZ IFRS 16 Leases provide clear definitions and descriptions of contracts that can be used as a bright line.

          (c) For some types of risks (such as workers' compensation coverage), the existence