Document ID: chunk:federal_register_of_legislation:F2021C00205:body:0:p5
Version: federal_register_of_legislation:F2021C00205
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measure at fair value, a policyholder's option to surrender an insurance contract for a fixed amount (or for an amount based on a fixed amount and an interest rate), even if the exercise price differs from the carrying amount of the host insurance liability. However, the requirements in AASB 9 do apply to a put option or cash surrender option embedded in an insurance contract if the surrender value varies in response to the change in a financial variable (such as an equity or commodity price or index), or a non-financial variable that is not specific to a party to the contract. Furthermore, those requirements also apply if the holder's ability to exercise a put option or cash surrender option is triggered by a change in such a variable (for example, a put option that can be exercised if a stock market index reaches a specified level).
9 Paragraph 8 applies equally to options to surrender a financial instrument containing a discretionary participation feature.

Unbundling of deposit components
10 Some insurance contracts contain both an insurance component and a deposit component.  In some cases, an insurer is required or permitted to unbundle those components:
(a) unbundling is required if both the following conditions are met:
(i) the insurer can measure the deposit component (including any embedded surrender options) separately (ie without considering the insurance component).
(ii) the insurer's accounting policies do not otherwise require it to recognise all obligations and rights arising from the deposit component.
(b) unbundling is permitted, but not required, if the insurer can measure the deposit component separately as in (a)(i) but its accounting policies require it to recognise all obligations and rights arising from the deposit component, regardless of the basis used to measure those rights and obligations.
(c) unbundling is prohibited if an insurer cannot measure the deposit component separately as in (a)(i).
11 The following is an example of a case when an insurer's accounting policies do not require it to recognise all obligations arising from a deposit component. A cedant receives compensation for losses from a reinsurer, but the contract obliges the cedant to repay the compensation in future years. That obligation arises from a deposit component. If the cedant's accounting policies would otherwise permit it to recognise the compensation as income without recognising the resulting obligation, unbundling is required.
12 To unbundle a contract, an insurer shall:
(a) apply this Standard to the insurance component.
(b) apply AASB 9 to the deposit component.

Recognition and measurement

Temporary exemption from some other Australian Accounting Standards
13 Paragraphs 10–12 of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors specify criteria for an entity to use in developing an accounting policy if