Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p21
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 21/101)
Character Range: 88551–91595

underwriting year basis. Some entities track claims on both bases. Managements are likely to continue their existing tracking focus (which they have found to be effective) even if the external reporting requirements changed to groups based on the date when contracts are issued. The costs for some entities of operating a parallel tracking system (based on the underwriting year) to facilitate external reporting would not justify any benefits that might arise from applying AASB 17/NZ IFRS 17.22.

          (c) The requirement in AASB 17/PBE IFRS 17.57 to compare the liability for remaining coverage[10] with the fulfilment cash flows that relate to remaining coverage when facts and circumstances indicate a group of insurance contracts is onerous could be applied at the portfolio level.[11] Given that, for most public sector entities, the liability for remaining coverage is routinely inadequate because they price to break even after taking into account projected investment returns, exempting public sector entities from applying the requirements in AASB 17/PBE IFRS 17.22 would rarely (if ever) result in delayed recognition of onerous contracts.

Sub-grouping contracts – AASB ED 319/NZASB ED 2022-3 feedback and Board conclusions

     BC43            All respondents to AASB ED 319/NZASB ED 2022-3 who commented on the proposal to exempt public sector entities from sub-grouping between onerous and non-onerous contracts were supportive. Their support was based substantively on the reasons outlined in paragraphs BC31 and BC32. Some respondents particularly noted:

          (a) the monopoly and community-wide nature of many public sector arrangements makes them unsuitable for sub-grouping based on profitability;

          (b) there is no loss-leading in public sector arrangements that users might find interesting in a commercial context;

          (c) performance at the portfolio level is generally a more relevant benchmark for public sector entities.

     BC44            All respondents to AASB ED 319/NZASB ED 2022-3 who commented on the proposal to exempt public sector entities from sub-grouping contracts issued no more than a year apart were supportive. Their support was largely based on the reasons provided by the Boards in paragraphs BC40 and BC41.

     BC45            Based on the feedback received from stakeholders and the reasoning applied by the Boards in determining their proposals, the Boards concluded that paragraphs 16 and 22 would be modified so that public sector entities would be exempted from the requirements of these two paragraphs.

     BC46            The Boards noted that the practical impact of these exemptions is that public sector entities would be permitted to have a basic unit of account that is a portfolio (also see the discussion above on groups of contracts issued no more than a year apart). Accordingly, their liabilities for remaining coverage and liabilities for incurred claims would be permitted to be measured for each portfolio as a whole (and, for those entities