Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p28
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 28/101)
Character Range: 107950–111067

they are not regarded as constraints that affect an insurer's practical ability to fully price for risks/benefits in relation to the existing arrangements. The Boards considered that, instead, the focus should be on the constraints operating under existing and substantively enacted legislation.

Practical ability – proposal for AASB ED 319/NZASB ED 2022-3

     BC71            The Boards decided, for the avoidance of doubt, to propose including guidance in AASB 17/PBE IFRS 17 to the effect that an entity's practical ability to fully price for risks/benefits also includes the ability of its controlling government, including any relevant Minister(s) and/or regulatory pricing supervisor, under existing and/or substantively enacted legislation to decide on pricing and benefits. The Boards considered this guidance to be supportable for the following reasons.

          (a) The approach seems reasonable given that the government owns and controls the public sector entity and users of the financial statements would know, when relevant, that the ultimate decision-making power lies with the government.

          (b) Without guidance, entities might need to engage in costly analysis in consultation with their auditors to determine how long-run pricing affects the entity's practical ability; and inconsistent determinations about 'practical ability' might be made by different entities in similar circumstances.

Contract boundaries and coverage periods of public sector arrangements – AASB ED 319/NZASB ED 2022-3 feedback and Board conclusions

     BC72            All respondents to AASB ED 319/NZASB ED 2022-3 who commented on the proposed guidance were supportive. Their support was based substantively on the reasons outlined in paragraphs BC69–BC71.

     BC73            Some respondents also sought additional guidance on the following matters.

          (a) In the public sector there can be situations in which there is an established practice of, or regulatory requirement for, periodic pricing reviews, such as every five years, which may appear to give rise to multi-year coverage periods, but do not in fact remove the practical ability to re-price for risk on a more frequent basis.

          (b) The meaning of coverage may not be clear when public sector arrangements are essentially statutory and are linked to an underlying insurance contract sold by a commercial insurer. There was a concern about possible confusion over whether the coverage would be regarded as: (i) the same as the underlying insurance contract; or (ii) the period over which claims are expected to be settled.

     BC74            Based on the feedback received from stakeholders and the reasoning applied by the Boards in determining their proposals, the Boards concluded that the proposed guidance on coverage periods and practical ability would be included in AASB 17/PBE IFRS 17. They also concluded that additional guidance should be provided along the following lines.

          (a) Public sector entities would need to consider whether multi-year pricing reviews removed the practical ability to reprice