Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p58
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 58/101)
Character Range: 191248–194305

change the benefits is significant; and

          (c) the terms in Example B2 are unlike insurance contracts issued by private sector entities because these entities would not be able to arbitrarily change benefits.

     BC175        The Boards identified that the enforceable nature of an arrangement is consistent with the basis for the accounting in AASB 17/PBE IFRS 17. Accordingly, the Boards considered that the extent to which the existing benefits under an arrangement are enforceable on the relevant public sector entity is an indicator for determining when that arrangement is accounted for as an insurance contract. Correspondingly, the Boards also considered that cases when an entity would be able to arbitrarily change benefits seems indicative of a conventional social benefit arrangement.

     BC176        The Boards observed that, relative to private sector insurers, governments are in a unique position to be able to legislate, which is relevant to Example B1 above. Having established an arrangement that provides benefits to participants, in theory, the government subsequently has the power to take those benefits away or at least adjust the amount of benefits.

     BC177        The Boards also observed that AASB 17/PBE IFRS 17 relies on the notion of an insurer having a 'practical ability' for the purposes of, for example:

          (a) determining the boundary of an insurance contract (practical ability to set a new price or new benefits [AASB 17/PBE IFRS 17.34(a)]); and

          (b) relief from recognising a separate onerous contract group (when contracts within a portfolio would fall into different groups only because law or regulation specifically constrains the entity's practical ability to set a different price or level of benefits [AASB 17/PBE IFRS 17.20]).

     BC178        The Boards identified that the notion of 'practical ability' could be used to help distinguish those cases when a public sector arrangement should be regarded as enforceable from cases when an arrangement is not enforceable. That is, an indicator that it is relevant to account for public sector arrangements as insurance contracts would be that the entity (or its controlling government) does not have the practical ability to change a benefit retrospectively.

     BC179        The Boards noted that some insurance contracts include features in their original terms that enable policyholders to take actions that change the amount, timing, nature or uncertainty of the amounts they will receive and AASB 17.B62/PBE IFRS 17.AG62 requires an insurer to determine the probabilities of those options being exercised in measuring insurance liabilities. When expectations are different from actual events, the insurer recognises 'experience adjustments' 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