Document ID: chunk:federal_register_of_legislation:F2024L00075:reg:38:p51
Version: federal_register_of_legislation:F2024L00075
Segment Type: reg
Provision Reference: reg 38 (pt 51/76)
Character Range: 177168–180335

party (re)insurers; and
(c)                   the potential implications of the changes to AASB 1038 that would result from the IASB's comprehensive insurance contracts project in the next few years.
BC154        Respondents to ED 179 also identified a number of alternative approaches the AASB could adopt, including:
(a)                   only addressing accounting for insurance arrangements in a superannuation context once the IASB's comprehensive insurance contracts project is completed;
(b)                   a disclosure-only approach, for example, requiring disclosure of the insurance arrangements provided, the risk exposures and any reserves established in respect of such exposures; or
(c)                   requiring any liabilities or assets arising from insurance arrangements to be accounted for in a manner consistent with the basis adopted for measuring member liabilities.
BC155        In redeliberating the proposals in ED 179, the AASB noted that, in many cases, superannuation entities act only as agents in respect of the insurance arrangements they have for members and would not be affected by requirements to account for insurance contracts.  However, whilst insurance risks may not be significant for many superannuation entities, the AASB noted that some may be exposed to significant insurance risk.  For example, (re)insuring member liabilities with a third-party (re)insurer may not mitigate the insurance risks to which a plan is exposed because:
(a)                   the superannuation entity remains exposed to credit and other performance risk of the (re)insurer, including the possibility a reinsurer declines a claim but the entity remains obliged to meet the benefit;
(b)                   the excesses and/or deductibles under a group policy might leave the entity exposed to some or all members' insurance claims; and/or
(c)                   the (re)insurer is in 'run off' and unwilling or unable to pay claims.
BC156        The AASB also noted that self-insured arrangements may expose an entity to non-performance risk and/or economic dependency risk in relation to the employer-sponsor, particularly when there exists a deficit in a defined benefit plan.
BC157        The AASB concluded that it should reconsider the accounting for the insurance arrangements once the IASB's comprehensive insurance contracts project is completed, but that this should not be a barrier to addressing the matter now.  In its response to the IASB's ED/2010/8 Insurance Contracts, the AASB recommended that the IASB consider the implications of the findings on insurance contracts as a part of its proposed comprehensive review of the accounting for post-employment benefits.
BC158        The AASB concluded a 'disclosure only' approach is not adequate because it would mean assets and liabilities would remain unrecognised.
BC159        The AASB considers the main risks to which most superannuation entities are exposed in relation to insured benefits are credit and operational risks of the (re)insurer, and risks associated with the plan administering policies (such as the risk of higher than expected claims administration expenses).