Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p66
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 66/101)
Character Range: 213412–216514

completely unconstrained in their ability to differentially price their services, many of them are able to price risk based on an arrangement participant's characteristics (for example, industry of employment, claims experience or type of vehicle).

          (b) Use of reinsurance contracts to manage capital: this is not to say that the existence of a reinsurance contract, of itself, is indicative. However, in association with other factors, such as a policy of protecting its own capital base (rather than relying on the taxpayer) for its continuing operation, the existence of a reinsurance contract can indicate that the entity is expected to manage its liabilities prudently in a manner consistent with a private sector insurer.

          (c) Fair and prudent management of claims and remediation of significant claims risks: although fair and prudent claims management would typically be a feature of a broad range of compensation schemes, it is a particularly significant feature of managing insurance risk, especially when coupled with possible remediation activities. Remediation will necessarily be different in a monopoly context compared with a typical commercial context. In a commercial context, remediation will often include resetting underwriting terms to exclude certain types of (high-risk) customers; whereas, monopoly public sector entities are not generally able to filter their participant base. Accordingly, for public sector entities, remediation would usually take other forms, such as interventions with risk management education programs or safety campaigns. The Boards acknowledged that, while public sector entities do not have the same imperatives commercial insurers might have on managing claims in a manner that permits them to keep trading, they are required to act fairly and would typically be required to act prudently. Accordingly, while the need to act fairly and prudently might be important in identifying arrangements that would be accounted for as insurance contracts, its presence could also be indicative of a broader range of compensation arrangements.

Boards' proposal on management practices and assessing financial performance as an indicator in AASB ED 319/NZASB ED 2022-3

     BC208        The Boards decided that general practices of assessing an arrangement's financial performance and financial position on a regular basis, reporting internally on financial performance and, where necessary, taking action to address any under-performance is not a potentially useful indicator of public sector arrangements to be accounted for as insurance contracts. The Boards consider the inference that social benefit schemes versus insurance arrangements are less likely to monitor performance in this way is probably not supportable.

     BC209        Instead, the Boards decided to propose as an indicator of public sector arrangements to be accounted for as insurance contracts that the entity has objectives, policies and processes for managing risks associated with those arrangements and for its financial performance to be assessed based on how