Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p25
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 25/101)
Character Range: 99709–102721

and coverage periods of public sector arrangements

     BC57            The Boards noted that, of the public sector arrangements that might fall within the scope of AASB 17/PBE IFRS 17:

          (a) most have 'stated' coverage periods of one year; however

          (b) a minority of arrangements have coverage periods longer than a year, including:

               (i) for example, arrangements issued in respect of construction and home building risks; and

               (ii) some reinsurance contracts held.

     BC58            Arrangements between public sector entities and their policyholders ordinarily include an identified period that is presumed to be the coverage period for the purposes of applying AASB 1023/PBE IFRS 4. For example, the stated period of cover for arrangements relating to transport accidents or workers' compensation would usually be one year and the liabilities and revenues are recognised on this basis.

     BC59            The Boards acknowledged that AASB 17/PBE IFRS 17 does not make this same presumption. Under AASB 17/PBE IFRS 17, the coverage period might be different from the stated period in a contract or arrangement because it is determined, in large part, based on identifying the cash flows that are within the contract boundary. In that context, the Boards noted that cash flows are regarded as being within the boundary of an insurance contract to the extent that the entity can compel the policyholder to pay premiums or the entity has a substantive obligation to provide the policyholder with insurance contract services [AASB 17/PBE IFRS 17.34].

     BC60            The Boards further noted that, an entity's substantive obligation to provide insurance contract services ends when:

          (a) the entity has the practical ability to reassess the risks of the particular policyholder and, as a result, can set a price or level of benefits that fully reflects those risks [AASB 17/PBE IFRS 17.34(a)]; or

          (b) both of the following criteria are satisfied:

               (i) the entity has the practical ability to reassess the risks of the portfolio of insurance contracts that contains the contract and, as a result, can set a price or level of benefits that fully reflects the risk of that portfolio; and

               (ii) the pricing of the premiums up to the date when the risks are reassessed does not take into account the risks that relate to periods after the reassessment date [AASB 17/PBE IFRS 17.34(b)].

     BC61            The Boards observed the following.

          (a) Criterion (a) relating to individual policyholders, would usually only be applicable for large risks that are individually underwritten. This might, for example, be relevant for large construction risk arrangements entered into by some public sector entities.

          (b) The vast majority of the public sector arrangements that might fall within the scope of AASB 17/PBE IFRS 17 would be priced at a level higher than individual contracts and