Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p40
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
Provision Reference: 
Character Range: 104992–107821

risk, because they require that party to make payment based solely on changes in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract (see AASB 9 for derivative assets and AASB 9 for derivative liabilities);
(e) a credit-related guarantee (or letter of credit, credit derivative default contract or credit insurance contract) that requires payments even if the holder has not incurred a loss on the failure of the debtor to make payments when due (see AASB 9);
(f) contracts that require a payment based on a climatic, geological or other physical variable that is not specific to a party to the contract (commonly described as weather derivatives);
(g) catastrophe bonds that provide for reduced payments of principal, interest or both, based on a climatic, geological or other physical variable that is not specific to a party to the contract; and
(h) life insurance contracts.
19 If the contracts described in paragraph 18 of this Appendix create financial assets or financial liabilities, they are within the scope of AASB 9.  Among other things, this means that the parties to the contract use what is sometimes called deposit accounting, which involves the following:
(a) one party recognises the consideration received as a financial liability, rather than as revenue; and
(b) the other party recognises the consideration paid as a financial asset, rather than as an expense.
20 If the contracts described in paragraph 18 of this Appendix do not create financial assets or financial liabilities, AASB 15 applies.  Under AASB 15, revenue is recognised when (or as) an entity satisfies a performance obligation by transferring a promised good or service to a customer in an amount that reflects the consideration to which the entity expects to be entitled.

Significant Insurance Risk
21 A contract is an insurance contract only if it transfers significant insurance risk.  Paragraphs 7 to 20 of this Appendix discuss insurance risk.  The following paragraphs discuss the assessment of whether insurance risk is significant.
22 Insurance risk is significant if, and only if, an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance (i.e. have no discernible effect on the economics of the transaction).  If significant additional benefits would be payable in scenarios that have commercial substance, the condition in the previous sentence may be met even if the insured event is extremely unlikely or even if the expected (i.e. probability-weighted) present value of contingent cash flows is