Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p24
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 24/101)
Character Range: 96907–99984

exemption is justified for the following reasons.

          (a) The consequences of applying AASB 17/PBE IFRS 17.25(c) to some public sector insurers would be potentially burdensome from a practical viewpoint, since their systems are not currently set up to capture this information, and would lead to information that is not useful for users of the financial statements. This is because, for some public sector entities, on an ongoing basis, the results for the current period would include the onerous contract losses of all or most of the following year's contracts.

          (b) AASB 17/PBE IFRS 17.25(c) was conceived in the context of private sector for-profit insurers for which, in theory, onerous contracts would be the exception and for which enforceable contracts as at the reporting date that relate to the following year of coverage would be a relatively small proportion of total contracts.

Initial recognition when contracts are onerous – AASB ED 319/NZASB ED 2022-3 feedback and Board conclusions

     BC54            All respondents to AASB ED 319/NZASB ED 2022-3 who commented on the proposal to exempt public sector entities from applying the requirements in AASB 17/PBE IFRS 17.25(c) were supportive. Their support was based substantively on the reasons outlined in paragraph BC53. Some respondents particularly noted that, without the exemption, there could be an adverse impact on the usefulness of the information in financial statements to users, in particular for some workers compensation and public indemnity insurers that have coverage periods aligned to annual reporting periods which would result in the recognition of future year onerous contracts late in the current year.

     BC55            Based on the feedback received from stakeholders and the reasoning applied by the Boards in determining their proposals, the Boards concluded that paragraph 25 would be modified so that public sector entities would be required to recognise insurance contracts an entity issues from the earliest of:

          (a)  the beginning of the coverage period of the group of contracts; and

          (b) the date when the first payment from a policyholder in the group becomes due.

Determining contract boundaries, coverage periods and eligibility for the premium allocation approach (modifications to paragraph 34)

     BC56            The Boards noted that contract boundaries and coverage periods under AASB 17/PBE IFRS 17 are crucial for two main reasons:

          (a) identifying the cash flows used to measure liabilities for remaining coverage for in-force arrangements; and

          (b) determining whether liabilities for remaining coverage for in-force arrangements are eligible to be measured by applying the premium allocation approach.

Contract boundaries 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