Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p46
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 46/101)
Character Range: 157841–160810

the IASB identified might still be met in a public sector context under each of the approaches (no modifications, a mandated zero risk adjustment, or a mandated confidence level such as 75%).

     BC130        The Boards noted that requiring a risk adjustment is intended to provide a clear insight into the insurance contracts and distinguishes them from risk-free liabilities [IFRS 17.BC211(a)]. The Boards thought this reasoning seems as relevant in the public sector as it is for private sector insurers, but that it does not necessarily suggest that requiring a zero risk adjustment would be inappropriate because a public sector might conceivably be ambivalent between an insurance contract liability with a range of possible outcomes arising from insurance risk and fulfilling a liability that would generate fixed cash flows with the same expected present value.

     BC131        The Boards noted that requiring a risk adjustment results in a profit recognition pattern that reflects both the profit recognised by bearing risk and the profit recognised by providing services [IFRS 17.BC211(b)]. The Boards considered this reasoning would be less relevant in respect of public sector entities that are not seeking to profit from bearing risk. However, on balance, the Boards thought that this reasoning could also be applied to revenue recognition and be relevant to a public sector entity, and would probably best support the view that the risk adjustment requirements of AASB 17/PBE IFRS 17 should be applied unmodified.

     BC132        The Boards noted that requiring a risk adjustment can be necessary to faithfully represent circumstances in which the entity has charged insufficient premiums for bearing the risk that the claims might ultimately exceed expected premiums [IFRS 17.BC211(c)]. The Boards thought this reasoning may not always be as relevant in the public sector as it is for private sector insurers because a public sector entity may have the capacity to aim for a break-even result over the medium to long term while private sector insurers may not.

     BC133        The Boards noted that requiring a risk adjustment should result in changes in estimates of risk being reported promptly and in an understandable way [IFRS 17.BC211(d)]. The Boards thought this reasoning seems as relevant in the public sector as it is for private sector insurers and would suggest that requiring a zero risk adjustment might be inappropriate.

     BC134        The Boards also analysed the following criticisms of risk adjustments considered by the IASB in developing IFRS 17 and reflected on whether they might be more relevant in the public sector and, therefore, justify a different outcome from the requirements in AASB 17/PBE IFRS 17.

          (a)                    Currently, there is no single well-defined measurement approach to risk adjustments that would necessarily provide consistency and comparability of results [IFRS 17.BC210(a)].