Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p38
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
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Character Range: 99753–102633

on an uncertain future event that adversely affects the counterparty.  Similarly, expense risk (i.e. the risk of unexpected increases in the administrative costs associated with the servicing of a contract, rather than in costs associated with insured events) is not insurance risk because an unexpected increase in expenses does not adversely affect the counterparty.
15 Therefore, a contract that exposes the issuer to lapse risk, persistency risk or expense risk is not an insurance contract unless it also exposes the issuer to insurance risk.  However, if the issuer of that contract mitigates that risk by using a second contract to transfer part of that risk to another party, the second contract exposes that other party to insurance risk.
16 An insurer can accept significant insurance risk from the policyholder only if the insurer is an entity separate from the policyholder.  In the case of a mutual insurer, the mutual accepts risk from each policyholder and pools that risk.  Although policyholders bear that pooled risk collectively in their capacity as owners, the mutual has still accepted the risk that is the essence of an insurance contract.

Examples of General Insurance Contracts
17 The following are examples of contracts that are general insurance contracts, if the transfer of insurance risk is significant:
(a) insurance against theft or damage to property;
(b) insurance against product liability, professional liability, civil liability or legal expenses;
(c) medical cover;
(d) surety bonds, fidelity bonds, performance bonds and bid bonds (i.e. contracts that provide compensation if another party fails to perform a contractual obligation, for example an obligation to construct a building);
(e) credit insurance that provides for specified payments to be made to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due under the original or modified terms of a debt instrument.  These contracts could have various legal forms, such as that of a guarantee, some types of letter of credit, a credit derivative default contract or an insurance contract.  However, although these contracts meet the definition of an insurance contract, they also meet the definition of a financial guarantee contract in AASB 9 and are within the scope of AASB 7 and AASB 9, not this Standard (see paragraph 2.2(f)).  Nevertheless, if an issuer of financial guarantee contracts has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts, the issuer may elect to apply either AASB 9 and AASB 7 or this Standard to such financial guarantee contracts;
(f) product warranties.  Product warranties issued by another party for goods sold by a manufacturer, dealer or retailer are within the scope of this Standard.  However, product warranties