Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p41
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
Provision Reference: 
Character Range: 107568–110454

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 a small proportion of the expected present value of all the remaining contractual cash flows.
23 The additional benefits described in paragraph 22 of this Appendix refer to amounts that exceed those that would be payable if no insured event occurred (excluding scenarios that lack commercial substance).  Those additional amounts include claims handling and claims assessment costs, but exclude:
(a) the loss of the ability to charge the policyholder for future services;
(b) a payment conditional on an event that does not cause a significant loss to the holder of the contract.  For example, consider a contract that requires the issuer to pay one million currency units if an asset suffers physical damage causing an insignificant economic loss of one currency unit to the holder.  In this contract, the holder transfers to the insurer the insignificant risk of losing one currency unit.  At the same time, the contract creates non-insurance risk that the issuer will need to pay 999,999 currency units if the specified event occurs.  Because the issuer does not accept significant insurance risk from the holder, this contract is not an insurance contract; and
(c) possible reinsurance recoveries.  The insurer accounts for these separately.
24 An insurer shall assess the significance of insurance risk contract by contract, rather than by reference to materiality to the financial statements[1].  Thus, insurance risk may be significant even if there is a minimal probability of material losses for a whole book of contracts.  This contract-by-contract assessment makes it easier to classify a contract as an insurance contract.  However, if a relatively homogeneous book of small contracts is known to consist of contracts that all transfer insurance risk, an insurer need not examine each contract within that book to identify a few non-derivative contracts that transfer insignificant insurance risk.
25 Paragraph 22 of this Appendix refers to additional benefits.  These additional benefits could include a requirement to pay benefits earlier if the insured event occurs earlier and the payment is not adjusted for the time value of money.
26 If an insurance contract is unbundled into a deposit component and an insurance component, the significance of insurance risk transfer is assessed by reference to the insurance component.  The significance of insurance risk transferred by an embedded derivative is assessed by reference to the embedded derivative.

Changes in the Level of Insurance Risk
27 Some contracts do not transfer any insurance risk to the issuer at inception, although they do transfer insurance risk at