Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p36
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
Provision Reference: 
Character Range: 94705–97490

regulated as insurance contracts in some countries.  One example is a maintenance contract in which the service provider agrees to repair specified equipment after a malfunction.  The fixed service fee is based on the expected number of malfunctions, but it is uncertain whether a particular machine will break down.  The malfunction of the equipment adversely affects its owner and the contract compensates the owner (in kind, rather than cash).  Another example is a contract for car breakdown services in which the provider agrees, for a fixed annual fee, to provide roadside assistance or tow the car to a nearby garage.  The latter contract could meet the definition of an insurance contract even if the provider does not agree to carry out repairs or replace parts.

Distinction between Insurance Risk and Other Risks
7 The definition of an insurance contract refers to insurance risk, which this Standard defines as risk, other than financial risk, transferred from the holder of a contract to the issuer.  A contract that exposes the issuer to financial risk without significant insurance risk is not an insurance contract.
8 The definition of financial risk in section 19 of the Standard includes a list of financial and non-financial variables.  That list includes non-financial variables that are not specific to a party to the contract, such as an index of earthquake losses in a particular region or an index of temperatures in a particular city.  It excludes non‑financial variables that are specific to a party to the contract, such as the occurrence or non-occurrence of a fire that damages or destroys an asset of that party.  Furthermore, the risk of changes in the fair value of a non-financial asset is not a financial risk if the fair value reflects not only changes in market prices for such assets (a financial variable) but also the condition of a specific non-financial asset held by a party to a contract (a non-financial variable).  For example, if a guarantee of the residual value of a specific car exposes the guarantor to the risk of changes in the car's physical condition, that risk is insurance risk, not financial risk.
9 Some contracts expose the issuer to financial risk, in addition to significant insurance risk.  For example, many life insurance contracts both guarantee a minimum rate of return to policyholders (creating financial risk) and promise death benefits that at some times significantly exceed the policyholder's account balance (creating insurance risk in the form of mortality risk).  Such contracts are insurance contracts.
10 Under some contracts, an insured event triggers the payment of an amount linked to a price index.  Such contracts are insurance contracts, provided the payment that is contingent on the insured event can