Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p5
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
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Character Range: 11686–14577

make that election contract by contract, but the election for each contract is irrevocable;
(g) direct insurance contracts that the entity holds (that is direct insurance contracts in which the entity is a policyholder).  However, a cedant shall apply this Standard to reinsurance contracts that it holds; and
(h) fixed-fee service contracts, that meet the definition of an insurance contract, if the level of service depends on an uncertain event, for example maintenance contracts or roadside assistance contracts (see AASB 4 Insurance Contracts).

Embedded Derivatives
2.3.1 AASB 9 Financial Instruments requires hybrid contracts that contain financial asset hosts to be classified and measured in their entirety in accordance with the requirements in paragraphs 4.1.1-4.1.5 of that Standard.  However, AASB 9 requires an entity to separate some embedded derivatives from their financial liability hosts, measure them at fair value and include changes in their fair value in the statement of comprehensive income.  AASB 9 applies to derivatives embedded in a general insurance contract unless the embedded derivative is itself a general insurance contract.
2.3.2 As an exception to the requirement in AASB 9, an insurer need not separate, and measure at fair value, a policyholder's option to surrender an insurance contract for a fixed amount (or for an amount based on a fixed amount and an interest rate) even if the exercise price differs from the carrying amount of the host insurance liability.  However, the requirement in AASB 9 applies to a put option or cash surrender option embedded in an insurance contract if the surrender value varies in response to the change in a financial variable (such as an equity or commodity price or index), or a non-financial variable that is not specific to a party to the contract.  Furthermore, that requirement also applies if the holder's ability to exercise a put option or cash surrender option is triggered by a change in such a variable (for example, a put option that can be exercised if a stock market index reaches a specified level).

Deposit Components
2.4.1 Some general insurance contracts contain both an insurance component and a deposit component.  In some cases, an insurer is required or permitted to unbundle those components.
(a) Unbundling is required if both the following conditions are met:
(i) the insurer can measure the deposit component (including any embedded surrender options) separately (that is, without considering the insurance component); and
(ii) the insurer's accounting policies do not otherwise require it to recognise all obligations and rights arising from the deposit component.
(b) Unbundling is permitted, but not required, if the insurer can measure the deposit component separately as in paragraph 2.4.1(a)(i) but its accounting policies require it to recognise all obligations and rights arising