AASB 17 Insurance Contracts July 2017 (Cth)
| Compiled AASB Standard | AASB 17 |
Insurance Contracts
This compiled Standard applies to annual periods beginning on or after 1 January 2021. Earlier application is permitted for annual periods beginning after 24 July 2014 but before 1 January 2021. It incorporates relevant amendments made up to and including 21 May 2019.
Prepared on 2 March 2020 by the staff of the Australian Accounting Standards Board.
Compilation no. 1
Compilation date: 31 December 2019
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© Commonwealth of Australia 2020
This compiled AASB Standard contains IFRS Foundation copyright material. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to The National Director, Australian Accounting Standards Board, PO Box 204, Collins Street West, Victoria 8007.
All existing rights in this material are reserved outside Australia. Reproduction outside Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use only. Further information and requests for authorisation to reproduce for commercial purposes outside Australia should be addressed to the IFRS Foundation at WITH IFRS 17
ACCOUNTING STANDARD
AASB 17 INSURANCE CONTRACTS
from paragraph
OBJECTIVE 1
SCOPE 3
Combination of insurance contracts 9
Separating components from an insurance contract 10
LEVEL OF AGGREGATION OF INSURANCE CONTRACTS 14
RECOGNITION 25
MEASUREMENT 29
Measurement on initial recognition 32
Estimates of future cash flows 33
Discount rates 36
Risk adjustment for non-financial risk 37
Contractual service margin 38
Subsequent measurement 40
Contractual service margin 43
Onerous contracts 47
Premium allocation approach 53
Reinsurance contracts held 60
Recognition 62
Measurement 63
Premium allocation approach for reinsurance contracts held 69
Investment contracts with discretionary participation features 71
MODIFICATION AND DERECOGNITION
Modification of an insurance contract 72
Derecognition 74
PRESENTATION IN THE STATEMENT OF FINANCIAL POSITION 78
RECOGNITION AND PRESENTATION IN THE STATEMENT(S) OF FINANCIAL PERFORMANCE 80
Insurance service result 83
Insurance finance income or expenses 87
DISCLOSURE 93
Explanation of recognised amounts 97
Insurance finance income or expenses 110
Transition amounts 114
Significant judgements in applying AASB 17 117
Nature and extent of risks that arise from contracts within the scope of AASB 17 121
All types of risk—concentrations of risk 127
Insurance and market risks—sensitivity analysis 128
Insurance risk—claims development 130
Credit risk—other information 131
Liquidity risk—other information 132
COMMENCEMENT OF THE LEGISLATIVE INSTRUMENT Aus132.1
APPENDICES
A Defined terms
B Application guidance
C Effective date and transition
D Amendments to other Standards
COMPILATION DETAILS
DELETED IFRS 17 TEXT
AASB BASIS FOR CONCLUSIONS
AVAILABLE ON THE AASB WEBSITE
Illustrative examples
Basis for Conclusions on IFRS 17
Australian Accounting Standard AASB 17 Insurance Contracts (as amended) is set out in paragraphs 1 – Aus132.1 and Appendices A – D. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the Standard. AASB 17 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation of Standards, which identifies the Australian Accounting Interpretations, and AASB 1057 Application of Australian Accounting Standards. In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies.
Comparison with IFRS 17
AASB 17 Insurance Contracts as amended incorporates IFRS 17 Insurance Contracts as issued and amended by the International Accounting Standards Board (IASB). Australian‑specific paragraphs (which are not included in IFRS 17) are identified with the prefix “Aus”. Paragraphs that apply only to not-for-profit entities begin by identifying their limited applicability.
Tier 1
For-profit entities complying with AASB 17 also comply with IFRS 17.
Not-for-profit entities’ compliance with IFRS 17 will depend on whether any “Aus” paragraphs that specifically apply to not-for-profit entities provide additional guidance or contain applicable requirements that are inconsistent with IFRS 17.
AASB 1053 Application of Tiers of Australian Accounting Standards explains the two tiers of reporting requirements.
Accounting Standard AASB 17
The Australian Accounting Standards Board made Accounting Standard AASB 17 Insurance Contracts under section 334 of the Corporations Act 2001 on 19 July 2017.
This compiled version of AASB 17 applies to annual periods beginning on or after 1 January 2021. It incorporates relevant amendments contained in other AASB Standards made by the AASB up to and including 21 May 2019 (see Compilation Details).
Accounting Standard AASB 17
Insurance Contracts
Objective
1 AASB 17 Insurance Contracts establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the Standard. The objective of AASB 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows.
AusCF1 AusCF entities are:
(a) not-for-profit entities; and
(b) for-profit entities that are not applying the Conceptual Framework for Financial Reporting (as identified in AASB 1048 Interpretation of Standards).
For AusCF entities, the term ‘reporting entity’ is defined in AASB 1057 Application of Australian Accounting Standards and Statement of Accounting Concepts SAC 1 Definition of the Reporting Entity also applies. For-profit entities applying the Conceptual Framework for Financial Reporting are set out in paragraph Aus1.1 of the Conceptual Framework.
2 An entity shall consider its substantive rights and obligations, whether they arise from a contract, law or regulation, when applying AASB 17. A contract is an agreement between two or more parties that creates enforceable rights and obligations. Enforceability of the rights and obligations in a contract is a matter of law. Contracts can be written, oral or implied by an entity’s customary business practices. Contractual terms include all terms in a contract, explicit or implied, but an entity shall disregard terms that have no commercial substance (ie no discernible effect on the economics of the contract). Implied terms in a contract include those imposed by law or regulation. The practices and processes for establishing contracts with customers vary across legal jurisdictions, industries and entities. In addition, they may vary within an entity (for example, they may depend on the class of customer or the nature of the promised goods or services).
Scope
3 An entity shall apply AASB 17 to:
(a) insurance contracts, including reinsurance contracts, it issues;
(b) reinsurance contracts it holds; and
(c) investment contracts with discretionary participation features it issues, provided the entity also issues insurance contracts.
4 All references in AASB 17 to insurance contracts also apply to:
(a) reinsurance contracts held, except:
(i) for references to insurance contracts issued; and
(ii) as described in paragraphs 60–70.
(b) investment contracts with discretionary participation features as set out in paragraph 3(c), except for the reference to insurance contracts in paragraph 3(c) and as described in paragraph 71.
5 All references in AASB 17 to insurance contracts issued also apply to insurance contracts acquired by the entity in a transfer of insurance contracts or a business combination other than reinsurance contracts held.
6 Appendix A defines an insurance contract and paragraphs B2–B30 of Appendix B provide guidance on the definition of an insurance contract.
7 An entity shall not apply AASB 17 to:
(a) warranties provided by a manufacturer, dealer or retailer in connection with the sale of its goods or services to a customer (see AASB 15 Revenue from Contracts with Customers).
(b) employers’ assets and liabilities from employee benefit plans (see AASB 119 Employee Benefits and AASB 2 Share-based Payment).
(c) contractual rights or contractual obligations contingent on the future use of, or the right to use, a non-financial item (for example, some licence fees, royalties, variable and other contingent lease payments and similar items: see AASB 15, AASB 138 Intangible Assets and AASB 16 Leases).
(d) residual value guarantees provided by a manufacturer, dealer or retailer and a lessee’s residual value guarantees when they are embedded in a lease (see AASB 15 and AASB 16).
(e) financial guarantee contracts, unless the issuer has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts. The issuer shall choose to apply either AASB 17 or AASB 132 Financial Instruments: Presentation, AASB 7 Financial Instruments: Disclosures and AASB 9 Financial Instruments to such financial guarantee contracts. The issuer may make that choice contract by contract, but the choice for each contract is irrevocable.
(f) contingent consideration payable or receivable in a business combination (see AASB 3 Business Combinations).
(g) insurance contracts in which the entity is the policyholder, unless those contracts are reinsurance contracts held (see paragraph 3(b)).
8 Some contracts meet the definition of an insurance contract but have as their primary purpose the provision of services for a fixed fee. An entity may choose to apply AASB 15 instead of AASB 17 to such contracts that it issues if, and only if, specified conditions are met. The entity may make that choice contract by contract, but the choice for each contract is irrevocable. The conditions are:
(a) the entity does not reflect an assessment of the risk associated with an individual customer in setting the price of the contract with that customer;
(b) the contract compensates the customer by providing services, rather than by making cash payments to the customer; and
(c) the insurance risk transferred by the contract arises primarily from the customer’s use of services rather than from uncertainty over the cost of those services.
Combination of insurance contracts
9 A set or series of insurance contracts with the same or a related counterparty may achieve, or be designed to achieve, an overall commercial effect. In order to report the substance of such contracts, it may be necessary to treat the set or series of contracts as a whole. For example, if the rights or obligations in one contract do nothing other than entirely negate the rights or obligations in another contract entered into at the same time with the same counterparty, the combined effect is that no rights or obligations exist.
Separating components from an insurance contract (paragraphs B31–B35)
10 An insurance contract may contain one or more components that would be within the scope of another Standard if they were separate contracts. For example, an insurance contract may include an investment component or a service component (or both). An entity shall apply paragraphs 11–13 to identify and account for the components of the contract.
11 An entity shall:
(a) apply AASB 9 to determine whether there is an embedded derivative to be separated and, if there is, how to account for that derivative.
(b) separate from a host insurance contract an investment component if, and only if, that investment component is distinct (see paragraphs B31–B32). The entity shall apply AASB 9 to account for the separated investment component.
12 After applying paragraph 11 to separate any cash flows related to embedded derivatives and distinct investment components, an entity shall separate from the host insurance contract any promise to transfer distinct goods or non-insurance services to a policyholder, applying paragraph 7 of AASB 15. The entity shall account for such promises applying AASB 15. In applying paragraph 7 of AASB 15 to separate the promise, the entity shall apply paragraphs B33–B35 of AASB 17 and, on initial recognition, shall:
(a) apply AASB 15 to attribute the cash inflows between the insurance component and any promises to provide distinct goods or non-insurance services; and
(b) attribute the cash outflows between the insurance component and any promised goods or non-insurance services accounted for applying AASB 15 so that:
(i) cash outflows that relate directly to each component are attributed to that component; and
(ii) any remaining cash outflows are attributed on a systematic and rational basis, reflecting the cash outflows the entity would expect to arise if that component were a separate contract.
13 After applying paragraphs 11–12, an entity shall apply AASB 17 to all remaining components of the host insurance contract. Hereafter, all references in AASB 17 to embedded derivatives refer to derivatives that have not been separated from the host insurance contract and all references to investment components refer to investment components that have not been separated from the host insurance contract (except those references in paragraphs B31–B32).
Level of aggregation of insurance contracts
14 An entity shall identify portfolios of insurance contracts. A portfolio comprises contracts subject to similar risks and managed together. Contracts within a product line would be expected to have similar risks and hence would be expected to be in the same portfolio if they are managed together. Contracts in different product lines (for example single premium fixed annuities compared with regular term life assurance) would not be expected to have similar risks and hence would be expected to be in different portfolios.
15 Paragraphs 16–24 apply to insurance contracts issued. The requirements for the level of aggregation of reinsurance contracts held are set out in paragraph 61.
16 An entity shall divide a portfolio of insurance contracts issued into a minimum of:
(a)a group of contracts that are onerous at initial recognition, if any;
(b)a group of contracts that at initial recognition have no significant possibility of becoming onerous subsequently, if any; and
(c)a group of the remaining contracts in the portfolio, if any.
17 If an entity has reasonable and supportable information to conclude that a set of contracts will all be in the same group applying paragraph 16, it may measure the set of contracts to determine if the contracts are onerous (see paragraph 47) and assess the set of contracts to determine if the contracts have no significant possibility of becoming onerous subsequently (see paragraph 19). If the entity does not have reasonable and supportable information to conclude that a set of contracts will all be in the same group, it shall determine the group to which contracts belong by considering individual contracts.
18 For contracts issued to which an entity applies the premium allocation approach (see paragraphs 53–59), the entity shall assume no contracts in the portfolio are onerous at initial recognition, unless facts and circumstances indicate otherwise. An entity shall assess whether contracts that are not onerous at initial recognition have no significant possibility of becoming onerous subsequently by assessing the likelihood of changes in applicable facts and circumstances.
19 For contracts issued to which an entity does not apply the premium allocation approach (see paragraphs 53–59), an entity shall assess whether contracts that are not onerous at initial recognition have no significant possibility of becoming onerous:
(a) based on the likelihood of changes in assumptions which, if they occurred, would result in the contracts becoming onerous.
(b) using information about estimates provided by the entity’s internal reporting. Hence, in assessing whether contracts that are not onerous at initial recognition have no significant possibility of becoming onerous:
(i) an entity shall not disregard information provided by its internal reporting about the effect of changes in assumptions on different contracts on the possibility of their becoming onerous; but
(ii) an entity is not required to gather additional information beyond that provided by the entity’s internal reporting about the effect of changes in assumptions on different contracts.
20 If, applying paragraphs 14–19, contracts within a portfolio would fall into different groups only because law or regulation specifically constrains the entity’s practical ability to set a different price or level of benefits for policyholders with different characteristics, the entity may include those contracts in the same group. The entity shall not apply this paragraph by analogy to other items.
21 An entity is permitted to subdivide the groups described in paragraph 16. For example, an entity may choose to divide the portfolios into:
(a) more groups that are not onerous at initial recognition – if the entity’s internal reporting provides information that distinguishes:
(i) different levels of profitability; or
(ii) different possibilities of contracts becoming onerous after initial recognition; and
(b) more than one group of contracts that are onerous at initial recognition – if the entity’s internal reporting provides information at a more detailed level about the extent to which the contracts are onerous.
22 An entity shall not include contracts issued more than one year apart in the same group. To achieve this the entity shall, if necessary, further divide the groups described in paragraphs 16–21.
23 A group of insurance contracts shall comprise a single contract if that is the result of applying paragraphs 14–22.
24 An entity shall apply the recognition and measurement requirements of AASB 17 to the groups of contracts issued determined by applying paragraphs 14–23. An entity shall establish the groups at initial recognition, and shall not reassess the composition of the groups subsequently. To measure a group of contracts, an entity may estimate the fulfilment cash flows at a higher level of aggregation than the group or portfolio, provided the entity is able to include the appropriate fulfilment cash flows in the measurement of the group, applying paragraphs 32(a), 40(a)(i) and 40(b), by allocating such estimates to groups of contracts.
Recognition
25 An entity shall recognise a group of insurance contracts it issues from the earliest of the following:
(a)the beginning of the coverage period of the group of contracts;
(b)the date when the first payment from a policyholder in the group becomes due; and
(c)for a group of onerous contracts, when the group becomes onerous.
26 If there is no contractual due date, the first payment from the policyholder is deemed to be due when it is received. An entity is required to determine whether any contracts form a group of onerous contracts applying paragraph 16 before the earlier of the dates set out in paragraphs 25(a) and 25(b) if facts and circumstances indicate there is such a group.
27 An entity shall recognise an asset or liability for any insurance acquisition cash flows relating to a group of issued insurance contracts that the entity pays or receives before the group is recognised, unless it chooses to recognise them as expenses or income applying paragraph 59(a). An entity shall derecognise the asset or liability resulting from such insurance acquisition cash flows when the group of insurance contracts to which the cash flows are allocated is recognised (see paragraph 38(b)).
28 In recognising a group of insurance contracts in a reporting period, an entity shall include only contracts issued by the end of the reporting period and shall make estimates for the discount rates at the date of initial recognition (see paragraph B73) and the coverage units provided in the reporting period (see paragraph B119). An entity may issue more contracts in the group after the end of a reporting period, subject to paragraph 22. An entity shall add the contracts to the group in the reporting period in which the contracts are issued. This may result in a change to the determination of the discount rates at the date of initial recognition applying paragraph B73. An entity shall apply the revised rates from the start of the reporting period in which the new contracts are added to the group.
Measurement (paragraphs B36–B119)
29 An entity shall apply paragraphs 30–52 to all groups of insurance contracts within the scope of AASB 17, with the following exceptions:
(a) for groups of insurance contracts meeting either of the criteria specified in paragraph 53, an entity may simplify the measurement of the group using the premium allocation approach in paragraphs 55–59.
(b) for groups of reinsurance contracts held, an entity shall apply paragraphs 32–46 as required by paragraphs 63–70. Paragraphs 45 (on insurance contracts with direct participation features) and 47–52 (on onerous contracts) do not apply to groups of reinsurance contracts held.
(c) for groups of investment contracts with discretionary participation features, an entity shall apply paragraphs 32–52 as modified by paragraph 71.
30 When applying AASB 121 The Effects of Changes in Foreign Exchange Rates to a group of insurance contracts that generate cash flows in a foreign currency, an entity shall treat the group of contracts, including the contractual service margin, as a monetary item.
31 In the financial statements of an entity that issues insurance contracts, the fulfilment cash flows shall not reflect the non-performance risk of that entity (non-performance risk is defined in AASB 13 Fair Value Measurement).
Measurement on initial recognition (paragraphs B36–B95)
32 On initial recognition, an entity shall measure a group of insurance contracts at the total of:
(a)the fulfilment cash flows, which comprise:
(i)estimates of future cash flows (paragraphs 33–35);
(ii)an adjustment to reflect the time value of money and the financial risks related to the future cash flows, to the extent that the financial risks are not included in the estimates of the future cash flows (paragraph 36); and
(iii)a risk adjustment for non-financial risk (paragraph 37).
(b)the contractual service margin, measured applying paragraphs 38–39.
Estimates of future cash flows (paragraphs B36–B71)
33 An entity shall include in the measurement of a group of insurance contracts all the future cash flows within the boundary of each contract in the group (see paragraph 34). Applying paragraph 24, an entity may estimate the future cash flows at a higher level of aggregation and then allocate the resulting fulfilment cash flows to individual groups of contracts. The estimates of future cash flows shall:
(a)incorporate, in an unbiased way, all reasonable and supportable information available without undue cost or effort about the amount, timing and uncertainty of those future cash flows (see paragraphs B37–B41). To do this, an entity shall estimate the expected value (ie the probability-weighted mean) of the full range of possible outcomes.
(b)reflect the perspective of the entity, provided that the estimates of any relevant market variables are consistent with observable market prices for those variables (see paragraphs B42–B53).
(c)be current – the estimates shall reflect conditions existing at the measurement date, including assumptions at that date about the future (see paragraphs B54–B60).
(d)be explicit – the entity shall estimate the adjustment for non-financial risk separately from the other estimates (see paragraph B90). The entity also shall estimate the cash flows separately from the adjustment for the time value of money and financial risk, unless the most appropriate measurement technique combines these estimates (see paragraph B46).
34 Cash flows are within the boundary of an insurance contract if they arise from substantive rights and obligations that exist during the reporting period in which the entity can compel the policyholder to pay the premiums or in which the entity has a substantive obligation to provide the policyholder with services (see paragraphs B61–B71). A substantive obligation to provide services ends when:
(a) the entity has the practical ability to reassess the risks of the particular policyholder and, as a result, can set a price or level of benefits that fully reflects those risks; or
(b) both of the following criteria are satisfied:
(i) the entity has the practical ability to reassess the risks of the portfolio of insurance contracts that contains the contract and, as a result, can set a price or level of benefits that fully reflects the risk of that portfolio; and
(ii) the pricing of the premiums for coverage up to the date when the risks are reassessed does not take into account the risks that relate to periods after the reassessment date.
35 An entity shall not recognise as a liability or as an asset any amounts relating to expected premiums or expected claims outside the boundary of the insurance contract. Such amounts relate to future insurance contracts.
Discount rates (paragraphs B72–B85)
36 An entity shall adjust the estimates of future cash flows to reflect the time value of money and the financial risks related to those cash flows, to the extent that the financial risks are not included in the estimates of cash flows. The discount rates applied to the estimates of the future cash flows described in paragraph 33 shall:
(a)reflect the time value of money, the characteristics of the cash flows and the liquidity characteristics of the insurance contracts;
(b)be consistent with observable current market prices (if any) for financial instruments with cash flows whose characteristics are consistent with those of the insurance contracts, in terms of, for example, timing, currency and liquidity; and
(c)exclude the effect of factors that influence such observable market prices but do not affect the future cash flows of the insurance contracts.
Risk adjustment for non-financial risk (paragraphs B86–B92)
37 An entity shall adjust the estimate of the present value of the future cash flows to reflect the compensation that the entity requires for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk.
Contractual service margin
38 The contractual service margin is a component of the asset or liability for the group of insurance contracts that represents the unearned profit the entity will recognise as it provides services in the future. An entity shall measure the contractual service margin on initial recognition of a group of insurance contracts at an amount that, unless paragraph 47 (on onerous contracts) applies, results in no income or expenses arising from:
(a)the initial recognition of an amount for the fulfilment cash flows, measured by applying paragraphs 32–37;
(b)the derecognition at the date of initial recognition of any asset or liability recognised for insurance acquisition cash flows applying paragraph 27; and
(c)any cash flows arising from the contracts in the group at that date.
39 For insurance contracts acquired in a transfer of insurance contracts or a business combination, an entity shall apply paragraph 38 in accordance with paragraphs B93–B95.
Subsequent measurement
40 The carrying amount of a group of insurance contracts at the end of each reporting period shall be the sum of:
(a)the liability for remaining coverage comprising:
(i)the fulfilment cash flows related to future service allocated to the group at that date, measured applying paragraphs 33–37 and B36–B92;
(ii)the contractual service margin of the group at that date, measured applying paragraphs 43–46; and
(b)the liability for incurred claims, comprising the fulfilment cash flows related to past service allocated to the group at that date, measured applying paragraphs 33–37 and B36–B92.
41 An entity shall recognise income and expenses for the following changes in the carrying amount of the liability for remaining coverage:
(a)insurance revenue – for the reduction in the liability for remaining coverage because of services provided in the period, measured applying paragraphs B120–B124;
(b)insurance service expenses – for losses on groups of onerous contracts, and reversals of such losses (see paragraphs 47–52); and
(c)insurance finance income or expenses – for the effect of the time value of money and the effect of financial risk as specified in paragraph 87.
42 An entity shall recognise income and expenses for the following changes in the carrying amount of the liability for incurred claims:
(a)insurance service expenses – for the increase in the liability because of claims and expenses incurred in the period, excluding any investment components;
(b)insurance service expenses – for any subsequent changes in fulfilment cash flows relating to incurred claims and incurred expenses; and
(c)insurance finance income or expenses – for the effect of the time value of money and the effect of financial risk as specified in paragraph 87.
Contractual service margin (paragraphs B96–B119)
43 The contractual service margin at the end of the reporting period represents the profit in the group of insurance contracts that has not yet been recognised in profit or loss because it relates to the future service to be provided under the contracts in the group.
44 For insurance contracts without direct participation features, the carrying amount of the contractual service margin of a group of contracts at the end of the reporting period equals the carrying amount at the start of the reporting period adjusted for:
(a) the effect of any new contracts added to the group (see paragraph 28);
(b) interest accreted on the carrying amount of the contractual service margin during the reporting period, measured at the discount rates specified in paragraph B72(b);
(c) the changes in fulfilment cash flows relating to future service as specified in paragraphs B96–B100, except to the extent that:
(i) such increases in the fulfilment cash flows exceed the carrying amount of the contractual service margin, giving rise to a loss (see paragraph 48(a)); or
(ii) such decreases in the fulfilment cash flows are allocated to the loss component of the liability for remaining coverage applying paragraph 50(b).
(d) the effect of any currency exchange differences on the contractual service margin; and
(e) the amount recognised as insurance revenue because of the transfer of services in the period, determined by the allocation of the contractual service margin remaining at the end of the reporting period (before any allocation) over the current and remaining coverage period applying paragraph B119.
45 For insurance contracts with direct participation features (see paragraphs B101–B118), the carrying amount of the contractual service margin of a group of contracts at the end of the reporting period equals the carrying amount at the start of the reporting period adjusted for the amounts specified in subparagraphs (a)–(e) below. An entity is not required to identify these adjustments separately. Instead, a combined amount may be determined for some, or all, of the adjustments. The adjustments are:
(a) the effect of any new contracts added to the group (see paragraph 28);
(b) the entity’s share of the change in the fair value of the underlying items (see paragraph B104(b)(i)), except to the extent that:
(i) paragraph B115 (on risk mitigation) applies;
(ii) the entity’s share of a decrease in the fair value of the underlying items exceeds the carrying amount of the contractual service margin, giving rise to a loss (see paragraph 48); or
(iii) the entity’s share of an increase in the fair value of the underlying items reverses the amount in (ii).
(c) the changes in fulfilment cash flows relating to future service, as specified in paragraphs B101–B118, except to the extent that:
(i) paragraph B115 (on risk mitigation) applies;
(ii) such increases in the fulfilment cash flows exceed the carrying amount of the contractual service margin, giving rise to a loss (see paragraph 48); or
(iii) such decreases in the fulfilment cash flows are allocated to the loss component of the liability for remaining coverage applying paragraph 50(b).
(d) the effect of any currency exchange differences arising on the contractual service margin; and
(e) the amount recognised as insurance revenue because of the transfer of services in the period, determined by the allocation of the contractual service margin remaining at the end of the reporting period (before any allocation) over the current and remaining coverage period, applying paragraph B119.
46 Some changes in the contractual service margin offset changes in the fulfilment cash flows for the liability for remaining coverage, resulting in no change in the total carrying amount of the liability for remaining coverage. To the extent that changes in the contractual service margin do not offset changes in the fulfilment cash flows for the liability for remaining coverage, an entity shall recognise income and expenses for the changes, applying paragraph 41.
Onerous contracts
47 An insurance contract is onerous at the date of initial recognition if the fulfilment cash flows allocated to the contract, any previously recognised acquisition cash flows and any cash flows arising from the contract at the date of initial recognition in total are a net outflow. Applying paragraph 16(a), an entity shall group such contracts separately from contracts that are not onerous. To the extent that paragraph 17 applies, an entity may identify the group of onerous contracts by measuring a set of contracts rather than individual contracts. An entity shall recognise a loss in profit or loss for the net outflow for the group of onerous contracts, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows and the contractual service margin of the group being zero.
48 A group of insurance contracts becomes onerous (or more onerous) on subsequent measurement if the following amounts exceed the carrying amount of the contractual service margin:
(a) unfavourable changes in the fulfilment cash flows allocated to the group arising from changes in estimates of future cash flows relating to future service; and
(b) for a group of insurance contracts with direct participation features, the entity’s share of a decrease in the fair value of the underlying items.
Applying paragraphs 44(c)(i), 45(b)(ii) and 45(c)(ii), an entity shall recognise a loss in profit or loss to the extent of that excess.
49 An entity shall establish (or increase) a loss component of the liability for remaining coverage for an onerous group depicting the losses recognised applying paragraphs 47–48. The loss component determines the amounts that are presented in profit or loss as reversals of losses on onerous groups and are consequently excluded from the determination of insurance revenue.
50 After an entity has recognised a loss on an onerous group of insurance contracts, it shall allocate:
(a) the subsequent changes in fulfilment cash flows of the liability for remaining coverage specified in paragraph 51 on a systematic basis between:
(i) the loss component of the liability for remaining coverage; and
(ii) the liability for remaining coverage, excluding the loss component.
(b) any subsequent decrease in fulfilment cash flows allocated to the group arising from changes in estimates of future cash flows relating to future service and any subsequent increases in the entity’s share in the fair value of the underlying items solely to the loss component until that component is reduced to zero. Applying paragraphs 44(c)(ii), 45(b)(iii) and 45(c)(iii), an entity shall adjust the contractual service margin only for the excess of the decrease over the amount allocated to the loss component.
51 The subsequent changes in the fulfilment cash flows of the liability for remaining coverage to be allocated applying paragraph 50(a) are:
(a) estimates of the present value of future cash flows for claims and expenses released from the liability for remaining coverage because of incurred insurance service expenses;
(b) changes in the risk adjustment for non-financial risk recognised in profit or loss because of the release from risk; and
(c) insurance finance income or expenses.
52 The systematic allocation required by paragraph 50(a) shall result in the total amounts allocated to the loss component in accordance with paragraphs 48–50 being equal to zero by the end of the coverage period of a group of contracts.
Premium allocation approach
53 An entity may simplify the measurement of a group of insurance contracts using the premium allocation approach set out in paragraphs 55–59 if, and only if, at the inception of the group:
(a) the entity reasonably expects that such simplification would produce a measurement of the liability for remaining coverage for the group that would not differ materially from the one that would be produced applying the requirements in paragraphs 32–52; or
(b) the coverage period of each contract in the group (including coverage arising from all premiums within the contract boundary determined at that date applying paragraph 34) is one year or less.
54 The criterion in paragraph 53(a) is not met if at the inception of the group an entity expects significant variability in the fulfilment cash flows that would affect the measurement of the liability for remaining coverage during the period before a claim is incurred. Variability in the fulfilment cash flows increases with, for example:
(a) the extent of future cash flows relating to any derivatives embedded in the contracts; and
(b) the length of the coverage period of the group of contracts.
55 Using the premium allocation approach, an entity shall measure the liability for remaining coverage as follows:
(a) on initial recognition, the carrying amount of the liability is:
(i) the premiums, if any, received at initial recognition;
(ii) minus any insurance acquisition cash flows at that date, unless the entity chooses to recognise the payments as an expense applying paragraph 59(a); and
(iii) plus or minus any amount arising from the derecognition at that date of the asset or liability recognised for insurance acquisition cash flows applying paragraph 27.
(b) at the end of each subsequent reporting period, the carrying amount of the liability is the carrying amount at the start of the reporting period:
(i) plus the premiums received in the period;
(ii) minus insurance acquisition cash flows; unless the entity chooses to recognise the payments as an expense applying paragraph 59(a);
(iii) plus any amounts relating to the amortisation of insurance acquisition cash flows recognised as an expense in the reporting period; unless the entity chooses to recognise insurance acquisition cash flows as an expense applying paragraph 59(a);
(iv) plus any adjustment to a financing component, applying paragraph 56;
(v) minus the amount recognised as insurance revenue for coverage provided in that period (see paragraph B126); and
(vi) minus any investment component paid or transferred to the liability for incurred claims.
56 If insurance contracts in the group have a significant financing component, an entity shall adjust the carrying amount of the liability for remaining coverage to reflect the time value of money and the effect of financial risk using the discount rates specified in paragraph 36, as determined on initial recognition. The entity is not required to adjust the carrying amount of the liability for remaining coverage to reflect the time value of money and the effect of financial risk if, at initial recognition, the entity expects that the time between providing each part of the coverage and the related premium due date is no more than a year.
57 If at any time during the coverage period, facts and circumstances indicate that a group of insurance contracts is onerous, an entity shall calculate the difference between:
(a) the carrying amount of the liability for remaining coverage determined applying paragraph 55; and
(b) the fulfilment cash flows that relate to remaining coverage of the group, applying paragraphs 33–37 and B36–B92. However, if, in applying paragraph 59(b), the entity does not adjust the liability for incurred claims for the time value of money and the effect of financial risk, it shall not include in the fulfilment cash flows any such adjustment.
58 To the extent that the fulfilment cash flows described in paragraph 57(b) exceed the carrying amount described in paragraph 57(a), the entity shall recognise a loss in profit or loss and increase the liability for remaining coverage.
59 In applying the premium allocation approach, an entity:
(a) may choose to recognise any insurance acquisition cash flows as expenses when it incurs those costs, provided that the coverage period of each contract in the group at initial recognition is no more than one year.
(b) shall measure the liability for incurred claims for the group of insurance contracts at the fulfilment cash flows relating to incurred claims, applying paragraphs 33–37 and B36–B92. However, the entity is not required to adjust future cash flows for the time value of money and the effect of financial risk if those cash flows are expected to be paid or received in one year or less from the date the claims are incurred.
Reinsurance contracts held
60 The requirements in AASB 17 are modified for reinsurance contracts held, as set out in paragraphs 61–70.
61 An entity shall divide portfolios of reinsurance contracts held applying paragraphs 14–24, except that the references to onerous contracts in those paragraphs shall be replaced with a reference to contracts on which there is a net gain on initial recognition. For some reinsurance contracts held, applying paragraphs 14–24 will result in a group that comprises a single contract.
Recognition
62 Instead of applying paragraph 25, an entity shall recognise a group of reinsurance contracts held:
(a) if the reinsurance contracts held provide proportionate coverage – at the beginning of the coverage period of the group of reinsurance contracts held or at the initial recognition of any underlying contract, whichever is the later; and
(b) in all other cases – from the beginning of the coverage period of the group of reinsurance contracts held.
Measurement
63 In applying the measurement requirements of paragraphs 32–36 to reinsurance contracts held, to the extent that the underlying contracts are also measured applying those paragraphs, the entity shall use consistent assumptions to measure the estimates of the present value of the future cash flows for the group of reinsurance contracts held and the estimates of the present value of the future cash flows for the group(s) of underlying insurance contracts. In addition, the entity shall include in the estimates of the present value of the future cash flows for the group of reinsurance contracts held the effect of any risk of non-performance by the issuer of the reinsurance contract, including the effects of collateral and losses from disputes.
64 Instead of applying paragraph 37, an entity shall determine the risk adjustment for non-financial risk so that it represents the amount of risk being transferred by the holder of the group of reinsurance contracts to the issuer of those contracts.
65 The requirements of paragraph 38 that relate to determining the contractual service margin on initial recognition are modified to reflect the fact that for a group of reinsurance contracts held there is no unearned profit but instead a net cost or net gain on purchasing the reinsurance. Hence, on initial recognition:
(a) the entity shall recognise any net cost or net gain on purchasing the group of reinsurance contracts held as a contractual service margin measured at an amount equal to the sum of the fulfilment cash flows, the amount derecognised at that date of any asset or liability previously recognised for cash flows related to the group of reinsurance contracts held, and any cash flows arising at that date; unless
(b) the net cost of purchasing reinsurance coverage relates to events that occurred before the purchase of the group of reinsurance contracts, in which case, notwithstanding the requirements of paragraph B5, the entity shall recognise such a cost immediately in profit or loss as an expense.
66 Instead of applying paragraph 44, an entity shall measure the contractual service margin at the end of the reporting period for a group of reinsurance contracts held as the carrying amount determined at the start of the reporting period, adjusted for:
(a) the effect of any new contracts added to the group (see paragraph 28);
(b) interest accreted on the carrying amount of the contractual service margin, measured at the discount rates specified in paragraph B72(b);
(c) changes in the fulfilment cash flows to the extent that the change:
(i) relates to future service; unless
(ii) the change results from a change in fulfilment cash flows allocated to a group of underlying insurance contracts that does not adjust the contractual service margin for the group of underlying insurance contracts.
(d) the effect of any currency exchange differences arising on the contractual service margin; and
(e) the amount recognised in profit or loss because of services received in the period, determined by the allocation of the contractual service margin remaining at the end of the reporting period (before any allocation) over the current and remaining coverage period of the group of reinsurance contracts held, applying paragraph B119.
67 Changes in the fulfilment cash flows that result from changes in the risk of non-performance by the issuer of a reinsurance contract held do not relate to future service and shall not adjust the contractual service margin.
68 Reinsurance contracts held cannot be onerous. Accordingly, the requirements of paragraphs 47–52 do not apply.
Premium allocation approach for reinsurance contracts held
69 An entity may use the premium allocation approach set out in paragraphs 55–56 and 59 (adapted to reflect the features of reinsurance contracts held that differ from insurance contracts issued, for example the generation of expenses or reduction in expenses rather than revenue) to simplify the measurement of a group of reinsurance contracts held, if at the inception of the group:
(a) the entity reasonably expects the resulting measurement would not differ materially from the result of applying the requirements in paragraphs 63–68; or
(b) the coverage period of each contract in the group of reinsurance contracts held (including coverage from all premiums within the contract boundary determined at that date applying paragraph 34) is one year or less.
70 An entity cannot meet the condition in paragraph 69(a) if, at the inception of the group, an entity expects significant variability in the fulfilment cash flows that would affect the measurement of the asset for remaining coverage during the period before a claim is incurred. Variability in the fulfilment cash flows increases with, for example:
(a) the extent of future cash flows relating to any derivatives embedded in the contracts; and
(b) the length of the coverage period of the group of reinsurance contracts held.
Investment contracts with discretionary participation features
71 An investment contract with discretionary participation features does not include a transfer of significant insurance risk. Consequently, the requirements in AASB 17 for insurance contracts are modified for investment contracts with discretionary participation features as follows:
(a) the date of initial recognition (see paragraph 25) is the date the entity becomes party to the contract.
(b) the contract boundary (see paragraph 34) is modified so that cash flows are within the contract boundary if they result from a substantive obligation of the entity to deliver cash at a present or future date. The entity has no substantive obligation to deliver cash if it has the practical ability to set a price for the promise to deliver the cash that fully reflects the amount of cash promised and related risks.
(c) the allocation of the contractual service margin (see paragraphs 44(e) and 45(e)) is modified so that the entity shall recognise the contractual service margin over the duration of the group of contracts in a systematic way that reflects the transfer of investment services under the contract.
Modification and derecognition
Modification of an insurance contract
72 If the terms of an insurance contract are modified, for example by agreement between the parties to the contract or by a change in regulation, an entity shall derecognise the original contract and recognise the modified contract as a new contract, applying AASB 17 or other applicable Standards if, and only if, any of the conditions in (a)–(c) are satisfied. The exercise of a right included in the terms of a contract is not a modification. The conditions are that:
(a) if the modified terms had been included at contract inception:
(i) the modified contract would have been excluded from the scope of AASB 17, applying paragraphs 3–8;
(ii) an entity would have separated different components from the host insurance contract applying paragraphs 10–13, resulting in a different insurance contract to which AASB 17 would have applied;
(iii) the modified contract would have had a substantially different contract boundary applying paragraph 34; or
(iv) the modified contract would have been included in a different group of contracts applying paragraphs 14–24.
(b) the original contract met the definition of an insurance contract with direct participation features, but the modified contract no longer meets that definition, or vice versa; or
(c) the entity applied the premium allocation approach in paragraphs 53–59 or paragraphs 69–70 to the original contract, but the modifications mean that the contract no longer meets the eligibility criteria for that approach in paragraph 53 or paragraph 69.
73 If a contract modification meets none of the conditions in paragraph 72, the entity shall treat changes in cash flows caused by the modification as changes in estimates of fulfilment cash flows by applying paragraphs 40–52.
Derecognition
74 An entity shall derecognise an insurance contract when, and only when:
(a)it is extinguished, ie when the obligation specified in the insurance contract expires or is discharged or cancelled; or
(b)any of the conditions in paragraph 72 are met.
75 When an insurance contract is extinguished, the entity is no longer at risk and is therefore no longer required to transfer any economic resources to satisfy the insurance contract. For example, when an entity buys reinsurance, it shall derecognise the underlying insurance contract(s) when, and only when, the underlying insurance contract(s) is or are extinguished.
76 An entity derecognises an insurance contract from within a group of contracts by applying the following requirements in AASB 17:
(a) the fulfilment cash flows allocated to the group are adjusted to eliminate the present value of the future cash flows and risk adjustment for non-financial risk relating to the rights and obligations that have been derecognised from the group, applying paragraphs 40(a)(i) and 40(b);
(b) the contractual service margin of the group is adjusted for the change in fulfilment cash flows described in (a), to the extent required by paragraphs 44(c) and 45(c), unless paragraph 77 applies; and
(c) the number of coverage units for expected remaining coverage is adjusted to reflect the coverage units derecognised from the group, and the amount of the contractual service margin recognised in profit or loss in the period is based on that adjusted number, applying paragraph B119.
77 When an entity derecognises an insurance contract because it transfers the contract to a third party or derecognises an insurance contract and recognises a new contract applying paragraph 72, the entity shall instead of applying paragraph 76(b):
(a) adjust the contractual service margin of the group from which the contract has been derecognised, to the extent required by paragraphs 44(c) and 45(c), for the difference between (i) and either (ii) for contracts transferred to a third party or (iii) for contracts derecognised applying paragraph 72:
(i) the change in the carrying amount of the group of insurance contracts resulting from the derecognition of the contract, applying paragraph 76(a).
(ii) the premium charged by the third party.
(iii) the premium the entity would have charged had it entered into a contract with equivalent terms as the new contract at the date of the contract modification, less any additional premium charged for the modification.
(b) measure the new contract recognised applying paragraph 72 assuming that the entity received the premium described in (a)(iii) at the date of the modification.
Presentation in the statement of financial position
78 An entity shall present separately in the statement of financial position the carrying amount of groups of:
(a)insurance contracts issued that are assets;
(b)insurance contracts issued that are liabilities;
(c)reinsurance contracts held that are assets; and
(d)reinsurance contracts held that are liabilities.
79 An entity shall include any assets or liabilities for insurance acquisition cash flows recognised applying paragraph 27 in the carrying amount of the related groups of insurance contracts issued, and any assets or liabilities for cash flows related to groups of reinsurance contracts held (see paragraph 65(a)) in the carrying amount of the groups of reinsurance contracts held.
Recognition and presentation in the statement(s) of financial performance (paragraphs B120–B136)
80 Applying paragraphs 41 and 42, an entity shall disaggregate the amounts recognised in the statement(s) of profit or loss and other comprehensive income (hereafter referred to as the statement(s) of financial performance) into:
(a)an insurance service result (paragraphs 83–86), comprising insurance revenue and insurance service expenses; and
(b)insurance finance income or expenses (paragraphs 87–92).
81 An entity is not required to disaggregate the change in the risk adjustment for non-financial risk between the insurance service result and insurance finance income or expenses. If an entity does not make such a disaggregation, it shall include the entire change in the risk adjustment for non-financial risk as part of the insurance service result.
82 An entity shall present income or expenses from reinsurance contracts held separately from the expenses or income from insurance contracts issued.
Insurance service result
83 An entity shall present in profit or loss insurance revenue arising from the groups of insurance contracts issued. Insurance revenue shall depict the provision of coverage and other services arising from the group of insurance contracts at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those services. Paragraphs B120–B127 specify how an entity measures insurance revenue.
84 An entity shall present in profit or loss insurance service expenses arising from a group of insurance contracts issued, comprising incurred claims (excluding repayments of investment components), other incurred insurance service expenses and other amounts as described in paragraph 103(b).
85 Insurance revenue and insurance service expenses presented in profit or loss shall exclude any investment components. An entity shall not present premium information in profit or loss if that information is inconsistent with paragraph 83.
86 An entity may present the income or expenses from a group of reinsurance contracts held (see paragraphs 60–70), other than insurance finance income or expenses, as a single amount; or the entity may present separately the amounts recovered from the reinsurer and an allocation of the premiums paid that together give a net amount equal to that single amount. If an entity presents separately the amounts recovered from the reinsurer and an allocation of the premiums paid, it shall:
(a) treat reinsurance cash flows that are contingent on claims on the underlying contracts as part of the claims that are expected to be reimbursed under the reinsurance contract held;
(b) treat amounts from the reinsurer that it expects to receive that are not contingent on claims of the underlying contracts (for example, some types of ceding commissions) as a reduction in the premiums to be paid to the reinsurer; and
(c) not present the allocation of premiums paid as a reduction in revenue.
Insurance finance income or expenses (see paragraphs B128–B136)
87 Insurance finance income or expenses comprises the change in the carrying amount of the group of insurance contracts arising from:
(a)the effect of the time value of money and changes in the time value of money; and
(b)the effect of financial risk and changes in financial risk; but
(c)excluding any such changes for groups of insurance contracts with direct participation features that would adjust the contractual service margin but do not do so when applying paragraphs 45(b)(ii), 45(b)(iii), 45(c)(ii) or 45(c)(iii). These are included in insurance service expenses.
88 Unless paragraph 89 applies, an entity shall make an accounting policy choice between:
(a)including insurance finance income or expenses for the period in profit or loss; or
(b)disaggregating insurance finance income or expenses for the period to include in profit or loss an amount determined by a systematic allocation of the expected total insurance finance income or expenses over the duration of the group of contracts, applying paragraphs B130–B133.
89 For insurance contracts with direct participation features, for which the entity holds the underlying items, an entity shall make an accounting policy choice between:
(a)including insurance finance income or expenses for the period in profit or loss; or
(b)disaggregating insurance finance income or expenses for the period to include in profit or loss an amount that eliminates accounting mismatches with income or expenses included in profit or loss on the underlying items held, applying paragraphs B134–B136.
90 If an entity chooses the accounting policy set out in paragraph 88(b) or in paragraph 89(b), it shall include in other comprehensive income the difference between the insurance finance income or expenses measured on the basis set out in those paragraphs and the total insurance finance income or expenses for the period.
91 If an entity transfers a group of insurance contracts or derecognises an insurance contract applying paragraph 77:
(a)it shall reclassify to profit or loss as a reclassification adjustment (see AASB 101 Presentation of Financial Statements) any remaining amounts for the group (or contract) that were previously recognised in other comprehensive income because the entity chose the accounting policy set out in paragraph 88(b).
(b)it shall not reclassify to profit or loss as a reclassification adjustment (see AASB 101) any remaining amounts for the group (or contract) that were previously recognised in other comprehensive income because the entity chose the accounting policy set out in paragraph 89(b).
92 Paragraph 30 requires an entity to treat an insurance contract as a monetary item under AASB 121 for the purpose of translating foreign exchange items into the entity’s functional currency. An entity includes exchange differences on changes in the carrying amount of groups of insurance contracts in the statement of profit or loss, unless they relate to changes in the carrying amount of groups of insurance contracts included in other comprehensive income applying paragraph 90, in which case they shall be included in other comprehensive income.
Disclosure
93 The objective of the disclosure requirements is for an entity to disclose information in the notes that, together with the information provided in the statement of financial position, statement(s) of financial performance and statement of cash flows, gives a basis for users of financial statements to assess the effect that contracts within the scope of AASB 17 have on the entity’s financial position, financial performance and cash flows. To achieve that objective, an entity shall disclose qualitative and quantitative information about:
(a)the amounts recognised in its financial statements for contracts within the scope of AASB 17 (see paragraphs 97–116);
(b)the significant judgements, and changes in those judgements, made when applying AASB 17 (see paragraphs 117–120); and
(c)the nature and extent of the risks from contracts within the scope of AASB 17 (see paragraphs 121–132).
94 An entity shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements. If the disclosures provided, applying paragraphs 97–132, are not enough to meet the objective in paragraph 93, an entity shall disclose additional information necessary to meet that objective.
95 An entity shall aggregate or disaggregate information so that useful information is not obscured either by the inclusion of a large amount of insignificant detail or by the aggregation of items that have different characteristics.
96 Paragraphs 29–31 of AASB 101 set out requirements relating to materiality and aggregation of information. Examples of aggregation bases that might be appropriate for information disclosed about insurance contracts are:
(a) type of contract (for example, major product lines);
(b) geographical area (for example, country or region); or
(c) reportable segment, as defined in AASB 8 Operating Segments.
Explanation of recognised amounts
97 Of the disclosures required by paragraphs 98–109, only those in paragraphs 98–100 and 102–105 apply to contracts to which the premium allocation approach has been applied. If an entity uses the premium allocation approach, it shall also disclose:
(a) which of the criteria in paragraphs 53 and 69 it has satisfied;
(b) whether it makes an adjustment for the time value of money and the effect of financial risk applying paragraphs 56 and 57(b); and
(c) the method it has chosen to recognise insurance acquisition cash flows applying paragraph 59(a).
98 An entity shall disclose reconciliations that show how the net carrying amounts of contracts within the scope of AASB 17 changed during the period because of cash flows and income and expenses recognised in the statement(s) of financial performance. Separate reconciliations shall be disclosed for insurance contracts issued and reinsurance contracts held. An entity shall adapt the requirements of paragraphs 100–109 to reflect the features of reinsurance contracts held that differ from insurance contracts issued; for example, the generation of expenses or reduction in expenses rather than revenue.
99 An entity shall provide enough information in the reconciliations to enable users of financial statements to identify changes from cash flows and amounts that are recognised in the statement(s) of financial performance. To comply with this requirement, an entity shall:
(a) disclose, in a table, the reconciliations set out in paragraphs 100–105; and
(b) for each reconciliation, present the net carrying amounts at the beginning and at the end of the period, disaggregated into a total for groups of contracts that are assets and a total for groups of contracts that are liabilities, that equal the amounts presented in the statement of financial position applying paragraph 78.
100 An entity shall disclose reconciliations from the opening to the closing balances separately for each of:
(a) the net liabilities (or assets) for the remaining coverage component, excluding any loss component.
(b) any loss component (see paragraphs 47–52 and 57–58).
(c) the liabilities for incurred claims. For insurance contracts to which the premium allocation approach described in paragraphs 53–59 or 69–70 has been applied, an entity shall disclose separate reconciliations for:
(i) the estimates of the present value of the future cash flows; and
(ii) the risk adjustment for non-financial risk.
101 For insurance contracts other than those to which the premium allocation approach described in paragraphs 53–59 or 69–70 has been applied, an entity shall also disclose reconciliations from the opening to the closing balances separately for each of:
(a) the estimates of the present value of the future cash flows;
(b) the risk adjustment for non-financial risk; and
(c) the contractual service margin.
102 The objective of the reconciliations in paragraphs 100–101 is to provide different types of information about the insurance service result.
103 An entity shall separately disclose in the reconciliations required in paragraph 100 each of the following amounts related to insurance services, if applicable:
(a) insurance revenue.
(b) insurance service expenses, showing separately:
(i) incurred claims (excluding investment components) and other incurred insurance service expenses;
(ii) amortisation of insurance acquisition cash flows;
(iii) changes that relate to past service, ie changes in fulfilment cash flows relating to the liability for incurred claims; and
(iv) changes that relate to future service, ie losses on onerous groups of contracts and reversals of such losses.
(c) investment components excluded from insurance revenue and insurance service expenses.
104 An entity shall separately disclose in the reconciliations required in paragraph 101 each of the following amounts related to insurance services, if applicable:
(a) changes that relate to future service, applying paragraphs B96–B118, showing separately:
(i) changes in estimates that adjust the contractual service margin;
(ii) changes in estimates that do not adjust the contractual service margin, ie losses on groups of onerous contracts and reversals of such losses; and
(iii) the effects of contracts initially recognised in the period.
(b) changes that relate to current service, ie:
(i) the amount of the contractual service margin recognised in profit or loss to reflect the transfer of services;
(ii) the change in the risk adjustment for non-financial risk that does not relate to future service or past service; and
(iii) experience adjustments (see paragraphs B96(a), B97(c) and B113(a)).
(c) changes that relate to past service, ie changes in fulfilment cash flows relating to incurred claims (see paragraphs B97(b) and B113(a)).
105 To complete the reconciliations in paragraphs 100–101, an entity shall also disclose separately each of the following amounts not related to insurance services provided in the period, if applicable:
(a) cash flows in the period, including:
(i) premiums received for insurance contracts issued (or paid for reinsurance contracts held);
(ii) insurance acquisition cash flows; and
(iii) incurred claims paid and other insurance service expenses paid for insurance contracts issued (or recovered under reinsurance contracts held), excluding insurance acquisition cash flows.
(b) the effect of changes in the risk of non-performance by the issuer of reinsurance contracts held;
(c) insurance finance income or expenses; and
(d) any additional line items that may be necessary to understand the change in the net carrying amount of the insurance contracts.
106 For insurance contracts issued other than those to which the premium allocation approach described in paragraphs 53–59 has been applied, an entity shall disclose an analysis of the insurance revenue recognised in the period comprising:
(a) the amounts relating to the changes in the liability for remaining coverage as specified in paragraph B124, separately disclosing:
(i) the insurance service expenses incurred during the period as specified in paragraph B124(a);
(ii) the change in the risk adjustment for non-financial risk, as specified in paragraph B124(b); and
(iii) the amount of the contractual service margin recognised in profit or loss because of the transfer of services in the period, as specified in paragraph B124(c).
(b) the allocation of the portion of the premiums that relate to the recovery of insurance acquisition cash flows.
107 For insurance contracts other than those to which the premium allocation approach described in paragraphs 53–59 or 69–70 has been applied, an entity shall disclose the effect on the statement of financial position separately for insurance contracts issued and reinsurance contracts held that are initially recognised in the period, showing their effect at initial recognition on:
(a) the estimates of the present value of future cash outflows, showing separately the amount of the insurance acquisition cash flows;
(b) the estimates of the present value of future cash inflows;
(c) the risk adjustment for non-financial risk; and
(d) the contractual service margin.
108 In the disclosures required by paragraph 107, an entity shall separately disclose amounts resulting from:
(a) contracts acquired from other entities in transfers of insurance contracts or business combinations; and
(b) groups of contracts that are onerous.
109 For insurance contracts other than those to which the premium allocation approach described in paragraphs 53–59 or 69–70 has been applied, an entity shall disclose an explanation of when it expects to recognise the contractual service margin remaining at the end of the reporting period in profit or loss, either quantitatively, in appropriate time bands, or by providing qualitative information. Such information shall be provided separately for insurance contracts issued and reinsurance contracts held.
Insurance finance income or expenses
110 An entity shall disclose and explain the total amount of insurance finance income or expenses in the reporting period. In particular, an entity shall explain the relationship between insurance finance income or expenses and the investment return on its assets, to enable users of its financial statements to evaluate the sources of finance income or expenses recognised in profit or loss and other comprehensive income.
111 For contracts with direct participation features, the entity shall describe the composition of the underlying items and disclose their fair value.
112 For contracts with direct participation features, if an entity chooses not to adjust the contractual service margin for some changes in the fulfilment cash flows, applying paragraph B115, it shall disclose the effect of that choice on the adjustment to the contractual service margin in the current period.
113 For contracts with direct participation features, if an entity changes the basis of disaggregation of insurance finance income or expenses between profit or loss and other comprehensive income, applying paragraph B135, it shall disclose, in the period when the change in approach occurred:
(a) the reason why the entity was required to change the basis of disaggregation;
(b) the amount of any adjustment for each financial statement line item affected; and
(c) the carrying amount of the group of insurance contracts to which the change applied at the date of the change.
Transition amounts
114 An entity shall provide disclosures that enable users of financial statements to identify the effect of groups of insurance contracts measured at the transition date applying the modified retrospective approach (see paragraphs C6–C19) or the fair value approach (see paragraphs C20–C24) on the contractual service margin and insurance revenue in subsequent periods. Hence an entity shall disclose the reconciliation of the contractual service margin applying paragraph 101(c), and the amount of insurance revenue applying paragraph 103(a), separately for:
(a) insurance contracts that existed at the transition date to which the entity has applied the modified retrospective approach;
(b) insurance contracts that existed at the transition date to which the entity has applied the fair value approach; and
(c) all other insurance contracts.
115 For all periods in which disclosures are made applying paragraphs 114(a) or 114(b), to enable users of financial statements to understand the nature and significance of the methods used and judgements applied in determining the transition amounts, an entity shall explain how it determined the measurement of insurance contracts at the transition date.
116 An entity that chooses to disaggregate insurance finance income or expenses between profit or loss and other comprehensive income applies paragraphs C18(b), C19(b), C24(b) and C24(c) to determine the cumulative difference between the insurance finance income or expenses that would have been recognised in profit or loss and the total insurance finance income or expenses at the transition date for the groups of insurance contracts to which the disaggregation applies. For all periods in which amounts determined applying these paragraphs exist, the entity shall disclose a reconciliation from the opening to the closing balance of the cumulative amounts included in other comprehensive income for financial assets measured at fair value through other comprehensive income related to the groups of insurance contracts. The reconciliation shall include, for example, gains or losses recognised in other comprehensive income in the period and gains or losses previously recognised in other comprehensive income in previous periods reclassified in the period to profit or loss.
Significant judgements in applying AASB 17
117 An entity shall disclose the significant judgements and changes in judgements made in applying AASB 17. Specifically, an entity shall disclose the inputs, assumptions and estimation techniques used, including:
(a) the methods used to measure insurance contracts within the scope of AASB 17 and the processes for estimating the inputs to those methods. Unless impracticable, an entity shall also provide quantitative information about those inputs.
(b) any changes in the methods and processes for estimating inputs used to measure contracts, the reason for each change, and the type of contracts affected.
(c) to the extent not covered in (a), the approach used:
(i) to distinguish changes in estimates of future cash flows arising from the exercise of discretion from other changes in estimates of future cash flows for contracts without direct participation features (see paragraph B98);
(ii) to determine the risk adjustment for non-financial risk, including whether changes in the risk adjustment for non-financial risk are disaggregated into an insurance service component and an insurance finance component or are presented in full in the insurance service result;
(iii) to determine discount rates; and
(iv) to determine investment components.
118 If, applying paragraph 88(b) or paragraph 89(b), an entity chooses to disaggregate insurance finance income or expenses into amounts presented in profit or loss and amounts presented in other comprehensive income, the entity shall disclose an explanation of the methods used to determine the insurance finance income or expenses recognised in profit or loss.
119 An entity shall disclose the confidence level used to determine the risk adjustment for non-financial risk. If the entity uses a technique other than the confidence level technique for determining the risk adjustment for non-financial risk, it shall disclose the technique used and the confidence level corresponding to the results of that technique.
120 An entity shall disclose the yield curve (or range of yield curves) used to discount cash flows that do not vary based on the returns on underlying items, applying paragraph 36. When an entity provides this disclosure in aggregate for a number of groups of insurance contracts, it shall provide such disclosures in the form of weighted averages, or relatively narrow ranges.
Nature and extent of risks that arise from contracts within the scope of AASB 17
121 An entity shall disclose information that enables users of its financial statements to evaluate the nature, amount, timing and uncertainty of future cash flows that arise from contracts within the scope of AASB 17. Paragraphs 122–132 contain requirements for disclosures that would normally be necessary to meet this requirement.
122 These disclosures focus on the insurance and financial risks that arise from insurance contracts and how they have been managed. Financial risks typically include, but are not limited to, credit risk, liquidity risk and market risk.
123 If the information disclosed about an entity’s exposure to risk at the end of the reporting period is not representative of its exposure to risk during the period, the entity shall disclose that fact, the reason why the period-end exposure is not representative, and further information that is representative of its risk exposure during the period.
124 For each type of risk arising from contracts within the scope of AASB 17, an entity shall disclose:
(a) the exposures to risks and how they arise;
(b) the entity’s objectives, policies and processes for managing the risks and the methods used to measure the risks; and
(c) any changes in (a) or (b) from the previous period.
125 For each type of risk arising from contracts within the scope of AASB 17, an entity shall disclose:
(a) summary quantitative information about its exposure to that risk at the end of the reporting period. This disclosure shall be based on the information provided internally to the entity’s key management personnel.
(b) the disclosures required by paragraphs 127–132, to the extent not provided applying (a) of this paragraph.
126 An entity shall disclose information about the effect of the regulatory frameworks in which it operates; for example, minimum capital requirements or required interest-rate guarantees. If an entity applies paragraph 20 in determining the groups of insurance contracts to which it applies the recognition and measurement requirements of AASB 17, it shall disclose that fact.
All types of risk—concentrations of risk
127 An entity shall disclose information about concentrations of risk arising from contracts within the scope of AASB 17, including a description of how the entity determines the concentrations, and a description of the shared characteristic that identifies each concentration (for example, the type of insured event, industry, geographical area, or currency). Concentrations of financial risk might arise, for example, from interest-rate guarantees that come into effect at the same level for a large number of contracts. Concentrations of financial risk might also arise from concentrations of non-financial risk; for example, if an entity provides product liability protection to pharmaceutical companies and also holds investments in those companies.
Insurance and market risks—sensitivity analysis
128 An entity shall disclose information about sensitivities to changes in risk exposures arising from contracts within the scope of AASB 17. To comply with this requirement, an entity shall disclose:
(a) a sensitivity analysis that shows how profit or loss and equity would have been affected by changes in risk exposures that were reasonably possible at the end of the reporting period:
(i) for insurance risk – showing the effect for insurance contracts issued, before and after risk mitigation by reinsurance contracts held; and
(ii) for each type of market risk – in a way that explains the relationship between the sensitivities to changes in risk exposures arising from insurance contracts and those arising from financial assets held by the entity.
(b) the methods and assumptions used in preparing the sensitivity analysis; and
(c) changes from the previous period in the methods and assumptions used in preparing the sensitivity analysis, and the reasons for such changes.
129 If an entity prepares a sensitivity analysis that shows how amounts different from those specified in paragraph 128(a) are affected by changes in risk exposures and uses that sensitivity analysis to manage risks arising from contracts within the scope of AASB 17, it may use that sensitivity analysis in place of the analysis specified in paragraph 128(a). The entity shall also disclose:
(a) an explanation of the method used in preparing such a sensitivity analysis and of the main parameters and assumptions underlying the information provided; and
(b) an explanation of the objective of the method used and of any limitations that may result in the information provided.
Insurance risk—claims development
130 An entity shall disclose actual claims compared with previous estimates of the undiscounted amount of the claims (ie claims development). The disclosure about claims development shall start with the period when the earliest material claim(s) arose and for which there is still uncertainty about the amount and timing of the claims payments at the end of the reporting period; but the disclosure is not required to start more than 10 years before the end of the reporting period. The entity is not required to disclose information about the development of claims for which uncertainty about the amount and timing of the claims payments is typically resolved within one year. An entity shall reconcile the disclosure about claims development with the aggregate carrying amount of the groups of insurance contracts, which the entity discloses applying paragraph 100(c).
Credit risk—other information
131 For credit risk that arises from contracts within the scope of AASB 17, an entity shall disclose:
(a) the amount that best represents its maximum exposure to credit risk at the end of the reporting period, separately for insurance contracts issued and reinsurance contracts held; and
(b) information about the credit quality of reinsurance contracts held that are assets.
Liquidity risk—other information
132 For liquidity risk arising from contracts within the scope of AASB 17, an entity shall disclose:
(a) a description of how it manages the liquidity risk.
(b) separate maturity analyses for groups of insurance contracts issued that are liabilities and groups of reinsurance contracts held that are liabilities that show, as a minimum, net cash flows of the groups for each of the first five years after the reporting date and in aggregate beyond the first five years. An entity is not required to include in these analyses liabilities for remaining coverage measured applying paragraphs 55–59. The analyses may take the form of:
(i) an analysis, by estimated timing, of the remaining contractual undiscounted net cash flows; or
(ii) an analysis, by estimated timing, of the estimates of the present value of the future cash flows.
(c) the amounts that are payable on demand, explaining the relationship between such amounts and the carrying amount of the related groups of contracts, if not disclosed applying (b) of this paragraph.
Commencement of the legislative instrument
Aus132.1 For legal purposes, this legislative instrument commences on 31 December 2020.
Appendix A
Defined terms
This appendix is an integral part of AASB 17 Insurance Contracts.
| contractual service margin | A component of the carrying amount of the asset or liability for a group of insurance contracts representing the unearned profit the entity will recognise as it provides services under the insurance contracts in the group. |
| coverage period | The period during which the entity provides coverage for insured events. This period includes the coverage that relates to all premiums within the boundary of the insurance contract. |
| experience adjustment | A difference between: (a) for premium receipts (and any related cash flows such as insurance acquisition cash flows and insurance premium taxes) – the estimate at the beginning of the period of the amounts expected in the period and the actual cash flows in the period; or (b) for insurance service expenses (excluding insurance acquisition expenses) – the estimate at the beginning of the period of the amounts expected to be incurred in the period and the actual amounts incurred in the period. |
| financial risk | The risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, currency exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. |
| fulfilment cash flows | An explicit, unbiased and probability-weighted estimate (ie expected value) of the present value of the future cash outflows minus the present value of the future cash inflows that will arise as the entity fulfils insurance contracts, including a risk adjustment for non-financial risk. |
| group of insurance contracts | A set of insurance contracts resulting from the division of a portfolio of insurance contracts into, at a minimum, contracts written within a period of no longer than one year and that, at initial recognition: (a) are onerous, if any; (b) have no significant possibility of becoming onerous subsequently, if any; or (c) do not fall into either (a) or (b), if any. |
| insurance acquisition cash flows | Cash flows arising from the costs of selling, underwriting and starting a group of insurance contracts that are directly attributable to the portfolio of insurance contracts to which the group belongs. Such cash flows include cash flows that are not directly attributable to individual contracts or groups of insurance contracts within the portfolio. |
| insurance contract | A contract under which one party (the issuer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. |
| insurance contract with direct participation features | An insurance contract for which, at inception: (a) the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items; (b) the entity expects to pay to the policyholder an amount equal to a substantial share of the fair value returns on the underlying items; and (c) the entity expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value of the underlying items. |
| insurance contract without direct participation features | An insurance contract that is not an insurance contract with direct participation features. |
| insurance risk | Risk, other than financial risk, transferred from the holder of a contract to the issuer. |
| insured event | An uncertain future event covered by an insurance contract that creates insurance risk. |
| investment component | The amounts that an insurance contract requires the entity to repay to a policyholder even if an insured event does not occur. |
| investment contract with discretionary participation features | A financial instrument that provides a particular investor with the contractual right to receive, as a supplement to an amount not subject to the discretion of the issuer, additional amounts: (a) that are expected to be a significant portion of the total contractual benefits; (b) the timing or amount of which are contractually at the discretion of the issuer; and (c) that are contractually based on: (i) the returns on a specified pool of contracts or a specified type of contract; (ii) realised and/or unrealised investment returns on a specified pool of assets held by the issuer; or (iii) the profit or loss of the entity or fund that issues the contract. |
| liability for incurred claims | An entity’s obligation to investigate and pay valid claims for insured events that have already occurred, including events that have occurred but for which claims have not been reported, and other incurred insurance expenses. |
| liability for remaining coverage | An entity’s obligation to investigate and pay valid claims under existing insurance contracts for insured events that have not yet occurred (ie the obligation that relates to the unexpired portion of the coverage period). |
| policyholder | A party that has a right to compensation under an insurance contract if an insured event occurs. |
| portfolio of insurance contracts | Insurance contracts subject to similar risks and managed together. |
| reinsurance contract | An insurance contract issued by one entity (the reinsurer) to compensate another entity for claims arising from one or more insurance contracts issued by that other entity (underlying contracts). |
| risk adjustment for non-financial risk | The compensation an entity requires for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk as the entity fulfils insurance contracts. |
| underlying items | Items that determine some of the amounts payable to a policyholder. Underlying items can comprise any items; for example, a reference portfolio of assets, the net assets of the entity, or a specified subset of the net assets of the entity. |
Appendix B
Application guidance
This appendix is an integral part of AASB 17 Insurance Contracts.
B1 This appendix provides guidance on the following:
(a) definition of an insurance contract (see paragraphs B2–B30);
(b) separation of components from an insurance contract (see paragraphs B31–B35);
(c) measurement (see paragraphs B36–B119);
(d) insurance revenue (see paragraphs B120–B127);
(e) insurance finance income or expenses (see paragraphs B128–B136); and
(f) interim financial statements (see paragraph B137).
Definition of an insurance contract (Appendix A)
B2 This section provides guidance on the definition of an insurance contract as specified in Appendix A. It addresses the following:
(a) uncertain future event (see paragraphs B3–B5);
(b) payments in kind (see paragraph B6);
(c) the distinction between insurance risk and other risks (see paragraphs B7–B16);
(d) significant insurance risk (see paragraphs B17–B23);
(e) changes in the level of insurance risk (see paragraphs B24–B25); and
(f) examples of insurance contracts (see paragraphs B26–B30).
Uncertain future event
B3 Uncertainty (or risk) is the essence of an insurance contract. Accordingly, at least one of the following is uncertain at the inception of an insurance contract:
(a) the probability of an insured event occurring;
(b) when the insured event will occur; or
(c) how much the entity will need to pay if the insured event occurs.
B4 In some insurance contracts, the insured event is the discovery of a loss during the term of the contract, even if that loss arises from an event that occurred before the inception of the contract. In other insurance contracts, the insured event is an event that occurs during the term of the contract, even if the resulting loss is discovered after the end of the contract term.
B5 Some insurance contracts cover events that have already occurred but the financial effect of which is still uncertain. An example is an insurance contract that provides coverage against an adverse development of an event that has already occurred. In such contracts, the insured event is the determination of the ultimate cost of those claims.
Payments in kind
B6 Some insurance contracts require or permit payments to be made in kind. In such cases, the entity provides goods or services to the policyholder to settle the entity’s obligation to compensate the policyholder for insured events. An example is when the entity replaces a stolen article instead of reimbursing the policyholder for the amount of its loss. Another example is when an entity uses its own hospitals and medical staff to provide medical services covered by the insurance contract. Such contracts are insurance contracts, even though the claims are settled in kind. Fixed-fee service contracts that meet the conditions specified in paragraph 8 are also insurance contracts, but applying paragraph 8, an entity may choose to account for them applying either AASB 17 or AASB 15 Revenue from Contracts with Customers.
The distinction between insurance risk and other risks
B7 The definition of an insurance contract requires that one party accepts significant insurance risk from another party. AASB 17 defines insurance risk 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.
B8 The definition of financial risk in Appendix A refers to financial and non-financial variables. Examples of non-financial variables not specific to a party to the contract include an index of earthquake losses in a particular region or temperatures in a particular city. Financial risk excludes risk from 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 changes in the market prices for such assets (ie a financial variable) and the condition of a specific non-financial asset held by a party to a contract (ie a non-financial variable). For example, if a guarantee of the residual value of a specific car in which the policyholder has an insurable interest exposes the guarantor to the risk of changes in the car’s physical condition, that risk is insurance risk, not financial risk.
B9 Some contracts expose the issuer to financial risk in addition to significant insurance risk. For example, many life insurance contracts guarantee a minimum rate of return to policyholders, creating financial risk, and at the same time promise death benefits that may significantly exceed the policyholder’s account balance, creating insurance risk in the form of mortality risk. Such contracts are insurance contracts.
B10 Under some contracts, an insured event triggers the payment of an amount linked to a price index. Such contracts are insurance contracts, provided that the payment contingent on the insured event could be significant. For example, a life-contingent annuity linked to a cost-of-living index transfers insurance risk because the payment is triggered by an uncertain future event – the survival of the person who receives the annuity. The link to the price index is a derivative, but it also transfers insurance risk because the number of payments to which the index applies depends on the survival of the annuitant. If the resulting transfer of insurance risk is significant, the derivative meets the definition of an insurance contract, in which case it shall not be separated from the host contract (see paragraph 11(a)).
The components of other comprehensive income include:
(a) …
(g) …;
and
(h) …
.;
(i)insurance finance income and expenses from contracts issued within the scope of AASB 17 Insurance Contracts excluded from profit or loss when total insurance finance income or expenses is disaggregated to include in profit or loss an amount determined by a systematic allocation applying paragraph 88(b) of AASB 17, or by an amount that eliminates accounting mismatches with the finance income or expenses arising on the underlying items, applying paragraph 89(b) of AASB 17; and
(j)finance income and expenses from reinsurance contracts held excluded from profit or loss when total reinsurance finance income or expenses is disaggregated to include in profit or loss an amount determined by a systematic allocation applying paragraph 88(b) of AASB 17.
...
Information to be presented in the statement of financial position
54 The statement of financial position shall include line items that present the following amounts:
(a)...
(da)groups of contracts within the scope of AASB 17 that are assets, disaggregated as required by paragraph 78 of AASB 17;
(e)…
(ma)groups of contracts within the scope of AASB 17 that are liabilities, disaggregated as required by paragraph 78 of AASB 17;
(n)...
Information to be presented in the profit or loss section or the statement of profit or loss
82 In addition to items required by other Australian Accounting Standards, the profit or loss section or the statement of profit or loss shall include line items that present the following amounts for the period:
(a)revenue, presenting separately:
(i)interest revenue calculated using the effective interest method; and
(ii)insurance revenue (see AASB 17);
(aa)...
(ab)insurance service expenses from contracts issued within the scope of AASB 17 (see AASB 17);
(ac)income or expenses from reinsurance contracts held (see AASB 17);
(b)...
(bb)insurance finance income or expenses from contracts issued within the scope of AASB 17 (see AASB 17);
(bc)finance income or expenses from reinsurance contracts held (see AASB 17);
(c)...
Transition and effective date
…
139RAASB 17, issued in July 2017, amended paragraphs 7, 54 and 82. An entity shall apply those amendments when it applies AASB 17.
AASB 107 Statement of Cash Flows (August 2015, as amended)
| Paragraph 14 is amended. Paragraph 61 is added. |
Operating activities
...
14 Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the entity. Therefore, they generally result from the transactions and other events that enter into the determination of profit or loss. Examples of cash flows from operating activities are:
(a) …
(e) [deleted]
cash receipts and cash payments of an insurance entity for premiums and claims, annuities and other policy benefits;
(f) …
Effective date
…
AASB 17 Insurance Contracts, issued in July 2017, amended paragraph 14. An entity shall apply that amendment when it applies AASB 17.
AASB 116 Property, Plant and Equipment (August 2015, as amended)
| Paragraphs 29A, 29B and 81M are added. |
Measurement after recognition
…
29ASome entities operate, either internally or externally, an investment fund that provides investors with benefits determined by units in the fund. Similarly, some entities issue groups of insurance contracts with direct participation features and hold the underlying items. Some such funds or underlying items include owner-occupied property. The entity applies AASB 116 to owner-occupied properties that are included in such a fund or are underlying items. Despite paragraph 29, the entity may elect to measure such properties using the fair value model in accordance with AASB 140. For the purposes of this election, insurance contracts include investment contracts with discretionary participation features. (See AASB 17 Insurance Contracts for terms used in this paragraph that are defined in that Standard).
29BAn entity shall treat owner-occupied property measured using the investment property fair value model applying paragraph 29A as a separate class of property, plant and equipment.
...
Effective date
…
81MAASB 17, issued in July 2017, added paragraphs 29A and 29B. An entity shall apply those amendments when it applies AASB 17.
AASB 119 Employee Benefits (August 2015, as amended)
| The footnote to paragraph 8 is amended. Paragraph 178 is added. |
A qualifying insurance policy is not necessarily an insurance contract, as defined in
AASB 4AASB 17 Insurance Contracts.
...
Transition and effective date
…
AASB 17, issued in July 2017, amended the footnote to paragraph 8. An entity shall apply that amendment when it applies AASB 17.
AASB 128 Investments in Associates and Joint Ventures (August 2015, as amended but excluding AASB 2017-1 Amendments to Australian Accounting Standards – Transfers of Investment Property, Annual Improvements 2014 – 2016 Cycle and Other Amendments)
| The following amendments apply only when AASB 17 is not applied in conjunction with AASB 2017-1. Paragraph 18 is amended. Paragraph 45F is added. |
Exemptions from applying the equity method
…
18 When an investment in an associate or a joint venture is held by, or is held indirectly through, an entity that is a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure investments in those associates and joint ventures at fair value through profit or loss in accordance with AASB 9. An example of an investment-linked insurance fund is a fund held by an entity as the underlying items for a group of insurance contracts with direct participation features. For the purposes of this election, insurance contracts include investment contracts with discretionary participation features. (See AASB 17 Insurance Contracts for terms used in this paragraph that are defined in that Standard.)
...
Effective date and transition
…
45FAASB 17, issued in July 2017, amended paragraph 18. An entity shall apply that amendment when it applies AASB 17.
AASB 128 Investments in Associates and Joint Ventures (August 2015, as amended, including by AASB 2017-1)
| The following amendments apply only when AASB 17 is applied in conjunction with AASB 2017-1. Paragraph 18 is amended. Paragraph 45F is added. |
Exemptions from applying the equity method
…
18 When an investment in an associate or a joint venture is held by, or is held indirectly through, an entity that is a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure that investment at fair value through profit or loss in accordance with AASB 9. An example of an investment-linked insurance fund is a fund held by an entity as the underlying items for a group of insurance contracts with direct participation features. For the purposes of this election, insurance contracts include investment contracts with discretionary participation features. An entity shall make this election separately for each associate or joint venture, at initial recognition of the associate or joint venture. (See AASB 17 Insurance Contracts for terms used in this paragraph that are defined in that Standard.)
...
Effective date and transition
…
45FAASB 17, issued in July 2017, amended paragraph 18. An entity shall apply that amendment when it applies AASB 17.
AASB 132 Financial Instruments: Presentation (August 2015, as amended)
| Paragraph 4 is amended. Paragraphs 33A and 97T are added. |
Scope
4 This Standard shall be applied by all entities to all types of financial instruments except:
(a)...
(d)
insurancecontractsas defined in AASB 4within the scope of AASB 17 Insurance Contracts. However, this Standard applies to:
(i)derivatives that are embedded in
insurancecontracts within the scope of AASB 17, if AASB 9 requires the entity to account for them separately.; and
(ii)investment components that are separated from contracts within the scope of AASB 17, if AASB 17 requires such separation.
Moreover, an issuer shall apply this Standard to financial guarantee contracts if the issuer applies AASB 9 in recognising and measuring the contracts, but shall apply
AASB 4AASB 17 if the issuer elects, in accordance with paragraph4(d) of AASB 47(e) of AASB 17, to applyAASB 4AASB 17 in recognising and measuring them.
(e)[deleted]
financial instruments that are within the scope of AASB 4 because they contain a discretionary participation feature. The issuer of these instruments is exempt from applying to these features paragraphs 15–32 and AG25–AG35 of this Standard regarding the distinction between financial liabilities and equity instruments. However, these instruments are subject to all other requirements of this Standard. Furthermore, this Standard applies to derivatives that are embedded in these instruments (see AASB 9).
(f)...
Treasury shares (see also paragraph AG36)
…
33ASome entities operate, either internally or externally, an investment fund that provides investors with benefits determined by units in the fund and recognise financial liabilities for the amounts to be paid to those investors. Similarly, some entities issue groups of insurance contracts with direct participation features and those entities hold the underlying items. Some such funds or underlying items include the entity’s treasury shares. Despite paragraph 33, an entity may elect not to deduct from equity a treasury share that is included in such a fund or is an underlying item when, and only when, an entity reacquires its own equity instrument for such purposes. Instead, the entity may elect to continue to account for that treasury share as equity and to account for the reacquired instrument as if the instrument were a financial asset and measure it at fair value through profit or loss in accordance with AASB 9. That election is irrevocable and made on an instrument-by-instrument basis. For the purposes of this election, insurance contracts include investment contracts with discretionary participation features. (See AASB 17 for terms used in this paragraph that are defined in that Standard.)
...
Effective date and transition
…
97TAASB 17, issued in July 2017, amended paragraphs 4 and AG8, and added paragraph 33A. An entity shall apply those amendments when it applies AASB 17.
| In the Application Guidance, paragraph AG8 is amended. |
Financial assets and financial liabilities
…
AG8 The ability to exercise a contractual right or the requirement to satisfy a contractual obligation may be absolute, or it may be contingent on the occurrence of a future event. For example, a financial guarantee is a contractual right of the lender to receive cash from the guarantor, and a corresponding contractual obligation of the guarantor to pay the lender, if the borrower defaults. The contractual right and obligation exist because of a past transaction or event (assumption of the guarantee), even though the lender’s ability to exercise its right and the requirement for the guarantor to perform under its obligation are both contingent on a future act of default by the borrower. A contingent right and obligation meet the definition of a financial asset and a financial liability, even though such assets and liabilities are not always recognised in the financial statements. Some of these contingent rights and obligations may be
insurancecontracts within the scope ofAASB 4AASB 17.
AASB 136 Impairment of Assets (August 2015, as amended)
| Paragraph 2 is amended. Paragraph 140N is added. |
Scope
2 This Standard shall be applied in accounting for the impairment of all assets, other than:
(a)...
(h)
deferred acquisition costs, and intangible assets, arising from an insurer’s contractual rights under insurancecontracts within the scope ofAASB 4AASB 17 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contractsthat are assets; and
(i)…
Transition provisions and effective date
…
140NAASB 17, issued in July 2017, amended paragraph 2. An entity shall apply that amendment when it applies AASB 17.
AASB 137 Provisions, Contingent Liabilities and Contingent Assets (August 2015, as amended)
| Paragraph 5 is amended. Paragraph 103 is added. |
Scope
...
5 When another Standard deals with a specific type of provision, contingent liability or contingent asset, an entity applies that Standard instead of this Standard. For example, some types of provisions are addressed in Standards on:
(a) ...
(e) insurance contracts and other contracts within the scope of
(see AASB 4AASB 17 Insurance Contracts, AASB 1023 General Insurance Contracts, and AASB 1038 Life Insurance Contracts).However, this Standard applies to provisions, contingent liabilities and contingent assets of an insurer, other than those arising from its contractual obligations and rights under insurance contracts within the scope of AASB 4, AASB 1023 or AASB 1038;
(f) ...
Effective date
...
AASB 17, issued in July 2017, amended paragraph 5. An entity shall apply that amendment when it applies AASB 17.
AASB 138 Intangible Assets (August 2015, as amended)
| Paragraph 3 is amended. Paragraph 130M is added. |
Scope
…
3 If another Standard prescribes the accounting for a specific type of intangible asset, an entity applies that Standard instead of this Standard. For example, this Standard does not apply to:
(a) …
(g)
deferred acquisition costs, and intangible assets, arising from an insurer’s contractual rights under insurancecontracts within the scope ofAASB 4AASB 17 Insurance Contracts.AASB 4 sets out specific disclosure requirements for those deferred acquisition costs but not for those intangible assets. Therefore, the disclosure requirements in this Standard apply to those intangible assets.
(h) ...
Transitional provisions and effective date
…
130MAASB 17, issued in July 2017, amended paragraph 3. An entity shall apply that amendment when it applies AASB 17.
AASB 140 Investment Property (August 2015, as amended)
| Paragraph 32B is amended. Paragraph 85H is added. |
Accounting policy
…
32B Some
insurers and otherentities operate, either internally or externally, an investmentan internal propertyfund that provides investors with benefits determined by units in the fund.issues notional units, with some units held by investors in linked contracts and others held by the entitySimilarly, some entities issue insurance contracts with direct participation features, for which the underlying items include investment property. For the purposes of paragraphs 32A–32B only, insurance contracts include investment contracts with discretionary participation features. Paragraph 32A does not permit an entity to measuretheproperty held by the fund (or property that is an underlying item) partly at cost and partly at fair value. (See AASB 17 Insurance Contracts for terms used in this paragraph that are defined in that Standard.)
...
Effective date
…
85HAASB 17, issued in July 2017, amended paragraph 32B. An entity shall apply that amendment when it applies AASB 17.
AASB 1023 General Insurance Contracts (July 2004, as amended)
| Paragraph 1.1 is amended. |
1 Application
1.1 This Standard applies to:
(a)each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(a
b) general purpose financial statements of eachothernot-for-profit public sector reporting entity; and
(b
c) financial statements of each not-for-profit public sector entity that are, or are held out to be, general purpose financial statements.
AASB 1038 Life Insurance Contracts (July 2004, as amended)
| Paragraph 1.1 is amended. |
1 Application
1.1 This Standard applies to each entity that is:
(a) a life insurer; or
(b) the parent in a group that includes a life insurer;
when the entity is a not-for-profit public sector entity that:
(c)is a reporting entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act;
(
dc) isan othera reporting entity and prepares general purpose financial statements; or
(
ed) prepares financial statements that are, or are held out to be, general purpose financial statements.
AASB 1057 Application of Australian Accounting Standards (July 2015, as amended)
| Paragraphs 5, 12 and 26 are amended. Paragraphs 5A, 6A and 11A are added. |
Application of Australian Accounting Standards
5 Unless otherwise specified in paragraphs
65A–21, Australian Accounting Standards apply to:
(a) …
5AAASB 4 Insurance Contracts applies to:
(a)general purpose financial statements of each not-for-profit public sector reporting entity; and
(b)financial statements of each not-for-profit public sector entity that are, or are held out to be, general purpose financial statements.
…
6AAASB 17 Insurance Contracts applies to:
(a)each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(b)general purpose financial statements of each other reporting entity; and
(c)financial statements that are, or are held out to be, general purpose financial statements;
except when the entity is:
(d)a superannuation entity applying AASB 1056; or
(e)a not-for-profit public sector entity.
…
11AAASB 1023 General Insurance Contracts applies to:
(a)general purpose financial statements of each not-for-profit public sector reporting entity; and
(b)financial statements of each not-for-profit public sector entity that are, or are held out to be, general purpose financial statements.
AASB 1038 Life Insurance Contracts applies to:
(a) a life insurer; or
(b) the parent in a group that includes a life insurer;
when the entity is a not-for-profit public sector entity that:
(c)is a reporting entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act;
(
dc) isan othera reporting entity and prepares general purpose financial statements; or
(
ed) prepares financial statements that are, or are held out to be, general purpose financial statements.
…
Application of Australian Interpretations
…
26 Interpretation 1047 Professional Indemnity Claims Liabilities in Medical Defence Organisations applies to entities that are or include medical defence organisations as follows:
(a)each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(a
b) general purpose financial statements of eachothernot-for-profit public sector reporting entity; and
(b
c) financial statements of each not-for-profit public sector entity that are, or are held out to be, general purpose financial statements.
AASB 1058 Income of Not-for-Profit Entities (December 2016)
| Paragraph 7 is amended. |
Scope (paragraphs B2-B11)
7 An entity shall apply this Standard to transactions where the consideration to acquire an asset is significantly less than fair value principally to enable the entity to further its objectives, and the receipt of volunteer services, except for:
(a) …
(b)
insurancecontracts within the scope ofAASB 4AASB 17 Insurance Contracts, AASB 1023 General Insurance Contracts or AASB 1038 Life Insurance Contracts;
(c) …
| In Appendix C, paragraph C1A is added. |
Effective date
…
C1AAASB 17, issued in July 2017, amended paragraph 7. An entity shall apply that amendment when it applies AASB 17.
Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease
| The references paragraph is amended. |
References
...
•
AASB 4AASB 17 Insurance Contracts
• …
• AASB 1023 General Insurance Contracts
...
| Paragraph 7 is amended. |
Consensus
…
7 Other obligations of an arrangement, including any guarantees provided and obligations incurred upon early termination, shall be accounted for under AASB 137,
AASB 1023 orAASB 9 or AASB 17, depending on the terms.
| The effective date paragraph is amended. |
Effective date
…
AASB 17, issued in July 2017, amended paragraph 7. An entity shall apply that amendment when it applies AASB 17.
Interpretation 1047 Professional Indemnity Claims Liabilities in Medical Defence Organisations
| Paragraph 10 is amended. |
Application
10 This Interpretation applies to entities that are or include medical defence organisations as follows:
(a)each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(a
b) general purpose financial statements of eachothernot-for-profit public sector reporting entity; and
(b
c) financial statements of each not-for-profit public sector entity that are, or are held out to be, general purpose financial statements.
Compilation details
Accounting Standard AASB 17 Insurance Contracts (as amended)
Compilation details are not part of AASB 17.
This compiled Standard applies to annual periods beginning on or after 1 January 2021. It takes into account amendments up to and including 21 May 2019 and was prepared on 2 March 2020 by the staff of the Australian Accounting Standards Board (AASB).
This compilation is not a separate Accounting Standard made by the AASB. Instead, it is a representation of AASB 17 (July 2017) as amended by other Accounting Standards, which are listed in the Table below.
Table of Standards
| Standard | Date made | FRL identifier | Commence-ment date | Effective date | Application, saving or transitional provisions |
| AASB 17 | 19 July 2017 | F2017L01184 | 31 Dec 2020 | (beginning) 1 Jan 2021 | see (a) below |
| AASB 2019-1 | 21 May 2019 | F2019L00966 | 31 Dec 2019 | (beginning) 1 Jan 2020 | see (b) below |
(a) Entities may elect to apply this Standard to periods beginning before 1 January 2021, provided that AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers are also applied on or before the date of initial application of this Standard.
(b) Entities may elect to apply this Standard to annual periods beginning before 1 January 2020.
Table of amendments
| Paragraph affected | How affected | By … [paragraph/page] |
| AusCF1 | added | AASB 2019-1 [page 13] |
Deleted IFRS 17 text
Deleted IFRS 17 text is not part of AASB 17.
7(b) … and retirement benefit obligations reported by defined benefit retirement plans (see IAS 26 Accounting and Reporting by Retirement Benefit Plans).
C34 IFRS 17 supersedes IFRS 4 Insurance Contracts, as amended in 2016.
AASB Basis for Conclusions
This AASB Basis for Conclusions accompanies, but is not part of, AASB 17.
Introduction
AusBC1This Basis for Conclusions summarises the Australian Accounting Standards Board’s (AASB) considerations in reaching the conclusions regarding the substantive Australian-specific issues pertinent to IFRS 17 Insurance Contracts as incorporated into AASB 17 Insurance Contracts. In making decisions, individual Board members gave greater weight to some factors than to others.
Australian-specific issues
AusBC2In issuing IFRS 17 the International Accounting Standards Board (IASB) replaced its existing Standard on insurance, namely IFRS 4 Insurance Contracts. IFRS 4 allowed entities to use a wide variety of accounting practices for insurance contracts, reflecting national accounting requirements. In the Australian context, those national accounting requirements (including Reduced Disclosure Requirements (RDR) concessions) were contained in:
(a) AASB 4 Insurance Contracts;
(b) AASB 1023 General Insurance Contracts;
(c) AASB 1038 Life Insurance Contracts; and
(d) Interpretation 1047 Professional Indemnity Claims Liabilities in Medical Defence Organisations.
AusBC3In addition, AASB 1056 Superannuation Entities includes requirements applicable to a superannuation entity acting in the capacity of an insurer.
AusBC4IFRS 17 was developed by the IASB from a for-profit perspective. Accordingly, and consistent with the AASB’s Process for Modifying IFRSs for PBE/NFP, the AASB considered whether it would be suitable for not-for-profit (NFP) entities.
AusBC5Within the context of replacing existing Australian requirements and addressing NFP issues, Australian-specific issues that are the subject of this Basis for Conclusions relate to the implications for:
(a) AASB 4, AASB 1023 and AASB 1038 (including Australian-specific disclosure requirements) – see paragraphs AusBC6–AusBC11;
(b) Interpretation 1047 – see paragraphs AusBC14–AusBC17;
(c) AASB 1056 – see paragraphs AusBC18–AusBC22;
(d) NFP and public sector entities (including for-profit public sector entities) – see paragraphs AusBC23–AusBC30; and
(e) RDR – see paragraphs AusBC31–AusBC32.
Some of these issues have been resolved through the issue of AASB 17, others will be the subject of further due process (including in a forthcoming ED on Australian-specific issues arising from AASB 17), as noted where relevant below.
Implications for AASB 4, AASB 1023 and AASB 1038
AusBC6The AASB noted that adopting IFRS 17 would supersede AASB 4, AASB 1023 and AASB 1038 and therefore change current accounting requirements for insurance contracts. The AASB acknowledged that doing so would improve financial reporting in some respects but not in other respects.
AusBC7Regarding the key aspects, the AASB noted that:
(a) the main improvements include:
(i) greater clarity around the accounting for acquisition costs, particularly for general insurance; and
(ii) greater alignment with other industries of the basis for revenue recognition for insurance contracts with coverage periods greater than one year; and
(b) the main areas not improved include:
(i) use of historical (inception-date) discount rates in accounting for the contractual service margin (CSM) under the ‘general model’;
(ii) use of ‘coverage period’ (rather than pattern of service provision) as the basis for recognising the CSM in profit over the contract life; and
(iii) the level of aggregation of contracts for accounting purposes.
AusBC8In weighing up these issues, the AASB also acknowledged the precedent it established when it decided not to adopt IAS 26 Accounting and Reporting by Retirement Benefit Plans in favour of retaining the Australian accounting requirements specified in AAS 25 Financial Reporting by Superannuation Plans. This decision was subsequently reconfirmed when the AASB issued AASB 1056 to supersede AAS 25.
AusBC9In considering the facts and circumstances surrounding the AASB’s decisions not to adopt IAS 26 (and thereby have an exception to its IFRS adoption policy), the AASB concluded that the legislative environment as well as tailored financial reporting requirements for superannuation entities (which were not adequately addressed in IAS 26) justified the need for a specific Australian pronouncement (see paragraphs BC7–BC11 of AASB 1056). In contrast, overall, the AASB concluded that IFRS 17 represents a comprehensive, internationally consistent, set of financial reporting requirements for Australian insurers, despite the issues noted in paragraph AusBC7(b).
AusBC10On balance, the AASB considered that the benefits arising from international harmonisation in relation to the accounting for insurance contracts, and the greater alignment of the basis for revenue recognition with other industries noted in paragraph AusBC7(a)(ii), outweighed the drawbacks noted in paragraph AusBC7(b). Accordingly, the AASB decided to supersede AASB 4, AASB 1023 and AASB 1038 (and Interpretation 1047 – see paragraphs AusBC14–AusBC17) for for-profit private sector entities with the issue of AASB 17. NFP private sector entities and public sector entities are discussed in paragraphs AusBC23–AusBC30.
AusBC11The AASB noted that a consequence of its decision to supersede AASB 1023 and AASB 1038 is that Australian specific disclosures (eg paragraphs 17.8 and 17.10(c) of AASB 1038 relating to regulatory capital disclosures and conformance with the Life Insurance Act 1995) are no longer required. However, as a separate project the AASB intends to review the usefulness and necessity of those disclosures under AASB 17 at a future date prior to AASB 17 becoming mandatory.
AusBC12The AASB further considered the interaction between AASB 4, AASB 1023 and AASB 1038, noting that compliance with either AASB 1023 or AASB 1038 simultaneously achieved compliance with AASB 4. However, the AASB observed that this fact was not explicitly stated in AASB 4 itself, which resulted in divergent interpretations of whether an insurer could apply either of the AASB 9 Financial Instruments deferral or overlay approaches introduced with AASB 2016-6 Amendments to Australian Accounting Standards – Applying AASB 9 Financial Instruments with AASB 4 Insurance Contracts.
AusBC13The AASB decided to clarify paragraph Aus3.1 and insert paragraph Aus3.2 in AASB 4 to replicate similar wording already present in AASB 1023 and AASB 1038 to highlight the simultaneous compliance noted above. Furthermore, the AASB decided to clearly indicate that liabilities in scope of AASB 1023 and AASB 1038 are included in an insurer’s consideration of whether it qualifies for either the deferral or overlay approaches. The AASB noted that these amendments are purely mechanical and for clarification only, expecting no change in practice arising from these amendments.
Implications for Interpretation 1047
AusBC14Interpretation 1047 was originally issued in June 2002 to address divergent views as to whether a Medical Defence Organisation (MDO) should recognise a liability for future claims arising from the medical indemnity insurance it offered given the MDO had discretion on whether to pay claims made by members. The Interpretation required that a MDO recognise its obligations in a manner consistent with the principles in AASB 1023.
AusBC15After 1 July 2003, the Medical Indemnity Act 2002 came into effect and regulatory arrangements allowed only authorised general insurers to offer medical indemnity insurance. In August 2016 the AASB noted feedback from staff outreach to industry stakeholders indicating that all medical indemnity insurance had, as of then, been transferred to authorised general insurers (or subsidiaries thereof).
AusBC16Also at its August 2016 meeting, the AASB noted that some business written by MDOs prior to 1 July 2003 could still be in existence, and therefore might still require the guidance of Interpretation 1047. However, on balance, based on the feedback from staff outreach to industry stakeholders, the AASB concluded that any such remaining business would be immaterial to the financial statements of the affected insurers.
AusBC17Accordingly, the AASB decided to supersede Interpretation 1047 for for-profit private sector entities upon the adoption of IFRS 17 given it was no longer materially relevant, could result in a perceived ‘difference’ from IFRS if retained and no longer reflected predominant current practice. NFP private sector entities and public sector entities are discussed in paragraphs AusBC23–AusBC30.
Implications for AASB 1056 Superannuation Entities
AusBC18The AASB issued Exposure Draft ED 223 Superannuation Entities (December 2011) proposing new accounting requirements for superannuation entities as part of the AASB’s comprehensive review of AAS 25. ED 223 proposed that superannuation entities must measure any liabilities arising from insurance arrangements provided to members in accordance with the approach in AASB 119 Employee Benefits for defined benefit plans.
AusBC19The AASB issued AASB 1056 in June 2014 instead requiring that superannuation entities apply the defined benefit member liability measurement requirements of AASB 1056, as opposed to AASB 119, in response to feedback received on ED 223.
AusBC20When issuing AASB 17 the AASB was aware that a superannuation entity acting in the capacity of an insurer would apply the insurance requirements of AASB 1056 and not those of AASB 17 because AASB 1056 effectively overrides AASB 17 for a superannuation entity acting in the capacity of an insurer. The AASB noted this would mean superannuation entities could not claim compliance with IFRS. However, the AASB noted that superannuation entities could not claim IFRS compliance anyway because AASB 1056 does not incorporate the corresponding IASB Standard. Accordingly, the AASB decided that no amendments were necessary to the insurance requirements of AASB 1056 as IFRS compliance is not an objective in this limited circumstance. For the avoidance of doubt, the AASB also decided to prevent superannuation entities from applying AASB 17 through an amendment to AASB 1057 Application of Australian Accounting Standards. Consequently, the AASB deleted a cross-reference to IAS 26 from paragraph 7(b) of AASB 17 instead of replacing it with a cross-reference to AASB 1056.
AusBC21The AASB also considered groups where the consolidated financial statements of a superannuation entity include an insurance subsidiary that applies AASB 17. On this issue the AASB noted that no significant issues were brought to its attention during the development of either AASB 1056 or AASB 17, nor since.
AusBC22Accordingly, the AASB decided to issue AASB 17 without any consequential amendments to the insurance requirements of AASB 1056 in relation to this matter. However, the AASB decided that it would add a specific matter for comment on this matter to its forthcoming ED on Australian-specific issues arising from AASB 17.
Implications for NFP and public sector entities
AusBC23When issuing a new accounting Standard the AASB considers the applicability of that Standard to all sectors of the economy. In the case of AASB 17, the incorporation of IFRS 17 means that the for-profit private sector is largely considered through the IASB’s due process – see paragraphs AusBC6–AusBC11.
AusBC24However, the IASB does not explicitly consider:
(a) NFP entities in the public and private sectors; and
(b) for-profit entities in the public sector.
AusBC25The AASB decided that additional consideration is warranted for such entities. To that end, the AASB established a short-term project to consider the applicability and suitability of AASB 17 to them.
AusBC26At the time of issuing AASB 17, that project was in the process of developing proposals for exposure in the AASB’s forthcoming ED on Australian-specific issues arising from AASB 17.
AusBC27Notwithstanding the above project, the AASB was aware of key concerns from the NFP public sector in particular that need further consideration before a decision is made about whether those entities should be subject to AASB 17 without amendment. Chiefly among those concerns was AASB 17 applicability to statutory obligations such as Medicare, the National Disability Insurance Scheme or worker’s compensation insurance.
AusBC28The AASB acknowledged those concerns and decided to temporarily exclude NFP public sector entities from the scope of AASB 17 pending the outcome of its separate project to address these issues. Until such time as the NFP public sector issues are addressed, those affected entities continue to be subject to AASB 4, AASB 1023 and AASB 1038 (and, potentially, Interpretation 1047).
AusBC29The AASB noted that NFP private sector entities (eg. some health insurers) often enter into insurance contracts that are substantively similar to those entered into by for-profit entities. Accordingly, the AASB decided not to restrict NFP private sector entities from applying AASB 17, rather allowing those entities to decide to apply AASB 17 prior to 1 January 2021. However, the AASB may propose additional application guidance, where necessary, as part of the forthcoming ED on Australian-specific issues arising from AASB 17, the aim of which is to be operative before the mandatory application date of AASB 17.
AusBC30The AASB also noted that for-profit public sector entities could enter into arrangements that exhibit characteristics of insurance contracts but are entered into through legislative means as opposed to contractual means. These types of arrangements will also be considered in the AASB’s forthcoming ED on Australian-specific issues. However, for-profit public sector entities are not prohibited from applying AASB 17 as their not-for-profit counterparts are.
Implications for RDR
AusBC31At the time of issuing AASB 17, the AASB was in the process of reviewing its Tier 2 decision-making framework and RDR for existing Standards through ED 277 Reduced Disclosure Requirements for Tier 2 Entities (issued in January 2017). Accordingly, the AASB decided not to consider any new pronouncements for RDR concessions until that review is finalised. Consistent with this decision, AASB 17 and its consequential amendments do not include any RDR concessions.
AusBC32Once the AASB has finalised its Tier 2 decision-making framework it will make RDR proposals, where appropriate, for AASB 17 and its consequential amendments.
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