2 Scope
Life Insurance Contracts
2.1
This Standard applies to:
(a) life insurance contracts (including life reinsurance contracts) that a life insurer issues and to life reinsurance contracts that it holds;
(b) certain aspects of accounting for life investment contracts that a life insurer issues, or, in the case of a life investment contract that is reinsured, that it holds; and
(c) certain assets backing life insurance liabilities or life investment contract liabilities.
2.1.1
A life insurance contract is:
(a) an insurance contract, as defined by this Standard, regulated under the Life Insurance Act 1995, or similar contracts issued by entities operating outside Australia; or
(b) a financial instrument with a discretionary participation feature, which is regulated under the Life Insurance Act, or similar contracts issued by entities operating outside Australia.
2.1.3
A life insurer is defined as an insurer or reinsurer, registered under the Life Insurance Act, who issues life insurance contracts or life investment contracts, or a similar entity operating outside Australia.
2.1.4
This Standard applies to life insurance contracts issued by friendly societies registered under the Life Insurance Act. Private health insurance contracts that are issued under the National Health Act 1953 by friendly societies registered under the Life Insurance Act are excluded from the scope of this Standard. Private health insurance contracts issued under the National Health Act are treated under AASB 1023.
2.1.5
Life insurers often sell contracts that do not meet the definition of a life insurance contract in this Standard. These contracts are referred to as life investment contracts for the purposes of this Standard. Section 12 addresses the requirements in relation to life investment contracts.
2.1.6
A financial instrument with a discretionary participation feature, issued by a life insurer, is defined as a life insurance contract for the purposes of this Standard and in measuring the life insurance liability, issuers of such instruments would apply paragraph 8.9. AASB 7 Financial Instruments: Disclosures addresses additional disclosure in relation to these financial instruments.
Embedded Derivatives
2.2.1
AASB 9 Financial Instruments requires hybrid contracts that contain financial asset hosts to be classified and measured in their entirety in accordance with the requirements in paragraphs 4.1.1-4.1.5 of that Standard. However, AASB 9 requires an entity to separate some embedded derivatives from their financial liability hosts, measure them at fair value and include changes in their fair value in the statement of comprehensive income. AASB 9 applies to derivatives embedded in a life insurance contract unless the embedded derivative is itself a life insurance contract.
2.2.2
As an exception to the requirement in AASB 9, an insurer need not separate, and measure at fair value, a policyholder’s option to surrender an insurance contract for a fixed amount (or for an amount based on a fixed amount and an interest rate) even if the exercise price differs from the carrying amount of the host insurance liability. However, the requirement in AASB 9 applies to a put option or cash surrender option embedded in an insurance contract if the surrender value varies in response to the change in a financial variable (such as an equity or commodity price or index), or a non-financial variable that is not specific to a party to the contract. Furthermore, that requirement also applies if the holder’s ability to exercise a put option or cash surrender option is triggered by a change in such a variable (for example, a put option that can be exercised if a stock market index reaches a specified level).
2.2.3
Paragraph 2.2.2 applies equally to options to surrender a financial instrument containing a discretionary participation feature.
Deposit Components
2.3.1
Some life insurance contracts contain both an insurance component and a deposit component. In some cases, an insurer is permitted to unbundle those components.
2.3.2
Unbundling is permitted if the insurer can measure the deposit component separately.
2.3.3
If a life insurer cannot measure the deposit component separately, an insurer shall not unbundle the deposit component.
2.3.4
To unbundle a life insurance contract, a life insurer:
(a) treats the life insurance component as a life insurance contract in accordance with this Standard;
(b) subject to (c), treats the deposit component as a life investment contract in accordance with this Standard; and
(c) where the deposit component includes a discretionary participation feature, treats this component as a separate life insurance contract in accordance with this Standard.