Non-insurance Contracts Regulated under the Insurance Act 1973 (AASB1023_07-04_COMPmay19_01-20)

Non-insurance contracts regulated under the Insurance Act 1973 shall be treated under AASB 9 to the extent that they give rise to financial assets or financial liabilities respectively. However, the financial assets and the financial liabilities that arise under these contracts shall be designated as “at fair value through profit or loss”, on first application of this Standard, or on initial recognition of the financial assets or financial liabilities, where this is permitted under AASB 9.

In relation to non-insurance contracts regulated under the Insurance Act, an insurer applies AASB 9 to its financial assets and financial liabilities.

Under AASB 9 a financial asset is classified and measured at fair value through profit or loss when:

(a) it does not meet the criteria specified in paragraph 4.1.2 of AASB 9 to be classified at amortised cost; or

(b) it does not meet the criteria specified in paragraph 4.1.2A of AASB 9 to be classified at fair value through other comprehensive income; or

(c) it is designated as “at fair value through profit or loss” upon initial recognition in accordance with paragraph 4.1.5 of AASB 9.

AASB 1 First-time Adoption of Australian Accounting Standards permits entities to designate financial assets as “at fair value through profit or loss” on first application of the Standard.

Under AASB 9 a financial liability at fair value through profit or loss is a financial liability that meets either of the following conditions:

(a) it meets the definition of held for trading; or

(b) it is designated as “at fair value through profit or loss” upon initial recognition in accordance with paragraph 4.2.2, because either:

(i) it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘an accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; or

(ii) a group of financial liabilities or financial assets and financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity’s key management personnel (as defined in AASB 124 Related Party Disclosures), for example the entity’s board of directors and chief executive officer.

An entity may also use this designation when it is a contract with an embedded derivative and paragraph 4.3.3 of AASB 9 allows the entity to measure the hybrid contract as “at fair value through profit or loss”.

AASB 1 First-time Adoption of Australian Accounting Standards permits entities to designate financial liabilities as “at fair value through profit or loss” on first application of the Standard.

Paragraphs 15.2, 15.3, 15.4 and 15.5 shall also be applied to the measurement of assets that back financial liabilities that arise under non-insurance contracts.