10 Assets Backing Life Insurance Liabilities or Life Investment Contract Liabilities
Fair Value Approach
10.1.1
Paragraphs 10.2 to 10.7.2 address the measurement of certain assets backing life insurance liabilities or life investment contract liabilities. The fair value approach to the measurement of assets backing life insurance liabilities or life investment contract liabilities is consistent with the present value measurement approach for life insurance liabilities required by this Standard and the fair value measurement approach for life investment contract liabilities required by this Standard. Where assets are not backing life insurance liabilities or life investment contract liabilities life insurers apply the applicable accounting standards making use of any measurement choices available.
Measurement
10.2
Financial assets that:
(a) are within the scope of AASB 9;
(b) back life insurance liabilities or life investment contract liabilities; and
(c) are permitted to be designated as “at fair value through profit or loss” under AASB 9;
shall be designated as “at fair value through profit or loss” under AASB 9 on first application of this Standard, or on initial recognition.
10.2.1
An insurer applies AASB 9 to its financial assets. 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.
10.2.2
The view adopted in this Standard is that, in all but rare cases, financial assets within the scope of AASB 9 that back life insurance liabilities or life investment contract liabilities are permitted to be measured at fair value through profit or loss under AASB 9. This is because the measurement of life insurance liabilities under this Standard incorporates current information and measuring the financial assets backing these life insurance liabilities at fair value eliminates or significantly reduces a potential measurement or recognition inconsistency which would arise if the assets were classified and measured at amortised cost or fair value through other comprehensive income (refer to AASB 9 paragraph B4.1.30(a)).
10.4.1-10.4.2
[Deleted by the AASB]
10.5
Investments in associates that:
(a) are defined by AASB 128 Investments in Associates and Joint Ventures;
(b) back either life insurance liabilities or life investment contract liabilities;
(c) are held by mutual funds, unit trusts and similar entities including investment-linked insurance funds; and
(d) are permitted to be designated as “at fair value through profit or loss” under AASB 9;
shall be designated as “at fair value through profit or loss” under AASB 9 on first application of this Standard, or on initial recognition.
10.5.1
An insurer applies AASB 128 to its investments in associates. AASB 128 requires investments in associates to be accounted for using the equity method. When investments in associates are held by mutual funds, unit trusts and similar entities including investment-linked insurance funds, AASB 128 permits the investments in those associates to be measured at fair value through profit or loss in accordance with AASB 9.
10.6
Venturers’ interests in joint ventures that:
(a) are defined by AASB 11 Joint Arrangements;
(b) back either life insurance liabilities or life investment contract liabilities;
(c) are held by mutual funds, unit trusts and similar entities including investment-linked insurance funds; and
(d) are permitted to be designated as “at fair value through profit or loss” under AASB 9;
shall be designated as “at fair value through profit or loss” under AASB 9, on first application of this Standard, or on initial recognition.
10.6.1
AASB 11 requires a joint venturer to recognise its interest in a joint venture as an investment and to account for that investment using the equity method in accordance with AASB 128 unless exempted from applying that method. AASB 128 permits mutual funds, unit trusts and similar entities including investment-linked insurance funds to measure investments in joint ventures at fair value through profit or loss in accordance with AASB 9.
Separate Financial Statements
10.7
When preparing separate financial statements, those investments in subsidiaries, joint ventures and associates that:
(a) are within the scope of AASB 127 Separate Financial Statements;
(b) back life insurance liabilities or life investment contract liabilities; and
(c) are permitted to be designated as “at fair value through profit or loss” under AASB 9;
shall be designated as “at fair value through profit or loss” under AASB 9, on first application of this Standard or on initial recognition.
10.7.1
An insurer applies AASB 127 to its investments in subsidiaries, joint ventures and associates when preparing separate financial statements. Under AASB 127, in the parent’s separate financial statements, the investments in subsidiaries, joint ventures and associates can either be accounted for at cost or in accordance with AASB 9.
10.7.2
In the parent’s separate financial statements, investments in subsidiaries, joint ventures and associates, that are within the scope of AASB 127, that the insurer considers back life insurance liabilities or life investment contract liabilities, and that are permitted to be designated as “at fair value through profit or loss” under AASB 9, are designated as “at fair value through profit or loss” under AASB 9, on first application of this Standard or on initial recognition.