Assets Backing General Insurance Liabilities (AASB1023_07-04_COMPdec22_01-23)

Paragraphs 15.2 to 15.5 address the measurement of certain assets backing general insurance liabilities or financial liabilities that arise under non-insurance contracts. The fair value approach to the measurement of assets backing general insurance liabilities or financial liabilities that arise under non-insurance contracts is consistent with the present value measurement approach for general insurance liabilities, and the fair value measurement for financial liabilities that arise under non-insurance contracts, required by this Standard. Where assets are not backing general insurance liabilities or financial liabilities that arise under non-insurance contracts, general insurers apply the applicable accounting standards making use of any measurement choices available.

Financial assets that:

(a) are within the scope of AASB 9;

(b) back general insurance 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.

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.

The view adopted in this Standard is that financial assets, within the scope of AASB 9 that back general insurance liabilities, are permitted to be measured at fair value through profit or loss under AASB 9. This is because the measurement of general insurance liabilities under this Standard incorporates current information and measuring the financial assets backing these general 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)).

Investment property within the scope of AASB 140 Investment Property and that backs general insurance liabilities shall be measured using the fair value model under AASB 140 and AASB 13 Fair Value Measurement.

Property, plant and equipment that is within the scope of AASB 116 Property, Plant and Equipment and that backs general insurance liabilities, shall be measured using the revaluation model under AASB 116.

[Deleted by the AASB]

When preparing separate financial statements, those investments in subsidiaries, joint ventures and associates that:

(a) are defined by AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements and AASB 128 Investments in Associates and Joint Ventures;

(b) back general insurance 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.

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 own financial statements, the investments in subsidiaries, joint ventures and associates can either be accounted for at cost or in accordance with AASB 9.

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 general insurance 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.