Scope (AASB17_07-17_COMPdec22_07-26)

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.

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 60–70A.

(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.

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.

Appendix A defines an insurance contract and paragraphs B2–B30 of Appendix B provide guidance on the definition of an insurance contract.

In addition to considering the Appendix A definition of an insurance contract and paragraphs B2–B30, a public sector entity shall apply AASB 17 to an arrangement if, and only if, the arrangement is judged to: 

(a) be enforceable; 

(b) have an identifiable coverage period; and 

(c) give rise to insurance contracts based on the indicators in paragraph Aus6.2(a) and the other considerations in paragraph Aus6.2(b). 

Paragraphs E9–E17 of Appendix E provide guidance for determining whether an arrangement is enforceable and has an identifiable coverage period, which are pre-requisites for applying AASB 17. When an arrangement is not enforceable or does not have an identifiable coverage period, the arrangement is outside the scope of AASB 17.

When a public sector entity arrangement is enforceable and has an identifiable coverage period, subject to paragraphs 8 and 8A the entity shall: 

(a) apply the following indicators on a collective basis to judge whether the arrangement gives rise to insurance contracts that fall within the scope of AASB 17: 

(i) the source and extent of funding – refer to guidance in paragraphs E18–E22; and 

(ii) the similarity of risks covered and benefits provided – refer to guidance in paragraphs E23–E30; and 

(b) in the event that the indicators in (a) are not definitive, apply the following other considerations on a collective basis to judge whether the arrangement gives rise to insurance contracts that fall within the scope of AASB 17: 

(i) the management practices and assessment of financial performance applied – refer to guidance in paragraphs E31–E33; and 

(ii) whether there are assets held to meet benefits – refer to guidance in paragraphs E34–E36.

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)).

(h)            credit card contracts, or similar contracts that provide credit or payment arrangements, that meet the definition of an insurance contract if, and only if, the entity does not reflect an assessment of the insurance risk associated with an individual customer in setting the price of the contract with that customer (see AASB 9 and other applicable Australian Accounting Standards). However, if, and only if, AASB 9 requires an entity to separate an insurance coverage component (see paragraph 2.1(e)(iv) of AASB 9) that is embedded in such a contract, the entity shall apply AASB 17 to that component.

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.

Some contracts meet the definition of an insurance contract but limit the compensation for insured events to the amount otherwise required to settle the policyholder's obligation created by the contract (for example, loans with death waivers). An entity shall choose to apply either AASB 17 or AASB 9 to such contracts that it issues unless such contracts are excluded from the scope of AASB 17 by paragraph 7. The entity shall make that choice for each portfolio of insurance contracts, and the choice for each portfolio is irrevocable.

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.

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 component for services other than insurance contract services (or both). An entity shall apply paragraphs 11–13 to identify and account for the components of the contract.

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 unless it is an investment contract with discretionary participation features within the scope of AASB 17 (see paragraph 3(c)).

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 to a policyholder distinct goods or services other than insurance contract services, 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 services other than insurance contract services; and

(b)            attribute the cash outflows between the insurance component and any promised goods or services other than insurance contract 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.

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).