12Life Investment Contracts

12                 Life Investment Contracts

12.1 Life investment contract liabilities, that 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.

12.1.1 The view adopted in this Standard is that, in all but rare cases, life investment contract liabilities within the scope of AASB 9 are permitted to be measured at fair value through profit or loss under AASB 9.  This is because, when a life investment contract liability is backed by a financial asset measured at fair value through profit or loss, designating the life investment contract liability at fair value through profit or loss eliminates or significantly reduces a potential measurement inconsistency which would arise if the life investment contract liability were measured at amortised cost.  In addition, in the vast majority of cases, life investment contract liabilities would be managed and their performance would be evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.

12.1.2 Some life investment contracts involve both the origination of one or more financial instruments and the provision of management services.  Life investment contract liabilities arise under the financial instrument element and are treated under AASB 139.  The management services element, including associated incremental costs of obtaining a contract, is treated under AASB 15 Revenue from Contracts with Customers; this element may also give rise to assets and liabilities.