50In Appendix A, paragraphs AG3-AG4 are amended to read as follows.

50 In Appendix A, paragraphs AG3-AG4 are amended to read as follows.

AG3 … If neither the equity method nor proportionate consolidation is appropriate, the entity applies this Standard and AASB 9 to that strategic investment.

AG3A This Standard and AASB 9 apply to the financial assets and financial liabilities of insurers, other than rights and obligations that paragraph 2(e) excludes because they arise under contracts within the scope of AASB 4.

AG4 Financial guarantee contracts may have various legal forms, such as…

(a) Although a financial guarantee contract meets the definition of an insurance contract in AASB 4 if the risk transferred is significant, the issuer applies this Standard and AASB 9. Nevertheless, if the issuer has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts, the issuer may elect to apply either this Standard and AASB 9 or AASB 4 to such financial guarantee contracts. If this Standard and AASB 9 apply, paragraph 5.1.1 of AASB 9 requires the issuer to recognise a financial guarantee contract initially at fair value. If the financial guarantee contract was issued to an unrelated party in a stand-alone arm’s length transaction, its fair value at inception is likely to equal the premium received, unless there is evidence to the contrary. Subsequently, unless the financial guarantee contract was designated at inception as at fair value through profit or loss or unless paragraphs 3.2.15-3.2.23 and B3.2.12-B3.2.17 of AASB 9 apply (when a transfer of a financial asset does not qualify for derecognition or the continuing involvement approach applies), the issuer measures it at the higher of:

(i) the amount determined in accordance with AASB 137; and

(ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with AASB 118 (see paragraph 4.2.1(c) of AASB 9).

(b) Some credit-related guarantees do not, as a precondition for payment, require that the holder is exposed to, and has incurred a loss on, the failure of the debtor to make payments on the guaranteed asset when due. An example of such a guarantee is one that requires payments in response to changes in a specified credit rating or credit index. Such guarantees are not financial guarantee contracts as defined in AASB 9, and are not insurance contracts as defined in AASB 4. Such guarantees are derivatives and the issuer applies this Standard and AASB 9 to them.