ACCOUNTING STANDARD AASB 4
The Australian Accounting Standards Board made Accounting Standard AASB 4 Insurance Contracts under section 334 of the Corporations Act 2001 on 15 July 2004.
This compiled version of AASB 4 applies to annual reporting periods beginning on or after 1 January 2018. It incorporates relevant amendments contained in other AASB Standards made by the AASB up to and including 17 December 2014 (see Compilation Details).
aCCOUNTING STANDARD AASB 4
Insurance Contracts
Objective
1 The objective of this Standard, in conjunction with AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts, is to specify the financial reporting for insurance contracts by any entity that issues such contracts (described in this Standard as an insurer) until the AASB and IASB complete the second phase of the insurance project. In particular, this Standard requires:
(a) limited improvements to accounting by insurers for insurance contracts; and
(b) disclosure that identifies and explains the amounts in an insurer’s financial statements arising from insurance contracts and helps users of those financial statements understand the amount, timing and uncertainty of future cash flows from insurance contracts.
Application
Aus1.1 This Standard applies to:
(a) each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(b) general purpose financial statements of each other reporting entity; and
(c) financial statements that are, or are held out to be, general purpose financial statements.
Aus1.2 This Standard applies to annual reporting periods beginning on or after 1 January 2005.
[Note: For application dates of paragraphs changed or added by an amending Standard, see Compilation Details.]
Aus1.3 This Standard shall not be applied to annual reporting periods beginning before 1 January 2005.
Aus1.4 [Deleted by the AASB]
Aus1.5 Notice of this Standard was published in the Commonwealth of Australia Gazette No S 294, 22 July 2004.
Scope
2 An entity shall apply this Standard to:
(a) insurance contracts (including reinsurance contracts) that it issues and reinsurance contracts that it holds; and
(b) financial instruments that it issues with a discretionary participation feature (see paragraph 35). AASB 7 Financial Instruments: Disclosures requires disclosure about financial instruments, including financial instruments that contain such features.
3 This Standard does not address other aspects of accounting by insurers, such as accounting for financial assets held by insurers and financial liabilities issued by insurers (see AASB 132 Financial Instruments: Presentation, AASB 7 and AASB 9 Financial Instruments), except in the transitional provisions in paragraph 45.
Aus3.1 An entity shall not apply this Standard to:
(a) general insurance contracts (see AASB 1023 General Insurance Contracts), except for fixed-fee service contracts that meet the definition of an insurance contract under this Standard; and
(b) life insurance contracts (see AASB 1038 Life Insurance Contracts).
4 An entity shall not apply this Standard to:
(a) product warranties issued directly by a manufacturer, dealer or retailer (see AASB 15 Revenue from Contracts with Customers and AASB 137 Provisions, Contingent Liabilities and Contingent Assets);
(b) employers’ assets and liabilities under employee benefit plans (see AASB 119 Employee Benefits and AASB 2 Share-based Payment) and retirement benefit obligations reported by defined benefit retirement plans (see AAS 25 Financial Reporting by Superannuation Plans);
(c) contractual rights or contractual obligations that are contingent on the future use of, or right to use, a non-financial item (for example, some licence fees, royalties, contingent lease payments and similar items), as well as a lessee’s residual value guarantee embedded in a finance lease (see AASB 15, AASB 117 Leases, and AASB 138 Intangible Assets);
(d) 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, in which case the issuer may elect to apply either AASB 132, AASB 7 and AASB 9 or AASB 1023 to such financial guarantee contracts. The issuer may make that election contract by contract, but the election for each contract is irrevocable;
(e) contingent consideration payable or receivable in a business combination (see AASB 3 Business Combinations); and
(f) direct insurance contracts that the entity holds (i.e. direct insurance contracts in which the entity is the policyholder). However, a cedant shall apply this Standard to reinsurance contracts that it holds.
5 For ease of reference, this Standard describes any entity that issues an insurance contract as an insurer, whether or not the issuer is regarded as an insurer for legal or supervisory purposes.
6 A reinsurance contract is a type of insurance contract. Accordingly, all references in this Standard to insurance contracts also apply to reinsurance contracts.
Aus6.1 This Standard applies to fixed-fee service contracts, described in paragraphs B6 and B7, which meet the definition of an insurance contract under this Standard.
Embedded derivatives
7 AASB 9 requires an entity to separate some embedded derivatives from their host contract, measure them at fair value and include changes in their fair value in profit or loss. AASB 9 applies to derivatives embedded in an insurance contract unless the embedded derivative is itself an insurance contract.
8 As an exception to the requirements in AASB 9, an insurer need not separate, and measure at fair value, a policyholder’s option to surrender an insurance contract for a fixed amount (or for an amount based on a fixed amount and an interest rate), even if the exercise price differs from the carrying amount of the host insurance liability. However, the requirements in AASB 9 do apply to a put option or cash surrender option embedded in an insurance contract if the surrender value varies in response to the change in a financial variable (such as an equity or commodity price or index), or a non-financial variable that is not specific to a party to the contract. Furthermore, those requirements also apply if the holder’s ability to exercise a put option or cash surrender option is triggered by a change in such a variable (for example, a put option that can be exercised if a stock market index reaches a specified level).
9 Paragraph 8 applies equally to options to surrender a financial instrument containing a discretionary participation feature.
Unbundling of deposit components
10 Some insurance contracts contain both an insurance component and a deposit component. In some cases, an insurer is required or permitted to unbundle those components:
(a) unbundling is required if both the following conditions are met:
(i) the insurer can measure the deposit component (including any embedded surrender options) separately (i.e. without considering the insurance component); and
(ii) the insurer’s accounting policies do not otherwise require it to recognise all obligations and rights arising from the deposit component;
(b) unbundling is permitted, but not required, if the insurer can measure the deposit component separately as in (a)(i) but its accounting policies require it to recognise all obligations and rights arising from the deposit component, regardless of the basis used to measure those rights and obligations; and
(c) unbundling is prohibited if an insurer cannot measure the deposit component separately as in (a)(i).
11 The following is an example of a case when an insurer’s accounting policies do not require it to recognise all obligations arising from a deposit component. A cedant receives compensation for losses from a reinsurer, but the contract obliges the cedant to repay the compensation in future years. That obligation arises from a deposit component. If the cedant’s accounting policies would otherwise permit it to recognise the compensation as income without recognising the resulting obligation, unbundling is required.
12 To unbundle a contract, an insurer shall:
(a) apply this Standard to the insurance component; and
(b) apply AASB 9 to the deposit component.
Recognition and Measurement
Temporary exemption from some other Australian Accounting Standards
13 Paragraphs 10-12 of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors specify criteria for an entity to use in developing an accounting policy if no Standard applies specifically to an item. However, this Standard exempts an insurer from applying those criteria to its accounting policies for:
(a) insurance contracts that it issues (including related acquisition costs and related intangible assets, such as those described in paragraphs 31 and 32); and
(b) reinsurance contracts that it holds.
14 Nevertheless, this Standard does not exempt an insurer from some implications of the criteria in paragraphs 10-12 of AASB 108. Specifically, an insurer:
(a) shall not recognise as a liability any provisions for possible future claims, if those claims arise under insurance contracts that are not in existence at the end of the reporting period (such as catastrophe provisions and equalisation provisions);
(b) shall carry out the liability adequacy test described in paragraphs 15-19;
(c) shall remove an insurance liability (or a part of an insurance liability) from its statement of financial position when, and only when, it is extinguished – that is, when the obligation specified in the contract is discharged or cancelled or expires;
(d) shall not offset:
(i) reinsurance assets against the related insurance liabilities; or
(ii) income or expense from reinsurance contracts against the expense or income from the related insurance contracts; and
(e) shall consider whether its reinsurance assets are impaired (see paragraph 20).
Liability adequacy test
15 An insurer shall assess at the end of each reporting period whether its recognised insurance liabilities are adequate, using current estimates of future cash flows under its insurance contracts. If that assessment shows that the carrying amount of its insurance liabilities (less related deferred acquisition costs and related intangible assets, such as those discussed in paragraphs 31 and 32) is inadequate in the light of the estimated future cash flows, the entire deficiency shall be recognised in profit or loss.
16 If an insurer applies a liability adequacy test that meets specified minimum requirements, this Standard imposes no further requirements. The minimum requirements are the following:
(a) the test considers current estimates of all contractual cash flows, and of related cash flows such as claims handling costs, as well as cash flows resulting from embedded options and guarantees; and
(b) if the test shows that the liability is inadequate, the entire deficiency is recognised in profit or loss.
17 If an insurer’s accounting policies do not require a liability adequacy test that meets the minimum requirements of paragraph 16, the insurer shall:
(a) determine the carrying amount of the relevant insurance liabilities[1] less the carrying amount of:
(i) any related deferred acquisition costs; and
(ii) any related intangible assets, such as those acquired in a business combination or portfolio transfer (see paragraphs 31 and 32). However, related reinsurance assets are not considered because an insurer accounts for them separately (see paragraph 20).
(b) determine whether the amount described in (a) is less than the carrying amount that would be required if the relevant insurance liabilities were within the scope of AASB 137. If it is less, the insurer shall recognise the entire difference in profit or loss and decrease the carrying amount of the related deferred acquisition costs or related intangible assets or increase the carrying amount of the relevant insurance liabilities.
18 If an insurer’s liability adequacy test meets the minimum requirements of paragraph 16, the test is applied at the level of aggregation specified in that test. If its liability adequacy test does not meet those minimum requirements, the comparison described in paragraph 17 shall be made at the level of a portfolio of contracts that are subject to broadly similar risks and managed together as a single portfolio.
19 The amount described in paragraph 17(b) (i.e. the result of applying AASB 137) shall reflect future investment margins (see paragraphs 27‑29) if, and only if, the amount described in paragraph 17(a) also reflects those margins.
Impairment of reinsurance assets
20 If a cedant’s reinsurance asset is impaired, the cedant shall reduce its carrying amount accordingly and recognise that impairment loss in profit or loss. A reinsurance asset is impaired if, and only if:
(a) there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that the cedant may not receive all amounts due to it under the terms of the contract; and
(b) that event has a reliably measurable impact on the amounts that the cedant will receive from the reinsurer.
Changes in accounting policies
21 Paragraphs 22-30 apply both to changes made by an insurer that already applies IFRSs and to changes made by an insurer adopting Australian equivalents to IFRSs for the first time.
22 An insurer may change its accounting policies for insurance contracts if, and only if, the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable and no less relevant to those needs. An insurer shall judge relevance and reliability by the criteria in AASB 108.
23 To justify changing its accounting policies for insurance contracts, an insurer shall show that the change brings its financial statements closer to meeting the criteria in AASB 108, but the change need not achieve full compliance with those criteria. The following specific issues are discussed below:
(a) current interest rates (paragraph 24);
(b) continuation of existing practices (paragraph 25);
(c) prudence (paragraph 26);
(d) future investment margins (paragraphs 27-29); and
(e) shadow accounting (paragraph 30).
Current market interest rates
24 An insurer is permitted, but not required, to change its accounting policies so that it remeasures designated insurance liabilities[2] to reflect current market interest rates and recognises changes in those liabilities in profit or loss. At that time, it may also introduce accounting policies that require other current estimates and assumptions for the designated liabilities. The election in this paragraph permits an insurer to change its accounting policies for designated liabilities, without applying those policies consistently to all similar liabilities as AASB 108 would otherwise require. If an insurer designates liabilities for this election, it shall continue to apply current market interest rates (and, if applicable, the other current estimates and assumptions) consistently in all periods to all these liabilities until they are extinguished.
Continuation of existing practices
25 An insurer may continue the following practices, but the introduction of any of them does not satisfy paragraph 22:
(a) measuring insurance liabilities on an undiscounted basis;
(b) measuring contractual rights to future investment management fees at an amount that exceeds their fair value as implied by a comparison with current fees charged by other market participants for similar services. It is likely that the fair value at inception of those contractual rights equals the origination costs paid, unless future investment management fees and related costs are out of line with market comparables; and
(c) using non-uniform accounting policies for the insurance contracts (and related deferred acquisition costs and related intangible assets, if any) of subsidiaries, except as permitted by paragraph 24. If those accounting policies are not uniform, an insurer may change them if the change does not make the accounting policies more diverse and also satisfies the other requirements in this Standard.
Prudence
26 An insurer need not change its accounting policies for insurance contracts to eliminate excessive prudence. However, if an insurer already measures its insurance contracts with sufficient prudence, it shall not introduce additional prudence.
Future investment margins
27 An insurer need not change its accounting policies for insurance contracts to eliminate future investment margins. However, there is a rebuttable presumption that an insurer’s financial statements will become less relevant and reliable if it introduces an accounting policy that reflects future investment margins in the measurement of insurance contracts, unless those margins affect the contractual payments. Two examples of accounting policies that reflect those margins are:
(a) using a discount rate that reflects the estimated return on the insurer’s assets; or
(b) projecting the returns on those assets at an estimated rate of return, discounting those projected returns at a different rate and including the result in the measurement of the liability.
28 An insurer may overcome the rebuttable presumption described in paragraph 27 if, and only if, the other components of a change in accounting policies increase the relevance and reliability of its financial statements sufficiently to outweigh the decrease in relevance and reliability caused by the inclusion of future investment margins. For example, suppose that an insurer’s existing accounting policies for insurance contracts involve excessively prudent assumptions set at inception and a discount rate prescribed by a regulator without direct reference to market conditions, and ignore some embedded options and guarantees. The insurer might make its financial statements more relevant and no less reliable by switching to a comprehensive investor-oriented basis of accounting that is widely used and involves:
(a) current estimates and assumptions;
(b) a reasonable (but not excessively prudent) adjustment to reflect risk and uncertainty;
(c) measurements that reflect both the intrinsic value and time value of embedded options and guarantees; and
(d) a current market discount rate, even if that discount rate reflects the estimated return on the insurer’s assets.
29 In some measurement approaches, the discount rate is used to determine the present value of a future profit margin. That profit margin is then attributed to different periods using a formula. In those approaches, the discount rate affects the measurement of the liability only indirectly. In particular, the use of a less appropriate discount rate has a limited or no effect on the measurement of the liability at inception. However, in other approaches, the discount rate determines the measurement of the liability directly. In the latter case, because the introduction of an asset-based discount rate has a more significant effect, it is highly unlikely that an insurer could overcome the rebuttable presumption described in paragraph 27.
Shadow accounting
30 In some accounting models, realised gains or losses on an insurer’s assets have a direct effect on the measurement of some or all of (a) its insurance liabilities, (b) related deferred acquisition costs and (c) related intangible assets, such as those described in paragraphs 31 and 32. An insurer is permitted, but not required, to change its accounting policies so that a recognised but unrealised gain or loss on an asset affects those measurements in the same way that a realised gain or loss does. The related adjustment to the insurance liability (or deferred acquisition costs or intangible assets) shall be recognised in other comprehensive income if, and only if, the unrealised gains or losses are recognised in other comprehensive income. This practice is sometimes described as ‘shadow accounting’.
Insurance contracts acquired in a business combination or portfolio transfer
31 To comply with AASB 3, an insurer shall, at the acquisition date, measure at fair value the insurance liabilities assumed and insurance assets acquired in a business combination. However, an insurer is permitted, but not required, to use an expanded presentation that splits the fair value of acquired insurance contracts into two components:
(a) a liability measured in accordance with the insurer’s accounting policies for insurance contracts that it issues; and
(b) an intangible asset, representing the difference between (i) the fair value of the contractual insurance rights acquired and insurance obligations assumed and (ii) the amount described in (a). The subsequent measurement of this asset shall be consistent with the measurement of the related insurance liability.
32 An insurer acquiring a portfolio of insurance contracts may use the expanded presentation described in paragraph 31.
33 The intangible assets described in paragraphs 31 and 32 are excluded from the scope of AASB 136 Impairment of Assets and from the scope of AASB 138 in respect of recognition and measurement. However, AASB 136 and AASB 138 apply to customer lists and customer relationships reflecting the expectation of future contracts that are not part of the contractual insurance rights and contractual insurance obligations that existed at the date of a business combination or portfolio transfer.
Discretionary participation features
Discretionary participation features in insurance contracts
34 Some insurance contracts contain a discretionary participation feature as well as a guaranteed element. The issuer of such a contract:
(a) may, but need not, recognise the guaranteed element separately from the discretionary participation feature. If the issuer does not recognise them separately, it shall classify the whole contract as a liability. If the issuer classifies them separately, it shall classify the guaranteed element as a liability;
(b) shall, if it recognises the discretionary participation feature separately from the guaranteed element, classify that feature as either a liability or a separate component of equity. This Standard does not specify how the issuer determines whether that feature is a liability or equity. The issuer may split that feature into liability and equity components and shall use a consistent accounting policy for that split. The issuer shall not classify that feature as an intermediate category that is neither liability nor equity;
(c) may recognise all premiums received as revenue without separating any portion that relates to the equity component. The resulting changes in the guaranteed element and in the portion of the discretionary participation feature classified as a liability shall be recognised in profit or loss. If part or all of the discretionary participation feature is classified in equity, a portion of profit or loss may be attributable to that feature (in the same way that a portion may be attributable to non-controlling interests). The issuer shall recognise the portion of profit or loss attributable to any equity component of a discretionary participation feature as an allocation of profit or loss, not as expense or income (see AASB 101 Presentation of Financial Statements);
(d) shall, if the contract contains an embedded derivative within the scope of AASB 9, apply AASB 9 to that embedded derivative; and
(e) shall, in all respects not described in paragraphs 14-20 and 34(a)-34(d), continue its existing accounting policies for such contracts, unless it changes those accounting policies in a way that complies with paragraphs 21-30.
Discretionary participation features in financial instruments
35 The requirements in paragraph 34 also apply to a financial instrument that contains a discretionary participation feature. In addition:
(a) if the issuer classifies the entire discretionary participation feature as a liability, it shall apply the liability adequacy test in paragraphs 15-19 to the whole contract (ie both the guaranteed element and the discretionary participation feature). The issuer need not determine the amount that would result from applying AASB 9 to the guaranteed element;
(b) if the issuer classifies part or all of that feature as a separate component of equity, the liability recognised for the whole contract shall not be less than the amount that would result from applying AASB 9 to the guaranteed element. That amount shall include the intrinsic value of an option to surrender the contract, but need not include its time value if paragraph 9 exempts that option from measurement at fair value. The issuer need not disclose the amount that would result from applying AASB 9 to the guaranteed element, nor need it present that amount separately. Furthermore, the issuer need not determine that amount if the total liability recognised is clearly higher;
(c) although these contracts are financial instruments, the issuer may continue to recognise the premiums for those contracts as revenue and recognise as an expense the resulting increase in the carrying amount of the liability; and
(d) although these contracts are financial instruments, an issuer applying paragraph 20(b) of AASB 7 to contracts with a discretionary participation feature shall disclose the total interest expense recognised in profit or loss, but need not calculate such interest expense using the effective interest method.
Disclosure
Explanation of recognised amounts
36 An insurer shall disclose information that identifies and explains the amounts in its financial statements arising from insurance contracts.
37 To comply with paragraph 36, an insurer shall disclose:
(a) its accounting policies for insurance contracts and related assets, liabilities, income and expense;
(b) the recognised assets, liabilities, income and expense (and, if it presents its statement of cash flows using the direct method, cash flows) arising from insurance contracts. Furthermore, if the insurer is a cedant, it shall disclose:
(i) gains and losses recognised in profit or loss on buying reinsurance; and
(ii) if the cedant defers and amortises gains and losses arising on buying reinsurance, the amortisation for the period and the amounts remaining unamortised at the beginning and end of the period;
(c) the process used to determine the assumptions that have the greatest effect on the measurement of the recognised amounts described in (b). When practicable, an insurer shall also give quantified disclosure of those assumptions;
(d) the effect of changes in assumptions used to measure insurance assets and insurance liabilities, showing separately the effect of each change that has a material effect on the financial statements; and
(e) reconciliations of changes in insurance liabilities, reinsurance assets and, if any, related deferred acquisition costs.
Nature and extent of risks arising from insurance contracts
38 An insurer shall disclose information that enables users of its financial statements to evaluate the nature and extent of risks arising from insurance contracts.
39 To comply with paragraph 38, an insurer shall disclose:
(a) its objectives, policies and processes for managing risks arising from insurance contracts and the methods used to manage those risks;
(b) [deleted by the IASB];
(c) information about insurance risk (both before and after risk mitigation by reinsurance), including information about:
(i) sensitivity to insurance risk (see paragraph 39A);
(ii) concentrations of insurance risk, including a description of how management determines concentrations and a description of the shared characteristics that identifies each concentration (e.g. type of insured event, geographical area, or currency); and
(iii) actual claims compared with previous estimates (i.e. claims development). The disclosure about claims development shall go back to the period when the earliest material claim arose for which there is still uncertainty about the amount and timing of the claims payments, but need not go back more than ten years. An insurer need not disclose this information for claims for which uncertainty about the amount and timing of claims payments is typically resolved within one year;
(d) information about credit risk, liquidity risk and market risk that paragraphs 31-42 of AASB 7 would require if the insurance contracts were within the scope of AASB 7. However:
(i) an insurer need not provide the maturity analyses required by paragraphs 39(a) and (b) of AASB 7 if it discloses information about the estimated timing of the net cash outflows resulting from recognised insurance liabilities instead. This may take the form of an analysis, by estimated timing, of the amounts recognised in the statement of financial position; and
(ii) if an insurer uses an alternative method to manage sensitivity to market conditions, such as an embedded value analysis, it may use that sensitivity analysis to meet the requirement in paragraph 40(a) of AASB 7. Such an insurer shall also provide the disclosures required by paragraph 41 of AASB 7; and
(e) information about exposures to market risk arising from embedded derivatives contained in a host insurance contract if the insurer is not required to, and does not, measure the embedded derivatives at fair value.
39A To comply with paragraph 39(c)(i), an insurer shall disclose either (a) or (b) as follows:
(a) a sensitivity analysis that shows how profit or loss and equity would have been affected if changes in the relevant risk variable that were reasonably possible at the end of the reporting period had occurred; the methods and assumptions used in preparing the sensitivity analysis; and any changes from the previous period in the methods and assumptions used. However, if an insurer uses an alternative method to manage sensitivity to market conditions, such as an embedded value analysis, it may meet this requirement by disclosing that alternative sensitivity analysis and the disclosures required by paragraph 41 of AASB 7; and
(b) qualitative information about sensitivity, and information about those terms and conditions of insurance contracts that have a material effect on the amount, timing and uncertainty of the insurer’s future cash flows.
Effective Date and Transition
40 The transitional provisions in paragraphs 42-45 apply both to an entity that is already applying IFRSs when it first applies this Standard and to an entity that applies Australian equivalents to IFRSs for the first time (a first-time adopter).
41 [Deleted by the AASB]
41A [Deleted by the AASB]
41B [Deleted by the AASB]
41C [Deleted by the IASB]
41D [Deleted by the IASB]
41E AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13, issued in September 2011, amended the definition of fair value in Appendix A. An entity shall apply that amendment when it applies AASB 13 Fair Value Measurement.
41F [Deleted by the IASB]
41G AASB 2014-5 Amendments to Australian Accounting Standards arising from AASB 15, issued in December 2014, amended paragraphs 4(a), 4(c), B7, B18(h) and B21. An entity shall apply those amendments when it applies AASB 15.
41H AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (as amended), AASB 2014-1 Amendments to Australian Accounting Standards and 2014-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2014) amended paragraphs 3, 4(d), 7, 8, 12, 34(d), 35, 45 and B18-B20 and Appendix A and deleted paragraph 41C. Paragraph 41D, added by AASB 2010‑7, was deleted by AASB 2014-1. Paragraph 41F, added by AASB 2014-1, was deleted by AASB 2014-7. An entity shall apply those amendments when it applies AASB 9 (December 2014).
Disclosure
42 An entity need not apply the disclosure requirements in this Standard to comparative information that relates to annual periods beginning before 1 January 2005, except for the disclosures required by paragraph 37(a) and (b) about accounting policies, and recognised assets, liabilities, income and expense and cash flows.
43 Where an entity applies the disclosure requirements in this Standard to comparative information that relates to annual periods beginning before 1 January 2005, if it is impracticable to apply a particular requirement of paragraphs 10-35 to comparative information that relates to annual periods beginning before 1 January 2005, an entity shall disclose that fact. Applying the liability adequacy test (paragraphs 15-19) to such comparative information might sometimes be impracticable, but it is highly unlikely to be impracticable to apply other requirements of paragraphs 10-35 to such comparative information. AASB 108 explains the term ‘impracticable’.
44 In applying paragraph 39(c)(iii), an entity need not disclose information about claims development that occurred earlier than five years before the end of the first annual reporting period in which it applies this Standard. Furthermore, if it is impracticable, when an entity first applies this Standard, to prepare information about claims development that occurred before the beginning of the earliest period for which an entity presents full comparative information that complies with this Standard, the entity shall disclose that fact.
Redesignation of financial assets
45 Notwithstanding paragraph 4.4.1 of AASB 9, when an insurer changes its accounting policies for insurance liabilities, it is permitted, but not required, to reclassify some or all of its financial assets so that they are measured at fair value through profit or loss. This reclassification is permitted if an insurer changes accounting policies when it first applies this Standard and if it makes a subsequent policy change permitted by paragraph 22. The reclassification is a change in accounting policy and AASB 108 applies.