Unbundling of deposit componentsUnbundling of deposit components

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.