Section 132 - Accounting Standard AASB 2020-5 Amendments to Australian Accounting Standards – Insurance Contracts - For liquidity risk arising from contracts within the scope of AASB 17, an entity shall disclose:

132For liquidity risk arising from contracts within the scope of AASB 17, an entity shall disclose:

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132 For liquidity risk arising from contracts within the scope of AASB 17, an entity shall disclose:
(b) separate maturity analyses for portfolios groups of insurance contracts issued that are liabilities and portfolios groups of reinsurance contracts held that are liabilities that show, as a minimum, net cash flows of the portfolios groups for each of the first five years after the reporting date and in aggregate beyond the first five years. An entity is not required to include in these analyses liabilities for remaining coverage measured applying paragraphs 55–59 and paragraphs 69–70A. The analyses may take the form of:
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(c) the amounts that are payable on demand, explaining the relationship between such amounts and the carrying amount of the related portfolios groups of contracts, if not disclosed applying (b) of this paragraph.

Paragraph Aus132.1 is amended. New text is underlined and deleted text is struck through.

Commencement of the legislative instrument

Aus132.1 For legal purposes, this legislative instrument commences on 31 December 2020 31 December 2022.

Amendments to Appendix A—Defined terms

The definitions of ‘contractual service margin’, ‘coverage period’, ‘group of insurance contracts’ and ‘insurance acquisition cash flows’ are amended. New text is underlined and deleted text is struck through.

contractual service margin	A component of the carrying amount of the asset or liability for a group of insurance contracts representing the unearned profit the entity will recognise as it provides insurance contract services services under the insurance contracts in the group.
coverage period	The period during which the entity provides insurance contract services coverage for insured events. This period includes the insurance contract services that relate coverage that relates to all premiums within the boundary of the insurance contract.
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group of insurance contracts	A set of insurance contracts resulting from the division of a portfolio of insurance contracts into, at a minimum, contracts issued written within a period of no longer than one year and that, at initial recognition:(a) are onerous, if any;(b) have no significant possibility of becoming onerous subsequently, if any; or(c) do not fall into either (a) or (b), if any.

insurance contract services	The following services that an entity provides to a policyholder of an insurance contract:(a) coverage for an insured event (insurance coverage);(b) for insurance contracts without direct participation features, the generation of an investment return for the policyholder, if applicable (investment-return service); and(c) for insurance contracts with direct participation features, the management of underlying items on behalf of the policyholder (investment-related service).
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<table cellspacing="0" cellpadding="0" style="width:100%; border-collapse:collapse"><tbody><tr><td colspan="2" style="padding-right:5.4pt; padding-left:5.4pt; vertical-align:top">investment component</td><td colspan="2" style="padding-right:5.4pt; padding-left:5.4pt; vertical-align:top">The amounts that an insurance contract requires the entity to repay to a policyholder in all circumstances, regardless of whether an insured event occurs even if an insured event does not occur.</td></tr><tr><td style="width:24.8%; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top">...</td><td colspan="2" style="padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"></td><td style="vertical-align:top"></td></tr><tr><td style="width:24.8%; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top">liability for incurred claims</td><td colspan="2" style="padding-right:5.4pt; padding-left:5.4pt; vertical-align:top">An entity’s obligation to:(a) investigate and pay valid claims for insured events that have already occurred, including events that have occurred but for which claims have not been reported, and other incurred insurance expenses; and.(b) pay amounts that are not included in (a) and that relate to:(i) insurance contract services that have already been provided; or(ii) any investment components or other amounts that are not related to the provision of insurance contract services and that are not in the liability for remaining coverage.</td><td style="vertical-align:top"></td></tr><tr><td style="width:24.8%; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top">liability for remaining coverage</td><td colspan="2" style="padding-right:5.4pt; padding-left:5.4pt; vertical-align:top">An entity’s obligation to:(a) investigate and pay valid claims under existing insurance contracts for insured events that have not yet occurred (ie the obligation that relates to the unexpired portion of the insurance coverage coverage period); and.(b) pay amounts under existing insurance contracts that are not included in (a) and that relate to:(i) insurance contract services not yet provided (ie the obligations that relate to future provision of insurance contract services); or(ii) any investment components or other amounts that are not related to the provision of insurance contract services and that have not been transferred to the liability for incurred claims.</td><td style="vertical-align:top"></td></tr><tr><td style="width:24.8%; padding-right:5.4pt; padding-left:5.4pt; vertical-align:top">...</td><td colspan="2" style="padding-right:5.4pt; padding-left:5.4pt; vertical-align:top"></td><td style="vertical-align:top"></td></tr><tr style="height:0pt"><td style="width:112.5pt"></td><td style="width:0.9pt"></td><td style="width:336.6pt"></td><td style="width:3.55pt"></td></tr></tbody></table>

B35A To apply paragraph 28A, an entity shall use a systematic and rational method to allocate: (a) insurance acquisition cash flows directly attributable to a group of insurance contracts: (i) to that group; and (ii) to groups that will include insurance contracts that are expected to arise from renewals of the insurance contracts in that group. (b) insurance acquisition cash flows directly attributable to a portfolio of insurance contracts, other than those in (a), to groups of contracts in the portfolio. B35B At the end of each reporting period, an entity shall revise amounts allocated as specified in paragraph B35A to reflect any changes in assumptions that determine the inputs to the method of allocation used. An entity shall not change amounts allocated to a group of insurance contracts after all contracts have been added to the group (see paragraph B35C). B35C An entity might add insurance contracts to a group of insurance contracts across more than one reporting period (see paragraph 28). In those circumstances, an entity shall derecognise the portion of an asset for insurance acquisition cash flows that relates to insurance contracts added to the group in that period and continue to recognise an asset for insurance acquisition cash flows to the extent that the asset relates to insurance contracts expected to be added to the group in a future reporting period. B35D To apply paragraph 28E: (a) an entity shall recognise an impairment loss in profit or loss and reduce the carrying amount of an asset for insurance acquisition cash flows so that the carrying amount of the asset does not exceed the expected net cash inflow for the related group of insurance contracts, determined applying paragraph 32(a). (b) when an entity allocates insurance acquisition cash flows to groups of insurance contracts applying paragraph B35A(a)(ii), the entity shall recognise an impairment loss in profit or loss and reduce the carrying amount of the related assets for insurance acquisition cash flows to the extent that: (i) the entity expects those insurance acquisition cash flows to exceed the net cash inflow for the expected renewals, determined applying paragraph 32(a); and (ii) the excess determined applying (b)(i) has not already been recognised as an impairment loss applying (a).

... B64 Paragraph 34 refers to an entity’s practical ability to set a price at a future date (a renewal date) that fully reflects the risks in the contract from that date. An entity has that practical ability in the absence of constraints that prevent the entity from setting the same price it would for a new contract with the same characteristics as the existing contract issued on that date, or if it can amend the benefits to be consistent with the price it will charge. Similarly, an entity has that practical ability to set a price when it can reprice an existing contract so that the price reflects overall changes in the risks in a portfolio of insurance contracts, even if the price set for each individual policyholder does not reflect the change in risk for that specific policyholder. When assessing whether the entity has the practical ability to set a price that fully reflects the risks in the contract or portfolio, it shall consider all the risks that it would consider when underwriting equivalent contracts on the renewal date for the remaining service coverage. In determining the estimates of future cash flows at the end of a reporting period, an entity shall reassess the boundary of an insurance contract to include the effect of changes in circumstances on the entity’s substantive rights and obligations. B65 Cash flows within the boundary of an insurance contract are those that relate directly to the fulfilment of the contract, including cash flows for which the entity has discretion over the amount or timing. The cash flows within the boundary include: ... (ka) costs the entity will incur: (i) performing investment activity, to the extent the entity performs that activity to enhance benefits from insurance coverage for policyholders. Investment activities enhance benefits from insurance coverage if the entity performs those activities expecting to generate an investment return from which policyholders will benefit if an insured event occurs. (ii) providing investment-return service to policyholders of insurance contracts without direct participation features (see paragraph B119B). (iii) providing investment-related service to policyholders of insurance contracts with direct participation features. ... B66 The following cash flows shall not be included when estimating the cash flows that will arise as the entity fulfils an existing insurance contract: ... (f) income tax payments and receipts the insurer does not pay or receive in a fiduciary capacity or that are not specifically chargeable to the policyholder under the terms of the contract. Such payments and receipts are recognised, measured and presented separately applying AASB 112 Income Taxes. ... B66A Before the recognition of a group of insurance contracts, an entity might be required to recognise an asset or liability for cash flows related to the group of insurance contracts other than insurance acquisition cash flows either because of the occurrence of the cash flows or because of the requirements of another Australian Accounting Standard. Cash flows are related to the group of insurance contracts if those cash flows would have been included in the fulfilment cash flows at the date of initial recognition of the group had they been paid or received after that date. To apply paragraph 38(c)(ii) an entity shall derecognise such an asset or liability to the extent that the asset or liability would not be recognised separately from the group of insurance contracts if the cash flow or the application of the Australian Accounting Standard occurred at the date of initial recognition of the group of insurance contracts.

B93 When an entity acquires insurance contracts issued or reinsurance contracts held in a transfer of insurance contracts that do not form a business or in a business combination within the scope of AASB 3, the entity shall apply paragraphs 14–24 to identify the groups of contracts acquired, as if it had entered into the contracts on the date of the transaction. B94 An entity shall use the consideration received or paid for the contracts as a proxy for the premiums received. The consideration received or paid for the contracts excludes the consideration received or paid for any other assets and liabilities acquired in the same transaction. In a business combination within the scope of AASB 3, the consideration received or paid is the fair value of the contracts at that date. In determining that fair value, an entity shall not apply paragraph 47 of AASB 13 (relating to demand features). B95 Unless the premium allocation approach for the liability for remaining coverage in paragraphs 55–59 and 69–70A applies, on initial recognition the contractual service margin is calculated applying paragraph 38 for acquired insurance contracts issued and paragraph 65 for acquired reinsurance contracts held using the consideration received or paid for the contracts as a proxy for the premiums received or paid at the date of initial recognition. B95A If acquired insurance contracts issued are onerous, applying paragraph 47, the entity shall recognise the excess of the fulfilment cash flows over the consideration paid or received as part of goodwill or gain on a bargain purchase for contracts acquired in a business combination within the scope of AASB 3, or as a loss in profit or loss for contracts acquired in a transfer. The entity shall establish a loss component of the liability for remaining coverage for that excess, and apply paragraphs 49–52 to allocate subsequent changes in fulfilment cash flows to that loss component. B95B For a group of reinsurance contracts held to which paragraphs 66A–66B apply, an entity shall determine the loss-recovery component of the asset for remaining coverage at the date of the transaction by multiplying: (a) the loss component of the liability for remaining coverage of the underlying insurance contracts at the date of the transaction; and (b) the percentage of claims on the underlying insurance contracts the entity expects at the date of the transaction to recover from the group of reinsurance contracts held. B95C The entity shall recognise the amount of the loss-recovery component determined applying paragraph B95B as part of goodwill or gain on a bargain purchase for reinsurance contracts held acquired in a business combination within the scope of AASB 3, or as income in profit or loss for contracts acquired in a transfer. B95D Applying paragraphs 14‒22, at the date of the transaction an entity might include in an onerous group of insurance contracts both onerous insurance contracts covered by a group of reinsurance contracts held and onerous contracts not covered by the group of reinsurance contracts held. To apply paragraph B95B in such cases, an entity shall use a systematic and rational basis of allocation to determine the portion of the loss component of the group of insurance contracts that relates to insurance contracts covered by the group of reinsurance contracts held.

B96 For insurance contracts without direct participation features, paragraph 44(c) requires an adjustment to the contractual service margin of a group of insurance contracts for changes in fulfilment cash flows that relate to future service. These changes comprise: (a) experience adjustments arising from premiums received in the period that relate to future service, and related cash flows such as insurance acquisition cash flows and premium-based taxes, measured at the discount rates specified in paragraph B72(c).; (b) changes in estimates of the present value of the future cash flows in the liability for remaining coverage, except those described in paragraph B97(a), measured at the discount rates specified in paragraph B72(c).; (c) differences between any investment component expected to become payable in the period and the actual investment component that becomes payable in the period. Those differences are determined by comparing (i) the actual investment component that becomes payable in the period with (ii) the payment in the period that was expected at the start of the period plus any insurance finance income or expenses related to that expected payment before it becomes payable., measured at the discount rates specified in paragraph B72(c); and (ca) differences between any loan to a policyholder expected to become repayable in the period and the actual loan to a policyholder that becomes repayable in the period. Those differences are determined by comparing (i) the actual loan to a policyholder that becomes repayable in the period with (ii) the repayment in the period that was expected at the start of the period plus any insurance finance income or expenses related to that expected repayment before it becomes repayable. (d) changes in the risk adjustment for non-financial risk that relate to future service. An entity is not required to disaggregate the change in the risk adjustment for non-financial risk between (i) a change related to non-financial risk and (ii) the effect of the time value of money and changes in the time value of money. If an entity makes such a disaggregation, it shall adjust the contractual service margin for the change related to non-financial risk, measured at the discount rates specified in paragraph B72(c). B97 An entity shall not adjust the contractual service margin for a group of insurance contracts without direct participation features for the following changes in fulfilment cash flows because they do not relate to future service: (a) the effect of the time value of money and changes in the time value of money and the effect of financial risk and changes in financial risk. These effects comprise: (being (i) the effect, if any, on estimated future cash flows; (ii) the effect, if disaggregated, on the risk adjustment for non-financial risk; and (iii) the effect of a change in discount rate.); (b) changes in estimates of fulfilment cash flows in the liability for incurred claims.; and (c) ... ...

B101 Insurance contracts with direct participation features are insurance contracts that are substantially investment‑related service contracts under which an entity promises an investment return based on underlying items. Hence, they are defined as insurance contracts for which: (a) the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items (see paragraphs B105–B106); (b) the entity expects to pay to the policyholder an amount equal to a substantial share of the fair value returns on the underlying items (see paragraph B107); and (c) the entity expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value of the underlying items (see paragraph B107). ... B104 The conditions in paragraph B101 ensure that insurance contracts with direct participation features are contracts under which the entity’s obligation to the policyholder is the net of: (b) a variable fee (see paragraphs B110–B118) that the entity will deduct from (a) in exchange for the future service provided by the insurance contract, comprising: (i) the amount of the entity’s share of the fair value of the underlying items; less ... B107 Paragraph B101(b) requires that the entity expects a substantial share of the fair value returns on the underlying items will be paid to the policyholder and paragraph B101(c) requires that the entity expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value of the underlying items. An entity shall: (b) assess the variability in the amounts in paragraphs B101(b) and B101(c): (i) over the duration of the insurance contract group of insurance contracts; and ... B112 Changes in the amount of the entity’s share of the fair value of the underlying items (paragraph B104(b)(i)) relate to future service and adjust the contractual service margin, applying paragraph 45(b). B113 Changes in the fulfilment cash flows that do not vary based on the returns on underlying items (paragraph B104(b)(ii)) comprise: (a) changes in estimates of the fulfilment cash flows other than those specified in (b). An entity shall apply paragraphs B96–B97, consistent with insurance contracts without direct participation features, to determine to what extent they relate to future service and, applying paragraph 45(c), adjust the contractual service margin. All the adjustments are measured using current discount rates. ...

B115 To the extent that an entity meets the conditions in paragraph B116, it may choose not to recognise a change in the contractual service margin to reflect some or all of the changes in the effect of the time value of money and financial risk on: the entity’s share of the underlying items (see paragraph B112) or the fulfilment cash flows set out in paragraph B113(b). (a) the amount of the entity’s share of the underlying items (see paragraph B112) if the entity mitigates the effect of financial risk on that amount using derivatives or reinsurance contracts held; and (b) the fulfilment cash flows set out in paragraph B113(b) if the entity mitigates the effect of financial risk on those fulfilment cash flows using derivatives, non-derivative financial instruments measured at fair value through profit or loss, or reinsurance contracts held. B116 To apply paragraph B115, an entity must have a previously documented risk-management objective and strategy for mitigating financial risk as described in paragraph B115. using derivatives to mitigate financial risk arising from the insurance contracts and, in In applying that objective and strategy: (a) the entity uses a derivative to mitigate the financial risk arising from the insurance contracts. (a)(b) an economic offset exists between the insurance contracts and the derivative, non-derivative financial instrument measured at fair value through profit or loss, or reinsurance contract held (ie the values of the insurance contracts and those risk mitigating items the derivative generally move in opposite directions because they respond in a similar way to the changes in the risk being mitigated). An entity shall not consider accounting measurement differences in assessing the economic offset. (b)(c) credit risk does not dominate the economic offset. ... B117A If the entity mitigates the effect of financial risk using derivatives or non-derivative financial instruments measured at fair value through profit or loss, it shall include insurance finance income or expenses for the period arising from the application of paragraph B115 in profit or loss. If the entity mitigates the effect of financial risk using reinsurance contracts held, it shall apply the same accounting policy for the presentation of insurance finance income or expenses arising from the application of paragraph B115 as the entity applies to the reinsurance contracts held applying paragraphs 88 and 90. B118 If, and only if, any of the conditions in paragraph B116 cease ceases to be met, an entity shall: (a) cease to apply paragraph B115 from that date. ; and (b) An entity shall not make any adjustment for changes previously recognised in profit or loss.

... B121 Paragraph 83 requires the amount of insurance revenue recognised in a period to depict the transfer of promised services at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those services. The total consideration for a group of contracts covers the following amounts: (a) amounts related to the provision of services, comprising: (i) insurance service expenses, excluding any amounts relating to the risk adjustment for non-financial risk included in (ii) and any amounts allocated to the loss component of the liability for remaining coverage; (ia) amounts related to income tax that are specifically chargeable to the policyholder; (ii) the risk adjustment for non-financial risk, excluding any amounts allocated to the loss component of the liability for remaining coverage; and (iii) ... ... B123 Applying AASB 15, when an entity provides services, it derecognises the performance obligation for those services and recognises revenue. Consistently, applying AASB 17, when an entity provides services in a period, it reduces the liability for remaining coverage for the services provided and recognises insurance revenue. The reduction in the liability for remaining coverage that gives rise to insurance revenue excludes changes in the liability that do not relate to services expected to be covered by the consideration received by the entity. Those changes are: (a) changes that do not relate to services provided in the period, for example: ... (iia) changes resulting from cash flows from loans to policyholders; (iii) ... B123A To the extent that an entity derecognises an asset for cash flows other than insurance acquisition cash flows at the date of initial recognition of a group of insurance contracts (see paragraphs 38(c)(ii) and B66A), it shall recognise insurance revenue and expenses for the amount derecognised at that date. B124 Consequently, insurance revenue for the period can also be analysed as the total of the changes in the liability for remaining coverage in the period that relates to services for which the entity expects to receive consideration. Those changes are: (a) insurance service expenses incurred in the period (measured at the amounts expected at the beginning of the period), excluding: ... (iii) amounts that relate to transaction-based taxes collected on behalf of third parties (such as premium taxes, value added taxes and goods and services taxes) (see paragraph B65(i)); and (iv) insurance acquisition expenses (see paragraph B125); and. (v) the amount related to the risk adjustment for non-financial risk (see (b)). ... (d) other amounts, if any, for example, experience adjustments for premium receipts other than those that relate to future service (see paragraph B96(a)). ... B126 When an entity applies the premium allocation approach in paragraphs 55–58, insurance revenue for the period is the amount of expected premium receipts (excluding any investment component and adjusted to reflect the time value of money and the effect of financial risk, if applicable, applying paragraph 56) allocated to the period. The entity shall allocate the expected premium receipts to each period of insurance contract services coverage: ...

C11 To the extent permitted by paragraph C8, for contracts without direct participation features, an entity shall determine the contractual service margin or loss component of the liability for remaining coverage (see paragraphs 49–52) at the transition date by applying paragraphs C12–C16C C16. ... C14A Applying paragraph B137, an entity may choose not to change the treatment of accounting estimates made in previous interim financial statements. To the extent permitted by paragraph C8, such an entity shall determine the contractual service margin or loss component at the transition date as if the entity had not prepared interim financial statements before the transition date. C14B To the extent permitted by paragraph C8, an entity shall use the same systematic and rational method the entity expects to use after the transition date when applying paragraph 28A to allocate any insurance acquisition cash flows paid (or for which a liability has been recognised applying another Australian Accounting Standard) before the transition date (excluding any amount relating to insurance contracts that ceased to exist before the transition date) to: (a) groups of insurance contracts that are recognised at the transition date; and (b) groups of insurance contracts that are expected to be recognised after the transition date. C14C Insurance acquisition cash flows paid before the transition date that are allocated to a group of insurance contracts recognised at the transition date adjust the contractual service margin of that group, to the extent insurance contracts expected to be in the group have been recognised at that date (see paragraphs 28C and B35C). Other insurance acquisition cash flows paid before the transition date, including those allocated to a group of insurance contracts expected to be recognised after the transition date, are recognised as an asset, applying paragraph 28B. C14D If an entity does not have reasonable and supportable information to apply paragraph C14B, the entity shall determine the following amounts to be nil at the transition date: (a) the adjustment to the contractual service margin of a group of insurance contracts recognised at the transition date and any asset for insurance acquisition cash flows relating to that group; and (b) the asset for insurance acquisition cash flows for groups of insurance contracts expected to be recognised after the transition date. C15 If applying paragraphs C12–C14D C14 results in a contractual service margin at the date of initial recognition, to determine the contractual service margin at the date of transition an entity shall: ... C16 If applying paragraphs C12–C14D C14 results in a loss component of the liability for remaining coverage at the date of initial recognition, an entity shall determine any amounts allocated to the loss component before the transition date applying paragraphs C12–C14D C14 and using a systematic basis of allocation. C16A For a group of reinsurance contracts held that provides coverage for an onerous group of insurance contracts and was entered into before or at the same time that the insurance contracts were issued, an entity shall establish a loss-recovery component of the asset for remaining coverage at the transition date (see paragraphs 66A–66B). To the extent permitted by paragraph C8, an entity shall determine the loss-recovery component by multiplying: (a) the loss component of the liability for remaining coverage for the underlying insurance contracts at the transition date (see paragraphs C16 and C20); and (b) the percentage of claims for the underlying insurance contracts the entity expects to recover from the group of reinsurance contracts held. C16B Applying paragraphs 14‒22, at the transition date an entity might include in an onerous group of insurance contracts both onerous insurance contracts covered by a group of reinsurance contracts held and onerous insurance contracts not covered by the group of reinsurance contracts held. To apply paragraph C16A in such cases, an entity shall use a systematic and rational basis of allocation to determine the portion of the loss component of the group of insurance contracts that relates to insurance contracts covered by the group of reinsurance contracts held. C16C If an entity does not have reasonable and supportable information to apply paragraph C16A, the entity shall not identify a loss-recovery component for the group of reinsurance contracts held.

... C20A For a group of reinsurance contracts held to which paragraphs 66A–66B apply (without the need to meet the condition set out in paragraph B119C), an entity shall determine the loss-recovery component of the asset for remaining coverage at the transition date by multiplying: (a) the loss component of the liability for remaining coverage for the underlying insurance contracts at the transition date (see paragraphs C16 and C20); and (b) the percentage of claims for the underlying insurance contracts the entity expects to recover from the group of reinsurance contracts held. C20B Applying paragraphs 14‒22, at the transition date an entity might include in an onerous group of insurance contracts both onerous insurance contracts covered by a group of reinsurance contracts held and onerous insurance contracts not covered by the group of reinsurance contracts held. To apply paragraph C20A in such cases, an entity shall use a systematic and rational basis of allocation to determine the portion of the loss component of the group of insurance contracts that relates to insurance contracts covered by the group of reinsurance contracts held. C21 In applying the fair value approach, an entity may apply paragraph C22 to determine: (b) whether an insurance contract meets the definition of an insurance contract with direct participation features, applying paragraphs B101–B109; and (c) how to identify discretionary cash flows for insurance contracts without direct participation features, applying paragraphs B98–B100; and. (d) whether an investment contract meets the definition of an investment contract with discretionary participation features within the scope of AASB 17, applying paragraph 71. ... C22A In applying the fair value approach, an entity may choose to classify as a liability for incurred claims a liability for settlement of claims incurred before an insurance contract was acquired in a transfer of insurance contracts that do not form a business or in a business combination within the scope of AASB 3. ...