10Paragraphs Aus34.1–Aus34.4 are added. Paragraph 34 is not amended but is included for reference.

10                    Paragraphs Aus34.1–Aus34.4 are added. Paragraph 34 is not amended but is included for reference.

Measurement (paragraphs B36–B119F)

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 Estimates of future cash flows (paragraphs B36–B71)

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34 Cash flows are within the boundary of an insurance contract if they arise from substantive rights and obligations that exist during the reporting period in which the entity can compel the policyholder to pay the premiums or in which the entity has a substantive obligation to provide the policyholder with insurance contract services (see paragraphs B61–B71). A substantive obligation to provide insurance contract services ends when:

(a) the entity has the practical ability to reassess the risks of the particular policyholder and, as a result, can set a price or level of benefits that fully reflects those risks; or

(b) both of the following criteria are satisfied:

(i)  the entity has the practical ability to reassess the risks of the portfolio of insurance contracts that contains the contract and, as a result, can set a price or level of benefits that fully reflects the risk of that portfolio; and

(ii) the pricing of the premiums up to the date when the risks are reassessed does not take into account the risks that relate to periods after the reassessment date.

Aus34.1 In respect of paragraphs 34(a) and 34(b)(i):

(a) assessing a public sector entity’s practical ability to fully price for risks or benefits would include assessing the ability of its controlling government, and any relevant Minister(s), to decide on pricing or benefits;

(b) a public sector entity’s monopoly position in providing coverage for risks in a particular community, of itself, would not affect the entity’s practical ability to fully price for risks or benefits; and

(c) any legislated obligation for a public sector entity to stand ready to insure future policyholders, of itself, is not an obligation that would affect the practical ability to fully price for risks or benefits.

Aus34.2 Notwithstanding paragraph 34(b)(ii), a public sector entity would not be regarded as failing to meet the criterion in paragraph 34(b)(ii) simply because its premium pricing for coverage up to the date when the risks are reassessed takes into account the risks that relate to periods after the reassessment date, due to having a policy of determining prices and benefits based on a medium- to long-term view.

Aus34.3 Public sector entities may have an established system of, or regulatory requirement for, periodic pricing and benefit reviews, for example once every three years. However, in many cases, this is effectively a minimum frequency for review and it would be feasible for an entity to respond to current experience and events outside this process. In these cases, the established system does not remove the practical ability for the entity to change prices and benefits on a more frequent basis, for example annually. In addition, a public sector entity’s established system for setting prices and benefits may ordinarily take many months to complete, but may not in fact remove the practical ability in the context of paragraph 34(b)(i) to set prices and benefits on a more timely basis.