Page 158 - IC46 addendum

Insurance Contracts

as a contractual precondition for payment, that the event
adversely affects the policyholder. However, this does not
preclude the specification of a predetermined payout to quantify
the loss caused by a specified event such as death or an
accident (see also paragraph B13).

(e) derivatives that expose one party to financial risk but not
insurance risk, because they require that party to make payment
based solely on changes in one or more of a specified interest
rate, financial instrument price, commodity price, foreign
exchange rate, index of prices or rates, credit rating or credit
index or other variable, provided in the case of a non-financial
variable that the variable is not specific to a party to the contract
(see Ind AS 39).

(f) a credit-related guarantee (or letter of credit, credit derivative
default contract or credit insurance contract) that requires
payments even if the holder has not incurred a loss on the
failure of the debtor to make payments when due (see Ind AS
39).

(g) contracts that require a payment based on a climatic, geological
or other physical variable that is not specific to a party to the
contract (commonly described as weather derivatives).

(h) catastrophe bonds that provide for reduced payments of
principal, interest or both, based on a climatic, geological or
other physical variable that is not specific to a party to the
contract.

B20 If the contracts described in paragraph B19 create financial assets or
financial liabilities, they are within the scope of Ind AS 39. Among other
things, this means that the parties to the contract use what is sometimes
called deposit accounting, which involves the following:

(a) one party recognises the consideration received as a financial
liability, rather than as revenue.

(b) the other party recognises the consideration paid as a financial
asset, rather than as an expense

B21 If the contracts described in paragraph B19 do not create financial
assets or financial liabilities, Ind AS 18 applies. Under Ind AS 18, revenue
associated with a transaction involving the rendering of services is recognised

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