BC50 In developing the approach outlined in paragraph BC16, the Board considered the following pervasive issues:

(a) the level of aggregation;

(b) accounting mismatches; and

(c) the complexity of the Standard.

The level of aggregation

BC51 An entity's rights and obligations arise from individual contracts with policyholders. However, a fundamental aspect of much insurance activity is that the entity issues a large number of similar contracts knowing that some will result in claims and others will not. The large number of contracts reduces the risk that the outcome across all the contracts will differ from that expected by the entity. This aspect of insurance activity, combined with the requirements of IFRS 17 that require different timing of recognition of gains and losses (for example losses on onerous contracts are recognised earlier than gains on profitable contracts), means that the level of aggregation at which contracts are recognised and measured is an important factor in the representation of an entity's financial performance.

BC52 In reaching a decision on the level of aggregation, the Board balanced the loss of information inevitably caused by the aggregation of contracts with the usefulness of the resulting information in depicting the financial performance of an entity's insurance activities and with the operational burden of collecting the information (see paragraphs BC115-BC139T).

Accounting mismatches