For a techie, this makes some sense. But for a consumer, not being clear, even in the manual, is quite poor.
I haven't done a survey of receiver manuals, but there is a note in my Sony receiver manual indicating that conversion is not done (actually, it's more cryptic, only saying that the composite and s-video inputs only come out the composite and s-video outputs, while the component outputs only go out the component -- my older receiver has no HDMI).
There is no such note in the Insignia manual. However, there is a note indicating that the OSD only appears on the composite and component out, not the HDMI.