No change to underlying business economics
Differences
What is NOT changing
• Accounting for groups of insurance contracts rather than related product groups within insurance entities • Time and pattern of profit release changes for stepped premium contracts but overall profitability remains the same over the life of the insurance contract – results in changes to timing of tax payments • Stepped premium contracts treated as a short-term contract boundary, that is, a one-year contract with profit emergence now following cash flow profile – material impact on timing of release of profit for stepped premium business (circa 79% of in-force portfolio) • Due to short-term contract boundary, an asset for insurance acquisition cash flows (AIACF) is recognized that is related to future renewals - impairment testing may lead to material reported profit impacts • Insurance contracts and reinsurance contracts valued, reported and disclosed separately – leads to a mismatch on profit pattern release for stepped premium contracts (short term vs long term) • Explicit risk allowance, 'risk adjustment for non-financial risk' included in the valuation of the (re)insurance contracts • Granular level of aggregation of contracts – separation of level premium contracts removes cross subsidies that previously existed between products • Presentation and disclosure with material changes in statutory accounts
• Product cash flows and ability to generate capital to invest in future growth remains unchanged • No change to our business strategy or FY26 financial goals as previously reported to the market • No change to solvency or dividend policy with capital upside from tax treatment expected 1 • The basic building blocks of insurance contract liabilities (projected cash flows and discounting) principles remain in place • Level premium and reinsurance contracts continue to be recognised as long duration contracts • Similar to prior market communications, we continue to use ‘Underlying NPAT’ as a non IFRS measure of earnings that excludes the impacts of market and interest rate volatility, with the definition updated to reflect the application of AASB 17 (loss recognition movements and AIACF impairment)
1.As a result of the transition to AASB 17, the Group’s accounting life insurance contract liability (net of reinsurance), for which the carrying amount will be settled in future periods has increased. This results in a deferred tax asset of $35.9m, given the movement in the life insurance contract liability (net of reinsurance) is deductible when settled in the future. While the Australian Taxation Office (ATO) and Treasury has yet to provide any announcement or guidance in respect of the AASB17 impacts on life insurance companies, there is no indication that AASB 17 will result in a change to the income tax laws. As these temporary differences create income tax losses on transition, given that it is probable that the Group’s future taxable profit will be available against which the tax losses can be utilised, the additional deferred tax asset of $35.9m has been recognised on balance sheet on transition. The tax benefit should be realised in future periods as the losses are utilised.
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