Notes to the Financial Statements
of the future, significant judgement is applied in determining the assumptions that underpin the estimation of future cash flows. These assumptions include, but are not limited to operating assumptions such as morbidity, mortality, lapses and expenses. Morbidity (TPD, Income Protection and Trauma): Rates adopted vary by age, gender, and smoking status. The primary underlying morbidity table used is the FSC- KPMG ADI 2014-2018 table, based on 2014 to 2018 experience. These tables were adjusted for industry experience and ClearView’s own experience. The morbidity claims assumptions have been updated to take into account recent observed experience. Mortality: Rates adopted vary by product, age, gender, and smoking status. The primary underlying mortality tables used are the latest FSC-KPMG ALS 2014- 2018 industry standard tables, which were adjusted for industry experience subject to ClearView’s own experience. The mortality claims assumptions have been updated to take into account recent observed experience. Lapses: Rates adopted vary by product, duration, age, commission type and premium frequency, and have been based on an analysis of ClearView Life’s experience over recent years with allowance for expected trends. The best estimate lapse assumptions have been updated at 30 June 2024 to reflect ClearView’s recent observed experience. Acquisition expenses: Per policy acquisition expense assumptions were based on the actual acquisition expenses incurred. Maintenance expense and inflation: The per policy maintenance expense assumptions were based on the longer term per policy unit costs implied by ClearView Life’s 2025 business plan. The long-term expense inflation rate was maintained at 2.4% per annum in FY24 (FY23: 2.4%).
• Determining the risk adjustment for non-financial risk at initial recognition by adjusting the risk adjustment for non-financial risk.
5.1.6.3 Fair value approach
The Group applied the fair value approach to all cohorts of the group of older legacy non-advice based business. Applying the fair value approach, the Group determined the CSM to be the difference between the fair value of a group of insurance contracts, measured in accordance with AASB 13 Fair Value Measurement ( AASB 13 ), and its FCF at the transition date. The fair value of an insurance liability is the price a market participant would be willing to pay to assume the obligation and the remaining risks of the in force contracts as at the transition date. In estimating the fair value of groups of insurance contracts, the following considerations were applied: • only future cash flows within the boundaries of the insurance contracts were included in the fair value estimation excluding future renewals and new business that would be outside the contract boundary of the contracts under AASB 17; • assumptions about expected future cash flows and risk allowances were adjusted for the market participant’s view as required by AASB 13; and • profit margins were included to reflect what a market participant would require for accepting obligations under insurance contracts, beyond the risk adjustment for non-financial risk. The fair value of the group of older legacy non-advice based business has taken into account of the strategic review work performed by an external party in FY22-23 and involved an independent valuation of the business using an Embedded Value ( EV ) approach. 5.2 Significant judgements and estimates in applying AASB 17
5.2.2 Discount rates
A bottom-up approach is applied to determine the discount rates used to discount insurance and reinsurance contract cash flows, which uses risk-free rates adjusted to reflect the liquidity characteristics of the contracts. The risk-free rate is based on Commonwealth Government bond rates. The illiquidity premium is derived based on the long-term weighted average credit spread of a reference portfolio of assets with a similar currency mix and weighted average duration as the related insurance liabilities over the longer term. The effect of credit risk and other factors that are not relevant to the illiquidity characteristics of insurance contracts is eliminated to estimate the portion of the spread that reflects the illiquidity premium.
5.2.1 Future cash flows
The fulfilment cash flows of insurance contracts represents the present value of estimated future cash outflows, less the present value of estimated future cash inflows and adjusted for a provision for the risk adjustment for non-financial risk. The Group’s process for estimating future cash flows incorporates, in an unbiased way, all reasonable and supportable information that is available without undue cost or effort at the reporting date. This information includes both internal and external historical data about claims and other experience, updated to reflect current expectations of future events. As this is a prediction
131
ClearView Wealth Limited
Powered by FlippingBook