Notes to the Financial Statements
Deferred tax assets
As a result of the transition to AASB 17, the Group’s accounting net life insurance contract liability, for which the carrying amount will be settled in future periods has increased. This results in an increase in the deductible temporary differences and a related deferred tax asset of $35.9 million on transition and a further $3.5 million in FY23 bringing the total related deferred tax asset to $39.4 million as at 30 June 2023, given the movement in the net life insurance contract liability 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 AASB 17 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 probably that the Group’s future taxable profit will be available against which the tax losses can be utilised, the additional deferred tax asset of $39.4 million has been recognised on balance sheet as at 30 June 2023.
5.2.6 Sensitivity analysis
The valuation of liabilities for incurred claims and the liability for remaining coverage are calculated using certain assumptions of the key underlying variables such as discount rates, expenses, mortality, morbidity and lapses. The movement in any key variable may impact the reported performance and net assets of ClearView Life and the consolidated entity. Variable Impact of movement in underlying variable Interest rate The fulfilment cash flows within the liability for remaining coverage and the liability for
incurred claims are calculated using a discount rate that is derived from market interest rates. The change in interest rates would also impact the emerging profit via its impact on the investment returns on the assets held to back the liabilities. The CSM within the liability for remaining coverage is discounted using locked-in rates observed at the initial recognition of the insurance contract and, as such, changes in market interest rates will not impact the CSM. An increase in the level (or inflation) of expenses over the assumed levels will decrease emerging profit. A change in the base expense assumptions adopted for the fulfilment cash flows within the liability for remaining coverage may impact the insurance contract liability/ asset if it currently has a loss component, otherwise such a change will be absorbed into the contractual service margins of the insurance contract. For life insurance contracts providing death benefits an increased rate of mortality would lead to higher levels of claims, increasing associated claims cost and thereby reducing emerging profit. A change in the mortality assumptions adopted for the fulfilment cash flows within the liability for remaining coverage may impact the insurance contract liability/asset if it currently has a loss component, otherwise such a change will be absorbed into the contractual service margins of the insurance contract. The cost of claims under TPD, Income Protection and trauma cover depends on the incidence of policyholders becoming disabled or suffering a ‘trauma’ event such as a heart attack or stroke. Higher incidence or claims duration would increase claim costs, thereby reducing profit and shareholder equity. Similar to mortality above, a change in the morbidity assumptions adopted for the fulfilment cash flows within the liability for remaining coverage may impact the insurance contract liability/asset if it currently has a loss component, otherwise such a change will be absorbed into the contractual service margins of the insurance contract. For policyholders who are currently on claim the related reserves are included as part of the liability for incurred claims where there are no profit margins. Therefore, any change in claims costs due to a change in expectation around claims duration is reflected through a change in the liability for incurred claims and hence profit. Lapse risk represents the extent to which policyholders choose not to renew their policy, and allow it to lapse. An increase in the lapse rates will have a negative effect on emerging profit owing to the loss of future revenue, including that required to recover acquisition costs. The impact on the contract liability of a change in lapse assumptions is as per mortality above.
Expense
Mortality
Morbidity
Lapses
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ClearView Wealth Limited
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