Notes to the Financial Statements
• The main reinsurer retains the duration and matching risk on the IP incurred claims treaty. For both incurred claims treaties, ClearView pays an interest charge on the liabilities related to the settlement of the incurred liabilities. This cost has been included in the insurance result. • An irrevocable letter of credit issued by a major Australian bank on behalf of the main reinsurer. • Assessment of credit risk exposures arising from investment activities by the ClearView Investment Committee (CIC) prior to investing ClearView assets into any significant financial asset. The ongoing credit standing of material investments are monitored by the CIC. • Specific capital reserves are held against credit risk under the regulatory capital requirements of the Group and its subsidiaries including ClearView Life and credit risk is considered within the Group’s and individual company’s Internal Capital Adequacy Assessment Process (ICAAP) (refer to below for further discussion). • The Group’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. To this end, the Group aims to maintain a high level of cash and cash equivalents and other highly marketable debt investments which are monitored by the CIC. • The Group also monitors the level of expected cash inflows on trade and other receivables together with expected cash outflows on trade and other payables. • The Group has a Debt Funding Facility that contains certain loan covenants. Under the agreement, the covenants are monitored on a regular basis and reported to ensure compliance with the facility agreement.
• Approval of updates to product documentation and oversight of the development of new products by the Product Development Oversight Committee as well as ongoing monitoring, review and continuous development of existing products and distribution arrangements to ensure that products are distributed within their target market; • Offer of corresponding reinsurance terms by reinsurers which provides an implicit check on the pricing; • Formal internal policy document and Product Disclosure Statement due diligence review and sign-off processes; and • The ability to re-price products (change premium rates and fees) on most products in the event of adverse claims and/or other product experience. It is noted that similar processes and controls apply to the pricing and terms and conditions applicable to the investment products issued by ClearView Life. Liquidity and credit risks Liquidity risk is the risk that the Group will be unable to meet its obligations when they fall due as a result of policyholder benefit payments, cash requirements from contractual commitments or other cash flows. Credit risk is the risk of financial loss to the Group if a counterparty fails to meet its contractual obligations, and arises principally from the Group exposures from its reinsurers, other key debtors and investments in debt securities. The key risk controls include: • A lump sum incurred claims treaty with the main reinsurer is in place where lump sum claims are settled on a comprehensive earned premium and incurred claims basis (including incurred but not reported claims (IBNR) and reported but not admitted claims (RBNA) based on best estimate assumptions consistent and based on the applicable Australian Accounting Standards (excluding risk margins, profit margins, and capital margins); • An incurred claims treaty with the main reinsurer for income protection (IP) claims to address the concentration risk. Under the treaty, ClearView LifeSolutions and ClearChoice income protection claims are substantially settled on an earned premium and incurred claims basis. Each quarter, the main reinsurer settles a substantial component of the outstanding income protection claims liabilities, the incurred but not reported claims (IBNR) and reported but not admitted claims (RBNA) based on the reinsurer’s best estimate assumptions and based on the applicable Australian Accounting Standards (excluding risk margins, profit margins and capital margins).
Capital management and reserving
In terms of regulatory requirements: • ClearView Life is subject to regulatory capital requirements, in accordance with APRA Life Insurance Prudential Standards, in respect of the principal financial risk exposures retained by ClearView Life; • ClearView Financial Management was also required by ASIC to maintain minimum regulatory capital before it was sold to Human Financial on 31 January 2024 (refer to section 8.5 for detail); and • ClearView Life Nominees (CLN) was required to maintain an Operational Risk Financial Requirement
(ORFR) as determined in accordance with Superannuation Prudential Standard 114. SPS
90
ClearView Annual Report 2024
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