annual report 2011

IOOF | annual report 2011
(d) Contribution to profit or loss of life insurance business
Statutory
2011 2010
$’000 $’000
Revenue
Interest income 1,009 818
Dividends and distributions received 34,396 22,286
Net fair value gains/(losses) on other financial assets at fair value through profit or loss 24,342 64,451
Contributions received - investment contracts with DPF 13,563 13,577
DPF policy holder liability increase 19,725 19,151
Non - DPF policyholder liability decrease (13,021) (54,855)
Other fee revenue 5,246 5,254
85,260 70,682
(e) Expenses
Service and marketing fees expense 14,751 14,377
Life insurance operating expenses 127 444
Investment contracts with DPF:
Benefits and withdrawals paid 49,017 51,979
Termination bonuses 245 224
Distribution to policyholders 7,146 6,258
Interest 363 539
71,649 73,821
(f)
Actuarial assumptions and methods
The effective date of the actuarial report on the policy liabilities
and solvency reserves is 30 June 2011. The actuarial report for
IOOF Ltd was prepared by Mr Kent Griffin, FIAA, and was dated
23 August 2011. The actuarial report indicates that Mr Griffin is
satisfied as to the accuracy of the data upon which the policy
liabilities have been determined.
Actuarial Methods
Policy liabilities have been calculated in accordance with
relevant actuarial guidance issued by the Australian Prudential
Regulatory Authority under the Life Insurance Act 1995. Policy
liabilities are based on a systematic release of planned margins
as services are provided to policyholders and premiums are
received.
Processes used to select assumptions
Mortality and Morbidity
All mortality and morbidity risk is fully reinsured and the
gross risk to the Group is low. The mortality and morbidity
assumptions have been taken to be equal to the reinsurer’s
mortality and morbidity assumptions.
Other Assumptions
In adopting the accumulation method to assess the policy
liabilities, one material assumption is required. It is assumed
that the future overall experience as to expense levels,
surrender/lapse rates and discount rates will likely remain
within a satisfactory range so that the policies produce future
profits for the business. In which case, there is no need to set
aside provisions, in addition to the accumulation amounts, for
future losses (i.e. there is no loss recognition concerns for the
business). This assumption has been adopted on the basis that,
based on the current actual experience of the business, the
policies are producing satisfactory profits for the business and
there are no circumstances known that would indicate that the
current position (i.e. general experience levels and ongoing
profitability) will not continue into the future.
Sensitivity analysis
The policy liabilities are not sensitive to changes in variables
within a moderate range. Increases in mortality and morbidity
assumptions will result in an increase gross policy liabilities
for IOOF Ltd, however as the mortality and morbidity risk is
fully reinsured any change in these assumptions would be
consistent with the reinsurer’s assumptions and the net change
in policy liabilities would be nil.
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