Get a plain-English read of Valuation of insurance liabilities

Turn the raw legal text into a practical explanation grounded in Insurance (prudential standard) determination No. 3 of 2006 - Prudential Standard GPS 310 - Audit and Actuarial Reporting and Valuation.

Valuation of insurance liabilities

An insurer’s insurance liabilities must be valued in accordance with this Prudential Standard, whether or not the insurer is required to have an Approved Actuary. Attachment A provides further details on this valuation. The valuation must then be used for the purpose of calculating the insurer’s Minimum Capital Requirement in accordance with GPS 110 and completing the insurer’s yearly statutory accounts in accordance with reporting standards made under the Collection of Data Act.
Where an insurer includes in its yearly statutory accounts a value for insurance liabilities which is inconsistent with the advice received from its Approved Actuary, the insurer must notify APRA in writing at the same time it submits its yearly statutory accounts to APRA. This written notification must include:

(a) the reasons for not accepting the Approved Actuary’s advice; and

(b) where relevant, details of the alternative assumptions and methodologies used for determining the value of the insurance liabilities.

In determining the value of its insurance liabilities, an insurer (after taking advice from its Approved Actuary where the insurer is required to have one) must determine a value for both its outstanding claims liabilities and its premiums liabilities for each class of business.[33]
Outstanding claims liabilities relate to all claims incurred prior to the valuation date, whether or not they have been reported to the insurer. The value of the outstanding claims liabilities must include an amount in respect of the expenses that the insurer expects to incur in settling these claims. The outstanding claims liabilities are to be determined on a prospective basis, both net and gross of expected reinsurance recoveries and non-reinsurance recoveries.
Premiums liabilities relate to all future claim payments arising from future events post the valuation date that will be insured under the insurer’s existing policies that have not yet expired. The value of the premiums liabilities must include an amount in respect of the expenses that the insurer expects to incur in administering and settling the relevant claims and allow for expected premium refunds. In respect of premiums liabilities for which reinsurance has not yet been purchased, allowance must be made for this reinsurance (refer Attachment B for further details on the assumptions relating to this reinsurance). Premiums liabilities are to be determined on a prospective basis, both net and gross of expected reinsurance recoveries and non-reinsurance recoveries.
The value of outstanding claims liabilities and premiums liabilities must not include any Government charges imposed such as levies, duties and taxes. Also, a deferred acquisition cost asset must not be reported.