Insurance Liability ValuationInsurance Liability Valuation

Insurance Liability Valuation

1. Paragraphs 22 to 26 of this Prudential Standard set out the responsibilities of the Group Actuary in respect of insurance liability valuation. This Attachment elaborates on those requirements.
2. A Level 2 insurance group may consist of Australian business only (insurers authorised by APRA) or may comprise both Australian and international business.
3. In the case of a Level 2 insurance group with only Australian business, the valuation of group insurance liabilities must be based on the ILVR of each insurer in the group and must be compiled as follows:

(a) the sum of the insurance liabilities for each insurer in the group; plus or minus

(b) consolidation adjustments for intra-group transactions (which are likely to be eliminations); plus or minus

(c) consolidation adjustments for diversification benefits in risk margins (if any); plus or minus

(d) any other adjustments the Group Actuary considers necessary to comply with this Prudential Standard.

4. In the case of a Level 2 insurance group with international business, the Group Actuary must also determine appropriate values in respect of outstanding claims and premiums liabilities for the international controlled entities before applying the steps described above.

5. In respect of outstanding claims, the consolidated accounts of the group prepared in accordance with Australian Accounting Standards will include consolidated gross outstanding claims liabilities (and corresponding recovery assets) prepared in accordance with Australian accounting standards. Given that those standards are, in most respects, the same as APRA requirements for outstanding claims, the Group Actuary may adopt the outstanding claims liabilities from the consolidated accounts of the group subject to:

(a) ensuring that the risk margins are in accordance with APRA standards; and

(b) any other adjustments that are needed, in the Group Actuary’s opinion, to materially comply with APRA standards.

6. In respect of premiums liabilities, the consolidated group accounts prepared in accordance with Australian Accounting Standards will not include prospective estimates of premiums liabilities as required by APRA standards. The Group Actuary must make an appropriate estimate of premiums liabilities and advise the group accordingly. For international business the premiums liabilities may be recorded as the equivalent accounting entries[13] provided they are subject to a liability adequacy test at a 75 per cent level of sufficiency by the Group Actuary.