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Suncorp Group Limited Annual Report 2010/11 135

33.2.7 Outstanding claims liabilities

The liability is measured as the central estimate of the present value of expected future payments relating to claims incurred at the reporting date with an additional risk margin to allow for the inherent uncertainty of the central estimate. Standard actuarial methods are applied to determine the net central estimate of outstanding claims liabilities. Outstanding claims liability is heavily dependent on assumptions and judgements. The details of actuarial assumptions and the process for determining the risk margins are set out in note 6.6.2.

33.3 Signifcant accounting policies specifcally applicable to Life

Under the Life Insurance Act 1995 (Life Act) , Life business is conducted within one or more separate statutory funds, which are distinguished from each other and from the shareholder funds. The fnancial reports of the Australian life insurers prepared in accordance with AASB 1038 Life Insurance Contracts (and which are lodged with the relevant Australian regulators) show all major components of the fnancial statements disaggregated between the various life insurance statutory funds and their shareholder funds, as well as between investment-linked business and those relating to non-investment linked businesses.

The assets of the Life business are allocated between the policyowner and shareholder funds with all assets, liabilities, revenues and expenses recognised in the consolidated fnancial statements, irrespective of whether they are policyowner or shareholder owned.

The shareholder’s entitlement to monies held in the statutory funds is subject to the distribution and transfer restrictions and other requirements of the Life Act and the relevant company’s constitution. The main restrictions are that the assets in a fund can only be used to meet the liabilities and expenses of that fund, to acquire investments to further the business of the fund, or as distributions.

Participating policyowners can receive a distribution when solvency requirements are met, while shareholders can only receive a distribution when the higher level of capital adequacy requirements are met (refer note 8.8). Participating policyowners and shareholders in Asteron Life Ltd (New Zealand) can only receive a distribution when the prudential reserving requirement is met.

33.3.1 Life revenue and expense recognition

(a) Premium revenue

Premium recorded as revenue relates to risk-bearing life insurance contracts. The components of premium that relate to life investment contracts are in the nature of deposits and are recognised as a movement in policy liabilities.

Life insurance premiums with no due date are recognised as revenue on a cash received basis. Premiums with a regular due date are recognised on an accruals basis. (b) Fees and other revenue

Fee revenue is recognised as services are provided. The entry fee in relation to life investment contracts is deferred and recognised over the average expected life of the investment contract. The revenue that can be attributed to the origination service is recognised at inception. (c) Claims expense

Insurance claims are recognised when the liability to the policyowner under the policy contract has been established or upon notifcation of the insured event, depending on the type of claim.

The component of a life insurance contract claim that relates to the bearing of risks is treated as a claim expense. Other life insurance claim amounts and all life investment contract amounts paid to policyowners are in the nature of withdrawals and are recognised as a decrease in policy liabilities. (d) Outwards reinsurance expense

Premium ceded to reinsurers is recognised by the Suncorp Group as outwards reinsurance premium expense in proft or loss from the attachment date over the period of indemnity of the reinsurance contract in accordance with the expected pattern of the incidence of risk. A portion of outwards reinsurance premium is recognised as a deferred reinsurance asset and presented as deferred insurance assets on the statement of fnancial position at reporting date. (e) Basis of expense apportionment

Life insurance expenditure has been apportioned to the different classes of business in accordance with Division 2 of Part 6 of the Life Act . The expense apportionment basis is in line with the principles set out in LPS 1.04 Valuation of Policy Liabilities and New Zealand Society of Actuaries Professional Standard Number 3 Determination of Life Insurance Policy Liabilities .

Expenses excluding investment management fees, which are directly identifable, have been apportioned between policy acquisition and policy maintenance on the basis of the objective when incurring each expense, and the outcome achieved. Where allocation is not feasible between the disclosure categories, expenses have been allocated as maintenance expenses. Expenses which are directly attributable to an individual policy or product are allocated directly to the statutory fund within which the class of business to which that policy or product belongs. All indirect expenses charged to proft or loss are equitably apportioned to each class of business.