Page 158 - Suncorp_Review

156

Notes to the consolidated fnancial statements (continued)

for the year ended 30 June 2011

34. Group risk management (continued)

34.5 Life risk management for fnancial instruments (continued)

34.5.2 Liquidity risk

To ensure payments are made when they fall due, Life has the following key facilities and arrangements in place to mitigate liquidity risks:

–– investment portfolio mandates provide suffcient cash deposits to meet day-to-day obligations

–– regularity of premiums received provides substantial liquidity to meet claims payments and associated expenses as they arise; and

–– fexibility in investment strategies implemented for investment management to provide suffcient liquidity to meet claims payment as they fall due, based on actuarial assessments.

The following table summarises the maturity profle of Life fnancial liabilities based on the remaining undiscounted contractual obligations. It also includes the maturity profle for life insurance and life investment contract policy liabilities based on the discounted estimated timing of net cash outfows.

LIFE

Carrying 1 year 1 to 5 Over Investment Total amount or less years 5 years No term linked  1 cash fows $m $m $m $m $m $m $m

2011

Trade creditors and accrued expenses 63 63 – – – – 63 Outstanding claims liabilities 167 123 – – 44 – 167 Other liabilities including derivatives 190 188 – – – 2 190 Net Life policy liabilities 5,282 297 739 586 – 3,660 5,282 Unvested policyowner benefts 383 3 – – 380 – 383 Managed funds units on issue 673 673 – – – – 673 6,758 1,347 739 586 424 3,662 6,758

2010

Trade creditors and accrued expenses 226 197 29 – – – 226 Outstanding claims liabilities 142 98 – – 44 – 142 Other liabilities including derivatives 122 122 – – – – 122 Net Life policy liabilities 5,256 250 640 697 – 3,669 5,256 Unvested policyowner benefts 404 4 – 14 386 – 404 Managed funds units on issue 422 422 – – – – 422 6,572 1,093 669 711 430 3,669 6,572

Note

1 For investment-linked business, the liability to policyowners is linked to the performance and value of the assets that back those liabilities. The shareholder has no direct exposure to liquidity risk in those assets.

34.5.3 Market risk

Market risk in Life arises from mismatches between asset returns and guaranteed liability returns, adverse movements in market prices affecting fee income on investment-linked policies and from returns obtained from the investment of shareholders’ capital held in each Life company.

Management of market risk is most critical for products which involve the investment of signifcant amounts of money to meet future liabilities and where the returns on those assets either accrue to the shareholder or are not necessarily able to be passed on to policyowners in a timely manner. This includes, for example, assets backing disability income reserves for open claims and participating business. For some non-participating insurance products, such as unit-linked products, market risks are passed on to the policyowner, although as noted, the shareholder’s fee revenue may be adversely affected by market falls. (a) Foreign exchange risk

The statutory funds of the Suncorp Group’s Life business invest in overseas assets. In the investment-linked funds any investment returns, whether positive or negative, are passed on to the policyholders. Various guarantees are provided by the non-investment-linked statutory funds, principally in relation to capital and declared interest. The relevant statutory funds maintain reserves in accordance with APRA Prudential Standards (local actuarial Professional Standards for New Zealand) to meet the risk associated with diminution of value associated with foreign exchange risk.