Page 67 - Suncorp_Review

Suncorp Group Limited Annual Report 2010/11 65

(b) Liability adequacy test

The liability adequacy test (LAT) is used to assess the suffciency of the unearned premium liability to cover all expected future cash fows relating to future claims against in-force insurance contracts. The LAT is carried out on each portfolio of contracts subject to broadly similar risks and are managed together as a single portfolio, being Australian Personal Insurance, Australian Commercial Insurance and New Zealand General Insurance. The following table details the value of the expected future cash fows arising from in-force contracts:

CONSOLIDATED

2011 2010 $m $m

Central estimate of present value of expected

future cash fows arising from future claims 2,934 2,864 Risk margin 68 66 Discount to present value (154) (175) Expected present value of future cash fows for future claims including risk margin 2,848 2,755

Risk margin 2.8% 2.5% Probability of adequacy 57–64% 57–64%

The probability of adequacy adopted for the LAT differs from the 90% probability of adequacy adopted in determining the outstanding claims liabilities (refer note 6.6.2(d)). The reason for this difference is that the former is in effect an impairment test used only to test the suffciency of net premium liabilities whereas the latter is a measurement accounting policy used in determining the carrying value of the outstanding claims liabilities. The process used to determine the risk margin is discussed in note 6.6.2(d).

As at 30 June 2011, the LAT resulted in a surplus for the Australia Personal Insurance and Australia Commercial Insurance portfolios and a $35 million defcit for the New Zealand General Insurance portfolio (2010: surplus for all portfolios). As a result, a $35 million (2010: nil) write-down of deferred acquisition cost was recognised. The defcit for the New Zealand General Insurance portfolio was determined as follows:

2011 $m

New Zealand General Insurance Portfolio

Central estimate of present value of expected future cash fow arising from future claims 290 Risk margin 7 297 Unearned premium liability 347 Related deferred acquisition costs (70) Related reinsurance asset (15) 262 LAT defciency 35