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Notes to the consolidated fnancial statements (continued)

for the year ended 30 June 2011

6. General Insurance – Specifc disclosures (continued)

6.6 General Insurance liabilities (continued)

6.6.2 Outstanding claims liabilities (continued)

(c) Estimation of outstanding claims liabilities and assets arising from reinsurance contracts and other recoveries The Suncorp Group’s estimation of its claims liabilities includes the expected future cost of claims notifed to the Suncorp Group as at balance date as well as claims incurred but not reported (IBNR) and claims incurred but not enough reported (IBNER). Projected payments are discounted to present value and then an estimate of direct expenses expected to be incurred in settling these claims is determined. The impact of infation on future expenditure is also taken into consideration. An additional risk margin is then applied to allow for the inherent uncertainty in the estimation process.

The Suncorp Group takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures with estimates and judgements continually being evaluated and updated based on historical experience and other factors. However, given the uncertainty in the estimation process, it is likely that the fnal outcome will prove to be different from the original liability established.

The estimation of claims IBNR and claims IBNER are generally subject to a greater degree of uncertainty with claims often not being adequately reported until many years after the events giving rise to the claims have happened. For this reason, long-tail classes of business will typically display greater variations between initial estimates and fnal outcomes. Estimation of assets arising from reinsurance and other recoveries are also computed using the above methods. The recoverability of these assets is assessed on a periodic basis, taking into consideration factors such as counterparty and credit risk.

(d) Actuarial assumptions and methods

The estimation of the outstanding claims liability is based on multiple actuarial techniques that analyse experience, trends and other relevant factors utilising the Suncorp Group’s specifc data, relevant industry data and general economic data. Methods undertaken to determine claims liability will vary according to the class of business. The Suncorp Group currently divides its General Insurance business into two classes: Personal and Commercial.

The use of multiple actuarial methods assists in providing a greater understanding of the trends inherent in the past data. The projections obtained from various methods also assist in setting the range of possible outcomes. The most appropriate method or a blend of methods is selected, taking into account the characteristics of the class of business and the extent of the development of each past accident period.

Actuarial assumptions

The following key assumptions have been made in determining the outstanding claims liabilities:

2011 2010

Personal Commercial Personal Commercial Aust NZ Aust NZ Aust NZ Aust NZ

Weighted average term

to settlement (years) 0.6 0.4 4.9 1.6 0.6 0.4 5.1 1.9 Economic infation rate 4.1% 3.0% 4.5% 3.0% 4.1% 3.0% 4.5% 3.0% Superimposed infation rate 0.0% 0.0% 2.7% 1.9% 0.4% 0.0% 2.9% 1.9% Discount rate 4.8% 2.9% 5.1% 3.8% 4.5% 3.6% 5.0% 4.7% Claims handling expense ratio 9.2% 5.2% 4.3% 5.4% 7.2% 6.3% 4.2% 5.7% Risk margin 12.8% 10.4% 19.2% 20.3% 11.0% 12.6% 19.3% 21.2%

Weighted average term to settlement – The weighted average term to settlement is calculated separately by class of business and is based on historic settlement patterns.

Economic and superimposed infation – Claims infation is incorporated into the resulting projected payments to allow for both expected levels of economic infation and superimposed infation. Economic infation is based on economic indicators such as the consumer price index and/or increases in average weekly earnings. Superimposed infation refects the tendency for some costs, such as court awards, to increase at levels in excess of economic infation. Infation assumptions are set at a class of business level and refect past experience and future expectations.

Discount rate – Projected payments are discounted at a risk-free rate to allow for the time value of money. Discount rates are derived from market yields on Commonwealth Government securities in Australia and the ten-year government stock rate in New Zealand at the balance date.