Page 89 - Suncorp_Review

Suncorp Group Limited Annual Report 2010/11 87

8.7.4 Sensitivity analysis

The Suncorp Group conducts sensitivity analyses to quantify the exposure to risk of changes in the key underlying variables that affect profts. The valuations included in the reported results and the Life companies’ best estimate of future performance, are calculated using certain assumptions about these variables. The movement in any key variable will impact the performance and net assets of the Life companies and as such represents a risk.

VARIABLE IMPACT OF MOVEMENT IN UNDERLYING VARIABLE

Maintenance expense An increase in the level or infationary growth of expenses over assumed levels would decrease proft and

shareholder equity.

Mortality, TPD and Trauma rates

For lump sum risk business other than lifetime annuities, greater mortality, TPD or trauma rates would lead to higher levels of claims occurring, increasing associated claims cost and therefore reducing proft and shareholder equity. For lifetime annuities greater mortality rates would lead to a shorter duration of regular payments, and therefore increasing proft and shareholder equity.

Morbidity rates (disability income)

The cost of health-related claims depends on both the incidence of policyowners becoming disabled and the duration for which they remain disabled. Higher than expected incidence and longer durations would increase claim costs, reducing proft and shareholders’ equity.

Discontinuance An increase in discontinuance rates at earlier durations has a negative effect, reducing proft and shareholders’

equity, as it affects the ability to recover acquisition expenses and commissions.

For life insurance contracts which are accounted for under LPS 1.04, amounts recognised in the current period are unlikely to be sensitive to changes in variables even if those changes may have an impact on future proft margins, except in cases where the product is in loss recognition or goes into loss recognition.

The following table illustrates the impact in the current period of changes in key assumptions as at 30 June 2011. The change in liability and proft (loss) are shown net and gross of reinsurance.

Change in insurance Change in insurance Proft (loss) Proft (loss) contract liability contract liability after tax after tax (net) (gross) (net) (gross) Variable Change 1 $m $m $m $m

Maintenance expense + 10% increase 12 12 (12) (12) Mortality and lump sum morbidity + 10% increase (3) (2) 3 2 Morbidity – disability income + 10% increase in incidence and decrease

in recovery rates 92 192 (92) (192) Discontinuance rates + 10% increase 13 18 (13) (18)

Note

1 Change is an absolute rather than relative change.

The following table illustrates the effects of changes in actuarial assumptions from 30 June 2010 to 30 June 2011. Part of the effect of the change in variables below may have been absorbed into proft margins.

Effect on future proft Effect on policy liabilities increase (decrease) increase (decrease) Assumption category $m $m

Discount rates (risk business) 1 – (2) Discount rates (participating business) 3 – Mortality and morbidity 9 (5) Morbidity income (11) 3 Lapse and surrender rates (86) – Indexation take-up rate – – Maintenance expenses (23) – Other (7) –

Note

1 Effects for risk business is shown gross of tax.