Document ID: chunk:federal_register_of_legislation:F2024L00884:body:0:p42
Version: federal_register_of_legislation:F2024L00884
Segment Type: other
Provision Reference: 
Character Range: 107902–110776

term/rate business; and
(e)          funeral bond business.
6.             If an illiquidity premium is added to the risk-free discount rate for a policy, the RFBEL must not be less than the minimum termination value or the contractual minimum surrender value for that policy.
7.             The illiquidity premium (in basis points) added to the risk-free forward rates for the first 10 years after the reporting date is:
Illiquidity premium = 33 per cent x (A yield 3 year – CGS yield 3 year)

Where:

        * 'A yield 3 year' is obtained from 'Table F3 – Aggregate Measures of Australian Corporate Bond Yields' published by the Reserve Bank of Australia (RBA) on its website[48]. 'A yield 3 year' is the yield for non-financial corporate bonds with broad credit rating (as determined by Standard and Poor's) of A and target tenor of 3 years; and
        * 'CGS yield 3 year' is the yield for Australian Commonwealth Government Securities (CGS) with a target tenor of 3 years.

    If the RBA ceases to publish this information, an alternative method of calculating the illiquidity premium may be used with the prior written approval of APRA.
    The maximum illiquidity premium is 150 basis points and the minimum is zero.
    The illiquidity premium added to risk-free forward rates more than 10 years after the reporting date is 20 basis points.
    The same illiquidity premium applies to both Australian and overseas liabilities.
8.             For business where tax is based only on profits, the RFBEL must exclude the value of future tax payments. Business is considered to be taxed on profits if an increase in policy liabilities would result in a deduction from the company's taxable income.
9.             The RFBEL and termination values must be determined net of reinsurance.

Participating benefits
10.         For each statutory fund, the adjusted policy liabilities for participating benefits are the greater of:
(a)          the total participating policy liabilities (PPL) for all policies,
where PPL = RFBEL + max{RFVFB + PRP, 0}; and
(b)          the total termination values for all policies, increased if necessary so that, if all termination values were paid immediately, the remaining PRP[49] would not be greater than zero.
 where:
(i)            RFBEL is defined in the same way as for non-participating benefits;
(ii)         RFVFB is the risk-free value of future bonuses calculated at the bonus rates supported by the policy liabilities[50] using the best estimate assumptions but with the gross investment yield and discount rate set equal to the risk-free discount rate (plus the illiquidity premium if this is used in determining the RFBEL);
(iii)       PRP is policy owners' retained profits (only relevant for life companies that are not friendly societies); and
(iv)        the 'greater of' must be determined at sub-group level if the