Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p14
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
Provision Reference: 
Character Range: 35150–38049

the difference that some insurers may decide to recognise is likely to depend upon the degree of diversification between the different classes and the degree of correlation between the experiences of these classes.
5.1.10 For the purposes of the liability adequacy test, required by section 9, the risk margin for the entity as a whole is apportioned across portfolios of contracts that are subject to broadly similar risks and are managed together as a single portfolio.
5.1.11 Risk margins adopted for regulatory purposes may be appropriate risk margins for the purposes of this Standard, or they may be an appropriate starting point in determining such risk margins.

Expected Future Payments
5.2 The expected future payments shall include:
(a) amounts in relation to unpaid reported claims;
(b) claims incurred but not reported (IBNR);
(c) claims incurred but not enough reported (IBNER); and
(d) costs, including claims handling costs, which the insurer expects to incur in settling these incurred claims.
5.2.1 It is important to identify the components of the ultimate cost to an insurer of settling incurred claims, for the purposes of determining the claims expense for the reporting period and determining the outstanding claims liability as at the end of the reporting period.  These components comprise the policy benefit amounts required to be paid to or on behalf of those insured, and claims handling costs, that is, costs associated with achieving settlements with those insured.  Claims handling costs include costs that can be associated directly with individual claims, such as legal and other professional fees, and costs that can only be indirectly associated with individual claims, such as claims administration costs.
5.2.2 Policy benefit amounts and direct claims handling costs are expenses of an insurer, representing the consumption or loss of economic benefits.  The outstanding claims liability includes unpaid policy benefits and direct claims handling costs relating to claims arising during current and prior reporting periods, as they are outgoings that an insurer is presently obliged to meet as a result of past events.
5.2.3 Indirect claims handling costs incurred during the reporting period are also expenses of an insurer, and include a portion of the indirect claims handling costs to be paid in the future, being that portion which relates to handling claims incurred during the reporting period.  The outstanding claims liability includes these unpaid indirect claims handling costs.
5.2.4 It is important to ensure that claims are recognised as expenses and liabilities for the correct reporting period.  For contracts written on a claims incurred basis, claims arise from insured events that occur during the insurance contract period.  Some events will occur and give rise to claims that are reported to the insurer and settled within the same reporting