Document ID: chunk:federal_register_of_legislation:F2023L00694:body:0:p8
Version: federal_register_of_legislation:F2023L00694
Segment Type: other
Provision Reference: 
Character Range: 19328–22257

business
29.         Policy liabilities in respect of life insurer non-participating business are to be determined in accordance with  Australian Accounting Standards, subject to meeting the requirements in Part A of this Prudential Standard.

Life insurer participating business
30.         For determining policy liabilities in respect of life insurer participating business, a life company must elect to use either:
(a)          the accounting standard led method, described in paragraphs 32 and 33 of this Prudential Standard; or
(b)          the VSA led method, described in Part C of this Prudential Standard.
31.         The method that a life company elects at commencement must be used at all future reporting dates, unless the life company obtains written approval from APRA to use the alternative method. The same method must be used to value all of the participating business of a statutory fund.
Accounting standard led method
32.         The policy liabilities for a subcategory must be derived from the net life contract liabilities and shareholder profit for that group of contracts so that:
(a)          the policy liabilities plus any Australian Policy Owners' Retained Profits or Overseas Policy Owners' Retained Profits allocated to that subcategory (both amounts after declaration of bonus at the end of the reporting period) equals the net life contract liabilities ; and
(b)          the amount of Life Act operating profit allocated to shareholders in respect of the current reporting period is the same as the AASB 17 shareholder profit.
33.         The amount deducted from Australian Policy Owners' Retained Profits or Overseas Policy Owners' Retained Profits when a distribution is made to the owners of participating policies is the cash value of the declared bonus. An alternative basis for valuing bonus, consistent with the basis used for valuation of AASB 17 fulfilment cash flows (excluding the risk adjustment for non-financial risks) may be adopted by the Board provided that the Board gives priority to the interests of participating policy owners (as a group) when making the decision to adopt this basis.

Part C – VSA led method for valuing policy liabilities for life insurer participating business
34.         In Part C of this Prudential Standard, the term 'profit' will be used to refer to the sum of policy owner profit, also referred to as 'bonus' and shareholder profit. The term 'future profits' will be used to refer to the sum of future bonuses and future shareholder profits.
Overview of the VSA led method
35.         The policy liability must provide for both:
(a)          a best estimate value of the liability; and
(b)          a uniform emergence of profit.
36.         The profit emerging in the reporting period must recognise both:
(a)          the expected profits for the period; and
(b)          the experience profit for the period.
37.         The valuation method