Document ID: chunk:federal_register_of_legislation:F2023L00699:body:0:p6
Version: federal_register_of_legislation:F2023L00699
Segment Type: other
Provision Reference: 
Character Range: 13932–16987

various insurance portfolios within the group.

Discount Rates
30.         The rates to be used in discounting the expected future claims payments of insurance liabilities denominated in Australian currency for a class of business are derived from yields of Commonwealth Government Securities (CGS), as at the calculation date, that relate to the term of the future insurance liability cash flows for that class.
31.         Where the term of the insurance liabilities denominated in Australian currency exceeds the maximum available term of CGS, other instruments with longer terms and current observable, objective rates are to be used as a reference point for the purpose of extrapolation. If there are no other suitable instruments, or the Appointed Actuary elects to use an instrument that does not meet this requirement, the Appointed Actuary must justify the reason for using that particular instrument in the insurer's AVR. Adjustments must be made to remove any allowances for credit risk and illiquidity that are implicit in the yields of those instruments.
32.         For foreign insurance liabilities not denominated in Australian currency, the risk-free discount rate must be based on the yields of highly liquid sovereign risk securities with current observable, objective rates, in the currency of the insurance liabilities and with counterparty grade 1. If there are no securities satisfying this requirement, or the Appointed Actuary elects to use an instrument that does not meet this requirement, the Appointed Actuary must justify the reason for using that particular instrument in the insurer's AVR. Adjustments must be made to remove any allowances for credit risk and illiquidity that are implicit in the yields of those instruments.

Methods for valuing insurance liabilities
33.         A method, or methods, must be adopted for valuing an insurer's insurance liabilities. Comprehensive actuarial analysis and modelling techniques should be employed, subject to considerations of materiality. The appropriateness of any method, or methods, will depend on:
(a)          the class of business being considered;
(b)          the nature, volume and quality of the available data in relation to the experience of the insurer and the industry;
(c)          the circumstances of the insurer; and
(d)          considerations of materiality.
34.         Approximate methods may be used when valuing an insurer's insurance liabilities subject to the principles of this Prudential Standard, and where the result is not material or not materially different from that which would result from a full valuation process. The onus for justification of the appropriateness of any valuation method rests with:
(a)          the Board of the insurer; and
(b)          the Appointed Actuary.

Claims escalation
35.         Appropriate allowance must be made for future claims escalation when determining the central estimates of both outstanding claims liabilities and premiums liabilities. Future claims payments may increase over current levels as a