Document ID: chunk:federal_register_of_legislation:C2025C00014:section:121am:p2
Version: federal_register_of_legislation:C2025C00014
Segment Type: section
Provision Reference: s 121AM (pt 2/2)
Character Range: 1038717–1040615

fall below the level at the end of the period; or
 (b) in any other case—nil.

Annual inflation rate assumption
 (7) In working out the existing business value, the annual inflation rate to be applied is worked out using the formula:

Expenditure assumption
 (8) In working out the existing business value, it is to be assumed that expenditure that the company will incur, in conducting its life insurance business, on recurring items after the demutualisation resolution day will be of the same kinds and amounts (increased to take account of any inflation, using the annual inflation rate in subsection (7)) as the company incurred in the accounting period, or part of an accounting period, ending on the demutualisation resolution day.

Investment return assumption
 (9) In working out the existing business value or the adjusted net worth, it is to be assumed that the annual rate of return on each investment of the company is:
 (a) if the investment is a security with a term less than 2 years or is cash—the Treasury bond rate (see subsection 121AO(1)) for the applicable accounting day in respect of bonds with a 26 week term; or
 (b) if the investment is any other kind of security—the Treasury bond rate for the applicable accounting day in respect of bonds with a 10 year term; or
 (c) in any other case—the rate mentioned in paragraph (b), plus 3%.

Future distributable profits assumption
 (10) In working out the existing business value or the adjusted net worth, the future distributable profits are to be determined on the assumption that the company:
 (a) will not distribute its profits so as to cause its capital reserves to fall below the capital reserve adequacy level (see subsection 121AO(2)) applicable to the company; and
 (b) will distribute all of its profits except to the extent necessary for its capital reserves not to fall below the capital reserve adequacy level.