Document ID: chunk:federal_register_of_legislation:C2025C00014:section:121am:p1
Version: federal_register_of_legislation:C2025C00014
Segment Type: section
Provision Reference: s 121AM (pt 1/2)
Character Range: 1036180–1038941

121AM  Embedded value of a mutual life insurance company
 (1) The embedded value of a mutual life insurance company that demutualises using a demutualisation method is, in accordance with this section, the sum of its existing business value and its adjusted net worth on the applicable accounting day (see subsection (3)).

Eligible actuary and Australian actuarial practice
 (2) The sum is to be worked out by an eligible actuary (see subsection 121AO(3)) according to Australian actuarial practice.

Applicable accounting day
 (3) The applicable accounting day is:
 (a) if an accounting period of the company ends on the demutualisation resolution day—that day; or
 (b) in any other case—the last day of the most recent accounting period of the company ending before the demutualisation resolution day.

Adjustment for changes after applicable accounting day
 (4) In a case covered by paragraph (3)(b), if any significant change in the amount of the existing business value or adjusted net worth occurs between the applicable accounting day and the demutualisation resolution day, the amount is to be adjusted to take account of the change.

Continued business assumption
 (5) In working out the existing business value or the adjusted net worth, it is to be assumed:
 (a) that after the applicable accounting day the company will continue to conduct its life insurance business and any other activity in the same way as it did before that day, and that it will not conduct any different business or other activity; and
 (b) that the demutualisation will not occur.

Discount rate assumption
 (6) In working out the existing business value or adjusted net worth, the annual discount rate to be used in respect of each future accounting period is worked out using the formula:

where:
10 year Treasury bond rate means the Treasury bond rate (see subsection 121AO(1)) for the applicable accounting day in respect of bonds with a 10 year term.
Capital reserve adequacy shortfall percentage  means:
 (a) if, for any future accounting period, the capital reserves of the company are projected to fall below the capital reserve adequacy level (see subsection 121AO(2)) by 1% or more at both the beginning and end of the accounting period—the percentage worked out by averaging the percentages worked out under each of the following subparagraphs:
 (i) 0.2% for each 1% by which the capital reserves are projected to fall below the level at the beginning of the period;
 (ii) 0.2% for each 1% by which the capital reserves are projected to 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