iii. Discount rate
The outstanding claims liability is calculated with reference to expected future payments. These payments are discounted to adjust for
the time value of money. An increase or decrease in the assumed discount rate will have a corresponding increase or decrease on
profit and loss.
iv. Claims handling costs ratio
An increase in the ratio reflects an increase in the estimate for the internal costs of administering claims. An increase or decrease in
the ratio assumption will have a corresponding decrease or increase on profit and loss.
b. SENSITIVITY ANALYSIS OF CHANGES
The impact on the net outstanding claims liabilities before income tax to changes in key actuarial assumptions is summarised below.
Each change has been calculated in isolation of the other changes and without regard to other balance sheet changes that may
simultaneously occur. Changes are stated net of reinsurance recoveries.
The movements are stated in absolute terms where the base assumption is a percentage, for example, if the base inflation rate
assumption was 3.5%, a 1% increase would mean assuming a 4.5% inflation rate.
ASSUMPTION
CONSOLIDATED
MOVEMENT IN
ASSUMPTION
AUSTRALIA
PERSONAL
INSURANCE
AUSTRALIA
COMMERCIAL
INSURANCE NEW ZEALAND
ASIA
$m
$m
$m
$m
2015
Discounted average term to settlement
+10%
(38)
(75)
(1)
-
-10%
38
73
1
-
Inflation rate
+1%
125
152
6
1
-1%
(117)
(134)
(6)
(1)
Discount rate
+1%
(117)
(133)
(5)
-
-1%
127
153
5
-
Claims handling costs ratio
+1%
57
42
6
3
-1%
(57)
(42)
(6)
(3)
2014
Discounted average term to settlement
+10%
(52)
(89)
(1)
-
-10%
52
85
1
-
Inflation rate
+1%
135
141
4
-
-1%
(127)
(124)
(4)
-
Discount rate
+1%
(126)
(122)
(4)
-
-1%
137
141
4
-
Claims handling costs ratio
+1%
53
36
7
2
-1%
(53)
(36)
(7)
(2)
NOTE 11. REINSURANCE AND OTHER RECOVERIES ON OUTSTANDING CLAIMS
CONSOLIDATED
2015
2014
$m
$m
A. REINSURANCE AND OTHER RECOVERIES RECEIVABLE ON OUTSTANDING CLAIMS
Expected reinsurance and other recoveries receivable on outstanding claims - undiscounted
4,262
3,894
Discount to present value
(549)
(646)
Expected reinsurance and other recoveries receivable on outstanding claims - discounted
3,713
3,248
The carrying value of reinsurance recoveries and other recoveries includes $1,839 million (2014-$1,882 million) which is expected to
be settled more than 12 months from the reporting date.
Refer to the claims note for a reconciliation of the movement in reinsurance and other receivables on incurred claims.
B. ACTUARIAL ASSUMPTIONS
The measurement of reinsurance and other recoveries on outstanding claims is an inherently uncertain process involving estimates.
The amounts are generally calculated using actuarial assumptions and methods similar to those used for the outstanding claims
liability (refer to section VI of the claims note).
Where possible, the valuation of reinsurance recoveries is linked directly to the valuation of the gross outstanding claims liability.
Accordingly, the valuation of outstanding reinsurance recoveries is subject to similar risks and uncertainties as the valuation of the
outstanding claims liability. Significant individual losses (for example those relating to catastrophe events) are analysed on a case-by-
case basis for reinsurance purposes.
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