8.2.1. General provisions

(1) An Insurer may:

• (a) measure the value of an asset at less than the value determined in accordance with this Chapter; and
• (b) measure the value of a liability at more than the value determined in accordance with this Chapter.

(2) However, if the AFSA directs an Insurer to measure an asset or a liability in accordance with principles that differ from those specified in this Chapter, the Insurer must measure such assets or liability in accordance with those principles as directed.

8.2.2. Basis of accounting

Save where directed otherwise by the AFSA or where inconsistent with the rules in this Chapter, an Insurer must recognise its assets and liabilities and measure their value in accordance with the IFRS basis of accounting.

8.2.3. Methods and assumptions that may be used

In measuring assets and liabilities, an Insurer must use methods and prudent assumptions that:

• (a) are appropriate to the nature, scale and complexity of the Insurer’s business;
• (b) are made using professional judgement, training and experience;
• (c) are made having regard to reasonably available statistics and other information;
• (d) are consistent from year to year and without arbitrary changes;
• (e) include appropriate margins for adverse deviation of relevant factors;
• (f) recognise the distribution of profits or emerging surplus in an appropriate way over the duration of each Contract of Insurance;
• (g) are in accordance with generally accepted actuarial practice; and
• (h) do not reflect the Insurer’s own credit rating.

8.2.4. Changes in methods and assumptions on which valuations depend

(1) Where the valuation of an asset or liability is dependent upon the adoption of assumptions or the adoption of a calculation method, an Insurer must ensure that any change in the assumptions or methods adopted is reflected immediately in the value attributed to the asset or liability concerned.

(2) The recognition of the effects of changes in assumptions or methods may not be deferred to future reporting periods.

8.2.5. Actuarial principles

The AFSA may specify actuarial principles to be used by an Insurer in measuring assets and liabilities.

8.2.6. Derecognising liabilities

(1) An Insurer must not derecognise an Insurance Liability (or a part of an Insurance Liability) until the obligation giving rise to the liability expires or is discharged or cancelled.

(2) To avoid doubt, if reinsurance covering the liability (or part of the liability) is purchased, the liability must not be derecognised unless the purchase results in the discharge or cancellation of the obligation giving rise to the liability.

8.2.7. Discount rate

In calculating the present value of an Insurance Liability, the discount rate must be a prudent estimate of the yield expected to be earned by assets of the Insurer that are sufficient in value and appropriate in nature to cover the provisions for the liability being discounted.

8.2.8. Valuation of expected future payments

Where this Chapter requires an Insurer to recognise as a liability the value of expected future payments, that liability must be measured as the net present value of those expected future payments.

8.2.9. Valuation of expected future receipts

Where this Chapter requires an Insurer carrying on General Insurance Business to recognise as an asset the value of expected future receipts, that asset must be measured as the net present value of those expected future receipts.