ClearView Wealth limited ABN 106 248 248 www.clearview.com.au Track to Growth ClearView 2011 AnnuAl RepoRt CleArView weAlTh limiTed tRACk to gRoWth ClearView is on a track to growth. During 2011, we successfully integrated the life insurance and wealth management businesses purchased from Bupa Australia in June 2010. We also commenced growth initiatives to enhance our product offering, enter the advice market, and expand and leverage our strategic partner member base which totals over 3 million Australians. We believe our focused growth strategy, experienced management team and strong capital position will continue to steer us towards becoming a significant player in Australia’s life insurance and wealth management markets. Contents Our Purpose and Values Company Overview Chairman’s report managing director’s report 2011 results directors’ report Auditor’s independence declaration Corporate Governance Financial report directors’ declaration independent Audit report 1 2 4 6 9 10 27 28 35 98 99 Shareholders’ information 101 FinAnCiAl CAlendAR AnnuAl geneRAl Meeting 27 October 2011, at 10am hAlF YeAR end 31 december 2011 hAlF YeAR Result AnnounCeMent February 2012 YeAR end 30 June 2012 AnnuAl RepoRt August 2012 directory Dates are subject to change. DireCtory Directors ray Kellerman (Chairman) Anne Keating Anthony eisen (alternate michael Jefferies) david Goodsall John murphy Simon Swanson Susan Thomas Former Director Peter wade Managing Director Simon Swanson Company Secretaries Chris robson Athol Chiert registered office and Contact Details level 4, 50 Bridge Street Sydney NSw 2000 GPO Box 4964 Sydney NSw 2001 Telephone: 02 8095 1300 02 9233 1960 Facsimile: ir@clearview.com.au email: www.clearview.com.au website: Share registry For all enquiries relating to shareholdings, dividends and related matters, please contact the share registry: Computershare investor Services Pty limited level 3, 60 Carrington Street Sydney NSw 2000 Telephone: 1300 855 080 03 9415 4000 Facsimile: 03 9473 2500 Auditors deloitte Touche Tohmatsu Accounting and Custodian Services BNP Paribas Services Australasia Pty limited Stock Listing ClearView wealth limited is listed on the Australian Securities exchange (ASX) under the ASX code ‘CVw’. ClearView 2011 annual report 1 Our PurPOse To be a trusted partner in providing financial solutions that protect and improve the lifestyles of Australians throughout their lifetime. Our VALues COLLAbOrAtiOn We bring tOgether extensiVe inDustry exPerienCe With the AgiLity Of An inDePenDent sPirit. Our strengths allow us to behave in our customers’ best interest. We have a strong sense of community and mutual support that reflects how we do business. integrity tO DeLiVer A strAight fOrWArD, frienDLy AnD ACCessibLe serViCe We hAVe tO be trAnsPArent AnD sinCere in Our ACtiOns. Mutual trust and respect are central to our purpose and underlie our belief in open and truthful relationships. PersistenCe PrOViDing A high tOuCh, high quALity rAnge Of PrODuCts AnD serViCes MeAns We COnstAntLy striVe tO OutPerfOrM the best in the WOrLD. Our size and experience allow us to search all solutions until we find the exact fit and optimum result for our customers, partners and staff. AuthentiCity We Are WArM AnD APPrOAChAbLe AnD AbsOLuteLy CLeAr AbOut WhO We Are AnD Why We genuineLy CAre AbOut yOur finAnCiAL seCurity. We are invited into people’s lives because we are good people, offering really good advice, with extremely valuable products and clear service benefits. ClearView wealth limited 2 ClearView specialises in providing Australians with integrated financial solutions which include life insurance, investment and superannuation products, and financial advice. in fOrCe Life insurAnCe PreMiuMs $41.0 million in ForCe premium miX underwriTTen 59% Term life – fully 22% Term life – shorT-form underwriTTen deATh 14% ACCidenTAl 5% oTher ClearView 2011 annual report 3 funDs unDer MAnAgeMent AnD ADViCe $3.0 billion Fuma miX ($m) 714 Pensions 570 suPer 92 rolloVer And 147 reTAil uniT sAVings TrusTs firsT sTATe fuA 554 ColoniAl 301 nAVigATor fuA 165 mACquArie fuA 426 oTher fuA in fOrCe Life insurAnCe PreMiuMs $41.0 million inVestMent PerfOrMAnCe total 1 Year return (FundS under manaGement) CLeArVieW WhOLesALe funDs moneY market Bond international FiXed intereSt propertY auStralian equitY international equitY % 5.10 6.31 7.52 5.90 14.33 8.77 % 4.99 5.55 5.38 5.84 11.73 2.66 inDex uBS Bank Bill uBS CompoSite Bond all mktS CitiGroup world GoV’t Bond S&p aSX 200 propertY S&p aSX 200 mSCi world eX auStralia $1.5 billion FundS under manaGement aSSet miX shAres fiXed inTeresT 25% AusTrAliAn 23% AusTrAliAn 20% CAsh 13% inTernATionAl shAres infrAsTruTure 7% lisTed 5% emerging mArkeTs 4% ProPerTy 3% inTernATionAl fiXed inTeresT ClearView wealth limited 4 ClearView wealth limited (ClearView) is a profitable, cash generating business with significant potential Chairman’s report ray Kellerman for growth and value creation. The current business has been created by the successful integration of the life insurance and wealth management businesses acquired from Bupa Australia on 9 June 2010. The potential for growth stems from our industry expertise, our exclusive distribution agreements with strategic partners and ClearView’s unique position in the market. intrODuCtiOn the 2011 financial year (2011) reflects 12 months of ownership of the life insurance and wealth management businesses acquired and the transformation of ClearView into a vertically integrated life insurance and wealth management company. this compares with the 2010 financial year (2010) which reflected only three weeks of change and preliminary integration. the success of the acquisition and transformation is revealed in 2011 with a significant increase in profitability and generation of cash. By the end of the next financial year, we expect to be able to show you evidence of our planned growth. finAnCiAL resuLts For the year ended 30 June 2011, we reported an underlying net profit after tax of $19.3 million compared to an underlying loss after tax of $1.0 million in the prior year. underlying profit is the Board’s key measure of profitability and the basis on which the dividend payment is determined. it consists of the reported profit after tax adjusted for amortisation charges, one-off costs associated with the integration, restructure and upgrade of the acquired businesses and systems, and volatile interest rate effects on the insurance policy liabilities (tax affected). the underlying loss after tax for 2010 also excludes an adjusted profit on acquisition of $11.8 million due to the accounting for business combinations under the accounting standards. surPLus CAPitAL at 30 June 2011, the surplus capital above internal target requirements (prior to the 2011 dividend and capital benefit of the utilisation of tax losses) was $53 million. our surplus capital and its increase over the year demonstrates ClearView’s capital generation capacity and our strong capital position. the year end position allows the Company to pay its shareholders a dividend and to fund its growth initiatives over the medium term. DiViDenDs the directors have declared a fully franked dividend of 1.8 cents per share which will be paid on 22 September 2011. this dividend represents 40% of underlying profit which is at the top of our policy range (outlined on page 15 of the directors’ report) and reflects our strong capital position at the end of the financial year. no dividends were paid in the prior year. ClearView 2011 annual report 5 POtentiAL fOr grOWth we are in a unique position to grow in the life insurance and wealth management industry. although Clearview’s individual businesses have been around for more than 20 years, ClearView is a newly vertically integrated financial services company. we have a new senior management team with deep and broad industry experience and the flexibility to focus on profitable, scalable segments of the market. we also have exclusive distribution agreements with strategic partners – currently Bupa australia, 7 credit unions and 2 affinity groups – which provide us with access to over 3 million australians. ensuring we have the range of products, a suitable administration platform and multiple distribution channels will be crucial to maximising growth and shareholder value over the next few years. signifiCAnt shArehOLDer ClearView’s largest shareholder is Guinness peat Group (GpG) whose shareholding in the Company is 49%. on 11 February 2011, GpG announced that it was undertaking an orderly value realisation of its investment portfolio and would seek to exit individual investments at an appropriate timeframe for each investment which optimises value for GpG shareholders. Since this announcement, the support from our largest shareholder remains strong. they continue to work closely with ClearView and its Board to enhance and create shareholder value. GpG currently has one director and one alternate director on the ClearView Board and we continue to value their strategic insights and expertise. Our PeOPLe ClearView has recruited a highly skilled and talented management team and Board to maximise value for our shareholders. Simon Swanson, who joined as managing director in march 2010, has assembled a team with the energy and experience not only to run the existing business but to transform ClearView into a growth business. my thanks go to Simon, his management team and to all the staff for their efforts during the year. i would also like to extend a sincere thank you to my Board colleagues. anne keating and Susan thomas joined the Board in november 2010 and have provided valuable expertise and input into preparing ClearView for growth. peter wade and michael Jefferies both resigned as directors in July 2011 and i would like to thank them for their help with the transformation of ClearView over their four and three years, respectively. mike will continue to play an active role as an alternate director to anthony eisen. the Board currently consists of seven directors, of whom four are independent as per the aSX Corporate Governance principles and recommendations. OutLOOK market uncertainty as well as pending regulatory reforms are creating challenges for all financial services companies in australia, and ClearView is no exception. negative consumer sentiment in the economy has manifested itself in our net fund flow results. Vertically integrated companies like ClearView are in a strong position to adapt to an uncertain economic environment and potential regulatory reforms. we have the flexibility around products, pricing and distribution that puts us in a good position to deal with proposed reforms. we also have a strong capital position at 30 June 2011 which supports our sustainability and ability to pursue opportunities. Furthermore, the long term outlook for the life insurance and wealth management industries remains robust driven by an underinsurance gap, government mandated superannuation and an increasingly complex investment environment. COnCLusiOn ClearView is well positioned to continue its transformation into a growth company despite short term uncertainty in the markets and associated execution risk. we now have a solid business from which to grow, strong leadership and direction from the Board and management team, a focused growth strategy and a strong capital position. i would finally like to thank our shareholders and strategic partners for supporting our initiatives to become a significant player in life insurance and wealth management in australia. ray Kellerman Chairman Sydney, 24 august 2011 ClearView wealth limited 6 we are on a track to growth and to becoming a fully integrated life insurance and wealth management company. The purchase of the ClearView businesses from Bupa Australia and their integration with our Managing Director’s report simon swanson existing businesses has transformed the Company. ClearView is now a standalone AsX listed company. This independence allows a more focused, nimble and specialised approach to creating opportunities in the life insurance and wealth management industries. importantly, ClearView retains the distribution capability of a large company which can be used to maximise the value of exclusive distribution agreements with its strategic partners. OPerAtiOnAL highLights operational highlights during the financial year include: • • • • • Establishing ClearView as a standalone life insurance and wealth management business following the successful acquisition of the Bupa businesses; Upgrading our life insurance and wealth management administration platform; Launching a suite of direct life insurance products through direct marketing, telemarketing and the internet; Integrating our financial planning businesses by merging ComCorp with ClearView to form ClearView Financial advice; Winner of the Money Management non-aligned ‘dealer Group of the Year’ for 2011; and • Commencement of growth initiatives which include the launch of a life advice product and a “private label” wealth management platform. finAnCiAL resuLts the results for the year ended 30 June 2011 reflect how much the Company has changed post the acquisition and integration of the Bupa businesses. the underlying net profit after tax was $19.3 million, up from an underlying net loss of $1.0 million in the 2010 financial year. reported net profit from continuing operations after tax increased by 260% to $8.7 million from $2.4 million in the previous year (adjusted for the reported profit on acquisition). the Board re-instated a dividend in 2011 of 1.8 cents per share on a fully franked basis. the embedded value of the group rose by 16% to $259 million at 30 June 2011, from $223 million at 30 June 2010. ClearView 2011 annual report 7 we ended the year with a strong capital position that included no debt and surplus capital above internal requirements of $53 million. whilst our surplus capital was securely invested in cash and earned 4% post tax in 2011, more importantly, the balance of our capital employed in the life insurance and wealth management businesses returned a healthy 14% after tax over the period. eCOnOMiC COnDitiOns the australian economy faced an unusual year in the second half of the 2011 financial year – it was neither booming nor collapsing. however, the prospect of increasing interest rates, poor equity performance, a stronger australian dollar and inflation coupled with debt concerns in europe and the united States led to lower consumer confidence in australia which in turn has led to negative fund flows. we believe that this relatively low period of economic confidence may well continue for a number of years and we have decided to reposition our business accordingly. this is reflected in the restructuring of our financial planning business to further improve performance and reduce costs. MArKet OutLOOK life insurAnCe our life insurance business, like the overall industry in australia, has been stable. however, it has been impacted by recent trends that reflect an increase in lapse rates. we suspect this increase is due to our relative greater exposure to the new South wales and queensland economies which have been harder hit than the other States over the past twelve months, as well as credit card billing issues which have now been resolved. nevertheless, we expect to benefit from long term industry growth which remains strong as annual in force premiums are forecast to grow at slightly above 9% per annum over the next 10 years (Source: deXX&r). weAlTh mAnAgemenT the australian retail wealth management industry continues to experience net fund outflows and this will be reflected in the upcoming industry statistics. the superannuation industry remains a growth industry, however, supported by regulated inflows. what is clear today is that the age of retirement is far more variable than many had thought. the Global Financial Crisis adversely impacted super balances and expectations around sustainable returns from investments. in these circumstances we believe that there has been a widespread deferral of retirement as people stay within the accumulator stage of the super system for another few years to rebuild super balances. the retail industry that ClearView has historically participated in is overwhelmingly focused on the retiree market, and as such has seen much lower fund inflows. this deferral of retirement can only delay the timing of the anticipated flow of funds into the retirement phase. reguLAtiOns the australian financial services industry is facing a relatively complex set of regulatory changes in the near term that consist of: • • • Advice based reforms – the Future of Financial advice (FoFa) reforms; Capital based reforms – APRA’s proposed changes to capital standards; and International accounting standards – iaSB and FaSB proposed changes. ClearView is well positioned to manage these reforms due to its strong capital position and its vertically integrated financial services business model, which provides it with flexibility in terms of its products, pricing and distribution methods. Changes to the international accounting standards will impact the industry as a whole, and future developments will continue to be monitored closely. strAtegiC PArtnershiPs our largest strategic partner is Bupa australia with whom we have a 10 year exclusive distribution agreement to sell life insurance and wealth management products to its member base of over 3 million people. the Bupa relationship is proceeding in a measured fashion and there is much work to do from both sides to make the partnership a success. it will take time to penetrate the Bupa member base although we believe the long term rewards will eventuate as we expand the quality and depth of the relationship. ClearView wealth limited 8 Managing Director’s report Continued… thAnK yOu i would like to thank the Board, staff and financial planners for their commitment to our goal of providing value for money products, and good, consistent service and advice in the last financial year. the challenge for us in the next year is to continue to improve so that we can make a strong contribution to our customers, strategic partners, employees and shareholders. Finally, i would like to thank our strategic partners, namely Bupa and our credit union partners, for their support during the year. suMMAry 2011 has been a transformational year for ClearView which is profitable, generating strong capital returns and paying dividends. this solid financial performance together with our clearly articulated strategy and our determined team, positions us well in an industry with strong growth prospects. simon swanson managing director Sydney, 24 august 2011 our relationships with credit unions continue to be strong and we look forward to increasing and expanding our distribution agreements with them going forward. the merging of phoenix Credit union and maitland mutual Building Society in march 2011 reduced our credit union relationships to seven but had a minimal impact on our member base. all of our distribution agreements with credit unions involve us selling their members wealth management products. however, starting in october 2011, we will be selling life insurance products to the members of the queensland Country Credit union. trACK tO grOWth our track to growth in the next financial year will focus on the following: • • • • Upgrading and expanding products and processes with an initial focus on life insurance; Leveraging alliances with strategic partners; Penetrating the Independent Financial adviser (iFa) market; and Increasing our strategic partners through additional alliances. sPeCifiC iniTiATiVes inClude: • • • • Launching a life insurance product tailored to the iFa market; Rolling out our products to the Bupa member base via telemarketing/direct marketing, member centres, call centres, the internet and the hBa/mutual Community; Creating a private label platform on which to launch new wealth management products; and Expanding our life insurance offering to credit unions. we expect these initiatives will start to materialise in the second half of the 2012 financial year and provide a strong platform for growth in the ensuing years. ClearView 2011 annual report 9 2011 RESULTS $19.3m 4.6 CentS per SHare (FullY DiluteD) $53m 12.2 CentS per SHare (FullY DiluteD) UNDERLYINg NPAT 1 SURPLUS cAPITAL2 1.8 CentS per SHare 61 CentS per SHare3 FULLY FRANKED DIVIDEND NET ASSETS $259 million EMbEDDED VALUE 1 2 3 underlying profit is the Board’s key measure of profitability and the basis on which the dividend payment is determined. it consists of profit after tax adjusted for amortisation, restructure and transition costs, one-off system upgrade costs and aiFrS insurance liability adjustment (tax effected). Surplus capital above internal target requirements prior to the FY11 dividend and capital benefit of utilisation of tax losses. net assets per share is adjusted for an employee Share plan (eSp) loan of $12.0 million and 20.7 million eSp shares. PROFIT & LOSS hIghLIghTS YEAR ENDED 30 JUNE 2011 $ million Life insurance Wealth management Financial planning Listed Entity / Other Underlying NPAT Amortisation One-off adjustments Reported NPAT 9.0 10.2 (0.4) 0.5 19.3 (7.4) (3.2) 8.7 RESULTS REFLEcT A SOLID, PROFITAbLE bUSINESS AT ThE bEgINNINg OF A gROwTh PhASE. Successfully integrated bupa Australia’s life insurance and wealth management businesses Extracted annual cost savings of $6.5 million Successful recruitment of experienced and skilled key executives and board members Rolled out referral management system to planners and strategic partners Introduced 5 new direct life insurance products and upgraded life insurance client facing websites winner of the 2011 Money Management non-aligned ‘Dealer group of the Year’ ClearView wealtH limiteD 10 DiREcTORS’ REpORT the Directors of ClearView wealth limited (ClearView or the Company) submit their report, together with the financial report of the consolidated entity (the Group) for the year ended 30 June 2011 (the financial year). DIREcTORS the following persons were Directors of ClearView during the whole of the financial year and since the end of the financial year unless otherwise noted: • • • • • • • • • ray Kellerman (Chairman) anne Keating (appointed 29 november 2010) anthony eisen David Goodsall John murphy michael Jefferies (resigned 27 July 2011) peter wade (resigned 27 July 2011) Simon Swanson Susan thomas (appointed 29 november 2010) the biographies for both the current and former Directors of ClearView are detailed below: cURRENT DIREcTORS Ray Kellerman B.eC, llB, mBa, aCia Independent Non-executive chairman ray has a legal background and was head of compliance services at the Corporate trust division of perpetual trustees australia where he spent 10 years before establishing his own compliance consulting and advisory business in 2001. ray currently acts as a director and audit, risk and compliance committee member for a number of major fund managers and financial institutions including Goodman Funds management australia, Certitude Global investments, macquarie Bank, Deutsche asset management, aberdeen asset management and alliance Bernstein investment management australia. He is an owner and director of Quentin ayers pty limited, an independent asset consultant firm in the alternative assets sector. ray is the Chairman of the nomination and remuneration Committee and a member of the audit, risk and Compliance Committee. He was appointed a Director on 5 april 2007 and Chairman on 4 november 2008. age 47. Anne Keating Independent Non-executive Director anne has 18 years’ experience as a director including seven on the nrma insurance Board along with significant marketing and governance experience. She is currently a director of ardent leisure Group limited, Gi Dynamics inc, Goodman Group, the Garvan institute of medical research and reVa medical inc. anne is also a member of the advisory Council of the royal Bank of Scotland australia, a Governor of Cerebral palsy Foundation and a trustee of Centennial park and moore park trust. Her former directorships were at insurance australia Group (formerly nrma insurance), Stw Communications Group, workCover authority of nSw, Spencer Street Station redevelopment Holdings, radio 2CH, easy Fm China and Victor Chang Cardiac research institute. From 1993 to 2001, anne was the General manager of australia for united airlines. anne is a member of the nomination and remuneration Committee. She was appointed to the Board on 29 november 2010. age 57. Anthony Eisen B.Com, Ca Non-executive Director anthony has 17 years’ experience in finance and investment. He is currently an executive of GpG. as GpG is a substantial shareholder of ClearView shares, anthony is not considered independent by the Board. prior to joining GpG, anthony was an investment banker in australia and the united States. anthony commenced his professional career as an accountant and is a member of the institute of Chartered accountants in australia. anthony currently represents the interests of GpG on the boards of Capral limited, eServGlobal limited, tower limited and turners & Growers limited. anthony was previously a director of GpG on the board of tower australia Group limited. anthony is a member of the audit, risk and Compliance Committee. He was appointed a Director on 12 november 2007. age 39. David Goodsall Ba, Fiaa, aSa, Cera, maiCD Independent Non-executive Director David has in-depth knowledge and experience in life insurance and funds management. He has held a number of appointed actuary positions and led the actuarial practice of ernst & Young where he was also a partner until he retired from the firm in 2009. in 2009, David established a new consulting firm, Synge & noble, where he is a director. He is also the Senior Vice president of the institute of actuaries of australia. David is Chairman of the audit, risk and Compliance Committee. He was appointed a Director on 9 June 2010. age 56. ClearView 2011 annual report 11 John Murphy B.Com, m.Com, Ca, FCpa Non-executive Director Michael Jefferies B.Com, Ca Alternate Director mike has been an executive of GpG for the past 19 years. as GpG is a substantial shareholder of ClearView shares, mike is not considered independent by the Board. He currently represents the interests of GpG as Chairman of touch Holdings limited and a non-executive director of tower limited, Capral limited, metals X limited and an alternate Director of eServGlobal limited. He is also a director of ozgrowth limited. mike was previously a director of tower australia Group limited and australian wealth management limited. mike was appointed a Director on 4 november 2008. on 27 July 2011 he resigned and was appointed an alternate Director to anthony eisen on the same day. age 55. FORMER DIREcTORS Peter wade B.eC, aSia, mSDia Independent Non-executive Director peter has worked in the australian and international equity markets for 30 years. His most recent role was as a consultant to the Commonwealth Bank. prior to that he worked for Goldman Sachs JBwere (GSJBw, previously known as JBwere) in melbourne, london, new York and Sydney and at Jp morgan. He sat on the Board and management Committee of both JBwere and GSJBw and was on the management committee at Jp morgan. peter has served on the boards and committees of a number of security industry related organisations. peter was a member of the Board from 31 october 2007 until his resignation on 27 July 2011. age 54. John is the founder and managing Director of investec wentworth private equity. as investec is a substantial shareholder of ClearView shares, John is not considered independent by the Board. John has over 30 years experience in private equity, turnarounds, corporate finance and accounting. prior to entering private equity in 1998, John spent over 25 years, including 14 as a senior partner, in the corporate finance and recovery division of a global accounting firm. John is a director of investec Bank (australia) limited and Chairman of the bank’s investment Committee. He sits on the boards of many of investec wentworth private equity’s portfolio companies and has extensive public company board experience. John is a member of the audit, risk and Compliance Committee. He was appointed to the Board on 9 June 2010. age 58. Simon Swanson B.eC, B.Bus, anZiiF (Fellow) Cip, Cpa Managing Director Simon is one of australia’s most skilled and experienced insurance executives having worked for over 30 years across life, general and health insurance as well as funds management. He has successfully led the largest life insurer (Comminsure, Sovereign and Colonial) in three countries and has spent half of his career in the asia pacific region. apart from running large insurance companies, he has successfully started a broad range of businesses covering life insurance, health insurance and funds management. Simon was appointed as managing Director on 26 march 2010. age 53. Susan Thomas B.Com, llB Independent Non-executive Director Susan has expertise in technology and law in the financial services industry. She is currently a director of landgate and Grant thornton australia limited and a former director of iwl limited. Susan founded and was the managing Director at Flexiplan australia, an investment administration platform sold to mlC and now operating under the mlC/naB banner as masterKey Custom. Susan is a member of the nomination and remuneration Committee and the audit, risk and Compliance Committee. She was appointed to the Board on 29 november 2010. age 53. ClearView wealtH limiteD 12 DiREcTORS’ REpORT ContinueD DIREcTORShIPS OF OThER LISTED cOMPANIES Directorships of other listed companies held by Directors in the three years preceding the end of the financial year are as follows: NAME cOMPANY PERIOD OF DIREcTORShIP anne Keating ardent leisure Group limited Goodman Group reVa medical inc. 30 march 1998 – ongoing 23 January 2004 – ongoing 1 october 2010 – ongoing Stw Communications Group 17 may 1995 – 10 February 2011 anthony eisen Capral limited(1) eServGlobal limited tal limited (formerly tower australia Group limited)(2) tower limited turners & Growers limited 29 august 2008 – ongoing 20 march 2009 – ongoing 19 December 2006 – 8 august 2008 12 December 2006 – ongoing 24 February 2011– ongoing John murphy ariadne australia limited Gale pacific limited Specialty Fashion Group limited Staging Connections Group limited Vocus Communications limited michael Jefferies(2) Capral limited eServGlobal limited(2) metals X limited ozGrowth limited 6 December 2006 – ongoing 24 august 2007 – ongoing 20 February 2005 – 28 october 2010 7 march 2003 – ongoing 7 march 2003 – ongoing 6 november 2008 – ongoing 13 march 2009 – ongoing 14 June 2004 – ongoing 31 october 2007 – ongoing tal limited (formerly tower australia Group limited) 8 august 2006 – 8 august 2008 tower limited 19 December 2006 – ongoing (1) alternate director from 19 october 2006 to 29 august 2008. (2) alternate director. ClearView 2011 annual report 13 cOMPANY SEcRETARIES PRINcIPAL AcTIVITIES chris Robson bA (hons), LLb, LLM was appointed Company Secretary on 4 april 2011. He is also General Counsel at ClearView. Chris has over 20 years’ experience in the financial services industry. For the previous seven years, Chris was General Counsel and Group Company Secretary for Challenger limited (formerly Challenger Financial Services Group limited). Before that, he was Head of legal, risk management and Compliance at Barclays Global investors australia limited. Chris has also held legal roles at the Commonwealth Bank of australia, the australian Securities and investment Commission and the Commonwealth attorney General’s Department. He is a member of the law Society of nSw and the Society of notaries of nSw. Athol chiert, b com, b Acc, cA was appointed Company Secretary on 4 november 2008. He is also the Chief Financial officer at ClearView. athol has a life insurance and private equity background. athol was previously the CFo of prefSure Holdings limited and prefSure life limited (formerly lumley life limited). athol also served as part of the Global Capital Group both in australia and South africa and has over 15 years’ experience in the finance industry. athol commenced his professional career as an accountant with arthur andersen. APPOINTED AcTUARY OF cLEARVIEw LIFE ASSURANcE LIMITED greg Martin (bA, FIAA, FFin, FAIcD) was hired as appointed actuary of ClearView life assurance limited on 5 July 2010, and became an employee of ClearView on 1 march 2011 in the role of Chief actuary and risk officer. Greg has over 25 years’ experience specialising in life insurance and funds management and has held a number of other appointed actuary roles during his career. Greg has been a member of the life insurance actuarial Standards Board, a member of two advisory panels to the australian accounting Standards Board and a member of multiple committees of the institute of actuaries of australia. Greg has a wealth of experience in the areas of risk and capital management, financial management and reporting, and product pricing and management. the consolidated entity’s principal activities in the course of the financial year were that of a vertically integrated financial services company, with a focus on the life insurance and wealth management industry. ClearView generates its revenue through the manufacture and distribution of life insurance, superannuation, investment products and financial advice. the Group operates in three segments: life insurance, wealth management and financial planning. as at 30 June 2011, ClearView had in force premiums of $41.0 million and funds under management and advice of $3.0 billion. REVIEw OF OPERATIONS AND AcTIVITIES on 9 June 2010, the Group acquired Bupa’s life insurance and wealth management businesses ClearView Group Holdings pty limited (CVGH). Consequently, the results for the current financial year include 12 months of CVGH compared with three weeks in the prior financial year. post the CVGH acquisition, the key focus was to integrate, transform, and align the businesses for future growth. the integration of the former Bupa businesses was completed in the first half of the financial year. During the financial year, ClearView’s financial advice business operated under two separate brands – ClearView Financial management (which targets the retail base) and ComCorp Financial advice (which targets the credit union and enterprise markets). on 1 July 2011, ComCorp Financial advice pty limited was renamed ClearView Financial advice pty limited. this move better aligns the Group for future growth as it allows the financial advice businesses to operate under one brand and one license. ClearView has commenced pilot telemarketing campaigns to direct market life insurance products to Bupa’s member base. in addition, ClearView has rolled out its customised client and referral management system to 65 Bupa member centres (out of 110). this customised client and referral management system is expected to drive planner productivity as well as facilitate the penetration of the Bupa member base. ClearView is in the initial phase of its rollout through Bupa with the remaining distribution channels, call centres, web and HBa/ mutual Community expected to be completed in the second half of the 2012 financial year. as part of the Group’s transformation from a listed investment company, ClearView was assigned a new GiCS code by Standard & poors and was also included in the aSX all ordinaries index. on 1 october 2010, the Group moved from Diversified Financials to the insurance Sector. on 7 December 2010, ClearView was licensed as an apra regulated non- operating holding company (noHC). ClearView wealtH limiteD 14 DiREcTORS’ REpORT ContinueD clearView Group Holdings (cVGH) Acquisition on 7 January 2011, ClearView and Bupa finalised the adjustment amount relating to the CVGH acquisition. the final amount was $9.7 million and represented the increase in the net assets acquired between 31 December 2009 and 9 June 2010. this resulted in a total acquisition purchase price of $204.7 million, which was $3.9 million higher than that estimated as at 30 June 2010. this led to a $3.5 million reduction to the profit on acquisition reported at 30 June 2010. Other Acquisitions on 13 July 2010, ClearView Financial advice acquired the business of one of its franchised planners, Suntrip Financial Services pty limited for $0.8 million. the purchase price consisted of $0.4 million in cash with the balance to be settled over a period of 18 months if certain warranties are achieved. these acquisitions are consistent with ClearView’s strategy of developing its presence in the wealth management industry. Employee Share plan in accordance with the provisions of the ClearView wealth employee Share plan (eSp), during the year 3,000,000 shares were issued in accordance with the eSp rules with the following grant dates: SERIES Series 14 (Senior management) DATE NO OF ShARES 1 november 2010 3,000,000 on 18 august 2011, 3 million shares were reallocated from Series 5 and 8 to Series 15 (Senior management) due to the departure of the Ceo wealth management and advice. Series 15 has a grant date of 1 July 2011. Operating Results for the year ended 30 June 2011 from continuing operations the Directors report a consolidated profit from continuing operations for the year as follows: underlying net profit / (loss) after tax eliminations amortisation of intangibles Systems upgrade profit on acquisition transaction costs transition and restructure costs aiFrS policy liability adjustment income tax effect Reported profit 30 JUNE 2011 $’000 30 JUNE 2010 $’000 chANgE FROM PREVIOUS YEAR 19,317 – (7,401) (660) – – (3,705) (568) 1,682 8,665 (1,040) (341) (665) – 11,812 (4,843) (3,292) 886 (109) 2,408 1957% n/a (1013%) n/a n/a n/a 13% (164%) (1643%) 260% the profit on acquisition reported at 30 June 2010 was reduced by $3.5 million to $11.8 million as a result of completion adjustments. the prior period results include the profit realised on the acquisition as a result of the fair value of the acquisition net assets being higher than the acquisition price. the amortisation of the intangibles is associated with the acquisition of CVGH and ClearView Financial advice. the transition and restructure costs predominantly relate to the transition off the Bupa it infrastructure and the termination and related salary costs associated with the organisational restructure and termination of employees. a provision of $1.4 million was raised at 30 June 2011 as a result of a review of the planning business unit to further improve performance and reduce costs. the system upgrade costs relate to the upgrade of the life administration platform. the aiFrS policy liability adjustment is as a result of the movement in long-term interest rates over the period and is a non cash item. ClearView 2011 annual report 15 Dividends the Directors have declared a final fully franked dividend in 2011 of $7.727 million (2010: nil). this represents 40% of the 2011 underlying profit and is in line with the Company’s dividend policy (see below). no interim dividend was paid during the year (2010: nil). Dividend policy Subject to available profits and financial position, the Board’s expectation is to pay an annual dividend representing 20% to 40% of underlying profit, subject to regulatory requirements and available capital. ClearView’s ability to pay a dividend will depend upon factors including its profitability, the availability of franking credits and its funding requirements which in turn may be affected by trading, general economic conditions, business growth and regulation. accordingly, no assurance can be given as to the timing, extent and payment of dividends. capital Management each entity in the Group has a benchmark level of capitalisation based on the individual risk characteristics of that entity, any regulatory capital requirements it may be subject to, and the entity’s risk tolerance. Surplus capital above the internal capital management plan at 30 June 2011 was $53 million across the Group. as at 30 June 2010, capital in excess of regulatory requirements was $45 million (the basis of reporting surplus capital has changed since the prior year). ClearView’s dividend policy and factors which will impact on the ability to pay a dividend have been outlined above. MEETINgS OF DIREcTORS the Dividend reinvestment plan has been suspended since 26 February 2008. the Board will continue to evaluate the Group’s capital position on a regular basis. EVENTS SUbSEqUENT TO bALANcE DATE on 24 august 2011, the Group proposed a final dividend of $7.727 million representing 1.8 cents per share fully franked. the record date for determining entitlement to the dividend is 9 September 2011 and the dividend will be paid on 22 September 2011. Since the dividend has not been declared at year end it has not been recognised as payable in these accounts. the Directors are not aware of any matter or circumstance not otherwise dealt with in this report or the financial statements that has significantly, or may significantly, affect the operations of the consolidated entity, the results of those operations or the state of the affairs of the consolidated entity in future financial years. SIgNIFIcANT chANgES IN ThE STATE OF AFFAIRS there were no significant changes in the state of affairs of the Company during the year. FUTURE DEVELOPMENTS Disclosure of information regarding likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. accordingly, this information has not been disclosed in this report. the numbers of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 30 June 2011, and the numbers of meetings attended by each Director were as follows: ray Kellerman anne Keating anthony eisen David Goodsall John murphy michael Jefferies peter wade Simon Swanson Susan thomas(1) Total number of meetings bOARD AUDIT, RISK AND cOMPLIANcE cOMMITTEE NOMINATION AND REMUNERATION cOMMITTEE ELIgIbLE TO ATTEND ATTENDED ELIgIbLE TO ATTEND ATTENDED ELIgIbLE TO ATTEND ATTENDED 9 4 9 9 9 9 9 9 4 9 9 4 9 8 9 8 8 9 4 6 – – 6 6 6 5 – 2 6 6 – – 6 6 5 5 – 2 5 1 4 – – – 5 – – 5 5 1 3 – – – 4 – – (1) Susan thomas became a member of the nomination and remuneration Committee upon the resignation of peter wade. ClearView wealtH limiteD 16 DiREcTORS’ REpORT ContinueD DIREcTORS’ ShAREhOLDINgS the following table sets out each Director’s relevant interest in shares, debentures, and rights or options in shares or debentures of the Company or a related body corporate as at the date of this report. DIREcTORS ray Kellerman anne Keating anthony eisen(1) David Goodsall John murphy(2) michael Jefferies(1) Simon Swanson Susan thomas FULLY PAID ORDINARY ShARES INcLUDINg EMPLOYEE ShARE PLAN EMPLOYEE ShARE PLAN NUMbER 550,000 – – 100,000 315,000 – 12,000,000 800,000 NUMbER 250,000(3) – – – – – 10,000,000 – (1) anthony eisen and mike Jefferies represent the interests of GpG that holds 210,699,272 shares. (2) John murphy is a director of investec wentworth private equity that holds 39,688,239 shares. (3) there is an intention to reallocate these shares to Senior management. INDEMNIFIcATION OF DIREcTORS AND OFFIcERS AUDITOR INDEPENDENcE AND NON AUDIT SERVIcES During the period, the Company purchased directors’ and officers’ liability insurance to provide cover in respect of claims made against the Directors and officers in office during the financial period and as at the date of this report, as far as is allowable by the Corporations act 2001. the total amount of insurance premium paid and the nature of the liability are not disclosed due to a confidentiality clause within the contract. as at the date of this report, no amounts have been claimed or paid in respect of this indemnity and insurance, other than the premium referred to above. Directors’ and officers’ liability insurance contributed a proportion of the total insurance premium. the Company has not during or since the financial period, indemnified or agreed to indemnify the auditor of the Company against a liability incurred as an auditor. ROUNDINg OF AMOUNTS the Company is of a kind referred to in aSiC Class order 98/0100 dated 10 July 1998 and in accordance with that Class order amounts in this report, and the financial report, have been rounded off to the nearest thousand dollars. the Directors have received an independence declaration from the auditors, a copy of which is on page 27. NON-AUDIT SERVIcES Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 11 to the financial statements. the Directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations act 2001. the Directors are of the opinion that the services as disclosed in note 11 to the financial statements do not compromise the external auditor’s independence, based on advice received from the audit, risk and Compliance Committee, for the following reasons: • • all non-audit services comply with the ClearView audit independence policy and have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct apeS 110 ‘Code of ethics for professional accountants’ issued by the accounting professional & ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. ClearView 2011 annual report 17 REMUNERATION REPORT this report sets out information about the remuneration of ClearView’s Directors and its Key management personnel for the financial year ended 30 June 2011 and includes the following: • • • • • • details of the Directors and Key management personnel a discussion of ClearView’s remuneration policy relationship between the remuneration policy and company performance non-executive Directors’ remuneration Key management personnel remuneration Key terms of employment contracts DETAILS OF DIREcTORS AND KEY MANAgEMENT PERSONNEL the Directors of the Group and Company during or since the end of the financial year were: Ray Kellerman Chairman, independent non-executive Director Anne Keating independent non-executive Director (appointed 29 november 2010) Anthony Eisen non-executive Director David goodsall independent non-executive Director John Murphy non-executive Director Michael Jefferies alternate Director (resigned and appointed alternate Director 27 July 2011) Peter wade Former independent non-executive Director (resigned 27 July 2011) Simon Swanson managing Director Susan Thomas independent non-executive Director (appointed 29 november 2010) the Key management personnel of the Group and the Company in addition to the Directors during or since the end of the financial year were: Simon Swanson managing Director Alex hutchison Ceo of wealth management and advice (resigned 1 July 2011) Athol chiert Chief Financial officer chris Robson General Counsel and Company Secretary (appointed 4 april 2011) clive Levinthal Head of life insurance greg Martin Chief actuary and risk officer (appointed 1 march 2011) Justin McLaughlin Chief investment officer REMUNERATION POLIcY ClearView’s current remuneration policy was updated in June 2011. the Board has approved this policy and retains overall responsibility for all remuneration decisions in respect to persons relevant to each entity. any changes to this policy must also be approved by the Board. ClearView has established a Group nomination and remuneration Committee, which among other things, is responsible for overseeing the remuneration and human resources and practices for the ClearView group. ClearView’s remuneration policy is in place to: • • • • outline employee obligations and ClearView’s obligations; set out roles, responsibilities and accountabilities of the management team; set out clear reporting requirements and controls; and define various terms to ensure a common understanding. The relationship between remuneration policy and company performance the primary objectives of the remuneration policy are to ensure that remuneration is competitive, aligned with the Company’s business objectives in both the short term and the long term, and appropriate for the results delivered by the individual. in accordance with this objective, the Company has structured remuneration packages to provide an appropriate mix of fixed and performance based pay components which are based on both the individual’s performance and Company performance. By adopting a robust approach to remuneration, the Company aims to attract and retain top talent. the remuneration framework is also designed to reward prudent risk-taking, support effective risk management and prioritise the long term financial soundness of the business and its shareholders. total Key management personnel remuneration is made up of three components: • • • Fixed remuneration; Short term incentive (Sti); and long term incentive (lti). ClearView wealtH limiteD 18 DiREcTORS’ REpORT ContinueD Fixed remuneration the Fixed remuneration is based on each employee’s experience, qualifications, capability and responsibility and not to specific performance conditions. an employee’s responsibility includes accountabilities, delegations, Kpis and risk profile.to ensure an employee’s Fixed remuneration is competitive, it is benchmarked against median salary survey results from a group of comparable australian financial service companies. Benchmarking of Fixed remuneration for Key management personnel for the 2011 financial year was also provided by an external consultant. Short term incentive (STi) plan the Sti plan aims to motivate the employee to reach or exceed individual as well as company goals for the financial year. it is based on rewarding an employee with a bonus calculated as a percentage of fixed remuneration. individual performance targets are set for each Key management personnel by the managing Director and in the case of the managing Director by the nomination and remuneration Committee. the Sti bonus is set to a minimum of zero and a maximum of 50% of fixed remuneration and includes both an individual and a company performance bonus. the individual performance bonus is set to a maximum of 25% of fixed remuneration, is linked to an employee’s position and/or team objectives and reflects the level of risk that ClearView is exposed to by the individual’s actions. the company performance bonus is based on achieving a set underlying profit after tax for the financial year. the underlying profit represents ClearView’s consolidated net profit after tax adjusted for amortisation, transition and restructure costs, one- off adjustments and the aiFrS policy liability adjustment (tax adjusted). this is the Board’s key measure of profitability and the basis on which the Board determines the dividend. the managing Director is responsible for assessing the performance of Key management personnel and for recommending the total Sti to be paid. the managing Director may also recommend Sti payments over and above target bonus amounts for exceptional performance. the managing Director’s recommendations are presented to the nomination and remuneration Committee for consideration and recommendations are made to the Board for approval. it is only when Board approval has been obtained that Sti bonuses are payable. in 2011, Key management personnel received an Sti bonus of 43.1% of their fixed remuneration representing 34.4% of their total remuneration. Long term incentive (LTi) plan ClearView has an ownership-based compensation scheme for directors, executives and senior employees of the Group to assist in the recruitment, rewarding, retention and motivation of employees of the Company. the employee share plan (eSp) is designed to encourage a focus on the long term results of the Company. Shares issued under the eSp will only vest provided the performance and vesting conditions are achieved. Further details of the eSp are on page 21. consequences of clearView’s performance on shareholder wealth the table below sets out the summary information about the consolidated entity’s earnings and movements in shareholder wealth for five years to June 2011. revenue ($’000) net profit / (loss) before tax ($’000) net profit / (loss) after tax ($’000) Dividend (interim) (cents) Dividend (final) (cents) Basic epS (cents) (2) Diluted epS (cents) Share price at the beginning of the year Share price at the end of the year 30 JUNE 2011 30 JUNE 2010 30 JUNE 2009 30 JUNE 2008 30 JUNE 2007 136,019 14,658 8,665 – 1.8 2.12 2.10 $0.52 $0.50 45,368(1) 7,102(2) 2,408(2) 3,865(1) (3,092)(2) (2,269)(2) – – – – – 1.33 1.33 $0.42 $0.52 (2.70) (2.68) $0.58 $0.42 17,662 (48,639) (42,767) 4.0 (17.24) (17.24) $0.92 $0.58 34,196 29,422 20,325 4.0 4.0 8.87 8.86 $0.79 $0.92 (1) revenue from continuing operations excludes net fair value gains / losses in financial assets in the current and prior year. (2) From continuing operations. the lti performance and vesting criteria include a service component as well as an in built performance hurdle through an interest rate that has been set at the rBa rate plus a margin of 0.25%. ClearView 2011 annual report 19 NON-ExEcUTIVE DIREcTORS REMUNERATION non-executive Directors are remunerated by fees within the aggregate limit approved by shareholders. the present limit on aggregate remuneration for non-executive directors is $750,000 including superannuation (2010: $450,000). Directors’ fees can be paid as superannuation contributions and may also be directed to the dividend share plan (DSp). the Board intends to amend the rules of the Company’s eSp so as to make non-executive Directors ineligible to participate in the plan. this has to date been implemented for new directorship appointments since acquisition. it is further the intention that the shares currently allocated to the Chairman under the eSp are to be reallocated to Senior management in due course. this leaves the fee pool as the only source of remuneration for non-executive Directors. the remuneration of each non-executive Director for the year ended 30 June 2011 is set out below: ShORT TERM EMPLOYEE bENEFITS EMPLOYMENT ShARE bASED PAYMENTS TOTAL POST SALARY & FEES $ 2011 Non-Executive Directors r Kellerman (1) a eisen (2) D Goodsall (3) J murphy (4) m Jefferies (5) p wade (6) S thomas (7) a Keating (8) Total 113,150 73,750 73,012 70,833 76,667 74,159 – 37,916 519,487 bONUS $ NON- MONETARY $ TERMINATION PAYMENT $ SUPER- ANNUATION $ ExEcUTIVE ShARE PLAN(9) OF TOTAL REMUNERATION $ PERFORMANcE bASED % – – – – – – – – – – – – – – – – – – – – – – – – – – – 10,183 – 6,571 – – 6,674 41,328 3,412 68,168 5,807 – – – – – – – 5,807 4.5 – – – – – – – $ 129,140 73,750 79,583 70,833 76,667 80,833 41,328 41,328 593,462 (1) r Kellerman’s directors’ fees increased from $100,000 to $140,000 from 1 December 2010. (2) a eisen has agreed that he will receive no fee for his services as a director although fees are paid to GpG limited of which he is an employee. Directors’ fees increased from $65,000 to $80,000 from 1 December 2010. (3) D Goodsall’s directors’ fees increased from $65,000 to $90,000 from 1 December 2010. (4) J murphy has agreed that he will receive no fee for his service as a director although fees are paid to investec wentworth private equity limited of which he is a director. Directors’ fees increased from $65,000 to $75,000 from 1 December 2010. (5) m Jefferies has agreed that he will receive no fee for his services as a director although fees are paid to GpG limited of which he is an employee. Directors’ fees increased from $65,000 to $85,000 from 1 December 2010. m Jefferies resigned as a director on 27 July 2011 and was appointed an alternate director to a eisen on the same date. (6) p wade’s directors’ fees increased from $75,000 to $85,000 from 1 December 2010. p wade resigned as a director on 27 July 2011. (7) S thomas was appointed as a director on 29 november 2010. (8) a Keating was appointed as a director on 29 november 2010. (9) Benefit calculated under the Binomial model in respect of the future value of the eSp shares issued. the remuneration of each non-executive Director for the year ended 30 June 2010 is set out below: 2010 Non-Executive Directors r Kellerman(2) a eisen(3) D Goodsall J murphy(4) m Jefferies(5) p wade Total ShORT TERM EMPLOYEE bENEFITS POST EMPLOYMENT SALARY & FEES $ bONUS $ NON- MONETARY $ SUPER- ANNUATION $ 96,743 65,000 3,479 3,740 65,000 68,807 302,769 – – – – – – – – – – – – – – 8,257 – 313 – – 6,193 14,763 ShARE bASED PAYMENTS EMPLOYEE ShARE PLAN(1) OF TOTAL REMUNERATION PERFORMANcE bASED % 3,898 3.6 – – – – – 3,898 – – – – – TOTAL $ 108,898 65,000 3,792 3,740 65,000 75,000 321,430 (1) Benefit calculated under the Binomial model in respect of the future value of the eSp shares issued. (2) r Kellerman was until the date of sale on 31 July 2009, an independent member of the mmC asset management Compliance Committee for which a fee of $5,000 was paid to Kellerman & Co Consulting pty limited of which he is the sole director and shareholder. (3) a eisen has agreed that he will receive no fee for his services as a director although a fee of $65,000 was paid to GpG of which he is an employee. (4) J murphy has agreed that he will receive no fee for his services as a director although a fee of $3,740 was paid to investec of which he is a director. (5) m Jefferies has agreed that he will receive no fee for his services as a director although a fee of $65,000 was paid to GpG of which he is an employee. ClearView wealtH limiteD 20 DiREcTORS’ REpORT ContinueD KEY MANAgEMENT PERSONNEL REMUNERATION the compensation of each member of the Key management personnel of the Group for the year ended 30 June 2011 is set out below: 2011 S Swanson a Hutchison(2) a Chiert C robson C levinthal G martin(3) ShORT TERM EMPLOYEE bENEFITS POST EMPLOYMENT ShARE bASED PAYMENTS TOTAL SALARY & FEES $ bONUS $ NON- MONETARY $ TERMINATION PAYMENT $ SUPER- ANNUATION $ EMPLOYEE ShARE PLAN(1) PERFORMANcE bASED % $ 557,063 390,514 402,642 138,975 285,470 113,196 69,010 264,367 102,654 27,923 97,519 40,035 11,628 109,861(4) - - 11,144 3,876 - - 42,937 466,364 58.4% 1,468,506 396,881 - - - - - 37,943 23,530 3,507 - - - 21,787 14,836 6,765 23,530 - - 12.8% 1,086,302 26.8% 27.8% 27.4% 26.1% 26.0% 422,196 100,440 409,653 153,330 417,521 J mclaughlin 285,470 108,521 Total 1,966,676 916,683 136,509 396,881 159,999 481,200 34.4% 4,057,948 (1) Benefit calculated under the Binomial model in respect of the future value of the eSp shares issued. (2) resigned as an employee on 1 July 2011. (3) prior to Greg martin being employed by ClearView as Chief actuary, Greg was a partner of KpmG. During the period until Greg was employed by ClearView, ClearView paid KpmG fees totalling $818,046. (4) non-monetary fee for alex Hutchison includes $98,211 of annual leave entitlements paid out on resignation. the compensation of each member of the Key management personnel of the Group for the year ended 30 June 2010 is set out below: ShORT TERM EMPLOYEE bENEFITS POST EMPLOYMENT ShARE bASED PAYMENTS TOTAL 2010 S Swanson a Hutchinson a Chiert D mcKell J mclaughlin Total SALARY & FEES $ 146,286 395,008 250,000 206,422 275,229 bONUS $ – 115,596 125,000 61,927 82,569 – 7,532 – – – 1,272,945 385,092 7,532 NON- MONETARY $ TERMINATION PAYMENT $ SUPER- ANNUATION $ EMPLOYEE ShARE PLAN(1) PERFORMANcE bASED % – – – – – – 13,166 24,992 22,500 18,578 24,771 6,388 133,172 98,057 32,685 65,371 104,007 335,673 3.9 36.8 45.0 29.6 33.0 29.8 $ 165,840 676,300 495,557 319,612 447,940 2,105,249 (1) Benefit calculated under the Binomial model in respect of the future value of the eSp shares issued. ClearView 2011 annual report 21 ShARE-bASED PAYMENTS gRANTED AS cOMPENSATION Employee Share plan (ESp) ClearView operates an employee share plan for executives and senior employees of the consolidated entity. in accordance with the provisions of the plan, as approved by shareholders at the annual General meeting held on 7 october 2009, directors, executives and senior employees may be issued parcels of ordinary shares at an issue price as defined under the plan, which will generally be at or around the market price of ClearView shares (‘Shares’) at the time of issue. Limited recourse loan the Company may provide financial assistance to an employee for the purposes of subscribing for Shares under the eSp. the financial assistance will be a limited recourse loan equal to the purchase value of the Shares, repayable within 5 years. the financial assistance will become immediately repayable in the event of “disqualifying circumstances” including failure to meet performance or vesting conditions, or upon cessation of the employee’s employment in circumstances defined in the eSp rules. the employee will only be entitled to repay the loan and obtain the benefit of the shares if the applicable vesting conditions and performance conditions are met. the following tables outline the eSp loans above $100,000 made to Directors and Kmp or to their related entities as at 30 June 2011 and 2010: 2011 r Kellerman S Swanson a Hutchison a Chiert C levinthal G martin C robson bALANcE AT bEgINNINg 131,066 5,926,569 1,628,735 772,647 – – – J mclaughlin 809,598 LOANS gRANTED $ – – – – 500,000 – – – INTEREST chARgED $ 6,553 296,328 51,094 38,632 16,507 – – 25,755 Total 9,268,615 500,000 434,869 REPAYMENTS $ LOAN cANcELLED $ bALANcE AT END $ hIghEST IN PERIOD $ – – – – – – – – – – – – – – – – – – 137,619 137,619 6,222,897 6,222,897 1,679,829 1,679,829 811,279 516,507 811,279 516,507 – – – – 835,353 835,353 10,203,484 – 2010 r Kellerman S Swanson a Hutchison J mclaughlin a Chiert D mcKell Total bALANcE AT bEgINNINg LOANS gRANTED $ 236,975 125,000 – 5,920,000 606,848 294,500 – – 970,400 488,200 732,300 244,100 INTEREST chARgED $ 6,066 6,569 51,487 26,898 40,347 13,449 1,138,323 8,480,000 144,816 REPAYMENTS $ – – – – – – – LOAN cANcELLED $ bALANcE AT END $ hIghEST IN PERIOD $ 236,975 131,066 236,975 – – – – – 5,926,569 5,926,569 1,628,735 1,628,735 809,598 772,647 257,549 809,598 772,647 257,549 236,975 9,526,164 For shares issued, it is a term of the loan that interest accrues at the reserve Bank of australia official cash rate (rBa rate) plus a margin of 0.25% (reset each year in December and June). this is intended to act as an in-built performance hurdle. For this reason, additional performance hurdles are not imposed. the interest rate (excluding series 6) was revised and approved by shareholders at the extraordinary General meeting (eGm) on 30 april 2010. prior to this approval interest was charged on the loans at 8% per annum (as approved at the 2009 aGm). the Board considers that a market based interest rate is more appropriate for the new circumstances of the Company. any after tax equivalent of dividends paid on the plan Shares will be applied to repayment of any outstanding loan. the eSp provides for Shares to be bought back by the Company in full satisfaction of outstanding loans (including accrued interest) in circumstances where an employee does not wish to, or is not entitled to, repay the loan and obtain unencumbered title to the Shares. ClearView wealtH limiteD 22 DiREcTORS’ REpORT ContinueD Restrictions and holding lock the Shares granted under the eSp are subject to a holding lock restricting the holder from dealing with the Shares without the consent of the Board until the earlier of: • • • the 5th anniversary of the issue date; the date the employee ceases employment; or termination of the eSp. executives may make a disposal request to the Board that their Shares be sold on their behalf, and that the excess sale proceeds (if any) over the amount of the loan be paid to them. However, an executive can only make a disposal request for their Shares when the performance and vesting conditions are satisfied for those Shares, and approval of the disposal request is always subject to the approval of the Board. change in control provisions the eSp rules include an accelerated vesting provision on a change in control. unless the terms of a particular grant provide otherwise, all performance conditions and vesting conditions in relation to particular eSp Shares will be deemed to have been satisfied if: • • a person who did not control ClearView at the date of issue of the Shares gains control of the Company (but only if the person is not itself Controlled by another person who Controlled the Company at the date of issue); or other circumstances occur which the Board determines in its absolute discretion are analogous to a Control transaction and justify removal of performance conditions and/or vesting conditions. “Control” is defined as where a person and its related bodies corporate (as defined in the Corporations act) together hold more than 50% of the ClearView Shares then on issue. Restrictions on Offer Shares may not be offered under the eSp to an employee if that employee would hold, after issue of the shares, an interest in more than 5% of the issued shares or be able to control the right to vote of more than 5% of the votes that may be cast at a general meeting of the Company. Shares issued under the eSp will only vest provided the performance and vesting conditions are achieved (unless there is a change in control provision event as previously outlined). the following table summarises the performance and vesting conditions for shares issued under the eSp plan as at the date of this report: SERIES VESTINg cONDITIONS Series 6 – 30 June 2008 issue Series 7 – 29 September 2009 issue Series 9 – 28 october 2009 issue Series 10 – 25 June 2010 issue Series 11 – 25 June 2010 issue Series 12 – 25 June 2010 issue Series 13 – 25 June 2010 issue nil* nil* 2 years and 345 days from date of issue*** nil** 2 years from date of commencement of employment 3 years from date of commencement of employment 2 years and 341 days from date of issue Series 14 – 1 november 2010 issue 2 years and 343 days from date of issue Series 15 – 1 July 2011 issue 2 years and 317 years from date of issue * Change in control provision was triggered on 23 october 2009 by GpG increasing its shareholding above 50%. ** Shares vested 1 year from date of commencement of employment on 26 march 2011. *** intention to reallocate these shares to Senior management. PERFORMANcE cONDITIONS nil nil nil nil nil nil nil nil nil ClearView 2011 annual report 23 in accordance with mr Swanson’s employment contract, mr Swanson is entitled to a long term incentive comprising 10 million Shares in accordance with the eSp, and vesting progressively over three years from the commencement date of his contract as follows: Series 10: 2 million shares at an issue price of 50 cents vesting on 26 march 2011 (vested); Series 11: 4 million shares at an issue price of 58 cents vesting on 26 march 2012; and Series 12: 4 million shares at an issue price of 65 cents vesting on 26 march 2013. the Shares issued to mr Swanson will vest progressively each year as outlined above. unvested Shares will be immediately forfeited in accordance with the terms of the plan if mr Swanson terminates his employment (other than because of a breach by the Company of its obligations, or because of a reduction in remuneration or status following a change of control). if mr Swanson’s employment is terminated by the Company for any other reason then the Shares in the next unvested tranche will vest automatically, and the remaining unvested Shares will be forfeited. the Board understands that there is limited liquidity in derivatives for the Company shares. the Directors believe that there is no risk in Key management personnel limiting their exposure in relation to shares issued under the plan and accordingly there is no specific policy in relation to Key management personnel hedging their exposure to the Company’s shares. the Company also has a Deferred Share plan (DSp) in place. under the DSp, employees, including directors, may choose to receive part of their remuneration (including bonuses) in the form of shares. Shares in respect of the DSp are purchased on the market and are held in the employee’s name, but are generally subject to a holding lock until he or she leaves the employment of the Company. no shares have been acquired under the DSp as at the date of this report. Total Shares issued under the Employee Share plan Details of all shares issued by the Company under the eSp as at the date of this report are: NUMbER OF ShARES Series 6 Series 7 Series 9 Series 10 Series 11 Series 12 Series 13 Series 14 Series 15 cLASS OF ShARES ordinary ordinary ordinary ordinary ordinary ordinary ordinary ordinary ordinary gRANT DATE ISSUE AND ExERcISE PRIcE $ FAIR VALUE AT gRANT DATE $ FIRST VESTINg DATE FINAL ExERcISE DATE 30/06/2008 29/09/2009 28/10/2009 25/06/2010 25/06/2010 25/06/2010 25/06/2010 25/10/2010 01/07/2011 0.589 0.488 0.500 0.500 0.580 0.650 0.533 0.500 0.500 0.103 0.065 0.070 0.112 0.081 0.060 0.101 0.067 0.098 30/06/2008 23/10/2009 28/10/2013 26/03/2011 26/03/2012 26/03/2013 01/06/2013 01/10/2013 01/07/2014 30/06/2013 29/09/2014 28/10/2014 26/03/2015 26/03/2015 26/03/2015 01/06/2015 01/10/2015 01/07/2016 Shares granted to Directors and Key Management personnel During and since the end of the financial year an aggregate 3,000,000 shares (2010: 15,000,000) were granted by the Company to Key management personnel of the Company under the eSp. a further 3,000,000 shares (Series 15) were reallocated from Series 5 and 8 to Senior management in accordance with the rules of the eSp on 18 august 2011. interest-bearing loans have been granted by the Company to the following Directors and Key management personnel to fund the acquisition of shares under the eSp. the loans bear interest at the rBa rate plus a margin of 0.25% other than Series 6 that was issued prior to the revised eSp rules and this Series accrues interest at the lower of the dividends paid on the shares and the statutory interest rate. until vesting and performance conditions are achieved, the shares are subject to a holding lock. if the conditions are met, the loans must be repaid before the holding lock is released. ClearView wealtH limiteD 24 DiREcTORS’ REpORT ContinueD SERIES Series 6* Series 7* Series 9** Series 10*** Series 11 Series 12 Series 14 Series 15 DIREcTOR, KMP, TO whIch ThE SERIES RELATES Justin mclaughlin athol Chiert / Justin mclaughlin ray Kellerman Simon Swanson Simon Swanson Simon Swanson Clive levinthal Greg martin / Chris robson FAIR VALUE AT gRANT DATE $ ExERcISE PRIcE PER ShARE $ 0.103 0.065 0.070 0.112 0.081 0.060 0.067 0.098 0.589 0.488 0.500 0.500 0.580 0.650 0.500 0.500 AggREgATE VALUE AT gRANT DATE $ 51,500 98,057 17,422 224,074 323,295 241,927 67,000 ExPIRY DATE 30/06/2013 29/09/2014 28/10/2014 26/03/2015 26/03/2015 26/03/2015 1/10/2015 294,000 01/07/2016 * a change in control provision was triggered on 23 october 2009 by GpG increasing its shareholding above 50%. as a result, the vesting conditions for employees that were issued shares prior to the date of change of control were accelerated. as previously outlined to shareholders, the change in control only affects any performance or vesting conditions applicable to particular eSp Shares. it does not affect the in-built performance condition in the form of the annual rBa interest rate plus a margin of 0.25%, nor does it automatically release eSp Shares from the disposal restrictions and holding lock. ** intention to reallocate shares to Senior management. *** Shares vested 1 year from date of commencement of employment on 26 march 2011. all unvested Shares will automatically vest in accordance with the rules of the plan upon a change in control, subject to the definition of change in control for this purpose being that in the employment agreement entered into with mr Swanson on 26 march 2010. accordingly shares issued under Series 6, 7 and 10 have met the vesting conditions up to the date of this report. Full details on the eSp are available from the Company’s website in the investor section under ‘Charters & policies’. ClearView 2011 annual report 25 DIREcTORS AND KEY MANAgEMENT PERSONNEL EqUITY hOLDINgS Fully paid ordinary shares of the Company (including those held under the employee Share plan) owned by the Directors and the Key management personnel as at 30 June are outlined below and in note 36. ShARES SUbJEcT TO VESTINg cONDITIONS NO. ShARES NOT SUbJEcT TO VESTINg cONDITIONS NO. bALANcE AT bEgINNINg OF FINANcIAL YEAR NO. gRANTED AS cOMPENSATION NO. NET OThER chANgES NO. bALANcE END OF FINANcIAL YEAR NO. bALANcE hELD SUbJEcT TO VESTINg cONDITIONS NO. bALANcE VESTED AT YEAR END NO. VESTED bUT NOT YET ExERcISAbLE NO. VESTED AND ExERcISAbLE NO. 2011 r Kellerman 250,000 201,600 451,600 D Goodsall J murphy p wade S thomas – – – – – – 100,000 – 139,682 139,682 – – S Swanson 8,000,000 4,000,000 12,000,000 a Hutchison a Chiert – – 3,000,000 3,000,000 1,500,000 1,500,000 – – – – – – – – C levinthal 1,000,000 – – 1,000,000 J mclaughlin G martin C robson – – – 1,500,000 1,500,000 – – – – – – – 98,400 550,000 250,000 – 315,000 100,000 800,000 100,000 315,000 239,682 800,000 – – – – – – – – – – – – – – – – – – – – – 12,000,000 8,000,000 2,000,000 2,000,000 3,000,000 1,500,000 – – 3,000,000 3,000,000 1,500,000 1,500,000 1,000,000 1,000,000 – – 1,500,000 – – – – – 1,500,000 1,500,000 – – – – – – – – – – – – – – – – ShARES SUbJEcT TO VESTINg cONDITIONS NO. ShARES NOT SUbJEcT TO VESTINg cONDITIONS NO. bALANcE AT bEgINNINg OF FINANcIAL YEAR NO. gRANTED AS cOMPENSATION NO. 2010 r Kellerman 250,000 100,800 350,800 NET OThER chANgES NO. 100,800 119,841 100,000 bALANcE END OF FINANcIAL YEAR NO. bALANcE hELD SUbJEcT TO VESTINg cONDITIONS NO. 451,600 250,000 139,682 100,000 – – – – – bALANcE VESTED AT YEAR END NO. VESTED bUT NOT YET ExERcISAbLE NO. VESTED AND ExERcISAbLE NO. – – – – – – – – 19,841 19,841 – p wade D Goodsall S Swanson – – a Hutchison 1,000,000 J mclaughlin 500,000 a Chiert D mcKell p Constable – – – – – – – – – – 10,000,000 2,000,000 12,000,000 10,000,000 1,000,000 2,000,000 500,000 1,000,000 – – 1,500,000 500,000 – – – – 3,000,000 3,000,000 3,000,000 3,000,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 500,000 500,000 500,000 500,000 1,499,503 1,499,503 – (1,499,503) – – – – – – – – – – – – – ClearView wealtH limiteD 26 DiREcTORS’ REpORT ContinueD KEY TERMS OF EMPLOYMENT cONTRAcTS the following contractual and other arrangements are in place in respect of the Directors and Key management personnel as at the date of this report. all current Directors are subject to re-election by shareholders at least every three years. KEY MANAgEMENT TERM NOTIcE PERIOD bY EIThER ThE EMPLOYEE OR ThE cOMPANY OThER Simon Swanson ongoing 6 months notice athol Chiert ongoing 6 months notice for the first 3 years of employment, 3 months notice after 3 years Chris robson ongoing 13 weeks if, in the 6 months following a change in control, mr Swanson’s remuneration or his duties and responsibilities are reduced through no fault of his own, then mr Swanson will have a right to terminate the contract with immediate effect. in this case, and in addition to vesting of mr Swanson’s eSp Shares, the Company will be obliged to pay mr Swanson 6 months’ base salary plus the maximum short term incentive amount for that calendar year. For all terminations after the first 3 years of employment an additional 26 week payment is payable. in the case of redundancy, a severance payment of 3 months’ base salary (or any greater payment required under the national employment Standards). Clive levinthal ongoing 4 weeks in the case of redundancy, entitlements provided for in the national employment Standards apply. Greg martin ongoing 13 weeks Justin mclaughlin ongoing 12 months notice for the first 3 years of employment, 6 months notice after 3 years in the case of redundancy, a severance payment of three months’ base salary (or any greater payment required under the national employment Standards). For all terminations after the first 3 years of employment an additional 26 week payment is payable. all current Key management personnel contracts provide for an annual review of fixed remuneration. Signed in accordance with a resolution of the Board of Directors made pursuant to s298(2) of the Corporations act 2001. on behalf of the Directors Ray Kellerman chairman Sydney, 24 August 2011 Auditor’s independence declArAtion ClearView 2011 annual report 27 Deloitte touche tohmatsu a.C.n. 74 490 121 060 Grosvenor place 225 George Street Sydney nSw 2000 po Box n250 Grosvenor place Sydney nSw 1217 australia DX 10307SSe tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au the Board of Directors ClearView wealth limited level 4, 50 Bridge Street Sydney, nSw 2000 24 august 2011 Dear Board Members ClearView Wealth Limited in accordance with section 307C of the Corporations act 2001, i am pleased to provide the following declaration of independence to the directors of ClearView wealth limited. as lead audit partner for the audit of the financial statements of ClearView wealth limited for the financial year ended 30 June 2011, i declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours faithfully Deloitte touCHe toHMatSu philip Hardy partner Chartered accountants liability limited by a scheme approved under professional Standards legislation. Member of Deloitte touche tohmatsu limited. ClearView wealtH limiteD 28 cORpORATE GOVERnAncE the Board and management of ClearView wealth limited (ClearView, the Company or the Group) are committed to achieving high corporate governance standards and to following the aSX Corporate Governance Council’s Corporate Governance principles and recommendations 2007. the Board and management are likewise committed to following the australian prudential regulation authority (apra) standards that relate to the Group. ClearView owns an apra regulated life insurance company, ClearView life assurance limited, which is subject to a regulatory regime prescribed under the life insurance act 1995. ClearView has also been registered as a non operating Holding Company under that regime and as such is subject to the life prudential Standards issued by apra. as part of the governance process, the Board and management regularly review the Group’s policies and practices to ensure that they meet the interests of stakeholders and that the Group continues to maintain and improve its governance standards. the significant transformation of the Group from a listed investment company to a life insurance and wealth management company has resulted in updates to the majority of ClearView’s charters and policies over the past 12 months. the Board has reviewed and published an updated Board Charter, Code of Conduct, audit, risk and Compliance Charter, risk management policy, Continuous Disclosure policy, nomination and remuneration Committee Charter and Share trading policy. in response to the new aSX Corporate Governance recommendations on Diversity, the Board has introduced a Diversity policy that relates to both the Board and senior management. The key group charters and policies are available on the clearView website at www.clearview.com.au under the investors section. These documents are updated and reviewed regularly by the board recognising that corporate governance is about continual improvement. a description of the Group’s main corporate governance practices is set out below under the eight principles that the aSX Corporate Governance Council believes underlie good corporate governance. PRINcIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAgEMENT AND OVERSIghT Role of the Board as representatives of the shareholders, the Board is responsible for the performance and overall governance of ClearView. in practice this is achieved through formal delegation to the managing Director for day to day management of the Group and to its Board Committees for detailed consideration of matters and making recommendations. the Board currently has two committees – the audit, risk and Compliance Committee and the nomination and remuneration Committee. Key Responsibilities of the Board the Board’s key responsibilities are outlined in the Board Charter. the primary functions of the Board include: • • • • • • • • Strategic and financial performance – determining strategic objectives, capital management and the Company’s dividend policy, and approving all accounting policies, financial reports and material external communications by the Group; executive management – approve the appointment and where appropriate the termination, and remuneration of the managing Director and senior executives; audit and risk management – ensure effective audit, risk management and compliance systems are in place and manage its material business risks; Strategic planning – oversee the development, and monitoring the execution of ClearView’s corporate strategy; Corporate governance – ensure the Company has effective corporate governance policies in place including continuous disclosure standards; Delegations – approve and monitor delegations of authority at the Board and management levels; Human resource and remuneration – actively overseeing the design of the Group’s remuneration system and monitoring its effectiveness; and performance evaluation – review and evaluate the performance of the Board, each Board Committee and each individual director. Meetings of the Board in accordance with the Board Charter, the Board meets at least six times a year and more frequently if required. During the financial year, the Board held nine Board meetings. the number of meetings attended by each director is disclosed in the Directors’ report on page 15. ClearView 2011 annual report 29 performance evaluation of the senior management team at least once a year, the Board, assisted by the nomination and remuneration Committee, monitors the performance of senior executives and the implementation of their objectives against measurable and qualitative targets. the Board also reviews and approves the objectives and targets of senior executives set annually. PRINcIPLE 2 – STRUcTURE ThE bOARD TO ADD VALUE Board size and composition the Board, with assistance from the nomination and remuneration Committee, determines the size and composition of the Board subject to the needs of the business, the Company’s Constitution and regulatory requirements. Based on the current Board Charter, the Board must have a minimum of five directors at all times, a majority of independent directors (as defined by the aSX Corporate Governance principles and recommendations), and a majority of directors who are australian residents. the Board should also comprise a mix of executive and non-executive directors as well as directors with a broad range of appropriate skills, expertise and experience. as at 30 June 2011, the Board consisted of: • five independent non-executive Directors – – – – – ray Kellerman (Chairman) anne Keating David Goodsall peter wade (resigned 27 July 2011) Susan thomas • three non-independent non-executive Directors; and – – – anthony eisen John murphy mike Jefferies (resigned and appointed as an alternate director on 27 July 2011) • one executive Director – Simon Swanson. information concerning each Director’s qualifications and experience is disclosed on pages 10 to 12 of the Directors’ report. criteria for an independent director an independent director is a non-executive director who is independent of management and free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgment. Circumstances in which a director will not be considered independent include if the director: i. ii. iii. iv. v. is a substantial shareholder (as defined in the Corporations act) of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company; is employed, or has previously been employed in an executive capacity by the Company or another entity within the Group, and there has not been a period of at least three years between ceasing such employment and serving on the Board; has within the last three years been a principal of a material professional adviser or a material consultant to the Company or another entity within the Group, or an employee materially associated with the service provided; is a material supplier or customer of the Company or another entity within the Group, or an officer of or otherwise materially associated directly or indirectly with a material supplier or customer; or vi. has a material contractual relationship with the Company or another entity within the Group other than as a director. Family ties and cross-directorships may be relevant in considering interests and relationships which may compromise independence and should be disclosed by directors to the Board. the Board regularly assesses whether a non-executive director is ‘independent’ in accordance with the above criteria. Meeting the “Fit and proper” Test ClearView has put in place a policy and comprehensive measures to ensure that individuals who are appointed to senior positions including board positions have the appropriate fitness and propriety to effectively discharge their responsibilities and duties. conflicts of interest Directors must where possible avoid conflicts of interest except in those circumstances permitted by the Corporations act 2001. Directors are required to disclose any conflicts of interest in matters considered by the Board and unless the Board resolves otherwise, must not participate in Board discussion or vote on the matter. ClearView wealtH limiteD 30 cORpORATE GOVERnAncE ContinueD The chairman the Chairman of the Board is an independent non-executive director appointed by the Directors. the role of the Chairman and the managing Director are separate. the responsibilities of the Chairman include: (a) chair Board meetings; (b) establish the agenda for Board meetings, in consultation with the managing Director and the Company Secretary; (c) chair meetings of shareholders, including the annual General meeting of the Company; (d) be the primary spokesperson for the Company at any annual General meeting; (f) represent the views of the Board to shareholders, the general public, governmental authorities, regulators and other stakeholders; (g) develop and maintain key strategic relationships; and (h) be available to meet with apra on request. Board Appointments recommendations and nominations for new directors are made by the nomination and remuneration Committee and approved by the Board. when the Board considers that a suitable candidate has been found, that person is appointed by the Board but must stand for election by shareholders at the next annual General meeting. on appointment, new directors received a letter of appointment, which sets out their duties, terms and conditions of appointment and their remuneration. the Company also enters into a Deed of indemnity with each director and the Company Secretary. in appointing directors, the Board considers: • • • • the size and composition of the Board; the strategic needs of ClearView and its subsidiaries; regulatory requirements; and the skills, expertise, experience and independence of the potential director. Access to information and independent Advice all Directors are given unrestricted access to all records and information relating to ClearView and are encouraged to speak with members of senior management at any time to request relevant information. Directors are also entitled to seek independent advice or information concerning any aspect of ClearView at the Company’s expense. However, prior approval from the Chairman is required, which is not to be withheld unreasonably. performance Evaluation at least once a year the Board will, with the advice and assistance of the nomination and remuneration Committee, review and evaluate the performance of the Board, each Board Committee and each individual director against the relevant charters, corporate governance policies, and agreed goals and objectives. Following each review and evaluation, the Board will consider how to improve its performance. the Board will agree and set the goals and objectives each year and, if necessary, amend the relevant charters and policies. in June 2011, a performance evaluation for the Board, its committees and Directors took place and was in accordance with the process described in the previous paragraph. Succession the Board, with assistance from the nomination and remuneration Committee, considers the succession of its members as required. any director who has been in office for more than three years since his or her last election, or who has been appointed to fill a casual vacancy, is required to retire at the next annual General meeting and may be eligible for re-election. Board committees the Board has established committees to assist in the execution of its duties and responsibilities, and to allow matters to be discussed and considered in greater detail. the Board Committee structure also enables the Board to utilise the skills and experience of ClearView’s Directors to its best advantage. Current committees of the Board are the nomination and remuneration Committee and the audit, risk and Compliance Committee. management regularly attends the committee meetings at the invitation of the relevant committee. each Committee has its own charter, which must be approved by the Board, outlining the composition, responsibilities and administration of the Committee. minutes of Committee meetings are prepared by the appointed secretary and the Chair of each Committee reports back on the Committee meeting to the Board at the next full Board meeting. ClearView 2011 annual report 31 membership of each Committee as at the date of the report is set out in the table below: cOMMITTEE ray Kellerman (Chairman, independent) anne Keating (independent) anthony eisen David Goodsall (independent) John murphy Susan thomas (independent) NOMINATION & REMUNERATION Chair X X AUDIT, RISK & cOMPLIANcE X X Chair X X Details regarding the experience and tenure of the members and the attendance at Committee meetings are included in the Directors’ report starting on page 10. nomination and Remuneration committee the nomination and remuneration Committee advises the Board on matters related to the appointment, succession and remuneration of directors and senior executives, as well as the composition and performance of the Board. the Chairman of this Committee is an independent director and the Committee has a majority of independent directors. the nomination and remuneration Committee meets at least annually in accordance with the Board approved charter. Audit, Risk and compliance committee the audit, risk and Compliance Committee assists the Board with ensuring that effective internal controls, risk management and corporate governance exist within the Group. the Chairman of this Committee is an independent director and the Committee has a majority of independent directors. the Chairman of this Committee is not chair of the Board. the audit, risk and Compliance Committee meets at least three times a year in accordance with the Board approved charter. Specific responsibilities of the nomination and remuneration Committee include reviewing: Specific responsibilities of audit, risk and Compliance Committee include: • • • • • • the performance of the Board, each Board Committee and each individual director; the remuneration arrangements of the directors, the managing Director and his direct reports; remuneration by gender; major changes and developments in the Company’s recruitment, retention and termination policies and procedures for senior management; major changes and development in the Company’s remuneration policy with a formal review at least every three years; and facilitating shareholder and other stakeholder engagements in relations to the company’s remuneration policies and practices. the nomination and remuneration Committee has the authority, at any time, to conduct or direct any investigation it considers necessary to fulfil its responsibilities. investment committee the investment Committee was disbanded with effect from 27 July 2011 and no meetings were held during the year. • • • • • • risk management – ensuring that the Group has the appropriate risk management framework to identify and deal with material business risks and maintain compliance with statutory and regulatory requirements by the ClearView Companies; this framework includes a documented risk management Strategy and a formal whistleblower policy and procedure; Financial reporting – reviewing and overseeing the integrity of ClearView’s accounting and financial reporting processes, the Group’s financial statements and any other material regulatory documents before they are approved by the Board; taxation – reviewing and approving significant taxation issues and taxation treatment policies; internal controls – monitoring the effectiveness of the internal controls systems of the ClearView Companies (including information technology security and control); auditors – appointing and overseeing of the internal and external auditors, the terms of their engagement, the scope and quality of the audit and the auditor’s independence; Compliance – monitoring the effectiveness of the Group’s compliance with laws and regulations as well as internal company policies and the results of any instances of non-compliance. ClearView wealtH limiteD 32 cORpORATE GOVERnAncE ContinueD PRINcIPLE 3: cOMPANIES ShOULD AcTIVELY PROMOTE EThIcAL AND RESPONSIbLE DEcISION MAKINg code of conduct ClearView has established a Code of Conduct (the Code) which sets out the standards of ethical, honest and law- abiding behaviour expected by ClearView’s Directors and employees. the Code requires its Directors and employees to conduct themselves in an ethical, honest and legal manner in accordance with both the Code and ClearView’s policies and values. it also encourages employees and directors to report breaches of the Code to management or the Board and provides protection for those who report breaches. Share Trading policy the ClearView employee trading policy has been established to govern the trading in shares and securities by its directors, officers and employees. this policy is designed to raise awareness and minimise any potential for breach of insider trading, either in substance or appearance. all directors, officers and employees are required to conduct their personal investment activity in a manner that is lawful and avoids conflicts of interest between the individual’s personal interests and those of the Group and its clients. all directors, officers and employees are prohibited from trading in the Company’s securities at any time if they are in possession of non-public price sensitive information regarding the Group and its securities or any other listed company and its securities which are included on an excluded list. Directors, officers and employees may only trade in Group securities if all of the following requirements are met: (a) the trading window is open; (b) they are not in possession of price sensitive information; (c) they have followed the notice procedure set out in the policy; and (d) the relevant approving officer has given consent to trade. there are two types of trading windows that may be open: (i) automatic trading window – the six week period commencing on the business day after any of the following: • • the date of release of the half year announcement to the aSX. the date of release of the preliminary final results to the aSX. • the date of the annual General meeting. (ii) Board-discretionary trading window – any trading period opened by the Board by notice. this would generally occur only if there had been some disclosure document released to the market, such as a prospectus. all directors, officers and employees must give written notification, in accordance with the table set out below: EMPLOYEE Chairman mD DESIgNATED APPROVINg OFFIcER mD & CFo/Company Secretary Chairman all other Directors mD & CFo/Company Secretary all other employees mD & CFo/Company Secretary Diversity the ClearView Board regards achieving diversity at Board and senior management level as a high priority. the Board has developed a Diversity policy which addresses the 2010 aSX Corporate Governance principles and recommendations in relation to diversity. in the past 12 months, ClearView has implemented the following diversity initiatives: • • appointed two female directors to the Board; appointed one additional female to the senior management team. ClearView 2011 annual report 33 PRINcIPLE 4 – SAFEgUARD INTEgRITY IN FINANcIAL REPORTINg PRINcIPLE 6 – RESPEcT ThE RIghTS OF ShAREhOLDERS Audit, Risk and compliance committee the audit, risk and Compliance Committee is in place to assist the Board with safeguarding the integrity in financial reporting, risk management and ensuring that effective internal controls exist within the Group. more information on this Committee and its responsibilities is outlined in principle 2 on page 31. External Auditors the audit, risk and Compliance Committee invite the external auditors to attend committee meetings. the external auditors can also meet privately with the audit, risk and Compliance Committee. the engagement partner of Deloitte touche tohmatsu was appointed as the external auditor of ClearView wealth limited in 2009. the partner managing the audit will be rotated after a maximum of five years in line with Deloitte’s policy and the Corporations act requirements. the audit, risk and Compliance Committee ensures the independence of the external auditors who also provide an annual declaration of their independence to the Committee. the Board aims to ensure that shareholders are informed of all material information necessary to assess the performance of the Group. information is communicated to the shareholders through: • • • • aSX announcements and media releases; the Company’s website, on which all investor documents are posted; the annual and interim reports; and the annual General meeting (aGm) and any other shareholder meetings . ClearView encourages all shareholders to attend, participate and vote at its annual General meeting (aGm). the notice of aGm is accompanied by explanatory notes on the items of business to assist shareholders to understand the business that will be considered at the meeting. the Board also requests that the Company’s external auditor attends the meeting and is available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report. PRINcIPLE 5 – MAKE TIMELY AND bALANcED DIScLOSURES PRINcIPLE 7 – REcOgNISE AND MANAgE RISK ClearView is committed to providing timely and relevant information about its business operations to all shareholders and potential investors to enable them to make informed decisions about their investments. ClearView strives to ensure that all disclosures are not only made in a timely manner but are factual, do not omit material information, and are expressed in a clear and objective manner to allow an investor to assess the impact of the information when making investment decisions. ClearView’s approach to communicating with shareholders and the market is set out in its Continuous Disclosure obligation policy which reflects its obligations under the aSX listing rules and the Corporations act. the Company Secretary has been nominated as the person responsible for communications with the aSX. this role includes responsibility for ensuring compliance with the continuous disclosure requirements in the aSX listing rules and posting material information to the aSX. any material information once disclosed to the aSX is then posted to the ClearView website. Risk management strategy, roles and responsibilities risk management is an integral part of the Company’s management process. the Board has adopted a formal risk management Strategy (rmS) and structured risk management framework (rmF) to identify and manage the key risks that have the potential to significantly impact its business operations, capital or customer entitlements. the rmS and rmF are fundamental to the business decisions of the Company, including resource allocation decisions and prioritisation of activities, and are reviewed annually. the audit, risk and Compliance Committee, on behalf of the Board, monitors the operation of the rmF and facilitates review of the key process and procedures underlying the rmF. management is responsible for designing and implementing the risk management and internal control systems and reporting on the effectiveness of the risk management controls to the audit, risk and Compliance Committee and the Board. the internal auditors monitor key risks in accordance with the internal audit plan and report to the audit, risk and Compliance Committee as part of the risk assessment process. KpmG are retained to provide outsourced internal audit services. PRINcIPLE 8 – REMUNERATE FAIRLY AND RESPONSIbLY the Company has established a nomination and remuneration Committee as set out under principle 2 on page 31 to ensure the directors, management and employees are remunerated fairly and responsibly. the nomination and remuneration Committee reviews the remuneration of senior executives and non-executive directors annually. ClearView employee remuneration is based on experience, capability and responsibility as well as performance targets on both a company and individual level. Senior employees, executives and directors of the Group participate in an ownership-based compensation scheme. the objective of the ownership-based compensation is to encourage participants to focus on the long term results of the Company. the total annual remuneration paid to non-executives may not exceed the limit set by shareholders at the aGm. For further details in relation to director and senior executive remuneration see the remuneration report on pages 17 to 26. ClearView wealtH limiteD 34 the rmS and rmF consider the key stakeholders in the Company beyond the shareholders including: • • the benefit, security and expectations of policyholders and investment product and advice clients; risk impacts on and from ClearView’s staff, distribution partners, and suppliers and counterparties; and • requirements and objectives of the Company’s regulators. the rmS specifies the Board’s risk appetite and tolerance standard which guides the Company in its decisions as to the acceptance, management and rejection of risks. a risk register is maintained that identifies the key risks of the Company by type, impact and likelihood, and indicates the key process and mechanisms to control, mitigate or transfer those risks within the allowed tolerances. the rmS and rmF include suitable monitoring mechanisms. as part of the rmS and rmF, the Company has adopted a Capital management plan (Cmp) with respect to supporting the residual risk exposures and the ongoing capital needs of the Company. Key risks which may affect clearView the Company’s activities expose it to a variety of risks, both financial and non-financial. Key risks include: • • • • asset risks, including market risk (interest rate risk and price risk), credit risk and liquidity risk; insurance risk; asset-liability mismatch risks; expense risks and client discontinuance (lapses, withdrawals and lost client) risks; and • Compliance risk, operational risk and strategic risk. one of the Company’s most significant risks is insurance risk. to limit its exposure to accepted insurance risk, ClearView life purchases reinsurance. ClearView life cedes to specialist reinsurance companies a proportion of its portfolio for certain types of insurance risk. this serves primarily to reduce the net liability on large individual risks and provide protection against large losses. the reinsurers used are regulated by the australian prudential regulatory authority (apra) and are members of large international groups with sound credit ratings. a more detailed discussion on the Company’s key risks and how they are monitored is found in note 5 of the Financial Statements on pages 57 to 61. ClearView 2011 annual report 35 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 2011 FINANcIAL REPORT cONTENTS income statement Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements 1 General information 36 37 38 39 40 41 22 property, plant and equipment 23 Business acquisitions 24 payables 25 provisions 26 Deferred tax balances 27 policy liabilities 28 issued capital 2 adoption of new and revised accounting Standards 42 29 provision for deferred consideration 3 4 Significant accounting policies Critical accounting judgments and key sources of estimation uncertainty 5 risk management 6 Solvency requirements of the statutory funds 7 Segment information 8 Discontinued operations 9 Fee and other revenue 10 investment income 11 other expenses 12 income tax 13 movements in reserves 14 Sources of profit 15 earnings per share 16 Cash and cash equivalents 17 investments 18 receivables 19 Fixed interest deposits 20 Goodwill 21 intangible assets 43 52 57 61 62 64 64 64 65 66 68 68 69 70 70 71 71 71 72 30 Shares granted under the employee share plans 31 Dividends 32 reconciliation of net profit / (loss) for the year to net cash flows from operating activities 33 Subsidiaries 34 investment in associate 35 Share-based payments 36 related party transactions 37 Financial instruments 38 Disaggregated information by fund 39 investment in controlled unit trusts 40 leases 41 Contingent liabilities and contingent assets 42 Subsequent events 43 Capital commitments Directors’ Declaration independent auditor’s report Shareholders’ information 101 Directory 73 74 76 77 78 79 80 80 81 81 81 82 82 83 86 87 94 96 96 97 97 97 98 99 the Financial report was authorised for issue by the Directors on 24 august 2011. ClearView wealtH limiteD 36 incOME STATEMEnT For tHe Year enDeD 30 June 2011 cOnTinUinG OpERATiOnS Revenue from continued operations premium revenue from insurance contracts outward reinsurance expense Net life insurance premium revenue Fee and other revenue investment income Operating revenue before net fair value gains on financial assets net fair value gains / (losses) on financial assets Net operating revenue Claims expense reinsurance recoveries revenue Change in life insurance policy liabilities Change in reinsurers’ share of life insurance liabilities Change in life investment policy liabilities Depreciation and amortisation expense Commission expense other operating expenses profit on acquisition of subsidiary Share of profit / (loss) of associate reversal of impairments movement in liability of non-controlling interest in controlled unit trusts Profit / (loss) before income tax expense income tax expense / (benefit) Net profit / (loss) for the year from continuing operations profit from discontinued operations PROFIT / (LOSS) FOR ThE YEAR Attributable to: equity holders of the parent Earnings per share From continuing and discontinued operations Basic (cents per share) Diluted (cents per share) From continuing operations Basic (cents per share) Diluted (cents per share) to be read in conjunction with the accompanying notes. cONSOLIDATED cOMPANY NOTE 2011 $’000 2010 $’000 2011 $’000 2010 $’000 9 10 27 11 11 23 34 12 8 15 40,303 (3,759) 36,544 45,670 53,805 136,019 89,123 225,142 (17,575) 3,021 563 (232) (121,986) (7,834) (5,430) 2,624 (238) 2,386 11,617 31,365 45,368 (49,492) (4,124) (912) 115 1,001 29 19,778 (745) (5,309) – – – – 44,521 44,521 30 44,551 – – – – – – – – – – – 564 564 – 564 – – – – – – – (48,420) (20,634) (2,684) (9,238) – 21 – 11,812 (59) 20 (12,612) 14,658 5,993 8,665 – 8,665 2,617 3,589 1,181 2,408 2,110 4,518 – – – – 41,867 (647) 42,514 – 42,514 – – 361 – (8,313) (954) (7,359) 2,110 (5,249) 8,665 4,518 42,514 (5,249) 2.12 2.10 2.12 2.10 2.49 2.46 1.33 1.33 – – – – – – – – ClearView 2011 annual report 37 STATEMEnT OF cOMpREHEnSiVE incOME For tHe Year enDeD 30 June 2011 Profit / (loss) for the year OTHER cOMpREHEnSiVE incOME available-for-sale financial assets net losses arising on revaluation of available-for-sale financial assets during the year income tax relating to components of other comprehensive income Total comprehensive income / (loss) for the year total comprehensive income / (loss) attributable to: equity holders of the parent to be read in conjunction with the accompanying notes. cONSOLIDATED cOMPANY NOTE 2011 $’000 8,665 2010 $’000 4,518 2011 $’000 2010 $’000 42,514 (5,249) – 8,665 – 8,665 (569) 3,949 170 4,119 – 42,514 (569) (5,818) – 170 42,514 (5,648) 8,665 4,119 42,514 (5,648) ClearView wealtH limiteD 38 STATEMEnT OF FinAnciAL pOSiTiOn at 30 June 2011 cONSOLIDATED cOMPANY NOTE 2011 $’000 2010 $’000 2011 $’000 2010 $’000 ASSETS Cash and cash equivalents investments receivables Fixed interest deposits reinsurers’ share of life insurance policy liabilities Deferred tax asset property, plant and equipment investment in associate Goodwill other intangible assets Total assets LiABiLiTiES payables Current tax liabilities provisions provision for deferred consideration life insurance policy liabilities life investment policy liabilities liability to non-controlling interest in controlled unit trusts Deferred tax liabilities Total liabilities Net assets EqUiTy issued capital retained losses reserves equity attributable to equity holders of the parent Total equity to be read in conjunction with the accompanying notes. 16 17 18 19 27 26 22 34 20 21 24 25 29 27 27 26 28 13 13 29,652 8,542 12,282 51,883 59,155 1,717,642 1,768,675 273,361 243,012 185,822 197,142 1,417,658 1,469,999 7,205 22,021 2,447 24,297 1,288 163 4,858 4,742 359 2,015 1,282 142 4,187 11,569 25,249 – 5,070 686 1,713 6,365 1,392 (62,728) (62,918) 1,367,887 1,405,415 147,018 152,672 157 – 16,240 220,336 6,851 21,392 – 10,713 215,569 4,089 359 – – – – – – – – – 1,038 – 100 10,034 1,713 2,087 – – – – – – – – – – 13,834 229,178 276,565 (47,905) 518 229,178 229,178 1,469,659 1,529,888 1,138 247,983 238,787 272,223 276,565 276,565 276,565 (29,631) (38,296) 1,049 247,983 247,983 518 238,787 238,787 (5,391) 1,049 272,223 272,223 STATEMEnT OF cHAnGES in EqUiTy For tHe Year enDeD 30 June 2011 cONSOLIDATED balance at 1 July 2009 profit for the year other comprehensive income for the year Total comprehensive income for the year issue of shares Share issue costs, net of tax recognition of share based payments balance at 30 June 2010 profit for the year Total comprehensive income for the year recognition of share based payments ShARE cAPITAL $’000 144,816 – – – 135,000 (3,251) – 276,565 – – – balance at 30 June 2011 276,565 1,049 cOMPANY balance at 1 July 2009 profit for the year other comprehensive income for the year Total comprehensive income for the year issue of shares Share issue costs, net of tax recognition of share based payments balance at 30 June 2010 profit for the year Total comprehensive income for the year recognition of share based payments ShARE cAPITAL $’000 144,816 – – – 135,000 (3,251) – 276,565 – – – balance at 30 June 2011 276,565 1,049 to be read in conjunction with the accompanying notes. EqUITY-SETTLED EMPLOYEE bENEFITS RESERVE ASSET REVALUATION RESERVE EqUITY-SETTLED EMPLOYEE bENEFITS RESERVE ASSET REVALUATION RESERVE $’000 154 – – – – – 364 518 – – 531 $’000 154 – – – – – 364 518 – – 531 $’000 399 – (399) (399) – – – – – – – – $’000 399 – (399) (399) – – – – – – – – ClearView 2011 annual report 39 RETAINED EARNINgS $’000 (42,814) 4,518 – 4,518 – – – (38,296) 8,665 8,665 – ATTRIbUTAbLE TO OwNERS OF ThE PARENT $’000 102,555 4,518 (399) 4,119 135,000 (3,251) 364 238,787 8,665 8,665 531 (29,631) 247,983 RETAINED EARNINgS $’000 (42,656) (5,249) – (5,249) – – – (47,905) 42,514 42,514 – (5,391) TOTAL $’000 102,713 (5,249) (399) (5,648) 135,000 (3,251) 364 229,178 42,514 42,514 531 272,223 ClearView wealtH limiteD 40 STATEMEnT OF cASH FLOWS For tHe Year enDeD 30 June 2011 cASH FLOWS FROM OpERATinG AcTiViTiES receipts from client and debtors payments to suppliers and other creditors withdrawals paid to life investment clients Dividends and trust distributions received interest received income taxes paid other receipts cONSOLIDATED cOMPANY NOTE 2011 $’000 2010 $’000 2011 $’000 2010 $’000 353,094 (75,388) (427,925) 21,537 27,740 (1,922) – 68,532 (22,212) (59,165) 1,696 7,176 (312) 643 – – (2,260) (3,422) – – 964 (24) – – – 4,429 950 643 Net cash (utilised) / generated by operating activities 32 (102,864) (3,642) (1,320) 2,600 cASH FLOWS FROM inVESTinG AcTiViTiES net cash movement due to subsidiary acquisition Cash and cash equivalents acquired as part of the business combination payments for investment securities proceeds from sales of investment securities acquisition of property, plant and equipment transaction costs paid proceeds from sale of subsidiary 23 (9,658) (195,000) (13,908) (198,089) – 182,376 (3,241,003) (63,472) 3,384,255 (431) (1,170) – 76,304 (1,115) (3,673) 20 – (629) 87 – (1,170) – Fixed interest deposits (invested) / redeemed (21,662) 50,631 (21,033) loans granted to related entities acquisition of client book / business Settlements made against deferred consideration loans redeemed from / (made to) associate Dividends received from group entities 23 – (449) (1,067) 50 – – (462) (1,081) (120) – – – – – 43,500 Net cash generated / (utilised) by investing activities 108,865 44,408 6,847 (144,502) cASH FLOWS FROM FinAncinG AcTiViTiES proceeds from capital raising Capital raising costs paid net of tax net movement in liability of non- controlling interest in unit trusts Net cash (utilised) / generated in financing activities net (decrease) / increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year cash and cash equivalents at the end of the financial year to be read in conjunction with the accompanying notes. – – 135,000 (3,251) (17,341) (17,341) (11,320) (3,296) 128,453 169,219 – – – 135,000 (3,251) – – 5,527 131,749 (10,153) 16 197,142 27,923 10,713 20,866 185,822 197,142 16,240 10,713 – – – – (3,673) 6,070 53,494 (2,304) – – – – ClearView 2011 annual report 41 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 1 gENERAL INFORMATION ClearView wealth limited (the Company or Consolidated entity) is a limited company incorporated in australia. the address of its registered office is disclosed in the Directory at the back of the annual report. the principal activities of the Company and its subsidiaries (the Group) are described in note 7. 2 ADOPTION OF NEw AND REVISED AccOUNTINg STANDARDS the following new and revised australian accounting Standards and interpretations have been adopted in the current period and have affected the amounts reported in these financial statements. Standards affecting presentation and disclosure amendments to aaSB 7 ‘Financial instruments: Disclosure’ (adopted in advance of effective date of 1 January 2011) amendments to aaSB 5 ‘non-current assets Held for Sale and Discontinued operations’ amendments to aaSB 101 ‘presentation of Financial Statements’ (adopted in advance of effective date of 1January 2011) amendments to aaSB 107 ‘Statement of Cash Flows’ the amendments (part of aaSB 2010-4 ‘Further amendments to australian accounting Standards arising from the annual improvements project’) clarify the required level of disclosures about credit risk and collateral held and provide relief from disclosures previously required regarding renegotiated loans. Disclosures in these financial statements have been modified to reflect the clarification in aaSB 2009-5 ‘Further amendments to australian accounting Standards arising from the annual improvements project’ that the disclosure requirements in Standards other than aaSB 5 do not generally apply to noncurrent assets classified as held for sale and discontinued operations. the amendments (part of aaSB 2010-4 ‘Further amendments to australian accounting Standards arising from the annual improvements project’) clarify that an entity may choose to present the required analysis of items of other comprehensive income either in the statement of changes in equity or in the notes to the financial statements. the amendments (part of aaSB 2009-5 ‘Further amendments to australian accounting Standards arising from the annual improvements project’) specify that only expenditures that result in a recognised asset in the statement of financial position can be classified as investing activities in the statement of cash flows. Consequently, cash flows in respect of development costs that do not meet the criteria in aaSB 138 ‘intangible assets’ for capitalisation as part of an internally generated intangible asset (and, therefore, are recognised in profit or loss as incurred) have been reclassified from investing to operating activities in the statement of cash flows. ClearView wealtH limiteD 42 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 2 ADOPTION OF NEw AND REVISED AccOUNTINg STANDARDS cONTINUED Standards and interpretations adopted with no effect on financial statements the following new and revised Standards and interpretations have also been adopted in these financial statements. their adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions or arrangements. aaSB 2009-5 ‘Further amendments to australian accounting Standards arising from the annual improvements project’ except for the amendments to aaSB 5 and aaSB 107 described earlier this section, the application of aaSB 2009-5 has not had any material effect on amounts reported in the financial statements. aaSB 2009-8 ‘amendments to australian accounting Standards – Group Cash-Settled Share based payment transactions’ aaSB 2009-10 ‘amendments to australian accounting Standards – Classification of rights issues’ aaSB 2010-3 ‘amendments to australian accounting Standards arising from the annual improvements project’ the application of aaSB 2009-8 makes amendments to aaSB 2 ‘Share-based payment’ to clarify the scope of aaSB 2, as well as the accounting for group cash-settled share-based payment transactions in the separate (or individual) financial statements of an entity receiving the goods or services when another group entity or shareholder has the obligation to settle the award. the application of aaSB 2009-10 makes amendments to aaSB 132 ‘Financial instruments: presentation’ to address the classification of certain rights issues denominated in a foreign currency as either an equity instrument or as a financial liability. to date, the Group has not entered into any arrangements that would fall within the scope of the amendments. the application of aaSB 2010-3 makes amendments to aaSB 3(2008) ‘Business Combinations’ to clarify that the measurement choice regarding non-controlling interests at the date of acquisition is only available in respect of non-controlling interests that are present ownership interests and that entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation. all other types of non-controlling interests are measured at their acquisition-date fair value, unless another measurement basis is required by other Standards. in addition, the application of aaSB 2010-3 makes amendments to aaSB 3(2008) to give more guidance regarding the accounting for share-based payment awards held by the acquiree’s employees. Specifically, the amendments specify that share-based payment transactions of the acquiree that are not replaced should be measured in accordance with aaSB 2 ‘Share-based payment’ at the acquisition date (‘market-based measure’). ClearView 2011 annual report 43 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD Standards and interpretations in issue not yet adopted at the date of authorisation of the financial report, the following Standards and interpretations, including those Standards or interpretations issued by the iaSB or iFrS interpretations Committee where an equivalent australian Standard or interpretation has not been made by the aaSB, were on issue but not yet effective. STANDARD/INTERPRETATION iFrS 10 ‘Consolidated Financial Statements’ iFrS 12 ‘Disclosure of involvement with other entities’ iFrS 13 ‘Fair Value measurement’ iaS 27 ‘Separate Financial Statements (2011)’ iaS 28 ‘investments in associates and Joint Venture (2011)’ 3 SIgNIFIcANT AccOUNTINg POLIcIES Statement of compliance the financial report is a general purpose financial report which has been prepared in accordance with the Corporations act 2001, accounting Standards and interpretations, and complies with other requirements of the law. the financial report comprise the consolidated financial statements of the Group. accounting Standards include australian accounting Standards. Compliance with australian accounting Standards ensures that the financial statements and notes of the company and the Group comply with international Financial reporting Standards (‘iFrS’). the financial statements were authorised for issue by the Directors on 24 august 2011. Basis of preparation the consolidated financial statements have been prepared on the basis of historical cost, except for certain non-current assets and financial instruments that are measured at revalued amounts or fair values, as explained in the accounting policies below. Historical cost is generally based on the fair values of the consideration given in exchange for assets. all amounts are presented in australian dollars, unless otherwise noted. the Company is a company of the kind referred to in aSiC Class order 98/0100, dated 10 July 1998, and in accordance with that Class order amounts in the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. EFFEcTIVE FOR ANNUAL REPORTINg PERIODS bEgINNINg OR AFTER ExPEcTED TO bE INITIALLY APPLIED IN ThE FINANcIAL YEAR ENDINg 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 30 June 2014 30 June 2014 30 June 2014 30 June 2014 30 June 2014 (a) Basis of consolidation the consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. income and expense of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. all intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control are accounted for as equity transactions. the carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. any difference between the amount by which the non- controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. ClearView wealtH limiteD 44 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 3 SIgNIFIcANT AccOUNTINg POLIcIES cONTINUED (b) Business combinations acquisitions of subsidiaries and businesses are accounted for using the acquisition method. the consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. acquisition related costs are recognised in profit or loss as incurred. at the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: • • • deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with aaSB 112 income taxes and aaSB 119 employee Benefits respectively; liabilities or equity instruments related to the replacement by the Group of an acquiree’s share based payment awards are measured in accordance with aaSB 2 Share-based payment; and assets (or disposal groups) that are classified as held for sale in accordance with aaSB 5 noncurrent assets Held for Sale and Discontinued operations are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. if, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non- controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. the choice of measurement basis is made on a transaction-by-transaction basis. other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another Standard. where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. the subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with aaSB 139, or aaSB 137 ‘provisions, Contingent liabilities and Contingent assets’, as appropriate, with the corresponding gain or loss being recognised in profit or loss. where a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of. if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. the measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date – and is subject to a maximum of one year. Business combinations that took place prior to 1 July 2009 were accounted for in accordance with the previous version of aaSB 3. (c) investments in associates an associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. ClearView 2011 annual report 45 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD the results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. under the equity method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. the goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. the requirements of aaSB 139 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. when necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with aaSB 136 ‘impairment of assets’ as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. any impairment loss recognised forms part of the carrying amount of the investment. any reversal of that impairment loss is recognised in accordance with aaSB 136 to the extent that the recoverable amount of the investment subsequently increases. when a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognised in the Group’s consolidated financial statements only to the extent of interests in the associate that are not related to the Group. (d) Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of the acquisition of the business (see (b) above) less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash- generating units) that is expected to benefit from the synergies of the combination. a cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. if the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. any impairment loss for goodwill is recognised directly in profit or loss in the consolidated income statement. an impairment loss recognised for goodwill is not reversed in subsequent periods. on disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. the Group’s policy for goodwill arising on the acquisition of an associate is described at (c) above. (e) Goods and services tax revenues, expenses and assets are recognised net of the amount of goods and services tax (GSt), except: i. where the amount of GSt incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or ii. for receivables and payables which are recognised inclusive of GSt. the net amount of GSt recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the cash flow statement on a gross basis. the GSt component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified within operating cash flows. (f) principles underlying the conduct of life insurance business the life insurance operations of the Group are conducted within separate statutory funds as required by the Life Insurance Act 1995 (Life Act) and are reported in aggregate with the shareholders’ funds in the statement of comprehensive income, statement of financial position, statement of changes in equity and statement of cash flows. the life insurance operations consist of the provision of life insurance and life investment contracts. life insurance contracts involve the acceptance of significant insurance risk. insurance risk is defined as significant if, and only if, an insured event could cause an insurer to pay significant benefits in any scenario, excluding scenarios that lack commercial substance. insurance contracts include those where the insured benefit is payable on the occurrence of a specified event such as death, injury or disability caused by accident or illness. the insured benefit is not linked to the market value of the investments held by the Group, and the financial risks are substantially borne by the Group. any contracts issued by the Group and regulated under the Life Act that do not meet the definition of a life insurance contract are classified as life investment contracts. ClearView wealtH limiteD 46 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 3 SIgNIFIcANT AccOUNTINg POLIcIES cONTINUED life investment contracts include investment-linked contracts where the benefit is directly linked to the market value of the investments held in the particular investment-linked fund. while the underlying assets are registered in the name of ClearView life insurance limited (ClearView life) and the investment-linked policy owner has no direct access to the specific assets, the contractual arrangements are such that the investment-linked policy owner bears the risks and rewards of the fund’s investment performance. a small component of the life investment contracts includes a minimum unit price guarantee. ClearView life derives fee income from the administration of investment-linked funds. life investment contracts do not contain any discretionary participation features (i.e. those where the amount or timing of allocation of the profit from the underlying investments is at the discretion of the insurer). in accordance with aaSB 1038 Life Insurance Contracts, financial assets backing policy liabilities are designated at fair value through profit and loss. ClearView life has determined that all assets held within the statutory funds back policy liabilities. Financial assets backing policy liabilities consist of high quality investments such as cash, equities, fixed income securities, property trusts and infrastructure assets. the management of financial assets and policy liabilities is closely monitored to ensure that investments are appropriate given the expected pattern of future cash flows arising from the policy liabilities. (g) Revenue recognition revenue is measured at the fair value of the consideration received or receivable. Fee revenue is recognised when: • • the amount can be measured reliably; it is probable that the future economic benefit associated with transactions will flow to the entity; and • the stage of completion can be measured reliably. Premium revenue premium revenue only arises in respect of life insurance contracts. premiums with a regular due date are recognised as revenue on a due basis. premiums with no due date are recognised as revenue on a cash received or receivable basis. unpaid premiums are only recognised as revenue during the days of grace and are included as premiums receivable (part of receivables) in the statement of financial position. premiums due after, but received before, the end of the financial year are shown as premium Deposits (part of trade and other payables) in the statement of financial position. premiums and contributions on life investment contracts are treated as deposits and are reported as a movement in life investment contract liabilities. Management fee revenue Fee revenue comprising management fee revenue with respect to life investment contracts is recognised in the statement of comprehensive income on an accrual basis as the services are provided. a single management fee is applied for each investment option, which is based on the value of the assets held in each investment option. the fee is calculated each time an investment option is valued, but before the unit price is declared. the fee is treated as a reduction in the investment contract liabilities. Financial planning revenue Financial planning revenue is recognised on an accruals basis to the extent that it is probable that the income benefit will flow to the Group and the revenue can be reliably measured. ongoing trail revenue is recorded over the effective period in which customers’ funds are invested in products. Dividend and interest revenue Dividend revenue from investments is recognised when the Group’s right to receive payment has been established. interest revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition. Investment Income income on investment units and shares is deemed to accrue on the date the distributions are declared to be effective. Distribution income Distribution income from investments in unit trusts is recognised on a receivable basis as of the date the unit value is quoted ex-distribution. (h) claims Life insurance contracts Claims incurred relate to life insurance contracts and are treated as expenses. Claims are recognised upon notification of the insured event. the liability in respect of claims includes an allowance (estimate) for incurred but not reported claims and an allowance (estimate) for expected declinature of notified claims. Claims are shown gross of reinsurance recoverable. any reinsurance recoveries applicable to the claims are included in receivables. ClearView 2011 annual report 47 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD Life investment contracts there is no claims expense in respect of life investment contracts. Surrenders and withdrawals which relate to life investment contracts are treated as a movement in life investment contract liabilities. Surrenders and withdrawals are recognised as at the date of redemption of policy units, which occurs once all documentation has been provided and completed. (i) Reinsurance amounts paid to reinsurers under life insurance contracts held by the Company are recorded as an outward reinsurance expense and are recognised in the statement of comprehensive income from the reinsurance premium payment due date. reinsurance recoveries receivable on claims incurred are recognised as revenue. recoveries are assessed in a manner similar to the assessment of life insurance contract liabilities. recoveries are measured as the present value of the expected future receipts, calculated on the same basis as the life insurance contract liabilities. (j) policy acquisition costs the policy acquisition costs incurred are recorded in the statement of comprehensive income and represent the fixed and variable costs of acquiring new business. the policy acquisition costs include commission, policy issue and underwriting costs, agency expenses, management service fees and sale costs. the acquisition costs incurred in relation to life insurance contracts are capitalised in the valuation of policy liabilities. (k) Basis of expense apportionment all expenses of the life insurance business incurred by ClearView life and charged to the statement of comprehensive income have been apportioned in accordance with part 6, Division 2 of the life act. the basis is as follows: • • expenses relating specifically to either the ClearView life shareholder’s fund or a particular statutory fund are allocated directly to the respective funds. Such expenses are apportioned between policy acquisition costs and policy maintenance costs with reference to the objective when each expense is incurred and the outcome achieved. other expenses are subject to apportionment under section 80 of the life act and are allocated between the funds in proportion to the activities to which they relate. they are apportioned between policy acquisition costs and policy maintenance costs in relation to their nature as either acquisition or maintenance activities. activities are based on direct measures such as time, head counts and business volumes. life investment contracts are held within statutory funds no.2 and no.4. life insurance contracts are principally held within statutory fund no.1, except for a small, closed book of rider insurance covers held in statutory fund no.2. the allocation of expenses between the primary life investment or life insurance contracts is inherent in the allocation to the statutory funds, as described above. the apportionment basis is in line with the principles set in the life insurance prudential Standard valuation standard (prudential Standard lpS1.04 Valuation of policy liabilities). all expenses relate to non-participating business as the Company only writes this category of business. (l) policy liabilities policy liabilities consist of life insurance policy liabilities and life investment policy liabilities. Life insurance contracts the value of life insurance policy liabilities is calculated using the margin on Services methodology. under this methodology, planned profit margins and an estimate of future liabilities are calculated separately for each related product group, with future cash flows determined using best estimate assumptions and discounted to the reporting date. profit margins are systemically released over the term of the policies in line with the pattern of services to be provided. the future planned profit margins are deferred and recognized over time by including the value of the future planned profit margins within the value of the policy liabilities. Further details of the actuarial assumptions used in these calculations are set out in note 4. Life investment contracts life investment policy liabilities are valued at fair value, which is based on the valuation of the assets held within the unitised investment linked policy investment pools. (m) cash and cash equivalents Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value. (n) Employee benefits a liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably. a liability and expense for bonuses is recognised where contractually obliged or where there is a past practice that has created a constructive obligation. ClearView wealtH limiteD 48 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 3 SIgNIFIcANT AccOUNTINg POLIcIES cONTINUED termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. a liability for termination benefits is recognised when the Group is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after reporting date are discounted to a present value. liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. liabilities recognised in respect of long-term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to the reporting date. Defined contribution plans Contributions to defined contribution superannuation plans are expensed when employees have rendered service entitling them to the contributions. (o) Financial assets all financial assets are recognised and derecognised on trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVtpl), ‘held-to-maturity’ investments, ‘available-for-sale’ (aFS) financial assets and ‘loans and receivables’. the classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Effective interest method the effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. the effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. income is recognised on an effective interest basis for debt instruments other than those classified as at FVtpl. Financial assets at FVTPL Financial assets are classified as at FVtpl when the financial asset is either held for trading or it is designated as at FVtpl. a financial asset is classified as held for trading if: • • • it has been acquired principally for the purpose of selling it in the near term; or on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument. a financial asset other than a financial asset held for trading may be designated as at FVtpl upon initial recognition if: • • • such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or it forms part of a contract containing one or more embedded derivatives, and aaSB 139 Financial instruments: recognition and measurement permits the entire combined contract (asset or liability) to be designated as at FVtpl. Financial assets at FVtpl are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. the net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘net fair value gains and losses’ line item in the statement of comprehensive income. Fair value is determined in the manner described in note 3. held-to-maturity investments Bills of exchange and debentures with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are measured at amortised cost using the effective interest method less any impairment, with revenue recognised on an effective yield basis. Available for sale financial assets listed shares and listed redeemable notes that are traded in an active market are classified as available For Sale (aFS) and are stated at fair value. investments in unlisted shares that are not traded in an active market can be classified as aFS financial assets and stated at fair value where the directors consider that fair value can be reliably measured. Fair value is determined in the manner described in note 3. ClearView 2011 annual report 49 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investments revaluation reserve, with the exception of impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses on monetary assets, which are recognised in profit or loss. where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss in the consolidated income statement. Dividends on aFS equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established. the fair value of aFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. the foreign exchange gains and losses that are recognised in profit or loss are determined based on the amortised cost of the monetary asset. other foreign exchange gains and losses are recognised in other comprehensive income. Loans and receivables trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. loans and receivables are measured at amortised cost using the effective interest method, less any impairment. interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Impairment of financial assets Financial assets, other than those at FVtpl, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. when an aFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period. with the exception of aFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. in respect of aFS equity securities, impairment losses previously recognised in profit or loss are not reversed through profit or loss. any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income. Derecognition of financial assets the Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. if the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. if the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds payable. (p) Financial liabilities and equity instruments issued by the Group classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. Equity instruments an equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. equity instruments issued by the Group are recognised as equal to the proceeds received, net of direct issue costs. the carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. when a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries Financial liabilities Financial liabilities are classified as either financial liabilities ‘at FVtpl’ or ‘other financial liabilities’. ClearView wealtH limiteD 50 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 3 SIgNIFIcANT AccOUNTINg POLIcIES cONTINUED Financial liabilities at FVTPL Financial liabilities are classified as at FVtpl when the financial liability is either held for trading or it is designated as at FVtpl. a financial liability is classified as held for trading if: • • • it has been acquired principally for the purpose of repurchasing it in the near term; or on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument. a financial liability other than a financial liability held for trading may be designated as at FVtpl upon initial recognition if: • • • such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or it forms part of a contract containing one or more embedded derivatives, and aaSB 139 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVtpl. Financial liabilities at FVtpl are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. the net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the ‘other gains and losses’ line item in the statement of comprehensive income. Other financial liabilities other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. the effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. the effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. Derecognition of financial liabilities the Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. (q) provisions provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. the amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. where a provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the present value of those cashflows. when some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. contingent liabilities acquired in a business combination Contingent liabilities acquired in a business combination are initially measured at fair value at the date of acquisition. at subsequent reporting dates, such contingent liabilities are measured at the higher of the amount that would be recognised in accordance with aaSB 137 ‘provisions, Contingent liabilities and Contingent assets’ and the amount initially recognised less cumulative amortisation recognised in accordance with aaSB 118 ‘revenue’. (r) Restructurings a restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. the measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. (s) Financial instruments issued by the company Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. an equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. equity instruments issued by the Group are recorded as equal to the proceeds received, net of direct issue costs. ClearView 2011 annual report 51 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD (t) intangible assets acquired in a business combination intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. (u) impairment of other tangible and intangible assets at each reporting date, the Group reviews its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. if any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. the recoverable amount is the higher of fair value less costs to sell and value in use. in assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. if the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. an impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. a reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase. (v) property plant and Equipment each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment. property, plant and equipment is amortised over its expected useful life being, 3 years (33% p.a. amortisation) and furniture & fittings 5 years (20% p.a. amortisation). Depreciation is calculated on a straight-line basis so as to write off the net cost or other revalued amount of each asset over its expected useful life to its estimated residual value. the estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period, with the effect of any changes recognised on a prospective basis. the cost of improvements to, or on, leasehold properties is amortised over the unexpired term of the lease. these are subject to impairment reviews at least annually or more frequently where there is an indication of impairment. (w) Share-based payments equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Fair value is measured via option pricing, using a binomial model. the expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 35. the fair value determined at the grant date of the equity- settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. at the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. the impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the employee share plan reserve. (x) income tax current tax Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. it is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). ClearView wealtH limiteD 52 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 3 SIgNIFIcANT AccOUNTINg POLIcIES cONTINUED Deferred tax Deferred tax is accounted for using the balance sheet liability method. temporary differences are differences between the tax base of an asset or liability and its carrying amount in the Statement of Financial position. the tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. in principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from the initial recognition of goodwill. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates and interests in joint ventures except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date. the measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. current and deferred tax for the period Current and deferred tax is recognised as an expense or income in the income statement, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess. Leased assets leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. all other leases are classified as operating leases. 4 cRITIcAL AccOUNTINg JUDgMENTS AND KEY SOURcES OF ESTIMATION UNcERTAINTY in the application of the Group’s accounting policies management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. the estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments. actual results may differ from these estimates. the estimates and underlying assumptions are reviewed on an ongoing basis. revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. critical judgments in applying the Group’s accounting policies and key sources of estimation uncertainty the critical judgments that management has made in the process of applying the Group’s accounting policies and in the application of australian accounting Standards that have a significant effect on the financial report and estimates include: • • • • • life insurance policy liabilities, including the actuarial methods and assumptions; assets arising from reinsurance contracts; recoverability of intangible assets; impairment of goodwill; and Deferred tax assets. Life insurance policy liabilities life insurance policy liabilities are, in the majority of cases, determined using an individual policy-by-policy calculation. where material liabilities are not determined by individual policy valuation, they are computed using statistical or mathematical methods, which are expected to give approximately the same results as if an individual liability were calculated for each contract. the calculations are made by suitably qualified personnel on the basis of recognised actuarial methods, with due regard to relevant actuarial principles. the methodology ClearView 2011 annual report 53 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD takes into account the risks and uncertainties of the particular classes of life insurance business written. the key factors that affect the estimation of these liabilities and related assets are: • • • the cost of providing benefits and administering these insurance contracts; mortality and morbidity experience on life insurance products; and Discontinuance experience, which affects ClearView life’s ability to recover the cost of acquiring new business over the term of the contracts. in addition, factors such as regulation, competition, interest rates, taxes, securities market conditions and general economic conditions affect the level of these liabilities. Details of specific actuarial policies and methods are set out further below. Assets arising from reinsurance contracts assets arising from reinsurance contracts are computed using the same methods as used for insurance policy liabilities. in addition, the recoverability of these assets is assessed on a periodic basis to ensure that the balance is reflective of the amounts that will ultimately be received, taking into consideration factors such as reinsurer counterparty and credit risk. impairment is recognised where there is objective evidence that the Company may not receive amounts due to it and these amounts can be reliably measured. Recoverability of intangible assets the carrying amount of intangible assets at the financial position date was $51.9 million (2010: $59.2 million). intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately. cornerstone software system (cwT) the intangible assets arose on the acquisition of ClearView Financial advice and primarily represent the value of acquired Cwt. the value of the Cwt system is amortised on a straight line basis over a period which the Directors assess as the intangible asset’s useful life. client book – Intangible the intangible assets arose on the acquisition of CVGH and ClearView Financial advice. the intangibles represent the value of the in force insurance and investment contracts, and value of the existing financial planning and funds management revenues (the client book). the valuation of these assets were performed by suitably qualified personnel on the basis of recognised actuarial methods or independent valuation. on the acquisition of ClearView Financial advice expected synergies, future revenue growth and the ingrained experience of personnel were recognised as part of goodwill as the fair value of these intangible assets could not be reliably estimated. the individual intangible assets are amortised over their expected useful lives at annual rates reflective of their expected utilisation. there were no impairment factors identified in the current year. Further information about the intangible assets is detailed in note 21. impairment of Goodwill the carrying amount of goodwill at the reporting date was $4.8 million (2010: $4.2 million). Determining whether goodwill is impaired requires an estimation of the value-in-use of the cash-generating units to which the goodwill has been allocated. the value-in-use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to determined the present value of those cash flows. goodwill ClearView Financial advice acquired the business of Community and Corporate Financial Services pty limited (ComCorp FS) on 9 april 2009. Goodwill arose in respect of the amount of consideration paid in that related to the expected cost synergies, revenue growth, improved referral source penetration, future market development and the assembled work force and ingrained experience of personnel. these assets are not recognised separately from goodwill as the future economic benefits arising from them are not capable of being measured separately. ComCorp FS was acquired in 2009 as the first major step of the Group in developing a presence in the wealth management and financial planning industry. ClearView has identified its cash generating units at the segment reporting level (lowest level of cash generating units). Below this level involves the various product lines that do not generate cash flows that are largely independent of each other as they share, inter alia, a common expense pool base. the goodwill that arose on the acquisition has at the reporting date been allocated to the financial planning cash generating unit. the Group tests for impairment at each reporting date whenever there is an indication that the asset may be impaired. there were no impairment indicators identified in the current period. management believes that any reasonable possible change in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit. the progress of the proposed regulatory reforms will be monitored and their impact assessed as further information and legislation is released. Further information about the goodwill is detailed in note 20. ClearView wealtH limiteD 54 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 4 cRITIcAL AccOUNTINg JUDgMENTS AND KEY SOURcES OF ESTIMATION UNcERTAINTY cONTINUED Deferred tax asset – Revenue Losses the Board has considered that it is probable that sufficient taxable income will be available against which deductible temporary differences or unused tax losses and tax offsets related to the group’s revenue losses can be utilised. the unrealised revenue losses (once crystallised) and the realised investment disposal losses that are considered by the Board to be revenue in nature, represent Group consolidated losses that are subject to the continuity of ownership test. at the date of this report, the Group continues to pass the continuity of ownership test. the Board has concluded that these losses are likely to be recouped by the tax consolidated Group against the income of the Group. the Board is therefore of the view that it is probable that the tax consolidated group will utilise the losses in the foreseeable future. this position will continue to be monitored and assessed by the Board at each reporting date and applicable test time, to the extent there is a change in circumstance or strategy any impairment will be recognised accordingly. Deferred tax asset – capital Losses ClearView life has amounts of realised and unrealised capital losses within its superannuation business in its no.4 Statutory Fund. the Board has considered the likely recovery of these losses and their fair value, and has concluded that it is appropriate to reduce the deferred tax asset (Dta) held in respect of those capital losses below the nominal full recovery amount. this has been implemented via placing a cap on the recognised Dta. the Dta relating to capital losses are estimated to be utilised in the foreseeable future and is expressed as a percentage of the value of investments held. the same cap and recognised Dta amount has been adopted for unit pricing purposes and this financial report. in addition to the above, the group has accumulated capital losses that arose within the parent entity (ClearView wealth limited) related to the losses realised on the historic disposal of a subsidiary entity. at the current time, no Dta is recognised in respect of these losses. this is discussed further in note 12. Actuarial methods and assumptions the effective date of the actuarial report on life insurance policy liabilities, life investment policy liabilities and solvency reserves is 30 June 2011. the actuarial report was prepared by the ClearView life appointed actuary, Greg martin. the actuarial report indicates that the appointed actuary is satisfied as to the accuracy of the data upon which the policy liabilities have been determined. (a) Methods used in the valuation of policy liabilities the policy liabilities have been determined in accordance with applicable accounting standards. policy liabilities for life insurance contracts are valued in accordance with aaSB 1038 ‘life insurance Contracts’, whereas policy liabilities for life investment contracts are valued in accordance with aaSB 139 ‘Financial instruments: recognition and measurement’. these life insurance and life investment policy liability determinations are also consistent with the requirements of the relevant prudential Standards and the life insurance act 1995. life insurance policy liabilities have been calculated in a way which allows for the systematic release of planned margins as services are provided to policyholders and premiums are received. the methods used for the major product groups are as follows: RELATED PRODUcT gROUP Fund 1 advice lump sum insurance Fund 1 non-advice lump sum insurance Fund 1 accidental death Fund 1 income protection Fund 1 integrated products Fund 2 Super term Fund 2 investments Fund 4 investments METhOD projection projection projection accumulation accumulation projection accumulation accumulation PROFIT cARRIER premiums premiums premiums n/a n/a premiums n/a n/a the projection method uses the discounted value of future policy cash flows (premiums, expenses and claims) plus a reserve for expected future profits. the policy liabilities for life investment contracts are determined as the fair value of the policyholders’ accounts under the accumulation method with no future profit reserve. ClearView 2011 annual report 55 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD (b) Actuarial assumptions used in the valuation of life insurance policy liabilities Key assumptions used in the calculations of life insurance policy liabilities are as follows. Discount rates: Discount rates are based on a yield curve derived from Commonwealth Government bond market yields as at the valuation date, plus an illiquidity adjustment based on the difference between these yields and BBSw swap rates as at the valuation date. as an indication, the resulting average effective discount rate adopted was 6.0% (2010: 5.5%). Acquisition expenses: per policy acquisition expense assumptions were based on the actual expenses for the 12 months to 30 June 2011. Maintenance expense and inflation: the per policy maintenance expense assumptions were based on the per policy unit costs implied by ClearView life’s 2011/12 business plan (2010: Based on the 2010/11 business plan). expense inflation of 2.5% p.a. (2010: 2.5% p.a.) was assumed. Lapses: rates adopted vary by product, duration, age and premium frequency, and have been based on an analysis of ClearView life’s experience over recent years with allowance for expected trends. Mortality: rates adopted vary by product, age, gender, and smoking status and have been based on ClearView life’s mortality experience. the underlying mortality table used was ia95-97, including allowance for selection. Morbidity (TPD and Trauma): rates adopted vary by age, gender, and smoking status and have been based on known industry experience plus advice from ClearView life’s reinsurers. (c) Effects of changes in actuarial assumptions (over 12 months ended June) ASSUMPTION cATEgORY Discount rates and inflation maintenance expenses lapses mortality and morbidity Total 12 MONThS TO 30 JUNE 2011 EFFEcT ON PROFIT MARgINS INcREASE / (DEcREASE) $’000 EFFEcT ON POLIcY LIAbILITIES INcREASE / (DEcREASE) $’000 (2,623) (3,192) (9,622) 7,167 (8,270) 568 – – – 568 (d) processes used to select assumptions Discount rate Benefits under life insurance contracts are not contractually linked to the performance of the assets held. as a result, the life insurance policy liabilities are discounted for the time value of money using discount rates that are based on current observable, objective rates that relate to the nature, structure and term of the future obligations. the discount rate is based on Commonwealth Government bond rates adjusted for the value of the illiquidity of the policy liability.the effect of this approach is unchanged from that adopted last year. Maintenance expenses and inflation the business plan level of maintenance expenses was taken as an appropriate expense base per policy. per policy maintenance expenses are assumed to increase in the future with inflation, at a rate that allows for basic price increases (Cpi), wage cost increases, it expense increases and productivity gains. an overall assumption similar to anticipated Cpi was derived from a combination of market implied future Cpi (derived from index bond yields) and consideration of reserve Bank of australia future inflation target ranges and outlook. the effect of this approach is materially unchanged from that adopted last year. per policy acquisition expenses were derived from the analysis of acquisition expenses adopted for this financial report. Taxation it has been assumed that current tax legislation and rates continue unaltered. Mortality and morbidity appropriate base tables of mortality and morbidity are chosen for the type of products written. an investigation into the actual experience of the insurance portfolio over recent years is performed and the Company’s mortality and morbidity experience is compared against the rates in the base tables. where the data is sufficient to be fully statistically credible, the base table is adjusted to reflect the portfolio’s experience. where data is insufficient to be fully statistically credible, the base table is adjusted having regard to the extent of the credibility of the portfolio’s experience, the overall experience of the industry experience known and advise from ClearView’s reinsurers. ClearView wealtH limiteD 56 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 4 cRITIcAL AccOUNTINg JUDgMENTS AND KEY SOURcES OF ESTIMATION UNcERTAINTY cONTINUED Lapse an investigation into the actual lapse experience of ClearView life over the most recent years is performed and statistical methods are used to determine appropriate lapse rates. an allowance is then made for any trends in the data to arrive at a best estimate of future lapse rates. (e) Sensitivity analysis the Company conducts sensitivity analyses to quantify the exposure to risk of changes in the key underlying variables such as discount rates, expenses, mortality, morbidity and lapses. the valuations included in the reported results and ClearView life’s best estimate of future performance are calculated using certain assumptions about these variables. the movement in any key variable may impact the reported performance and net assets of ClearView life and the consolidated entity, and as such represents a risk. VARIAbLE IMPAcT OF MOVEMENT IN UNDERLYINg VARIAbLE interest rate risk expense risk mortality rates morbidity rates lapses the life insurance policy liabilities are calculated using a discount rate that is derived from market interest rates. Changes in market interest rates will affect the present value of cash flows and profit margins in the policy liabilities, which in turn will affect the profit and shareholder equity. the change in interest rates would also impact the emerging profit via its impact on the investment returns on the assets held to back the liabilities. an increase in the level (or inflation) of expenses over the assumed levels will decrease emerging profit. However, a change in the base expense assumptions adopted for the policy liability is unlikely to impact the current policy liability determination as such as change is absorbed into the policy liability profit margin reserve in the first instance. For life insurance contracts providing death benefits, increased rate of mortality would lead to higher levels of claims, increasing associated claims cost and thereby reducing emerging profit. However, a change in the mortality assumptions adopted for the policy liability is unlikely to directly impact the current policy liability determination as such as change is absorbed into the policy liability profit margin reserve in the first instance. the cost of claims under tpD and trauma cover depends on the incidence of policyholders becoming totally and permanently disabled or suffering a “trauma” event such as a heart attack or stroke. Higher incidence would increase claim costs, thereby reducing profit and shareholder equity. the impact on the policy liability of a change in morbidity assumptions is as per mortality above. lapse risk represents the extent to which policyholders choose not to renew their policy, and allow it to lapse. an increase in the lapse rates will have a negative effect on emerging profit owing to the loss of future revenue, including that required to recover acquisition costs. the impact on the policy liability of a change in lapse assumptions is as per mortality above. ClearView 2011 annual report 57 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD the table below illustrates how outcomes during the financial year ended 30 June 2011, in respect of the key actuarial variables, would have impacted the reported life insurance policy liabilities, profit and equity for that financial period. VARIAbLE interest rates mortality & morbidity lapses maintenance expenses IMPAcT ON POLIcY LIAbILITIES IMPAcT ON NET PROFIT AND ShAREhOLDER EqUITY gROSS OF REINSURANcE $’000 NET OF REINSURANcE $’000 gROSS OF REINSURANcE $’000 NET OF REINSURANcE $’000 5,676 (6,577) 5,750 (6,677) – – – – – – – – – – – – (3,973) 4,604 (1,125) 1,125 (576) 576 (439) 439 (4,025) 4,674 (934) 934 (575) 575 (439) 439 chANgE IN VARIAbLE* +100 bp -100 bp 110% 90% 110% 90% 110% 90% *note: the interest rate sensitivities show the change to policy liabilities and profit from a change in the discount rate by adding or subtracting 1% from the yield curve adopted. the other sensitivities show how different the policy liabilities and reported profit would have been if the ClearView life experience in the current year in relation to those variables had been higher or lower by 10% of that experienced. 5 RISK MANAgEMENT the Company’s activities expose it to a variety of risks, both financial and non-financial. Key risks include: • • • • • asset risks, including market risk (interest rate risk and price risk), credit risk and liquidity risk; insurance risk; asset-liability mismatch risks; expense risks and client discontinuance (lapses, withdrawals and lost client) risks; and non-financial risks, including compliance risk, operational risk and strategic risk. Risk management strategy, roles and responsibilities risk management is an integral part of the Company’s management process. the Company’s Board has adopted a formal risk management Strategy (rmS) and structured risk management framework (rmF) to assist it in identifying and managing the key risks to achieving the Company’s objectives. the rmS and rmF are fundamental to the business decisions of the Company, including resource allocation decisions and prioritisation of activities. the audit, risk and Compliance Committee, on behalf of the Board, monitors the operation of the rmF and facilitates review of the key process and procedures underlying the rmF. internal audit activities are focused on key risks and on the key risk controls identified as part of the risk assessment process. KpmG is retained to provide outsourced internal audit services. the rmS and rmF considers the key stakeholders in the Company, beyond the shareholders, including: • • the benefit security and expectations of policyholders and investment product and advice clients. risk impacts on and from our staff, our distribution partners and suppliers and counterparties. • requirements and objectives of our regulators. the rmS specifies the Board’s risk appetite and tolerance standard which guides the Company in its decisions as to the acceptance, management and rejection of risks. a risk register is maintained that identifies the key risks of the Company by type, impact and likelihood, and indicates the key process and mechanisms to control, mitigate or transfer those risks within the allowed tolerances. the rmS and rmF includes suitable monitoring mechanisms. as part of the rmS and rmF, the Company has adopted a Capital management plan (Cmp) with respect to supporting the residual risk exposures retained by the Company and the ongoing capital needs of the Company. Asset risks the primary asset risks borne by the Company relate to the financial assets of the Company and its operating subsidiaries excluding those in the non-guaranteed investment linked funds in ClearView life’s statutory fund no.4 (referred to below as ClearView assets). the primary financial risks related to the financial assets in the non-guaranteed investment linked funds in ClearView life’s statutory fund no.4 are borne by policyholders as the investment performance on those assets is passed through, in full, to the policyholders (referred to below as policyholder assets). nonetheless, the Company has a secondary exposure to the policyholder assets and off-balance sheet client funds, via the impact on the fees charged by the Company which vary with the level of policyholder and client funds under management and under administration, as well as related reputational exposure. ClearView wealtH limiteD 58 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 5 RISK MANAgEMENT cONTINUED (a) Market risk market risk is the risk that financial assets will be affected by changes in interest rates, foreign exchange rates and equity prices. Interest rate risk interest rate risk arises on ClearView’s assets which are invested in fixed interest funds and cash. interest rate risk is managed by the Company through: • • • maintaining the level of interest rate exposure within the tolerances set by the Board in the rmS; investing ClearView’s assets in accordance with the Board approved investment policy and Guidelines; and By holding capital reserves in accordance with the Company’s Cmp with respect to the residual interest rate risk exposure retained, in addition to the regulatory capital reserves held within ClearView life in respect of interest rate risk. Price risk equity price risk is the risk that the fair value of investments in equities decreases or increases as a result of changes in market prices, whether those changes are caused by factors specific to the individual share price or factors affecting all equity instruments in the market. as at 30 June 2011, ClearView’s assets included only a small portfolio of equities exposed to such risk. in contrast to this, the policyholder assets and other client funds under management and under administration, involve significant investment in equities. as noted above, the policyholder asset risks are borne by the policyholders. the Company is exposed to secondary risks on its management and advice fees that are driven by the total funds under management and administration, as well as reputational risks from poor investment returns. the investment of the policyholder assets and client moneys controlled by ClearView is undertaken in accordance with the investment policy and Guidelines approved by the Board, which inter alia stipulates the investment allocation mix, the portfolio’s risk characteristics, management response plans and the use of derivatives. to the extent required, capital reserves are held in accordance with the Cmp with respect to the Company’s residual fee risk exposure. (b) credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk exposures arising from investment activities are assessed by the Company’s internal investment management committee (the ClearView investment Committee (CiC) appointed by the Board) prior to investing ClearView assets into any significant financial asset. the ongoing credit standing of material investments are monitored by the CiC, with the CiC charged to maintain the credit quality of ClearView assets within the Board’s investment guidelines. the large majority of debt assets invested in by the Company on behalf of policyholders and clients (including policyholder assets) are managed under mandates with appointed funds managers. those mandates include credit rating, diversification and maximum counterparty exposure rules and standards that are to be met. the funds managers adherence to those requirements are subject to ongoing monitoring by the funds managers, and are separately monitored by the Company’s custodian. Formal compliance reporting is monitored monthly by the CiC. Credit risk arising from other third party transactions, such as reinsurance recovery exposures and exposure to outsource service providers, are assessed prior to entering into financial transactions with those parties, are approved by the Board where material, and are monitored by appropriate mechanisms on an ongoing basis (e.g. a quarterly monitoring and compliance reporting process in respect of the Company’s outsourced custodian). the Company does not expect any of its material counterparties to fail to meet their obligations and does not require collateral or other security to support these credit risk exposures. Specific capital reserves are held against credit risk under the regulatory solvency and capital adequacy standards of ClearView life, with credit risk also considered with the Company’s Cmp reserves. (c) Liquidity risk liquidity risk is primarily the risk that the Company will encounter difficulty in meeting its obligations due to an inability to realise some or all of its assets in order to fund its cash flow needs, including the payment of amounts to its policyholders and clients. a secondary risk relates to the risk of the illiquidity of the external (including off balance sheet) funds its clients invest in, which may result in restricted fee flows to the Company and/or reputational damage via association. the primary risk is controlled through focusing the Company’s assets, as well as policyholder assets and the investment of client funds controlled by the Company, into assets which are highly marketable and readily convertible into cash. in addition, the Company maintains suitable cash holdings at call and an appropriate overdraft facility. the Company’s cash flow requirements are reviewed and forecast daily for a 1 week forward period. this assessment takes into account the timing of expected cash flows, the likelihood of significant benefit outflows over the short term and known significant one-off payments. ClearView 2011 annual report 59 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD under the terms of the Company’s products (issued via ClearView life and ClearView Financial management) the payment of unit fund redemptions to policyholders and unit trust investors may be delayed, if necessary, until funds are available. to date no such delays have been imposed. the risks in respect of external (third party) funds are control via the Company’s approved product list, which restricts the external funds available for use by the Company’s advisors and planners to investment platform providers that are assessed to be reputable and financially sound. Fair Value Hierarchy the table below summarises financial instruments carried at fair value, by valuation method. the different levels have been defined as follows: • • • quoted prices (unadjusted) in active markets for Level 1: identical assets or liabilities; inputs other than quoted prices included within level Level 2: 2 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and inputs for the asset or liability that are not based on Level 3: observable market data (unobservable inputs). 2011 equity securities Fixed interest securities unit trusts total 2010 equity securities Fixed interest securities unit trusts total LEVEL 1 $’000 LEVEL 2 $’000 LEVEL 3 $’000 TOTAL $’000 469,817 – – 576,764 371,077 840,894 – 576,764 494,109 – – 510,521 465,368 959,477 – 510,521 – – – – – – – – 469,817 576,764 371,077 1,417,658 494,109 510,521 465,368 1,469,998 insurance risk the results under the life insurance contracts written by the Company are exposure to various key variables. the table below provides an overview of the key insurance contract types and exposure variables. TYPE OF cONTRAcT DETAIL OF cONTRAcT wORKINgS NATURE OF cOMPENSATION FOR cLAIMS KEY VARIAbLES ThAT AFFEcT ThE TIMINg AND UNcERTAINTY non-participating life insurance contracts with fixed terms (term life and Disability) Benefits paid on death or ill health that are fixed and not at the discretion of the issuer Benefits defined by the insurance contract are determined by the contract obligation of the issuer and are not directly affected by the performance of the underlying assets or the performance of the contracts as a whole mortality morbidity Discontinuance rates expenses policy terms premium rates insurance risks are controlled through the use of underwriting procedures, appropriate premium rating methods and approaches, appropriate reinsurance arrangements, effective claims management procedures and sound product terms and conditions due diligence. ClearView wealtH limiteD 60 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 5 RISK MANAgEMENT cONTINUED (a) Risk management objectives and policies for mitigating insurance risk ClearView life issues term life insurance contracts and disability insurance contracts. the performance of the Company and its continuing ability to write business depends on its ability to manage insurance risk. the Company’s rmS summarises its approach to insurance risk management. (b) Methods to limit, manage or transfer insurance risk exposures Reinsurance ClearView life purchases reinsurance to limit its exposure to accepted insurance risk. ClearView life cedes to specialist reinsurance companies a proportion of its portfolio for certain types of insurance risk. this serves primarily to reduce the net liability on large individual risks and provide protection against large losses. the reinsurers used are regulated by the australian prudential regulatory authority (apra) and are members of large international groups with sound credit ratings. ClearView life periodically reviews its reinsurance arrangements and retention levels. Underwriting procedures underwriting decisions are made using the underwriting procedures reflected in ClearView life’s underwriting systems and detailed in ClearView life’s underwriting manual. Such procedures include limits as to delegated authorities and signing powers. the underwriting process is subject to ClearView life’s internal control processes and are subject to review by the reinsurers from time to time. Claims management Strict claims management procedures help ensure the timely and correct payment of claims in accordance with policy conditions, as well as limiting exposure to inappropriate and fraudulent claims. (c) concentration of insurance risk the insurance business of the Company is principally written on individual lives (not group business). individual business is not expected to provide significant exposure to risk concentration. nonetheless, the residual risk exposure is reduced through the use of reinsurance. (d) Pricing risk, and terms and conditions of insurance contracts the key risk controls in respect of pricing and policy terms and conditions include: • review of product pricing by the appointed actuary of ClearView life, including annual analysis of experience and product line profitability in the annual ClearView life Financial Condition report; • • • • Formal appointed actuary Board reporting on new product pricing, reinsurance and terms and conditions; assessment by the Company’s reinsurers of the pricing adopted, including the offer of corresponding reinsurance terms; Formal internal policy document and product Disclosure Statement due diligence review and sign-off processes; and the ability to re-price products (change premium rates and fees) on most products in the event of adverse claims and/or other product experience. it is noted that similar processes and controls apply to the pricing and terms and conditions applicable to the investment products issued by the Company. Asset-liability mismatch risk asset-liability mismatch risk arises to the extent to which the assets held by the Company to back its liabilities (especially its policy liabilities and investment contract liabilities) do not closely match the nature and term of those liabilities. in practice, the market risk and credit risk exposures of the Company primarily relate to the extent that the Company retains a net exposure with respect to these risks – that is the extent to which the liabilities and their values do not mirror the variation in asset values. in this context it is noted: • • • the investment linked liabilities of the Company directly link the underlying assets held to support those liabilities, with the primary market risks and credit risks passed on to the policyholder and unit trust investors (as discussed above). the assets held to support the capital guaranteed units in the ClearView life no.2 and no.4 statutory funds are maintained, in accordance with the Board’s investment policy and Guidelines, in high quality, short dated fixed interest assets and cash. asset-liability risk is substantially reduced via this means. Similarly, assets held to support the policy liabilities and risk capital of the ClearView life no.1 statutory fund are maintained, in accordance with the Board’s investment policy and Guidelines, in high quality, short dated fixed interest assets and cash that closely match those policy liabilities and capital reserves. Expense & Discontinuance Risks expense risks and discontinuance risks involve: • • the extent to which the expenses of the business are not maintained at a level commensurate with premium and fee flows of the business, including the level of business growth and new business and client acquisition; and the extent to which the rate of loss of policyholders, investment clients and other customers exceed benchmark standards and pricing targets, result in the loss of future profit margins, current period expense support, and loss of opportunity to recover historic acquisition costs incurred. ClearView 2011 annual report 61 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD the risks are principally managed via the Company’s: • • • • Budgeting and expense management reporting and management processes; modelling of anticipated client loss rates and ongoing monitoring of discontinuance rates; adoption of appropriate business retention strategies; and maintaining strong distribution partner relationships. non-Financial Risks – compliance, Operational & Strategic Risks the Company has exposure to a number of operational, compliance and strategic risks. the management of these risks forms a substantial part of the focus of the rmS and rmF. Key elements of the rmF include: • • • • • • Formal internal executive compliance and risk management functions within the Company; a specific focus area of the Board audit, risk and Compliance Committee; Detailed compliance registers, reporting timetables, incidence reporting and due diligence processes; internal audit, whitleblowing policy and facilities, detailed financial reconciliations and unit pricing checking processes, detail it development and implementation processes; maintain sound process documentation and process automations, and monitoring of outsource service provider service performance and standards; Comprehensive internal management information reporting and monitoring, emerging risk exposures reporting, staff training programs, staff recruitment standards (including fit and proper standards); and • maintaining an appropriate risk culture within the business, including executive focus, and including risk management as a formal part of all key business decisions, and appropriate risk management supporting remuneration structures. capital management and reserving in terms of regulatory requirements: • • ClearView life is subject to minimum regulatory capital requirements, as determined by the appointed actuary in accordance with apra life insurance prudential Standards, in respect of the principal financial risks exposures retained by ClearView life. ClearView Financial management and ClearView Financial advice are also required to maintain minimum regulator capital as required by aSiC. nonetheless, the Company maintains additional capital reserves in accordance with its Board adopted Cmp that retains capital reserves to support its retained risk exposures, ensures there is a low likelihood that the Company (and its regulated) subsidiaries will breach their regulatory requirements, and has sufficient capital to manage its near term business plans and provide a buffer (capital and time) to take action to deal with reasonably foreseeable adverse events and may impact the businesses. these additional reserves are partly held within the subsidiaries where the key risks reside, and partly in a central reserve within the parent entity. 6 SOLVENcY REqUIREMENTS OF ThE STATUTORY FUNDS the distribution of the retained profits shown in the financial statements is limited by the regulatory capital requirements (apra and aSiC) applicable to the Company and its subsidiaries. the apra prudential Standard lpS 2.04 Solvency Standard prescribes the minimum capital requirements (solvency requirements), for each statutory fund of ClearView life. the solvency reserve ratios, as defined by apra, are as follows: Solvency reserve %(1) Coverage of reserve(2) STATUTORY FUND NO. 1 STATUTORY FUND NO. 2 STATUTORY FUND NO. 4 STATUTORY FUND TOTAL 2.8 20.1 0.5 11.1 0.2 5.7 0.3 8.9 Explanatory Notes (1) the solvency reserve is the amount by which the solvency requirement exceeds the sum of the minimum termination value of life and investment contracts and other non-policy liabilities. the solvency reserve % shown is the amount of the solvency reserve expressed as a percentage of the sum of the minimum termination value of life insurance and investment contracts and other non-policy liabilities. a smaller percentage indicates a smaller solvency reserve (relative to the liabilities of the fund). (2) the coverage of the solvency reserve is the number of times the solvency reserve is covered by the assets in excess of the solvency requirement. a number greater than 1 indicates that a fund has assets in excess of the solvency requirement. all of ClearView life’s statutory funds have assets in excess of the solvency requirements. ClearView wealtH limiteD 62 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 6 SOLVENcY REqUIREMENTS OF ThE STATUTORY FUNDS cONTINUED ClearView life is required to maintain minimum levels of capital to meet both solvency and capital adequacy requirements. the Solvency Standard sets out the level of capital required to ensure that under a range of adverse circumstances ClearView life can meet its existing obligations to members and creditors. this is essentially based on ensuring sufficient capital is available to meet accrued liabilities and obligations if there were an orderly termination of the fund. the Capital adequacy Standard sets out the level of capital required, based on a going concern basis where the requirement is for ClearView life to demonstrate that it has sufficient capital to accept premiums and investments from new and existing policyholders, fund its business plans, absorb short term adverse experience from time to time, and continue to remain solvent. ClearView life is required to comply with these standards on a continuous basis and reports results to apra on a quarterly basis. 7 SEgMENT INFORMATION aaSB 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. the information reported to the Group’s Board of Directors, being the chief operating decision maker, for the purpose of resource allocation and assessment of performance is focused on the products and services of each reporting segment. the principal activities and the Group’s reportable segments under aaSB 8 are as follows: • • • • life insurance; wealth management; Financial planning; and listed entity / other. Life Insurance: the Group operates in the life insurance industry through its wholly owned subsidiary, ClearView life. Clearview life provides life insurance cover and the range of protection choices offer flexibility in both the type and amount of cover for which the policy holder can apply. ClearView life operates as a specialist life protection business that encompasses the manufacture and distribution of life protection products. wealth Management: the Group operates an investment product manufacturing capability whose products are currently distributed via the financial planning businesses. the majority of these products are manufactured as a life investment contract issued by ClearView life. a minority of products are issued as unit trust investments from a unit trust managed by ClearView Financial management limited (CFml). the wealth management segment currently includes only the ClearView life portfolio. the CFml unit trust business is included in financial planning below. Financial Planning: the Group operates in the financial planning industry through its wholly owned subsidiary ClearView Financial advice. on 1 July 2011, ComCorp Financial advice pty ltd was rebranded to ClearView Financial advice pty ltd and all advisers were transferred from CFml. the group provides financial planning services to member based organisations, individuals and has an exclusive distribution alliance agreement to distribute life and wealth products to Bupa australia’s customer base. as noted above, CFml is the responsible entity (re) of the ClearView retail trusts. the management fees earned for managing these funds are included in the results of financial planning. this will be reallocated to the wealth management segment in the next financial year post the transfer of all advisers from CFml in July 2011. Listed Entity / Other: this represents the investment earnings on the surplus cash held on the listed or central services entities statement of financial position and in the shareholders fund of ClearView life offset by the costs associated with maintaining a listed entity. the Company manages capital at the listed entity level in accordance with its Cmp as discussed in note 5. asset segment information has not been disclosed because the allocation of assets is not used for evaluating segment performance and deciding the allocation of resources to segments. asset segment information is critical to the performance of each company and their respective regulatory obligations and is managed at a company level. information regarding these segments is provided below. the accounting policies of the reportable segments are the same as the Company’s accounting policies described in note 3. ClearView 2011 annual report 63 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD SEGMEnT REVEnUE life insurance wealth management Financial planning listed entity / other Consolidated segment revenue ExTERNAL REVENUE INTER-SEgMENT TOTAL 2011 $’000 2010 $’000 2011 $’000 2010 $’000 2011 $’000 2010 $’000 37,891 81,106 15,111 1,911 136,019 2,663 32,165 9,737 803 45,368 – – 7,760 – 7,760 – – 4,184 – 37,891 81,106 22,871 1,911 4,184 143,779 2,663 32,165 13,921 803 49,552 Segment profit or loss represents the profit or loss earned by each segment including the allocation of directly attributable costs of each segment and an allocation of central services costs according to an expense allocation model which allocates costs across each segment. the allocation excludes the allocation of investment revenue and profit from associates. this is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. 2011 Underlying net profit / (loss) after tax amortisation of intangibles Systems upgrade transition costs aiFrS policy liability adjustment income tax effect Reported profit / (loss) (2) 2010 Underlying net profit / (loss) after tax eliminations amortisation of intangibles profit on acquisition (1) transaction costs transition costs aiFrS policy liability adjustment income tax effect Reported profit / (loss) (2) (1,223) (1,326) LIFE INSURANcE wEALTh MANAgEMENT FINANcIAL PLANNINg 8,975 (1,418) (326) (389) (568) 385 10,320 (5,250) (334) (767) - 331 (443) (733) - - 452 6,659 4,300 (1,947) LIFE INSURANcE wEALTh MANAgEMENT FINANcIAL PLANNINg 920 - - - - 716 - - - - 807 - (665) - - (1,152) (1,199) (941) 886 - 654 - - - - (483) (799) LISTED ENTITY 465 - - - 514 (347) LISTED ENTITY (3,483) (341) - 11,812 (4,843) - - (109) 3,036 TOTAL 19,317 (7,401) (660) (3,705) (568) 1,682 8,665 TOTAL (1,040) (341) (665) 11,812 (4,843) (3,292) 886 (109) 2,408 (1) the profit on acquisition reported at 30 June 2010 was reduced by $3.514 million as a result of completion adjustments. (2) reported profit is profit from continuing operations. ClearView wealtH limiteD 64 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 8 DIScONTINUED OPERATIONS During the prior financial year, the remainder of ClearView’s listed investment portfolio was sold (other than one listed investment) and a significant portion of ClearView’s internal cash resources was utilised to acquire the shares in CVGH. as a result of the investment of the cash prior to year-end, this segment represented a discontinued operation as there will be no earnings and related costs relative to this segment in future periods. the combined results of discontinued operations (that is direct investment) included in the income statement in the prior period is set out below. revenue other losses on disposal / impairment of investments expenses profit before tax attributable income tax expense profit for the year from discontinued operations 9 FEE AND OThER REVENUE Financial planning fees management fees other total fee and other revenue 10 INVESTMENT INcOME interest income Dividend income Distribution income total investment income cONSOLIDATED cOMPANY 2011 $’000 – – – – – – – 2010 $’000 3,810 (498) 3,312 (298) 3,014 (904) 2,110 2011 $’000 – – – – – – – 2010 $’000 3,810 (498) 3,312 (298) 3,014 (904) 2,110 cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 2011 $’000 11,260 34,127 283 2010 $’000 9,523 2,094 – 45,670 11,617 – – – – 10,426 39,011 4,368 53,805 1,370 2,429 27,566 31,365 1,021 43,500 – 44,521 – – – – 564 – – 564 ClearView 2011 annual report 65 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 11 OThER ExPENSES ADMiniSTRATiOn ExpEnSES administration and other operational costs Custody and investment management expenses total administration expenses EMpLOyEE cOSTS AnD DiREcTORS’ FEES employee expenses Share based payments employee termination payments Directors’ fees total employee costs and directors’ fees OTHER ExpEnSES restructuring and transition expenses(i) professional fees interest expense transaction costs total other expenses Total operating expenses AMORTiSATiOn AnD DEpREciATiOn ExpEnSES Depreciation expenses amortisation expenses total amortisation and depreciation expenses REMUnERATiOn OF AUDiTORS auditor of the parent entity audit and review of financial reports audit of apra and aSiC regulatory returns audit of managed investment Schemes total remuneration for audit services preparation and lodgement of tax returns other non-audit services - taxation advice other non-audit services - compliance other non-audit services - consulting total remuneration for non-audit services total remuneration cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 2011 $’000 2010 $’000 12,324 6,707 19,031 21,479 531 276 666 22,952 4,449 1,985 3 – 6,437 48,420 433 7,401 7,834 3,187 1,014 4,201 6,218 364 – 333 6,915 4,428 134 113 4,843 9,518 20,634 80 665 745 542 – 542 20 6 – 611 637 1,428 73 – 4 1505 2,684 – – – 2,628 18 2,646 20 332 – 333 685 962 34 68 4,843 5,907 9,238 – – – $ 312,500 198,000 92,000 602,500 73,500 43,500 30,000 283,700 430,700 1,033,200 $ 315,402 – – 315,402 – 143,615 – – 143,615 459,017 $ 157,812 – – 157,812 – – 30,000 – 30,000 187,812 $ 142,351 – – 142,351 – 198,615 – – 198,615 340,966 (i) included in restructuring and transition expenses are termination payments made to terminated employees as part of the transition of the CVGH businesses as well as provision for the restructuring of the financial planning business. ClearView wealtH limiteD 66 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 12 INcOME TAx A) incOME TAx REcOGniSED in pROFiT OR LOSS Income Tax (benefit) / expense comprises: Current tax expense Deferred tax expense over provided in prior years – Current tax expense (over) / under provided in prior years – Deferred tax expense income tax expense / (benefit) Deferred income tax expense / (benefit) included in income tax expense comprises: Decrease / (increase) in deferred tax asset increase / (decrease) in deferred tax liability cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 2011 $’000 2010 $’000 1,324 (1,116) 1,255 5,631 (774) (119) 5,993 (75) (299) 231 1,181 5,355 157 5,512 (1,110) (155) (1,265) 542 (73) – (647) (647) – (647) (2,065) 1,155 (95) 51 (954) (34) (16) (50) B) TAx LOSSES unused tax losses for which no deferred tax asset has been recognised potential tax benefit 120,004 18,538 139,686 19,969 32,689 9,807 32,689 9,807 the prima facie income tax expense / (benefit) on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows: c) REcOnciLiATiOn OF incOME TAx ExpEnSE TO pRiMA FAciE TAx pAyABLE profit / (loss) before income tax expense prima facie tax calculated at 30% Tax effect of amounts which are non deductible / assessable in calculating taxable income: Differences in tax rate for the life company policyholders Franking credits on dividends received non-deductible transaction costs Difference in realised (loss) / profit accrued benefits on acquisition non allowable expenses profit on acquisition non assessable / deductible premiums under provision in prior years other income tax expense / (benefit) cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 2011 $’000 2010 $’000 14,658 4,397 3,589 1,077 41,867 12,560 (8,313) (2,494) 107 (5,083) 2 (3,392) – 2,692 (515) (323) 1,453 4,213 166 135 – (3,442) 6,465 (893) 1,698 5,993 – (66) (1,517) 1,181 – (13,050) 2 (42) – – – – (74) (43) (647) – – 1,461 (62) 166 4 – – (45) 16 (954) the tax rate used in the above reconciliation is the corporate tax rate of 30% payable by australian corporate entities on taxable profits under australian tax law. there has been no change in the corporate tax rate when compared with the previous reporting period. ClearView 2011 annual report 67 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD D) incOME TAx REcOGniSED DiREcTLy in EqUiTy current Tax Capital raising costs Deferred Tax arising on capital raising costs charged against share capital revaluation of available for sale financial assets total tax benefit Franking account the balance of the franking account after allowing for tax payable in respect of the current year’s profit, the receipt of franked dividends recognised as receivables and the payment of any dividends recognised as a liability at the reporting date. cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 2011 $’000 2010 $’000 – – – – (278) (1,115) (170) (1,563) – – – – (278) (1,115) (170) (1,563) 4,180 3,772 4,180 3,772 the ability of the Company to continue to pay franked dividends is dependent upon the receipt of franked dividends from its investment assets and the group itself paying tax. post the dividend payment there will be no franking credits generated until the carried forward losses are fully utilised. Relevance of tax consolidation to the Group ClearView wealth limited and its wholly-owned australian resident entities have formed a tax consolidated group with effect from 1 February 2007 and are therefore taxed as a single entity from that date. the members in the ClearView tax consolidated group are identified in note 33. under the tax act, ClearView being the head company of the tax consolidated group is treated as a life insurance company for income tax purposes as one of the subsidiary members of the tax consolidated group is a life insurance company. entities within the tax consolidated group have entered into a tax sharing and funding agreement with the head entity. this agreement has been amended to reflect the changes in the structure of the tax consolidated group and a life insurer becoming part of the group. these amendments were executed on 20 august 2010. under the terms of the tax funding arrangement, ClearView and each of the entities in the tax consolidated group has agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. the tax funding agreement also provides for the head entity to make payments for tax losses of a group member that is determined in accordance with the provisions of the agreement. Settlement for these amounts is based on the extent to which the losses are utilised. the tax sharing arrangement between members of the tax consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the tax-consolidated group. the effect of the tax sharing agreement is that each member’s liability for tax payable by the tax consolidated group is limited to the amount payable to the head entity under the tax funding arrangement. ClearView wealtH limiteD 68 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 13 MOVEMENTS IN RESERVES RETAinED LOSSES Balance at the beginning of the financial year cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 2011 $’000 2010 $’000 (38,296) (42,814) (47,905) (42,656) net profit / (loss) attributable to members of the parent entity 8,665 4,518 42,514 (5,249) Balance at the end of the financial year ASSET REVALUATiOn RESERVE Balance at the beginning of the financial year revaluation of securities Deferred tax asset arising on revaluation of reserves Balance at the end of the financial year EMpLOyEE SHARE pLAn RESERVE Balance at the beginning of the financial year arising on share based payments Balance at end of the financial year 14 SOURcES OF PROFIT cOMpOnEnTS OF pROFiT RELATED TO MOVEMEnTS in LiFE inSURAncE LiABiLiTiES planned profit margins released (loss) / profit arising from difference between actual and expected experience impact of iFrS change in economic assumptions one-off expenses life insurance cOMpOnEnTS OF pROFiT RELATED TO MOVEMEnTS in LiFE inVESTMEnT LiABiLiTiES expected profit margin one-off expenses one-off tax adjustment Capitalisation of expected future losses life investment investment earnings on assets in excess of life insurance and investment contract liabilities profit for the statutory funds profit / (loss) for the shareholders fund profit for ClearView life assurance limited (29,631) (38,296) (5,391) (47,905) – – – – 518 531 1,049 399 (569) 170 – 154 364 518 – – – – 518 531 1,049 399 (569) 170 – 154 364 518 cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 2011 $’000 2010 $’000 10,556 519 (2,515) (398) (502) 7,141 9,021 (771) (331) – 7,919 2,565 17,625 360 17,985 10 887 (923) 493 412 (790) (220) (6) (604) 283 172 (140) 32 – – – – – – – – – – – – – – – – – – – – – – – – – – – – ClearView 2011 annual report 69 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 15 EARNINgS PER ShARE BASic EARninGS pER SHARE From continuing operations From discontinued operations total basic earnings per share DiLUTED EARninGS pER SHARE From continuing operations From discontinued operations total diluted earnings per share cONSOLIDATED 2011 cENTS PER ShARE 2010 cENTS PER ShARE 2.12 – 2.12 2.10 – 2.10 1.33 1.16 2.49 1.33 1.13 2.46 Basic earnings per share the earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: profit for the year attributable to owners of the Company earnings used in the calculation of total basic earnings per share profit for the year from discontinued operations used in the calculation of basic earnings per share from discontinued operations earnings used in the calculation of basic earnings per share from continuing operations 8,665 8,665 – 8,665 4,518 4,518 2,110 2,408 weighted average number of ordinary shares for the purpose of basic earnings per share 409,312 180,737 Diluted earnings per share the earnings used in the calculation of diluted earnings per share are as follows: earnings used in the calculation of total basic earnings per share interest on eSp loans after tax earnings used in the calculation of total diluted earnings per share profit for the year from discontinued operations used in the calculation of diluted earnings per share from discontinued operations earnings used in the calculation of diluted earnings per share from continuing operations 8,665 353 9,018 – 9,018 4,518 158 4,676 2,110 2,566 the weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows: weighted average number of ordinary shares used in the calculation of basic earnings per share Shares deemed to be dilutive in respect of the employee share plan weighted average number of ordinary shares used in the calculation of diluted earnings per share (all measures) 409,312 19,631 180,737 5,988 428,943 186,725 ClearView wealtH limiteD 70 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 16 cASh AND cASh EqUIVALENTS Cash at bank Deposits at call total cash and cash equivalents 17 INVESTMENTS EqUiTy SEcURiTiES investment in Group Companies Held directly Held indirectly via unit trust DEBT SEcURiTiES / FixED inTEREST SEcURiTiES Held directly Held indirectly via unit trust pROpERTy Held directly Held indirectly via unit trust cONSOLIDATED cOMPANY 2011 $’000 185,294 528 185,822 2010 $’000 184,008 13,134 197,142 2011 $’000 16,240 – 16,240 2010 $’000 66 10,647 10,713 – 469,817 161,552 631,369 576,764 38,395 615,159 – 171,130 171,130 – 220,041 215,216 494,110 264,629 295 – 353 – 758,739 220,336 215,569 510,521 133,277 643,798 – 67,462 67,462 – – – – – – – – – – – – total investments 1,417,658 1,469,999 220,336 215,569 the listed shares held by the Company represent the 3.5 million shares in nexbis limited held at 30 June 2011 (4.1 million at 30 June 2010). Securities are classified as available-for-sale financial assets. the fair value of securities is their value at last bid price. ClearView 2011 annual report 71 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 18 REcEIVAbLES trade receivables outstanding life insurance premiums accrued dividends investment income receivable outstanding settlements prepayments other debtors provision for doubtful receivables amounts from controlled / associated entities total receivables cONSOLIDATED cOMPANY 2011 $’000 186 951 2,297 632 1,098 1,439 884 (352) 70 2010 $’000 228 704 3,361 – – 673 – (344) 120 7,205 4,742 2011 $’000 2010 $’000 – – – 56 – – 560 – 6,235 6,851 – – – – – 8 – – 4,081 4,089 receivables are non interest bearing and unsecured. trade receivables relate to financial planning fees. life insurance premiums have a 65 day grace period before the policy is lapsed. outstanding settlements usually require payment within three days of the date of the transaction. 19 FIxED INTEREST DEPOSITS Fixed interest bank term deposits 22,021 359 21,392 359 Fixed interest term deposits, held at year end, yield a fixed interest rate of 6.4% (2010:6.4%). 20 gOODwILL GROSS cARRyinG AMOUnT Balance at the beginning of the financial year additional amount recognised through acquisition of business reversal of deferred consideration Balance at the end of the financial year nET BOOK VALUE at the beginning of the financial year at the end of the financial year 4,187 777 (106) 4,858 4,187 4,858 3,976 211 – 4,187 3,976 4,187 – – – – – – – – – – – – in note 23 details of the Company’s acquisitions are disclosed and further details on the calculation of goodwill is provided. ClearView wealtH limiteD 72 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 21 INTANgIbLE ASSETS 2011 gross carrying amount Balance at the beginning of the financial year acquired directly during the year Balance at the end of the financial year Accumulated amortisation and impairment losses Balance at the beginning of the year amortisation expense in the current year Balance at the end of the financial year Net book value at the beginning of the financial year at the end of the financial year 2010 gross carrying amount Balance at the beginning of the financial year acquired directly during the year acquired in a business combination Balance at the end of the financial year Accumulated amortisation and impairment losses Balance at the beginning of the year amortisation expense in the current year Balance at the end of the financial year Net book value at the beginning of the financial year at the end of the financial year cONSOLIDATED SOFTwARE $’000 cLIENT bOOK $’000 TOTAL $’000 1,500 58,467 59,967 – 1,500 129 58,596 129 60,096 368 300 668 444 7,101 7,545 812 7,401 8,213 1,132 832 58,023 51,051 59,155 51,883 cONSOLIDATED SOFTwARE $’000 cLIENT bOOK $’000 TOTAL $’000 1,500 – – 1,500 68 300 368 5,375 102 52,990 58,467 79 365 444 6,875 102 52,990 59,967 147 665 812 1,432 1,132 5,296 58,023 6,728 59,155 the intangible assets are amortised over their expected useful lives. as required under accounting standards at each reporting date the Company assesses whether there is an indication of impairment. after considering various external and internal sources of information such as current economic conditions and anticipated future cash flows to be derived from these assets it has been assessed that there are no indicators of impairment at 30 June 2011. Client books and software are amortised over a period of up to 15 years and 5 years respectively. ClearView 2011 annual report 73 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 22 PROPERTY, PLANT AND EqUIPMENT OFFIcE FURNITURE $’000 OFFIcE EqUIPMENT $’000 cOMPUTER hARDwARE $’000 cOMPUTER SOFTwARE $’000 LEASEhOLD IMPROVEMENTS $’000 cONSOLIDATED 2011 gross carrying amount Balance at the beginning of the financial year additions reclassifications Balance at the end of the financial year Accumulated depreciation / amortisation and impairment Balance at the beginning of the financial year Depreciation expense additions reclassifications Balance at the end of the financial year Net book value Balance at the end of the financial year 2010 gross carrying amount Balance at the beginning of the financial year additions acquisitions through business combinations Balance at the end of the financial year Accumulated depreciation / amortisation and impairment Balance at the beginning of the financial year Depreciation expense Balance at the end of the financial year Net book value Balance at the end of the financial year 740 120 (142) 718 46 108 3 (9) 148 570 103 – (71) 32 49 6 – (39) 16 16 285 242 26 553 44 119 91 2 256 297 5 4 3 12 1 2 3 – 6 6 30 17 693 740 21 25 46 694 60 31 12 103 29 20 49 54 58 21 206 285 31 13 44 241 – 5 – 5 – 1 1 4 no property, plant and equipment is held in the Company. TOTAL $’000 1,502 663 – 2,165 220 433 224 – 877 TOTAL $’000 215 108 1,179 1,502 140 80 220 369 297 184 850 80 198 127 46 451 67 34 268 369 59 21 80 289 1,282 OFFIcE FURNITURE $’000 OFFIcE EqUIPMENT $’000 cOMPUTER hARDwARE $’000 cOMPUTER SOFTwARE $’000 LEASEhOLD IMPROVEMENTS $’000 cONSOLIDATED 399 1,288 ClearView wealtH limiteD 74 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 23 bUSINESS AcqUISITIONS recognised as an expense in the period in which they were incurred, being the 2011 financial year. Suntrip Financial Services pty Limited on the 13 July 2010 ClearView Financial advice acquired the business of Suntrip Financial Services pty limited (Suntrip) for $0.8 million. Suntrip was previously a franchised planner of ClearView Financial advice and the acquisition of the Suntrip business is consistent with the Company’s strategy of expanding its presence in the financial planning and wealth management industry. a liability was assumed by ClearView Financial advice on the acquisition of Suntrip in terms of a deferred purchase consideration obligation. the payment of the deferred consideration is limited to $0.4 million in accordance with the Business purchase Deed (BpD). there is a mechanism in the BpD for the deferred consideration to be reduced should the clients or Funds under advice of Suntrip be reduced from the levels on which the business was acquired. apart from the deferred consideration obligations, there were no assets or liabilities assumed as part of the acquisition of the business. acquisition-related transaction costs amounting to $14,000 have been excluded from the consideration paid and were Goodwill Goodwill arose in the Suntrip business combination because the cost of the business combination included a control premium paid to acquire the core business assets and assume certain liabilities on Suntrip. in addition, the consideration paid for the combination effectively included amounts in relation to the benefit of: revenue growth; improved referral partner penetration and future market development. these benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be measured reliably. Had this business combination been effected at 1 July 2010, the revenue and net profit for the year from continuing operations of ClearView Financial advice would not change. the revenue would not change since Suntrip was a franchised planner prior to the acquisition and ClearView Financial advice recognised the full amount of their revenue and paid a commission to Suntrip on revenue generated. Subsequent to the acquisition, ClearView Financial advice will no longer pay commission and the full amount of the revenue is retained. bUSINESS AcqUISITIONS 2011 PRINcIPAL AcTIVITY DATE OF AcqUISITION PROPORTION OF ShARES AcqUIRED (%) cOST cOMPONENT OF bUSINESS cOMbINATION cOST OF AcqUISITION ($000’S) Suntrip pty limited Financial planning 13-July-10 n/a Fair value of identifiable net assets Goodwill on acquisition Net cash flow on acquisition total purchase consideration less consideration payable in future periods (current) Consideration paid in cash bOOK VALUE $’000’S – – upfront cash payment Deferred consideration 389 388 777 FAIR VALUE ADJUSTMENT FAIR VALUE ON AcqUISITION $’000’S – 777 $’000’S – 777 777 777 388 389 ClearView 2011 annual report 75 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD clearView Financial Advice pty Limited on 8 april 2011 ClearView Financial advice acquired the client book of a franchised planner John Dean for a consideration of $0.1 million to be settled 50% in cash and 50% in 12 months after the effective date of the acquisition. the full amount of the purchase consideration has been allocated to client book intangible assets. clearView Group Holdings pty Limited the initial accounting for the acquisition of ClearView Group Holdings pty limited (CVGH) has been finalised in the current reporting period. on 7 January 2011, ClearView and Bupa finalised the adjustment amount relating to the CVGH acquisition. the final amount was $9.7 million and represented the increase in the net assets acquired between 31 December 2009 and 9 June 2010. this resulted in a total acquisition purchase price of $204.7 million, which was $3.9 million above that estimated on 30 June 2010 as a result of completion adjustments. this led to a $3.5 million reduction to the profit on acquisition reported at 30 June 2010. as at 30 June 2010, the disclosed completion payment of $5.8 million represented managements best estimate of the most likely amount due under the terms of the Share Sale agreement. the finalisation of the net asset adjustment resulted in an increase in the payment due to Bupa from $5.8 million to $9.7 million which was paid to Bupa on 7 January 2011. the key inputs used to fair value the intangible assets were reviewed based on facts that existed at completion date which only became known in the current reporting period, but without the benefit of hindsight. Based on this review, the fair value of the intangible assets were unchanged from the provisionally accounted amounts. the following table reconciles the movements in the relevant amounts: total assets total liabilities Net assets pro rata profit at 8 June 2010 Net assets at completion adjustment payment settled on finalisation of completion accounts initial consideration Purchase consideration Profit on acquisition the adjustment to fair value on acquisition related to the following: TOTAL ASSETS intangible increased by Deferred tax asset increased by total assets increased by TOTAL LiABiLiTiES pro rata profit decreased by Creditors and accrual decreased by total liabilities increased by net assets increased by REcOnciLiATiOn OF pROFiT On AcqUiSiTiOn profit on acquisition at 30 June 2010 increase in the purchase price relating to fair value adjusted assets adjusted profit on acquisition PROVISIONAL AccOUNTINg 30 JUNE 2010 $000’S 1,761,698 1,546,285 215,413 721 216,134 – 200,809 200,809 15,325 FINAL ADJUSTMENTS $000’S 655 302 353 (10) 343 3,856 – 3,856 (3,513) ADJUSTED ASSETS 30 JUNE 2011 $000’S 1,762,353 1,546,587 215,766 711 216,477 3,856 200,809 204,665 11,812 $000’S – 655 655 10 302 312 343 15,325 (3,513) 11,812 ClearView wealtH limiteD 76 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 24 PAYAbLES trade payables reinsurance creditors employee entitlements life premiums in advance Bupa completion accounts adjustment premium deposits other creditors amounts in controlled entities total payables cONSOLIDATED cOMPANY 2011 $’000 4,062 761 3,793 356 – 729 1,868 – 2010 $’000 7,106 687 2,422 201 9,658 – 5,175 – 11,569 25,249 2011 $’000 137 – 45 – – – – 856 1,038 2010 $’000 – – – – 9,658 – 376 – 10,034 payables are non-interest bearing and unsecured. trade payables relate to accrued expenses, management fees, financial planning payables and accrued commission payable to financial planners. other creditors usually require payment within 10 to 30 days. the Group has policies and procedures in place to ensure that all payables are paid within the credit time frame. outstanding investment settlements usually require payment within three days of the date of the transaction. ClearView 2011 annual report 77 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 25 PROVISIONS cURREnT AnD nOn cURREnT make good provision provision for restructuring employee leave provisions other provisions total MAKE GOOD pROViSiOn Balance at the beginning of the financial year provision acquired in a business combination additional provisions raised utilised during the period Balance at the end of the financial year pROViSiOn FOR RESTRUcTURinG(i) Balance at the beginning of the financial year additional provisions raised (i) (ii) utilised during the period unutilised provisions reversed during the period Balance at the end of the financial year EMpLOyEE LEAVE pROViSiOn Balance at the beginning of the financial year provision acquired in a business combination additional provisions raised utilised during the period Balance at the end of the financial year OTHER pROViSiOnS Balance at the beginning of the financial year provision acquired in a business combination additional provisions raised utilised during the period unutilised provisons reversed during the period Balance at the end of the financial year cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 2011 $’000 – – – 100 100 – – – – – 2010 $’000 – 1,962 – 125 2,087 – – – – – 1,962 – 230 3,126 352 864 2,330 2,819 6,365 80 302 – (30) 352 509 864 (509) (1,962) (1,394) – 864 276 2,310 163 (419) 2,330 86 – 4,265 (1,343) (189) 2,819 – – – – – – – 125 – 152 (177) – 100 – 1,962 – – – – – 85 – 135 (95) – 125 384 1,427 2,111 1,148 5,070 352 – 48 (16) 384 864 2,039 (1,437) (39) 1,427 2,330 – 377 (596) 2,111 2,819 – 1,208 (2,578) (301) 1,148 (i) the provision for restructuring arose on the acquisition of CVGH as detailed in note 23. restructuring provisions have been raised in accordance with an approved restructuring plan for the CVGH business. these restructuring costs relate to termination payments and outplacement costs. the restructure was completed in november 2010. (ii) an additional provision of $1.4 million was raised in June 2011 as a result of an approved restructuring plan for the financial planning business unit to further improve performance and reduce costs. the restructure is expected to be completed by 31 august 2011. ClearView wealtH limiteD 78 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 26 DEFERRED TAx bALANcES current Tax Liabilties in spreadsheet, not in layout DEFERRED TAx ASSETS non-current Deferred tax assets DEFERRED TAx LiABiLiTiES non-current Deferred tax liabilities DEFERRED TAx ASSETS Amounts recognised in profit or loss tax losses carried forward accruals not currently deductible Depreciable and amortisable assets provisions unrealised losses other adjustment on completion of acquisition Deferred tax asset DEFERRED TAx LiABiLiTiES Amounts recognised in profit or loss unrealised gains on investments other Deferred tax liability cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 24,297 24,297 29,652 29,652 157 157 – – 7,279 1,610 (59) 1,587 12,966 914 – 24,297 157 – 157 10,478 495 (42) 1,743 15,092 1,231 655 29,652 437 (437) – 2011 $’000 8,542 8,542 – – 7,279 74 – – 282 907 – 8,542 – – – cONSOLIDATED OPENINg bALANcE $’000 AcqUISITION ThROUgh bUSINESS cOMbINATION $’000 TRANSFERS FROM SUbSIDIARIES $’000 (chARgE) cREDIT TO INcOME $’000 chARgE (cREDIT) TO EqUITY $’000 – 29,652 29,652 (147) 11,784 11,637 – 12,282 12,282 (16) 11,360 11,344 – – – (8) 15,193 15,185 – – – – (841) (841) – – – – 2 2 cOMPANY – (4,387) (4,387) – – – (157) (5,355) (5,512) 155 1,110 1,265 – 647 647 16 200 216 – – – – 1,563 1,563 – – – – 1,563 1,563 2011 Gross deferred tax liabilities Gross deferred tax assets total 2010 Gross deferred tax liabilities Gross deferred tax assets total 2011 Gross deferred tax liabilities Gross deferred tax assets total 2010 Gross deferred tax liabilities Gross deferred tax assets total 2010 $’000 12,282 12,282 – – 10,478 56 – 238 290 1,220 – 12,282 – – – cLOSINg bALANcE $’000 (157) 24,297 24,140 – 29,652 29,652 – 8,542 8,542 – 12,282 12,282 ClearView 2011 annual report 79 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. unused tax losses for which no deferred tax assets have been recognised are attributable to tax losses of a capital nature of $120m (tax effected $18.5m) consolidated and $32.7m (tax effected $9.8m) for the company. 27 POLIcY LIAbILITIES (a) Reconciliation of movements in policy liabilities cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 2011 $’000 2010 $’000 LiFE inVESTMEnT pOLicy LiABiLiTiES opening gross life investment policy liabilities acquisition of business net increase / (decrease) in life investment policy liabilities reflected in the income statement net movement relating to acquisition date adjustment Decrease in life investment policy liabilities due to management fee reflected in the income statement life investment policy contributions recognised in policy liabilities 1,405,415 – – 1,437,827 121,986 – (30,785) 261,105 (19,778) (7,191) (2,559) 56,281 life investment policy withdrawals recognised in policy liabilities (389,834) (59,165) Closing gross life investment policy liabilities 1,367,887 1,405,415 LiFE inSURAncE pOLicy LiABiLiTiES opening gross life insurance policy liabilities acquisition of business(1) movement in outstanding claims Decrease in life insurance policy liabilities reflected in the income statement net movement relating to acquisition date adjustment Closing gross life insurance policy liabilities Total gross policy liabilities REinSURERS’ SHARE OF LiFE inSURAncE pOLicy LiABiLiTiES opening balance acquisition of business(1) movement in outstanding reinsurance Decrease / (increase) in reinsurance assets reflected in the income statement net movement relating to acquisition date adjustment Closing balance Net policy liabilities at balance date Current non-current (62,918) – 753 (563) – – (61,553) – (1,001) (364) (62,728) (62,918) 1,305,159 1,342,497 (2,015) – (664) 232 – – (1,975) – (29) (11) (2,447) (2,015) 1,302,712 1,369,587 1,340,482 1,408,006 (66,875) (67,524) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (1) the outstanding claims reserve of $8.689 million and the reinsurance receivable of $2.018 million at 30 June 2010 in payables and receivables respectively were reclassified to policy liabilities. included in life investment policy liabilities are contracts for which there is a guarantee that the unit price will not fall. the amount of the gross policy liabilities for such contracts is $134.3 million (2010: $146.0 million). ClearView wealtH limiteD 80 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD (b) components of net life insurance policy liabilities Future policy benefits Future expenses and commissions less future revenues Best estimate liability present value of future planned profit margins net life insurance policy liabilities cONSOLIDATED cOMPANY 2011 $’000 157,123 44,524 (379,253) (177,606) 112,431 (65,175) 2010 $’000 187,945 52,515 (434,257) (193,797) 128,864 (64,933) 2011 $’000 2010 $’000 – – – – – – – – – – – – (c) Disclosures on asset restrictions, managed assets and trustee activities Restrictions on assets investments held in the life statutory funds (funds) can only be used within the restrictions imposed under the life insurance act 1995. the main restrictions are that the assets in a fund can only be used to meet the liabilities and expenses of that fund, to acquire investments to further the business of the fund or as a distribution when solvency and capital adequacy requirements are met for that fund. the shareholder can only receive a distribution from a fund if the capital adequacy requirements continue to be met after the distribution. 28 ISSUED cAPITAL iSSUED AnD FULLy pAiD ORDinARy SHARES Balance at the beginning of the financial year Shares issued pursuant to private placement* Shares issued pursuant to 1 for 1 entitlement offer* Capital raising costs, net of tax Balance at the end of the financial year employee share scheme balance at the beginning of the year Shares granted under employee share plan (note 35) Shares cancelled under the employee plan employee share scheme balance at the end of the year cOMPANY 2011 NO. OF ShARES 2011 $’000 2010 NO. OF ShARES 2010 $’000 409,312,192 – – – 409,312,192 17,650,000 3,000,000 – 20,650,000 276,565 139,312,192 – 123,437,808 – 146,562,192 – – 276,565 409,312,192 1,800,000 16,150,000 (300,000) 17,650,000 – – – – 144,816 61,719 73,281 (3,251) 276,565 – – – – in accordance with aaSB 2, Share-Based payments the shares issued under the employee share plan are treated as options and are accounted for as set out in note 3(w). the Company does not have a limited amount of authorised capital and issued shares do not have a par value. Fully paid ordinary shares carry one vote per share and carry the rights to dividends. * During the 2010 financial year, the Company executed a shareholder approved private placement for $62 million and a 1 for 1 entitlement offer for $73 million in order to raise the $135 million required for the purposes of the acquisition of ClearView Group Holdings pty limited. the private placement was approved by shareholders at the extraordinary meeting held on 30 april 2010. 29 PROVISION FOR DEFERRED cONSIDERATION provision for Deferred Consideration – Current provision for Deferred Consideration – non-current total cONSOLIDATED cOMPANY 2011 $’000 653 33 686 2010 $’000 1,093 299 1,392 2011 $’000 2010 $’000 – – – – – – ClearView 2011 annual report 81 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 30 ShARES gRANTED UNDER ThE EMPLOYEE ShARE PLANS Employee share plan in accordance with the provisions of the employee share plan, as at 30 June 2011, executives and senior employees have acquired 20,650,000 (2010: 17,650,000) ordinary shares that will vest if certain conditions are met. Shares granted under the employee share plan (eSp) carry rights to dividends and voting rights. Financial assistance amounting to $12,001,456 (2010: $9,838,645) was made available to executives and senior employees to fund the acquisition of shares under the eSp. For details of the eSp refer to note 35. Deferred share plan in accordance with the provisions of the deferred share plan, employees have the right to have part of their salary directed towards the acquisition of shares in ClearView wealth limited. Shares acquired under the deferred share plan carry rights to dividends and voting rights. as at 30 June 2011 there were no shares issued under the DSp and the DSp has been suspended. 31 DIVIDENDS Fully paid ordinary shares interim dividend per share: nil cents (2010: nil cents) Final dividend per share: 1.8 cents (2010: nil cents) total cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 2011 $’000 2010 $’000 – 7,727 7,727 – – – – 7,727 7,727 – – – the Directors declared that there will be a final fully franked dividend paid for the year ended 30 June 2011 of $7.7 million (2010 : $nil). 32 REcONcILIATION OF NET PROFIT / (LOSS) FOR ThE YEAR TO NET cASh FLOwS FROM OPERATINg AcTIVITIES Net profit / (loss) for the year Fair value (gains) / losses on financial assets at fair value through profit and loss realised gains on disposal of securities (shareholder) unrealised (gains) / losses on investments (shareholder) Depreciation on property plant and equipment amortisation of intangibles reversal of impairment in subsidiary profit on acquisition of subsidiary Bad debts written off interest and dividend received from controlled entity reinvested trust distribution income (Gains) / losses from associate movements in liabilities to non-controlling interest in controlled unit trust employee share plan expense impairment of subsidiary (increase) / decrease in receivables Decrease / (increase) in deferred tax asset (Decrease) / increase in payables Decrease in policy liabilities (Decrease) / increase in current tax liability Net cash (utilised) / generated by operating activities cONSOLIDATED cOMPANY 2011 $’000 8,665 (89,093) (27) (3) 433 7,401 – – – – (3,960) (21) 12,612 530 – (2,441) 5,353 (2,905) (37,854) (1,554) (102,864) 2010 $’000 4,518 49,492 (134) 640 80 665 (20) (11,812) 58 – (410) 59 (3,601) 364 – (28,748) (506) 8,100 (26,262) 3,875 (3,642) 2011 $’000 42,513 – (27) (3) – – – – – (43,500) – – – 530 – (2,762) 3,741 (101) – (1,711) (1,320) 2010 $’000 (5,315) 506 – – – – – – – – – – – 332 (361) (2,838) 535 8,030 – 1,711 2,600 ClearView wealtH limiteD 82 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 33 SUbSIDIARIES NAME OF ENTITY pAREnT EnTiTy ClearView wealth limited SUBSiDiARiES ClearView Group Holdings pty limited ClearView life assurance limited ClearView Financial management limited ClearView life nominees pty limited ClearView administration Services pty limited ClearView Financial advice pty limited (formerly ComCorp Financial advice pty limited) affiliate Financial planning pty limited cOnTROLLED UniT TRUSTS international Fixed interest Fund Fund of Funds australian equity Fund Bond Fund Fund of Funds international equity Fund property Fund money market Fund infrastructure Fund emerging markets Fund cOUNTRY OF INcORPORATION OwNERShIP INTEREST 2011 % 2010 % australia australia australia australia australia australia australia australia australia australia australia australia australia australia australia australia 100 100 100 100 100 100 100 95 81 92 93 93 94 93 92 100 100 100 100 100 100 100 95 83 91 93 91 97 – – ClearView administration Services pty limited was incorporated to centralise the administrative responsibilities of the group which include salary disbursements and settling all non-directly attributable overhead expenditure. ClearView administration Services pty limited recoups all expenditure by virtue of a management fee from the various group companies and operates on a cost recovery basis. 34 INVESTMENT IN ASSOcIATE investment in associate reconciliation of investment in associate: Balance at the beginning of the financial year Share of profit / (loss) for the year additions Balance at the end of the financial year NAME OF ENTITY ASSOciATES Berry Financial Services pty ltd cOUNTRY OF INcORPORATION PRINcIPAL AcTIVITY australia Financial planning cONSOLIDATED cOMPANY 2011 $’000 163 142 21 – 163 2010 $’000 142 198 (59) 3 142 2011 $’000 2010 $’000 – – – – – – – – – – OwNERShIP INTEREST 2011 % 40 2010 % 40 ClearView 2011 annual report 83 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD Summarised financial information in respect of the Group’s associate is set out below: FinAnciAL pOSiTiOn total assets total liabilities net assets Group’s share of associate’s net assets FinAnciAL pERFORMAncE total revenue total profit / (loss) for the year Group’s share of associate’s profit / (loss) Dividends received from associate nil cONSOLIDATED 2011 $’000 40 150 (110) (44) 282 52 21 2010 $’000 21 169 (148) (59) 90 (148) (59) contingent liabilities and capital commitments there are no capital commitments and other expenditure commitments of associates and jointly controlled entities. 35 ShARE-bASED PAYMENTS the Group has an ownership-based compensation scheme for Directors, executives and senior employees of the Group, namely the employee share plan (eSp). in accordance with the provisions of the plan, as approved by shareholders at the general meeting held on 7 october 2009, Directors, executives and senior employees may be issued parcels of ordinary shares at an exercise price as defined under the plan per ordinary share. the Board intends to amend the rules of the Company’s eSp so as to make non-executive Directors ineligible to participate in the plan. it is further intended that the Chairman’s 250,000 eSp shares be reallocated to senior management. this leaves the fee pool as the only source of remuneration for non- executive Directors. Objectives the objective of the eSp is to assist in the recruitment of highly skilled individuals and to reward, retain and motivate employees of the Company and its associated body corporate. consideration each share will be issued at a price to be determined by the Board prior to making an offer to an employee. if no price is set, the price per share will be the weighted average price at which shares are traded on the aSX during the week prior to and including the day of offer or if no shares have traded in that time period the last price at which an offer to buy is made on the aSX. Eligibility under the eSp, the Directors may invite employees to participate in the eSp and receive shares subject to performance and vesting conditions determined by the Board. Shares may not be offered under the eSp to an employee if that employee would hold, after issue of the shares, an interest in more than 5% of the issued shares or be able to control the right to vote of more than 5% of the votes that might be cast at a general meeting of the Company. the number of shares granted under the eSp when aggregated with the number of shares issued under any other employee incentive share plan in the last 5 years must not exceed 6% of the issued shares at the time an offer to acquire shares under the eSp is made. Financial assistance the Company may provide financial assistance to an employee for the purposes of subscribing for shares under the eSp. the financial assistance will be a limited recourse loan equal to the purchase value of the shares repayable within 5 years. the financial assistance will become immediately repayable in the event of “disqualifying circumstances” including failure to meet performance or vesting conditions, or upon cessation of the employee’s employment in circumstances defined in the eSp rules. the financial assistance is secured over the shares and rights attached to the shares. Rights Shares issued under the eSp will rank equally with all other issued shares even if subject to a holding lock. ClearView wealtH limiteD 84 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 35 ShARE-bASED PAYMENTS cONTINUED quotation the Company will apply to the aSX for official quotation of shares issued under the eSp. Restrictions the shares granted under the eSp will be subject to a holding lock restricting the holder from dealing with the shares without the consent of the Board until generally the earlier of: (a) the 5th anniversary of the issue date; (b) the date the employee ceases employment; or (c) termination of the eSp. if performance and vesting conditions are not met, then the shares and financial assistance will be cancelled. Administration of the ESp the eSp is administered by the Board. the Board may make rules and regulations for its operation that are consistent with the rules of the eSp. the Company pays all costs and expenses of operating the eSp. employees are liable for any brokerage and tax payable associated with their participation in the eSp. Amendment of the ESp Subject to the aSX listing rules and its undertakings to individual employees in respect of issued shares, the Board may at any time amend any provision of the rules of the eSp. Termination of the ESp the Board may resolve at any time to terminate, suspend or reinstate the operation of the eSp for the issue of shares in future. Share-based payment arrangements the following share-based payment arrangements were in existence during the current and comparative reporting periods: ShARE SERIES 5 Series – 16 april 2008 issue 6 Series – 30 June 2008 issue 7 Series – 29 September 2009 issue 8 Series – 8 october 2009 issue 9 Series – 28 october 2009 issue(1) 10 Series – 25 June 2010 issue 11 Series – 25 June 2010 issue 12 Series – 25 June 2010 issue 13 Series – 25 June 2010 issue 14 Series – 1 november 2010 issue ShARE SERIES Series 5 – 16 april 2008 issue Series 6 – 30 June 2008 issue Series 7 – 29 September 2009 Series 8 – 8 october 2009 issue Series 9 – 28 october 2009 issue(1) Series 10 – 25 June 2010 issue Series 11 – 25 June 2010 issue Series 12 – 25 June 2010 issue Series 13 – 25 June 2010 issue Series 14 – 1 november 2010 issue NUMbER 1,000,000 500,000 3,500,000 2,000,000 250,000 2,000,000 4,000,000 4,000,000 400,000 3,000,000 gRANT DATE 16/04/08 30/06/08 29/09/09 8/10/09 28/10/09 25/06/10 25/06/10 25/06/10 25/06/10 25/10/10 ExPIRY DATE 16/04/13 30/06/13 29/09/14 8/10/14 28/10/14 26/03/15 26/03/15 26/03/15 1/06/15 1/10/15 FAIR VALUE AT ExERcISE PRIcE $ 0.60 0.59 0.49 0.49 0.50 0.50 0.58 0.65 0.53 0.50 FAIR VALUE AT gRANT DATE $ 0.10 0.10 0.07 0.07 0.07 0.11 0.08 0.06 0.10 0.07 TYPE OF ARRANgEMENT Shares reallocated to Series 15 Key management personnel Key management personnel and Senior management Shares reallocated to Series 15 Chairman managing Director managing Director managing Director Senior management Senior management FIRST VESTINg DATE Shares reallocated 30/06/08 23/10/09 Shares reallocated 28/10/12 26/03/11 26/03/12 26/03/13 1/06/13 1/10/13 FINAL VESTINg DATE Shares reallocated 30/06/13 29/09/14 Shares reallocated 28/10/14 26/03/15 26/03/15 26/03/15 1/06/15 1/10/15 (1) there is an intention to reallocate these shares to senior management. ClearView 2011 annual report 85 NOTES TO THE fiNaNcial STaTEMENTS For tHe Year enDeD 30 June 2011 ContinueD Inputs Into the model Grant date share price ($) anticipated vesting price ($) expected volatility (%) anticipated option life (years) Inputs Into the model Grant date share price ($) anticipated vesting price ($) expected volatility (%) anticipated option life (years) serIes 5 serIes 6 serIes 7 serIes 8 serIes 9 0.60 0.60 24.12 3.00 0.59 0.59 25.26 3.00 0.49 0.55 30.24 1.75 0.49 0.55 30.43 1.73 0.50 0.62 25.64 2.95 serIes 10 serIes 11 serIes 12 serIes 13 serIes 14 0.50 0.57 28.78 2.75 0.58 0.66 28.78 2.75 0.65 0.74 28.78 2.75 0.53 0.61 28.78 2.94 0.50 0.59 29.71 2.94 the shares were priced using a binomial option pricing model with volatility based on the historical volatility of the share price. Balance at the beginning of the financial year Granted during the financial year Cancelled during the year Balance at the end of the financial year 2011 2010 number of shares 17,650,000 3,000,000 WeIghted average exercIse prIce number of shares 0.56 0.50 1,800,000 16,150,000 – – (300,000) 20,650,000 0.55 17,650,000 WeIghted average exercIse prIce 0.67 0.55 1.04 0.56 the above reconciles the outstanding shares granted under the executive share plan at the beginning and end of the financial year: Shares that were granted in the current year 3 million shares were issued to Senior Management during the year. Series 5 and 8 shares were reallocated to Key Management personnel (Series 15) with a grant date of 1 July 2011 in accordance with the eSp at a share price of $0.50 and an anticipated vesting price of $0.59. Shares that vested in the current period the vesting conditions in the eSp stipulate that all shares issued in terms of the plan will automatically vest with a change of control of the Company. effective 23 october 2009, GpG obtained control of ClearView which resulted in accelerating the vesting of the shares in the eSp at that time, including Series 7 and 8 which had been issued prior to the change of control. the shares issued subsequent to Series 8, were issued subsequent to the change of control and thus the normal vesting conditions of the eSp still apply. the first tranche of 2 million shares issued to the managing director vested in the current year in accordance with his employment contract. no other shares vested during the current financial year. Shares that were cancelled during the year no shares were cancelled during the year. on 18 august 2011, 3 million shares were reallocated from Series 5 and 8 to Series 15 due to the cessation of the employment of the Ceo of wealth Management and advice. ClearView wealtH limiteD 86 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 36 RELATED PARTY TRANSAcTIONS (a) Equity interests in related parties Equity interests in subsidiaries Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 33 to the financial statements. (b) Transactions with key management personnel Key management personnel compensation Details of Key management personnel compensation are disclosed in the Directors’ report on page 20 of the annual report. the aggregate compensation made to key management personnel of the Company and the Group is set out below: Short-term employee benefits post-employment benefits Share based payments total cONSOLIDATED 2011 $ 2010 $ 3,539,355 625,048 487,007 4,651,410 1,968,338 118,770 339,571 2,426,679 Directors and key management personnel equity holdings Fully paid ordinary shares of ClearView wealth limited (including those held under the employee Share plan) owned by the Directors and key management personnel are outlined below: ShARES SUbJEcT TO VESTINg cONDITIONS NO. ShARES NOT SUbJEcT TO VESTINg cONDITIONS NO. bALANcE AT bEgINNINg OF FINANcIAL YEAR NO. gRANTED AS cOMPENSATION NO. 2011 r Kellerman 250,000 201,600 D Goodsall J murphy p wade S thomas S Swanson a Hutchison a Chiert – – – – – – – – 451,600 100,000 – 139,682 – 8,000,000 4,000,000 12,000,000 – – 3,000,000 3,000,000 1,500,000 1,500,000 C levinthal 1,000,000 G martin C robson – – – – – – – – 1,000,000 – – ShARES SUbJEcT TO VESTINg cONDITIONS NO. ShARES NOT SUbJEcT TO VESTINg cONDITIONS NO. bALANcE AT bEgINNINg OF FINANcIAL YEAR NO. gRANTED AS cOMPENSATION NO. 2010 r Kellerman 250,000 100,800 350,800 – – – – – – – – – – – NET OThER chANgES NO. 98,400 – 315,000 100,000 800,000 bALANcE END OF FINANcIAL YEAR NO. 550,000 100,000 315,000 239,682 800,000 bALANcE hELD SUbJEcT TO VESTINg cONDITIONS NO. 250,000 – – – – bALANcE VESTED AT YEAR END NO. VESTED bUT NOT YET ExERcISAbLE NO. VESTED AND ExERcISAbLE NO. – – – – – – – – – – – – – – – – 12,000,000 8,000,000 2,000,000 2,000,000 3,000,000 1,500,000 – 3,000,000 3,000,000 – 1,500,000 1,500,000 1,000,000 1,000,000 – – – – – – – – – – bALANcE END OF FINANcIAL YEAR NO. 451,600 139,682 100,000 bALANcE hELD SUbJEcT TO VESTINg cONDITIONS NO. 250,000 – – NET OThER chANgES NO. 100,800 119,841 100,000 bALANcE VESTED AT YEAR END NO. VESTED bUT NOT YET ExERcISAbLE NO. VESTED AND ExERcISAbLE NO. – – – – – – – – p wade D Goodsall S Swanson – – – a Hutchison 1,000,000 J mclaughlin 500,000 a Chiert D mcKell p Constable – – – 19,841 19,841 – – – – – – – – 10,000,000 2,000,000 12,000,000 10,000,000 1,000,000 2,000,000 500,000 1,000,000 – – 1,500,000 500,000 – – – – 3,000,000 3,000,000 3,000,000 3,000,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 500,000 500,000 500,000 500,000 1,499,503 1,499,503 – (1,499,503) – – – – – – – – – – – – – – – – – – – – – – – – all shares granted as compensation to Directors and key management personnel were made in accordance with the provisions of the employee Share plan. ClearView 2011 annual report 87 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD (c) Outstanding balances between the Group and its related parties(1) 2011 ClearView wealth limited ClearView life assurance limited ClearView Financial management limited ClearView Financial advice pty limited ClearView administration Services pty limited Berry Financial Services pty limited cLEARVIEw wEALTh LIMITED $ - (5,212,877) 636,386 219,561 (1,021,799) - cLEARVIEw LIFE ASSURANcE LIMITED $ 5,212,877 - 1,354,416 - 1,676,429 - cLEARVIEw FINANcIAL MANAgEMENT LIMITED $ (636,386) (1,354,416) - 2,385 2,179,445 - cLEARVIEw FINANcIAL ADVIcE PTY LIMITED $ (219,561) - (2,385) - 375,544 (70,000) cLEARVIEw ADMINISTRATION SERVIcES PTY LIMITED $ 1,021,799 (1,676,429) (2,179,445) (375,544) - - bERRY FINANcIAL SERVIcES PTY LIMITED $ - - - 70,000 - - 2010 ClearView wealth limited ClearView life assurance limited ClearView Financial management limited ClearView Financial advice pty limited ClearView administration Services pty limited Berry Financial Services pty limited - - - 120,000 - - (1) the outstanding balances between the Group and its subsidiaries are settled within 30 days, except for the intercompany tax balances which are settled at 1,083,813 (2,366,430) (3,726,074) (304,364) - (120,000) 2,673,458 (5,433,855) - - 3,726,074 - - - (2,673,458) (323,836) (1,083,813) - - - 5,433,855 - 2,366,430 - 323,836 - - - 304,364 - the time of the finalisation of the return. (d) Transactions between the Group and its related parties other related parties include: • • • entities with significant influence over the Group associates subsidiaries During the financial year ended 30 June 2011, the following transactions occurred between the Company and its related parties: • ClearView administration Services pty limited received a management fee of $35,470,953 (2010: $10,032,337) as a recoupment of expenditure (including salary disbursements) from various group companies. the Company received a dividend of $43.5 million from ClearView Group Holdings pty limited. ClearView Group Holdings pty limited received a dividend of $44.5 million from ClearView life assurance limited. ClearView Group Holdings pty limited subscribed for $1.5 million of shares in ClearView Financial management limited. the Company subscribed and paid for an additional 4,250,000 (2010: 3,089,073) shares in ClearView Financial advice pty limited for a cash consideration of $4.25 million (2010: $3,089,073). the Company recognised tax payable in respect of the tax liabilities of its wholly-owned subsidiaries. payments to/from the Company are made in accordance with the terms of the tax funding arrangement. ClearView wealth limited settled litigation related expenses on behalf of Berry Financial Services pty limited of $nil (2010: $286,419). Berry Financial Services pty limited charged ClearView Financial advice pty limited a management fee of $nil (2010: $80,000) in respect of services provided to ClearView Financial advice. ClearView life assurance limited paid commission of $7,759,962 (2010: $4,183,829) to ClearView Financial management limited. • • • • • • • • (e) parent entity the parent entity in the Group is ClearView wealth limited which is incorporated in australia. 37 FINANcIAL INSTRUMENTS (a) Management of financial instruments the financial assets of the Group are managed by specialist investment managers who are required to invest the assets allocated in accordance with directions from the Board. Bnp paribas acts as master custodian on behalf of the Group and, as such, provides services including physical custody and safekeeping of assets, settlement of trades, collection of dividends and accounting for investment transactions. Daily operating bank accounts are managed within the Group by the internal management and finance department. (b) Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset and financial liability are disclosed in notes 3(o) and 3(p) to the financial statements respectively. (c) capital risk management the Group maintains capital to protect customers, creditors and shareholders against unexpected losses to a level that is consistent with the Group’s risk appetite. the Group’s capital structure consists of ordinary equity comprising issued capital, retained earnings and reserves (as detailed in notes 13 and 28). the capital structure remains unchanged from the previous financial period. refer to note 5 risk management for information relating to capital management and reserving. (d) Fair value of financial instruments the fair values of financial assets and financial liabilities are determined in accordance with the fair value hierarchy detailed in note 5. ClearView wealtH limiteD 88 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 37 FINANcIAL INSTRUMENTS cONTINUED (e) categories of financial instruments the Company has investments in the following categories of financial assets and liabilities: FinAnciAL ASSETS investment in group companies available for sale assets Cash and cash equivalents Fixed interest deposits life insurance investment assets loans and receivables total FinAnciAL LiABiLiTiES policyholder liabilities payables Current tax liabilities provisions provisions for deferred consideration total cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 2011 $’000 2010 $’000 – 295 185,822 22,021 1,417,363 7,205 1,632,706 1,302,712 11,569 – 5,070 686 1,320,037 – 353 197,142 359 1,469,646 4,742 1,672,242 1,340,482 25,249 1,713 6,365 1,392 1,375,201 220,041 295 16,240 21,392 – 6,851 264,819 – 1,038 – 100 – 1,138 221,435 353 10,713 359 – 4,089 236,949 – 6,320 1,713 2,085 – 10,118 these financial assets and liabilities are recognised in accordance with the accounting policies detailed in note 3(o) and 3(p) to the financial statements respectively. (f) Financial risk management objectives the primary asset risks borne by the Company relate to the financial assets of the Company and its operating subsidiaries excluding those in the non-guaranteed investment linked funds in ClearView life’s statutory fund no.4 (referred to below as ClearView assets). the primary financial risks related to the financial assets in the non-guaranteed investment linked funds in ClearView life’s statutory fund no.4 are borne by policyholders as the investment performance on those assets is passed through, in full, to the policyholders (referred to below as policyholder assets). nonetheless, the Company has a secondary exposure to the policyholder assets and off-balance sheet client funds, via the impact on the fees charged by the Company which vary with the level of policyholder and client funds under management and under administration, as well as related reputational exposure. (g) Market risk market risk is the risk that financial assets will be affected by changes in interest rates, foreign exchange rates and equity prices. Interest rate risk interest rate risk arises on ClearView’s assets which are invested in fixed interest funds and cash. interest rate risk is managed by the Company through: • maintaining the level of interest rate exposure within the tolerances set by the Board in the rmS; • • investing ClearView’s assets in accordance with the Board approved investment policy and Guidelines; and By holding capital reserves in accordance with the Company’s Cmp with respect to the residual interest rate risk exposure retained, in addition to the regulatory capital reserves held within ClearView life in respect of interest rate risk. Price risk equity price risk is the risk that the fair value of investments in equities decreases or increases as a result of changes in market prices, whether those changes are caused by factors specific to the individual share price or factors affecting all equity instruments in the market. as at 30 June 2011, ClearView’s assets included only a small portfolio of equities exposed to such risk. in contrast to this, the policyholder assets and other client funds under management and under administration, involve significant investment in equities. as noted above, the policyholder asset risks are borne by the policyholders. the Company is exposed to secondary risks on its management and advice fees that are driven by the total funds under management and administration, as well as reputational risks from poor investment returns. the investment of the policyholder assets and client moneys controlled by ClearView is undertaken in accordance with the investment policy and Guidelines approved by the Board, which inter alia stipulates the investment allocation mix, the portfolio’s risk characteristics, management response plans and the use of derivatives. ClearView 2011 annual report 89 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD to the extent required, capital reserve are held in accordance with the Cmp with respect to the Company’s residual fee risk exposure. the following table illustrates the effect on recognised income and expense and securities from a possible change in other market risk that were reasonably possible based on the risk the Group was exposed to at reporting date: EFFEcT ON OPERATINg PROFIT EFFEcT ON SEcURITIES EFFEcT ON OPERATINg PROFIT EFFEcT ON SEcURITIES cONSOLIDATED cONSOLIDATED cOMPANY cOMPANY 2011 $’000 2010 $’000 2011 $’000 2010 $’000 2011 $’000 2010 $’000 2011 $’000 2010 $’000 EqUiTy pRicE RiSK - ±9% cHAnGE (2010: 9%) australia ±56 ±17 ±17 ±56 ±17 ±56 ±17 ±56 the methodology used to prepare the sensitivity analysis was to determine the beta of the listed investment (0.89) (2010: 0.71) and multiply a 9% (2010: 16%) movement in the value of the investment by the portfolio beta. Based on the market exposure management believe that the market variation of 9% (2010: 16%) is considered appropriate. (h) credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk exposures arising from investment activities are assessed by the Company’s internal investment management committee (the ClearView investment Committee (CiC) appointed by the Board) prior to investing ClearView assets into any significant financial asset. the ongoing credit standing of material investments are monitored by the CiC, with the CiC charged to maintain the credit quality of ClearView assets within the Board’s investment guidelines. and are separately monitored by the Company’s custodian. Formal compliance reporting is monitored monthly by the CiC. Credit risk arising from other third party transactions, such as reinsurance recovery exposures and exposure to outsource service providers, are assessed prior to entering into financial transactions with those parties, are approved by the Board where material, and are monitored by appropriate mechanisms on an ongoing basis (e.g. a quarterly monitoring and compliance reporting process in respect of the Company’s outsourced custodian). the Company does not expect any of its material counterparties to fail to meet their obligations and does not require collateral or other security to support these credit risk exposures. Specific capital reserves are held against credit risk under the regulatory solvency and capital adequacy standards of ClearView life, with credit risk also considered with the Company’s Cmp reserves. the large majority of debt assets invested in by the Company on behalf of policyholders and clients (including policyholder assets) are managed under mandates with appointed funds managers. those mandates include credit rating, diversification and maximum counterparty exposure rules and standards that are to be met. the funds managers adherence to those requirements are subject to ongoing monitoring by the funds managers, the Group does have significant credit risk exposure to counterparties but these counterparties have a high credit rating. the table below shows the maximum exposure to credit risk at the reporting date. it is the opinion of the Board that the carrying amounts of these financial assets represent the maximum credit risk exposure at the balance sheet date. the table reflects the credit risk exposure facing the Group. cASH AnD cASH EqUiVALEnTS AnD DEBT SEcURiTiES / FixED inTEREST SEcURiTiES rating aaa to aa- a+ to a- BBB+ to BBB- cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 2011 $’000 2010 $’000 765,876 671,300 37,632 39,689 17,436 126,088 25,985 – – – 11,071 – 823,001 823,373 37,632 11,071 Credit risk associated with receivables is considered minimal. the main receivables balance is in relation to trust distributions, receivables from funds managers in the financial planning business and for premiums receivable. other receivables balances relate predominantly to management fees from external unit trusts. the concentration is spread across the various debtors with no single significant debtor. ClearView wealtH limiteD 90 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 37 FINANcIAL INSTRUMENTS cONTINUED (i) Liquidity risk liquidity risk is primarily the risk that the Company will encounter difficulty in meeting its obligations due to an inability to realise some or all of its assets in order to fund its cash flow needs, including the payment of amounts to its policyholders and clients. a secondary risk relates to the risk of the illiquidity of the external (including off balance sheet) funds its clients invest in, which may result in restricted fee flows to the Company and/or reputational damage via association. the primary risk is controlled through focusing the Company’s assets, as well as policyholder assets and the investment of client funds controlled by the Company, into assets which are highly marketable and readily convertible into cash. in addition, the Company maintains suitable cash holdings at call and an appropriate overdraft facility. the Company’s cash flow requirements are reviewed and forecast daily for a 1 week forward period. this assessment takes into account the timing of expected cash flows, the likelihood of significant benefit outflows over the short term and known significant one-off payments. in addition, the Company ensures that it has cash in excess of the base level financial requirements of its aFSl license. under the terms of the Company’s products (issued via ClearView life and ClearView Financial management) the payment of unit fund redemptions to policyholders and unit trust investors may be delayed, if necessary, until funds are available. to date no such delays have been imposed. the risks in respect of external (third party) funds are controlled via the Company’s approved product list, which restricts the external funds available for use by the Company’s advisors and planners to investment platform providers that are assessed to be reputable and financially sound. the following tables summarise the realisation profile of financial assets at the reporting date. there were no financial assets past due or impaired at the reporting date. 2011 trade receivables outstanding life insurance premiums net of provision accrued dividends investment income and distribution income reinsurance receivable (1) prepayments total 2010 trade receivables loans to associate outstanding life insurance premiums net of provision accrued dividends reinsurance receivable (1) prepayments total 2011 trade receivables amounts from controlled / associated entities investment income and distribution income total 2010 amounts from controlled / associated entities prepayments total LESS ThAN 3 MONThS $’000 2,225 599 2,297 632 1,450 1,034 8,237 228 120 360 3,361 1,084 167 5,320 LESS ThAN 3 MONThS $’000 560 6,235 56 6,851 4,081 8 4,089 3 TO 6 MONThS $’000 4 – – – 544 190 738 – – – – 449 167 616 3 TO 6 MONThS $’000 – – – – – – – cONSOLIDATED 6 MONThS TO A YEAR $’000 9 – – – 272 64 345 – – – – 287 339 626 cOMPANY 6 MONThS TO A YEAR $’000 – – – – – – – 1 TO 5 YEARS $’000 – – – – 181 151 332 – – – – 198 – 198 1 TO 5 YEARS $’000 – – – – – – – TOTAL $’000 2,238 599 2,297 632 2,447 1,439 9,652 228 120 360 3,361 2,018 673 6,760 TOTAL $’000 560 6,235 56 6,851 4,081 8 4,089 (1) reinsurance receivables are reflected in accordance with the likely settlement of the underlying claims to which they relate. ClearView 2011 annual report 91 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD the following tables summarise the maturity profile of the Group and the Company’s financial liabilities all of which are non-interest bearing. the tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the company can be required to pay. the tables include both interest and principle cash flows. 2011 payables Current tax liabilities provisions provision for deferred consideration total 2010 payables cONSOLIDATED LESS ThAN 3 MONThS $’000 8,410 – – 654 9,064 3 TO 6 MONThS $’000 2,713 – 100 – 6 MONThS TO A YEAR $’000 138 – 2,475 – 2,813 2,613 1 TO 5 YEARS $’000 308 – 1,534 32 1,874 20,742 1,808 1,125 1,574 Current tax liabilities provisions provision for deferred consideration 1,713 4,035 1,093 – – – – 1,108 – total 27,583 1,808 2,233 – 1,222 299 3,095 OVER 5 YEARS $’000 – – 961 – 961 – – – – – 2011 payables provisions total 2010 payables Current tax liabilities provisions total LESS ThAN 3 MONThS $’000 1,038 – 1,038 6,320 1,711 2,087 10,118 3 TO 6 MONThS $’000 – 100 100 – – – – cOMPANY 6 MONThS TO A YEAR $’000 1 TO 5 YEARS $’000 OVER 5 YEARS $’000 – – – – – – – – – – – – – – – – – – – – – TOTAL $’000 11,569 – 5,070 686 17,325 25,249 1,713 6,365 1,392 34,719 TOTAL $’000 1,038 100 1,138 6,320 1,711 2,087 10,118 ClearView wealtH limiteD 92 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 37 FINANcIAL INSTRUMENTS cONTINUED Financing facilities the Group has access to the following facilities: Bank Guarantees – amount used – amount unused overdraft and credit – amount used – amount unused cONSOLIDATED cOMPANY 2011 $’000 2010 $’000 2011 $’000 2010 $’000 1,103 – – 5,250 340 – 16 5,134 – – – – – – – – ClearView life assurance limited has a $5 million overdraft facility with national australia Bank at a benchmark interest rate of 10.76% p.a calculated daily. any overdrawn balance in excess of the overdraft will incur an additional margin of 1.5% p.a above the benchmark interest rate. the bank overdraft is short-term in nature. Interest rate risk management the Group’s activities expose it to the financial risk of changes in interest rates. Floating rate instruments expose the Group to cash flow risk, whereas fixed interest rate instruments expose the Group to fair value interest rate risk. the Board monitors the Group’s exposures to interest rate risk. the tables below detail the Group’s exposure to interest rate risk at the balance sheet date by the earlier of contractual maturities or re-pricing. 2011 FinAnciAL ASSETS Variable interest rate instruments: Cash and cash equivalents Fixed interest securities total 2010 FinAnciAL ASSETS: Variable interest rate instruments: Cash and cash equivalents Fixed interest securities total cONSOLIDATED cOMPANY wEIghTED AVERAgE INTEREST RATE % LESS ThAN 3 MONThS $’000 wEIghTED AVERAgE INTEREST RATE % LESS ThAN 3 MONThS $’000 5.25% 5.99% 97,082 22,021 119,103 5.47% 5.99% 16,240 21,392 37,632 4.66% 5.40% 197,142 359 197,501 4.66% 5.40% 10,713 359 11,072 ClearView 2011 annual report 93 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD Interest rate sensitivity analysis for floating rate financial instruments the sensitivity analysis below have been determined based on the Group’s exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period, in the case of instruments that have floating interest rates. a 25 basis point increase or decrease is used when reporting interest risk internally to key management personal and represents management’s assessment of the reasonably possible change in interest rates. the following table illustrates the effect for the Group from possible changes in market risk that were reasonably possible based on the risk the Group was exposed to at reporting date: EFFEcT ON OPERATINg PROFIT cONSOLIDATED EFFEcT ON cASh AND cASh EqUIVALENTS AND FIxED INTEREST DEPOSITS EFFEcT ON OPERATINg PROFIT EFFEcT ON cASh AND cASh EqUIVALENTS AND FIxED INTEREST DEPOSITS cONSOLIDATED cOMPANY cOMPANY 2011 $’000 2010 $’000 2011 $’000 2010 $’000 2011 $’000 2010 $’000 2011 $’000 2010 $’000 ±291 ±1,574 ±291 ±1,574 ±90 ±159 ±90 ±159 chANgE IN VARIAbLE ±0.25% (2010: ±1.5%) the Group’s sensitivity to interest rates has increased during the current period mainly due to the acquisition of ClearView life in the prior year and the increased exposure to financial assets. the methods and assumptions used to prepare the sensitivity analysis have not changed in the year. Based on the market exposure management believe that the interest rate variation above is considered appropriate. Fair value sensitivity analysis for fixed rate financial instruments the Group does account for fixed rate financial assets and liabilities at fair value through profit and loss. therefore a change in long term interest rates at reporting date would affect profit and loss. (b) Foreign currency risk management Foreign currency risk is the risk that the market value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. the Group undertakes certain investments denominated in foreign currencies, hence is exposed to the effects of exchange rate fluctuations. However, the foreign currency risk is borne by the policyholder and the shareholder has no exposure to foreign currency. uSD GBp eur Yen chANgE IN AUD RELATIVE TO FOREIgN cURRENcY EFFEcT ON NET ASSETS/ INV RETURNS ($) 26% 18% 6% 14% $’000 – – – – Forward foreign exchange contracts the Group currently does not make use of forward foreign exchange contracts. ClearView wealtH limiteD 94 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 38 DISAggREgATED INFORMATION bY FUND Abbreviated income statement ShAREhOLDERS FUND STATUTORY FUND NO.1 2011 life insurance premium revenue outwards reinsurance expense Fee revenue investment revenue net fair gains / (losses) on financial assets at fair value Net revenue and income Claims expense reinsurance recoveries total administration expenses Change in life insurance policy liabilities Change in life investment policy liabilities Profit for the year before income tax income tax expense Net profit attributable to members of clearView Life Assurance Limited Abbreviated statement of financial position 2011 investments in controlled unit trusts policy liabilities ceded under reinsurance other assets Total assets Gross policy liabilities – life insurance contracts Gross policy liabilities – investment insurance contracts other liabilities Total liabilities Net assets Shareholder’s retained profits opening retained profits operating profit Capital transfer between funds Finalisation of acquisition accounting Dividend paid Shareholder’s retained profits Shareholder’s capital Total equity $’000 – – – 333 216 549 – – (1) – – 548 (188) 360 – – 10,818 10,818 – – 340 340 10,478 (69) 360 41,262 – (44,500) (2,947) 13,425 10,478 cONSOLIDATED STATUTORY FUND NO.2 AUSTRALIAN NON- PARTIcIPATINg $’000 370 (50) 1,495 5,094 (540) 6,369 (1,213) 901 (1,329) (13) (3,481) 1,234 (432) STATUTORY FUND NO.4 AUSTRALIAN NON- PARTIcIPATINg $’000 – – 29,292 69,654 52,152 151,098 – – (20,077) – (118,505) 12,516 (3,770) cLEARVIEw LIFE $’000 40,303 (3,759) 30,787 75,965 52,291 195,587 (17,575) 3,021 (34,022) 331 (121,986) 25,356 (7,371) AUSTRALIAN NON- PARTIcIPATINg $’000 39,933 (3,709) – 884 463 37,571 (16,362) 2,120 (12,615) 344 – 11,058 (2,981) 8,077 802 8,746 17,985 – 1,449 35,678 37,127 (62,762) – 5,284 (57,478) 94,605 64,996 8,077 (9,179) 11 – 63,905 30,700 94,605 86,977 998 4,340 92,315 34 86,331 968 87,333 4,982 353 802 98 29 – 1,282 3,700 4,982 1,240,010 – 67,792 1,307,802 – 1,281,556 7,164 1,288,720 19,082 26,448 8,746 (32,181) 469 – 3,482 15,600 19,082 1,326,987 2,447 118,628 1,448,062 (62,728) 1,367,887 13,756 1,318,915 129,147 91,728 17,985 – 509 (44,500) 65,722 63,425 129,147 ClearView 2011 annual report 95 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD Abbreviated income statement 2010 life insurance premium revenue outward reinsurance expense Fee revenue investment revenue net fair losses on financial assets at fair value Net revenue and income Claims expense reinsurance recoveries Change in life insurance policy liabilities Change in life investment policy liabilities Change in reinsurers’ share of life insurance liabilities other expenses Profit for the year before income tax income tax benefit / (expense) Net profit attributable to members of clearView Life Assurance Limited Abbreviated statement of financial position 2010 investments in controlled unit trusts other assets Total assets life insurance policy liabilities life investment policy liabilities other liabilities Total liabilities Net assets Shareholder’s retained profits opening retained profits operating profit Capital transfer between funds prior year adjustment Dividend paid Shareholder’s retained profits Shareholder’s capital Total equity ShAREhOLDERS FUND STATUTORY FUND NO.1 AUSTRALIAN NON- PARTIcIPATINg $’000 $’000 cONSOLIDATED STATUTORY FUND NO.2 AUSTRALIAN NON- PARTIcIPATINg $’000 STATUTORY FUND NO.4 AUSTRALIAN NON- PARTIcIPATINg $’000 – – – 158 (121) 37 – – – – – (237) (200) 60 (140) 12,538 1,566 14,104 – – 748 748 13,356 71 (140) – – – (69) 13,425 13,356 2,602 (224) – 285 (219) 2,444 (912) 115 1,001 – 29 (1,744) 933 (281) 652 22,543 12,069 34,612 (64,857) – 3,775 (61,082) 95,694 64,342 652 – – – 64,994 30,700 95,694 22 (14) 91 1,147 (872) 374 – – – (57) – (251) 66 (161) (95) 91,197 3,941 95,138 (76) 89,290 1,872 91,086 4,052 447 (95) – – – 352 3,700 4,052 cLEARVIEw LIFE $’000 2,624 (238) 1,876 44,694 (60,847) (11,891) (912) 115 1,001 19,778 29 (5,290) 2,830 (2,798) – – 1,785 43,104 (59,635) (14,746) – – – 19,835 – (3,058) 2,031 (2,416) (385) 32 1,293,240 1,419,518 72,903 1,366,143 – 1,316,125 7,965 90,479 1,509,997 (64,933) 1,405,415 14,360 1,324,090 1,354,842 42,053 155,155 26,838 (385) – – – 26,453 15,600 42,053 91,698 32 – – – 91,730 63,425 155,155 ClearView wealtH limiteD 96 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 39 INVESTMENT IN cONTROLLED UNIT TRUSTS cONSOLIDATED 30 JUNE 2011 cONSOLIDATED 30 JUNE 2010 TYPE Debt equities Debt equities property Debt property equities $’000 32,906 296,364 309,481 176,819 52,601 286,148 100,598 72,070 % 2 23 23 13 4 22 8 5 $’000 121,559 394,568 255,625 243,069 56,969 347,728 – – % 9 28 18 17 4 24 – – 1,326,987 100 1,419,518 100 NAME international Fixed interest Fund Fund of Funds australian equity Fund Bond Fund Fund of Funds international equity Fund property Fund money market Fund infrastructure Fund emerging markets Fund total 40 LEASES Leasing arrangements operating leases relate to: • • • premises leases (for financial planning offices) with lease terms that extend to 30 november 2016. the Group does not have an option to purchase the leased asset at expiry of the lease. ClearView administration Services pty limited has entered into a lease agreement to lease new premises for its Sydney head office at 20 Bond Street with effect from 1 December 2011 with a lease term that extends to 30 november 2016. the lease for the existing premises for head office expires in november 2011. tools of trade cars utilised by employees in the performance of their work responsibilities. the Group does not have an option to purchase the leased assets at expiry of the leases. • printers and copiers utilised in the business. the Group does not have an option to purchase the leased assets at expiry of the leases. non-cancellable operating lease commitments cONSOLIDATED cOMPANY not longer than 1 year longer than 1 year and not longer than 5 years longer than 5 years total 2011 $’000 1,667 4,492 – 6,159 2010 $’000 1,709 1,704 – 3,413 in respect of non-cancellable operating leases the following liabilities have been recognised: make good provision (note 25) Current non-current total 384 – 384 50 – 50 2011 $’000 2010 $’000 – – – – – – – – – – – – – – ClearView 2011 annual report 97 nOTES TO THE FinAnciAL STATEMEnTS For tHe Year enDeD 30 June 2011 ContinueD 41 cONTINgENT LIAbILITIES AND cONTINgENT ASSETS the Group has term deposits that back financial guarantees issued by national australia Bank in favour of the landlord of the Sydney Chifley premises in relation to rental deposits of $379,314 (2010: $341,000). the Group has term deposits that back financial guarantees issued by westpac Bank in favour of the landlord of the Sydney Bridge Street premises in relation to rental deposits of $628,726 (2010: $nil). the Group has taken out term deposit to back financial guarantees issued by westpac Bank in favour of the landlord of the new Sydney Bond Street premises in relation to rental deposits of $624,443 (2010: $nil). 42 SUbSEqUENT EVENTS on 24 august 2011, the Group proposed a final dividend of $7.727 million representing 1.8 cents per share fully franked. the dividend will be paid on 22 September 2011. Since the dividend has not been declared at year end it has not been recognised as payable in these accounts. the Directors are not aware of any other matter or circumstance not otherwise dealt with in this report or the financial statements that has significantly, or may significantly, affect the operations of the consolidated entity, the results of those operations or the state of the affairs of the consolidated entity in future financial years. 43 cAPITAL cOMMITMENTS the Group has signed a lease for new premises for the Sydney head office at 20 Bond Street. as part of the lease agreement, the lessor has agreed to a fit-out allowance of $1.5 million, which is refundable should ClearView vacate the premises prior to the expiry of the lease. the Group has committed to the following capital expenditures subsequent to the year end. life administration System premises fit-out technology projects total cONSOLIDATED $’000 cOMPANY $’000 1,300 1,574 358 3,232 – – – – ClearView wealtH limiteD 98 DiREcTORS’ DEcLARATiOn the Directors declare that: (a) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; (b) in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations act 2001, including the compliance with accounting standards and giving a true and fair view of the financial position and the performance of the Company and the consolidated entity; (c) in the Directors’ opinion, the financial statements and notes thereto are in accordance with international Financial reporting Standards issued by the international accounting Standards Board as disclosed in note 3; and (d) the Directors have been given the declarations required by s.295a of the Corporations act 2001. Signed in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations act 2001. on behalf of the Directors Ray Kellerman chairman Sydney, 24th august 2011 independent Auditor’s report ClearView 2011 annual report 99 Deloitte touche tohmatsu a.C.n. 74 490 121 060 Grosvenor place 225 George Street Sydney nSw 2000 po Box n250 Grosvenor place Sydney nSw 1217 australia DX 10307SSe tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au Independent Auditor’s Report to the members of ClearView Wealth Limited Report on the Financial Report we have audited the accompanying financial report of ClearView wealth limited, which comprises the consolidated statement of financial position as at 30 June 2011, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, and the consolidated statement of cash flows for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 36 to 98. Directors’ Responsibility for the Financial Report the directors of the company are responsible for the preparation of a financial report that gives a true and fair view in accordance with australian accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of a financial report that is free from material misstatement, whether due to fraud or error. in note 3, the directors also state, in accordance with accounting Standard aaSB 101 Presentation of Financial Statements, that the financial statements comply with international Financial reporting Standards. Auditor’s Responsibility our responsibility is to express an opinion on the financial report based on our audit. we conducted our audit in accordance with australian auditing Standards. those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. an audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. the procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. in making those risk assessments, the auditor considers internal control, relevant to the entity’s preparation of the financial report that gives a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. an audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. liability limited by a scheme approved under professional Standards legislation. Member of Deloitte touche tohmatsu limited. ClearView wealtH liMiteD 100 independent Auditor’s report ContinueD Auditor’s Independence Declaration in conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. we confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of ClearView wealth limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion in our opinion: (a) the financial report of ClearView wealth limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2011 and of their performance for the year ended on that date; (ii) complying with australian accounting Standards and the Corporations Regulations 2001; and (a) the financial statements also comply with international Financial reporting Standards as disclosed in note 3. Report on the Remuneration Report we have audited the remuneration report included in pages 17 to 26 of the directors’ report for the year ended 30 June 2011. the directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300a of the Corporations Act 2001. our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with australian auditing Standards. Opinion in our opinion the remuneration report of ClearView wealth limited for the year ended 30 June 2011, complies with section 300a of the Corporations Act 2001. Deloitte touCHe toHMatSu philip Hardy partner Chartered accountants Sydney, 24 august 2011 SHAREHOLDERS’ inFORMATiOn aS at 31 JulY 2011 ClearView 2011 annual report 101 Ordinary Share capital there are 429,962,192 fully paid ordinatry shares held by 2,541 shareholders. all the shares carry one vote per share. Substantial shareholders RANK NAME 1. 2. 3. Guinness peat Group plc and its Subsidiaries investec Bank (australia) limited and wentworth private equity paradice investment management pty ltd Twenty largest shareholders RANK NAME NO OF ShARES AS PER NOTIcE % OF ISSUED cAPITAL 210,699,272 39,688,239 27,178,246 49.00 9.23 6.32 UNITS % OF UNITS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. ecurb australia pty limited Guinness peat Group (australia) pty ltd iwpe nominees pty limited J p morgan nominees australia limited national nominees limited Citicorp nominees pty limited HSBC Custody nominees (australia) limited Gisbourne pty ltd mr Simon Swanson Bell potter nominees ltd VBS investments pty ltd investec Bank (australia) ltd GpG australia nominees limited ecurb australia pty limited Gannet Capital pty ltd iwpe nominees pty limited equity trustees limited ecurb australia pty limited rBC Dexia investor Services australia nominees pty limited manyata Holdings pty ltd 116,401,964 65,298,395 26,458,826 20,291,479 17,832,428 17,437,206 10,094,759 10,000,000 10,000,000 9,988,408 9,750,380 7,937,647 7,787,150 7,000,000 6,825,267 5,291,766 4,249,748 4,223,355 2,955,000 2,000,000 27.07 15.19 6.15 4.72 4.15 4.06 2.35 2.33 2.33 2.32 2.27 1.85 1.81 1.63 1.59 1.23 0.99 0.98 0.69 0.47 ClearView wealtH limiteD ClearView wealtH limiteD 102 102 clearView wealth Limited aBn 106 248 248 www.clearview.com.au SHAREHOLDERS’ inFORMATiOn aS at 31 JulY 2011 Distribution of shareholders RANgE 1 - 1,000 1,001- 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total UNMARKETAbLE PARcELS minimum $ 500.00 parcel at $ 0.50 per unit Shares under voluntary escrow there are no shares subject to voluntary escrow as at 30 June 2011. TOTAL hOLDERS 290 811 498 840 102 2,541 MINIMUM PARcEL SIzE 1,000 UNITS 104,880 2,557,565 3,948,379 24,195,108 399,156,260 429,962,192 hOLDERS 252 % OF ISSUED cAPITAL 0.02 0.59 0.92 5.63 92.84 100.00 UNITS 66,880 ClearView 2011 annual report 103 This page is intentionally left blank ClearView wealtH limiteD 104 This page is intentionally left blank CleArView weAlTh limiTed tRACk to gRoWth ClearView is on a track to growth. During 2011, we successfully integrated the life insurance and wealth management businesses purchased from Bupa Australia in June 2010. We also commenced growth initiatives to enhance our product offering, enter the advice market, and expand and leverage our strategic partner member base which totals over 3 million Australians. We believe our focused growth strategy, experienced management team and strong capital position will continue to steer us towards becoming a significant player in Australia’s life insurance and wealth management markets. Contents Our Purpose and Values Company Overview Chairman’s report managing director’s report 2011 results directors’ report Auditor’s independence declaration Corporate Governance Financial report directors’ declaration independent Audit report 1 2 4 6 9 10 27 28 35 98 99 Shareholders’ information 101 FinAnCiAl CAlendAR AnnuAl geneRAl Meeting 27 October 2011, at 10am hAlF YeAR end 31 december 2011 hAlF YeAR Result AnnounCeMent February 2012 YeAR end 30 June 2012 AnnuAl RepoRt August 2012 directory Dates are subject to change. DireCtory Directors ray Kellerman (Chairman) Anne Keating Anthony eisen (alternate michael Jefferies) david Goodsall John murphy Simon Swanson Susan Thomas Former Director Peter wade Managing Director Simon Swanson Company Secretaries Chris robson Athol Chiert registered office and Contact Details level 4, 50 Bridge Street Sydney NSw 2000 GPO Box 4964 Sydney NSw 2001 Telephone: 02 8095 1300 02 9233 1960 Facsimile: ir@clearview.com.au email: www.clearview.com.au website: Share registry For all enquiries relating to shareholdings, dividends and related matters, please contact the share registry: Computershare investor Services Pty limited level 3, 60 Carrington Street Sydney NSw 2000 Telephone: 1300 855 080 03 9415 4000 Facsimile: 03 9473 2500 Auditors deloitte Touche Tohmatsu Accounting and Custodian Services BNP Paribas Services Australasia Pty limited Stock Listing ClearView wealth limited is listed on the Australian Securities exchange (ASX) under the ASX code ‘CVw’. ClearView Wealth limited ABN 83 106 248 248 www.clearview.com.au Track to Growth ClearView 2011 AnnuAl RepoRt