Half Year
Condensed
Annual
Consolidated
Report
Financial Report
2019
for the six months ended 31 December 2018
2 | CLEARVIEW ANNUAL REPORT 2019
Contents
Section
Page
Chairman’s address
Managing Director’s report
Directors’ report
Operating and financial review
Remuneration report
Auditor’s independence declaration
Financial report
Directors’ declaration
Independent auditor’s report
Shareholders’ information
Directory
4
6
10
17
50
68
69
149
150
156
159
Financial calendar
Annual General Meeting
14 November 2019
Half year end
31 December 2019
Half year result announcement
February 2020
Year end
30 June 2020
Annual Report
August 2020
Dates are subject to change.
CLEARVIEW WEALTH LIMITED | 3
Chairman’s address
To our customers and shareholders:
Business overview
In 2019, ClearView continued to make progress implementing
its long-term strategy, despite a challenging operating
environment and a disappointing group performance.
The financial services industry is currently dealing with
significant structural, regulatory and economic changes.
These changes will strengthen the industry in the longer term
but are challenging in the short-term.
With the benefit of hindsight ClearView made some mistakes
in the early years of establishing its current business. This
included instances of poor life insurance sales practices
through outbound telephone based channels. Last year
ClearView appeared at the Banking and Financial Services
Royal Commission to answer questions about its Direct Life
Insurance business which was closed in 2017.
We have recognised these mistakes and learned from them.
We have remediated affected customers and at the time of
writing this letter, the remediation programs are complete.
This allows management to refocus on building the business.
ClearView undertook a comprehensive technology review
in 2H FY19, with plans to replace our life insurance policy
administration system (PAS) and underwriting engine (URE)
with a modern, high efficiency platform. The material
investment in technology, alongside ongoing expansion of
our IFA footprint, will support medium- to long-term growth,
notwithstanding short-term headwinds.
A strategic review of the wrap platform and wealth
technology is also underway with a focus on the simplification
of key back office systems, potentially moving to software as
a service (SaaS) and Managed Services solutions.
ClearView also completed a cost-out program to realign
its cost base. The business is focused on effective cost
management, coupled with a reinvigorated IT strategy and
road map. The FY19 cost base was set in early 2018 on the
expectation of continued growth and consistent market
conditions. Since inception, the business has invested
and added resources ahead of the curve to keep up with
growth. However, given the industry outlook and associated
slowdown in sales growth, this approach needed to change.
We are also investing in our risk and compliance
areas including splitting out the role of our Chief Actuary and
Chief Risk Officer into two roles and recruiting a new Chief Risk
Officer.
At times of industry disruption and change, there are
also opportunities to be seized by companies which are
entrepreneurial with a strong focus on creative ways to
building out and enhancing the business. We see many
opportunities and are optimistic about the future of our
business.
Claims management
ClearView’s largest business is life insurance, which centres
on paying claims to customers at times of great need. In
FY19, the group paid $69 million in life insurance claims to
customers and their families, a substantial increase over the
previous year.
Claims statistics published by the industry regulators for the
first time in 2019 showed ClearView performed better overall
than the industry average in terms of admitting claims,
claims finalisation time and disputes.
Once again, ClearView was recognised by independent
research house Beddoes Institute for outstanding service and
support at claim time.
According to the Beddoes Claims Journey Study, ClearView is
helping manage advised clients at a high standard and is a
market leader in customised service and claim assessment
speed; two of the most important drivers of customer
advocacy.
Claimants interviewed by Beddoes Institute gave ClearView
an overall satisfaction rating of 90.4% versus the industry
average of 80.4%1.
We will continue to focus on this important aspect of
our business.
1
Beddoes Institute’s Industry Claims Journey Study (2019) which tracked the experience of 500 customers across the industry who have had an income protection, trauma or TPD claim.
4 | CLEARVIEW ANNUAL REPORT 2019
Bruce Edwards CHAIRMAN’S ADDRESS (CONTINUED)
Support for financial advisers
ClearView continued expanding its distribution footprint in
2019, entering distribution agreements with 113 additional
Australian Financial Services Licensees (AFSLs) including larger
groups. These relationships will give ClearView access to a
further pool of financial advisers.
current 10/12 limit on market share buy-back program after
the release of the full year results. This is considered to be the
best use of capital and in the interests of shareholders.
The buy-back will initially be funded by a further draw-down
from the Debt Funding Facility before being replaced by a
longer term capital solution in FY20.
Acknowledgements
On behalf of the Board, I would like to acknowledge
Simon and his team for their hard work and contribution
to ClearView during a challenging year. The senior
management team have established an open and
transparent culture within the company which positions
the business well for the future.
I would also like to thank our customers, financial advice
partners and shareholders for their ongoing support.
Personally, I would like to recognise my fellow Directors for
their valued counsel and support throughout the year.
Bruce Edwards
Chairman
In Financial Advice, we launched a number of key initiatives
including an outsourced B2B licensee services business,
LaVista Licensee Solutions and a revamped service and fee
proposition across Matrix Planning Solutions (Matrix) and
ClearView Financial Advice (CFA), which aim to support the
dealer group’s long-term sustainability.
The dealer group also continued to implement a real-time
compliance and monitoring system to better manage its
ongoing regulatory and reporting obligations.
To cap off the year, Matrix secured the prestigious CoreData
Licensee of the Year Award for the third consecutive year,
recognising the Group’s commitment to supporting its aligned
financial advisers.
Financial results
The Group’s underlying net profit after tax of $25.1 million
for the year to 30 June 2019 and reported NPAT of $4 million
both represent material declines on FY18 results.
The Embedded Value (EV) also reduced to $672.7 million or
$0.99 per share (including ESP loans and franking credits).
These results reflect adverse claims and lapse experience,
re-setting of our best estimate assumptions (lapses, claims,
expenses and discount rates) for the future and impairments
of goodwill and software assets.
We have addressed these disappointing results by upgrading
and re-pricing our products, reducing management expenses
and ongoing investment to build a more scalable and
customer-focused business.
Capital management and dividends
As at 30 June 2019 the Group is fully capitalised with
Common Equity Tier 1 capital to fund its current business
plans and anticipated medium-term growth.
The Group held $5.0 million of capital reserves above our
internal benchmarks. This included $15 million drawn down
from our $60 million Debt Funding Facility established
in July 2017.
It is expected that the underlying business will self-fund
its anticipated baseline capital needs from FY20 and
subsequently.
The Board believes that the current ClearView share price, in
a relatively illiquid market does not reflect the intrinsic value
of the business. Accordingly it has decided to suspend the
dividend payment for FY19 and instead to recommence the
CLEARVIEW WEALTH LIMITED | 5
Product Lists (APLs), up 27% on 419 last year. ClearView is
also benefiting from the breakdown of institutional vertical
integration.
We are poised to continue benefiting from the subsequent
opening up of APLs. A fresh wave of advisers are leaving
institutionally-aligned dealer groups to join boutique groups
or establish their own Australian Financial Services Licence
(AFSL), which is a segment of the market where ClearView
has a strong presence.
For the year to 30 June 2019, the Independent Financial
Adviser (IFA) market represented 84% of new ClearView
LifeSolutions sales. This is compared to 80% in 2018. This
illustrates the strong progress ClearView is making towards
its strategic objective of expanding its national distribution
footprint.
Our investment in technology, alongside the ongoing
expansion of our IFA footprint, will support medium-to-long
term growth. The business remains focused on effective
cost management and the efficient implementation of our
reinvigorated IT strategy and roadmap.
Key decisions and actions for the FY19 year included:
•
•
•
•
Completing material cost transformation program
including a strategic IT review;
Terminating certain poor performing life insurance
distribution relationships (given elevated lapse rates).
This will result in some reduced ‘head line’ sales in
the shorter term but lift overall business quality and
profitability over time;
Repricing and enhanced our life insurance and wealth
management products; and
Reviewing our Financial Advice strategy, dealer group
pricing model and launching LaVista Licensee Solutions;
a dealer-to-dealer services offer targeted at the growing
number of self-licensed financial advisers.
As a result, the business continues to be well positioned for
future growth.
To our shareholders, customers and advisers:
Extremely challenging market conditions led to a
disappointing 2018/19 profit result for ClearView, in a year
that will go down as possibly being the toughest on record
for the financial services industry.
In the aftermath of the Banking and Financial Services Royal
Commission, the industry faces unprecedented regulatory
and structural change, and the important task of rebuilding
trust in the sector.
ClearView has not been immune to the challenges affecting
the broader industry.
That said, key strategic decisions made early on – in
particular the business’ focus on the individual life advised
market – has provided clear direction and set it up for
future growth.
Pleasingly, ClearView does not participate in the besieged
group life insurance market, currently being impacted by the
government’s Protecting Your Super (PYS) reforms, or the
consumer credit insurance market (CCI).
However, the one area that we would have avoided, if we
had our time again, is direct life insurance telephone sales.
ClearView closed its Direct Life Insurance business in mid-
2017 and has devoted significant resources to ensuring that
customers adversely affected by that business have been
remediated. The Direct remediation program agreed with
ASIC was completed in December 2018 with some follow
up activity being implemented as part of ‘business as usual’
functions.
In the second half of FY19, ClearView focused on
resetting the business and revising its underlying actuarial
assumptions for valuations and business management, to
take into account observed experience.
The Group’s underlying net profit after tax (NPAT) of $25.1
million for the year to 30 June 2019, and reported NPAT of
$4 million, represents a material decline on FY18. The FY19
result also includes the adverse impact of $1.8 million from a
change in income protection claims assumptions.
The Group’s life insurance distribution footprint continues
to expand, with ClearView LifeSolutions on 532 Approved
6 | CLEARVIEW ANNUAL REPORT 2019
Simon Swanson Managing Director’s report MANAGING DIRECTOR’S REPORT (CONTINUED)
Industry performance
and observations
The life insurance industry’s significant underperformance
in recent years has included material losses from income
protection insurance.
The industry has gradually drifted from the foundational
principle of ‘insurable interest’ with product terms becoming
too generous and therefore unsustainable.
Rather than being about putting an individual (and their family)
back in the same financial position had an accident, injury,
illness or death not occurred, insurance has become focused
on putting policyholders in a better position. This has meant
that some policyholders have actually improved their financial
position as a result of an insurance claim. This contributed
to the life insurance industry collectively losing $2.5 billion
through this product over the past five years, with no sign of
improvement.
In April 2019, APRA asked the industry to urgently address the
persistent problems with income protection claims. ClearView
is participating in industry initiatives to drive more sustainable
claims and pricing outcomes in income protection.
The wealth management industry is also under significant
pressure, with steep price competition and margin compression
in the past year.
This trend is being driven by four main factors:
1.
2.
3.
4.
The imminent ban on grandfathered platform rebates and
commissions paid by platform operators to AFSLs;
The impact of the Royal Commission including negative
publicity and poor consumer sentiment;
Overt competition from industry funds which has caused a
fundamental realignment of pricing; and
Increasing pressure on fees with record low interest rates
dragging down the returns investors receive from the cash
they hold on platforms.
The current (long overdue) repricing of financial services is likely
to set prices for the next decade.
In Financial Advice, the sector is undergoing a major
transformation driven by structural change and the
introduction of higher education standards, under the Financial
Adviser Standards and Ethics Authority (FASEA).
It has been estimated that around 10,000 financial advisers
could exit the industry ahead of 2024, when the FASEA
requirements are implemented. As such, adviser numbers could
shrink to around 15,000.
This presents an opportunity for the industry to attract
new entrants. According to NMG, around 30,000 financial
advisers will be needed to meet the growing demand for
professional advice.
Perhaps the most significant change currently taking place in
financial advice is the changing relationship between financial
advisers and licensees.
Historically, licensees have been able to price their dealer
services cheaply because their revenue has been propped up
by platform rebates and grandfathered commissions from
product manufacturers.
Advisers have benefited from subsidised dealer services and,
in turn, clients have benefited from subsidised advice fees.
However, the focus on grandfathered commissions and
other amounts paid by product manufacturers to licensees
has exposed the unsustainable underlying economics of
many licensees.
As a result, the cost of dealer services is rising dramatically,
forcing advisers to review their revenue base, value
proposition and pricing.
The launch of LaVista and the repositioning of our aligned
dealer groups Matrix Planning Solutions (Matrix) and
ClearView Financial Advice (CFA) reflects our intention to
remove the cross subsidies that exist in our businesses to
develop a sustainable Financial Advice business revenue
base. This will take time to achieve but it will enable the
Financial Advice segment to continue investing in the
services it delivers to its financial adviser client base.
While current changes taking place in the financial advice
industry will be painful for many licensees and advisers in
the short-term, it will lead to a more customer-focused,
sustainable and professional industry in the future.
Reform agenda and priorities
ClearView continues to push for reforms that promote the
long-term sustainability of the industry and strengthen
consumer protections, acknowledging key industry criticisms
by the Royal Commissioner.
Our three advocacy priorities are:
•
•
•
Life insurance choice of insurer;
Stable life insurance commission rates with no additional
changes; and
Tax deductibility of financial advice fees including life
insurance advice.
I’m proud that Matrix and CFA advisers enjoy unrestricted
access to all APRA-regulated retail life insurers. They are
empowered to use their experience and professional
judgement to recommend the best solution for their
clients, based on their clients’ unique circumstances,
needs and goals.
Problematically, too many advisers (and their clients) don’t
have the same autonomy.
ClearView has long advocated for the abolishment of
restricted APLs for life insurance because they make it
difficult for advisers to meet their Best Interest Duty (BID)
obligations and they don’t lead to optimal client outcomes.
Limited APLs are designed to restrict product choice in order
to channel clients into inhouse products.
CLEARVIEW WEALTH LIMITED | 7
MANAGING DIRECTOR’S REPORT (CONTINUED)
Despite strong IFA support for ClearView products, some
institutionally-aligned advisers and their clients have been
unable to access our award-winning solutions.
In an efficient market, all APRA-regulated retail insurers
would have equal access to the market.
While the breakdown of institutional vertical integration is
leading to progress on this front, the mandating of open
APLs would significantly broaden ClearView’s potential
distribution footprint.
In addition to the work we are doing to pry APLs open,
including a soon-to-be released report by industry
commentator Jeff Morris on the consumer impact of
restricted APLs, we also strongly believe that there should be
no additional changes to life insurance commission rates.
While we respectfully note the life insurance
recommendations contained in the Royal Commission Final
Report, we believe professional advice would be out of reach
for the average Australian if the cost was not partially or fully
covered by the product manufacturer via commissions.
A ban on life insurance commissions could have a material
impact on the advice industry and, subsequently, the life
insurance industry because few households would be able to
afford to pay upfront for advice out of their own hip pocket.
Given the Life Insurance Framework (LIF) is only partially
implemented and will not take full effect until 1 January
2020, it is too soon for the government to consider tinkering
with commission caps again.
Even after 1 January 2020, it will take some time for the
effects of LIF to flow through, therefore, any review of
commission caps should ideally take place in 2022, and
should look at both the quality of advice and levels of
underinsurance.
Looking ahead
While the industry faces significant headwinds, there are still
plenty of reasons for optimism.
Fundamental demand for the financial products and services
that ClearView manufactures, distributes and provides
is underpinned by regulation, and socio-economic and
demographic trends.
Australia has one of the highest household debt to
disposable income ratios in the world, fuelled by
mortgage debt1.
This highlights the significant need for life insurance and
professional advice to cover a household’s exposure to
debt as well as the income required to service that debt.
This demand is exacerbated by Australia’s burgeoning
underinsurance gap.
In 2015, Rice Warner Actuaries estimated Australians were
underinsured by around $471 billion for life cover and $3.435
billion for income protection cover2.
More recent research released by Rice Warner found
underinsurance costs the Australian government in social
security payments an estimated3:
•
•
•
$54 million per annum for death underinsurance
$500 million per annum for TPD underinsurance
$692 million per annum for income protection
underinsurance
Rice Warner Actuaries estimated that only a third of the
working population had income protection insurance,
meaning 8.3 million Australians are completely exposed.
Those with IP insurance are only covered for around 21% of
their needs. The median TPD cover only met 14% of needs3.
In wealth management, demand for competitive solutions
and quality advice is also strong, underpinned by Australia’s
aging population, complex superannuation and tax system,
and soaring household wealth.
According to the ABS’ Household Income and Wealth Report,
the net worth of the average Australian household has
almost doubled in recent years, due largely to rising
property prices, compulsory superannuation and changing
work patterns4.
Australians are working longer and retiring much later in life.
More than two-thirds of the nation’s household wealth is
held by Australia’s 5.5 million baby boomers4.
As the compulsory superannuation guarantee rises and more
baby boomers retire, the demand for wealth management
advice will only increase.
Basically, Australians are under-insured, under-advised and,
when it comes to superannuation and investments, they are
typically over-exposed to domestic equities and property.
They need professional help to sort out what are increasingly
complex financial products, services and investment, wealth
and retirement strategies.
Over half of Australian adults admit they have unmet advice
needs, according to research by Investment Trends. Their top
1
2
3
4
RBA Research Discussion Paper June 2019. The Effect of Mortgage Debt on Consumer Spending: Evidence from Household-level Data.
Rice Warner: Underinsurance in Australia 2015.
Rice Warner: Underinsurance in Australia 2017.
ABS: Household Income and Wealth Australia 2017 – 2018.
5 McCrindle 2016 Wealth Transfer Report, A report for no more practice.
8 | CLEARVIEW ANNUAL REPORT 2019
MANAGING DIRECTOR’S REPORT (CONTINUED)
unmet needs include transitioning to retirement; securing
adequate insurance to protect their wealth; making sure
their money lasts as long as they do; and estate planning.
As they inch closer to retirement, for those not already in
retirement, they’ll need help navigating Australia’s complex
tax, superannuation and social security system. They’ll also
need advice on how to efficiently pass their wealth onto the
future generations.
Financial advisers are ideally-positioned to help them
plan for retirement and, ultimately, the smooth transfer
of wealth. They’re also ideally-positioned to help the
beneficiaries of this impending $3.5 trillion5 intergenerational
wealth transfer; prudently invest and manage their wealth.
Demand for professional advice is set to rise, only the
willingness and capacity of Australians to pay for it will need
to be dramatically improved.
As a customer-focused company with strong adviser
relationships and a diversified business model, ClearView is
strongly-positioned to ride these tailwinds.
In the important IFA market, ClearView is recognised as an
advocate for advisers and professional advice. Our brand is
gaining traction.
As a relatively new player, we are not constrained by a
myriad of cumbersome and expensive legacy systems,
processes or thinking. Our ongoing, strategic investment
in technology infrastructure and development will make
ClearView more efficient and easier to do business with.
Simon Swanson
Managing Director
CLEARVIEW WEALTH LIMITED | 9
Directors’ report
The Directors of ClearView Wealth Limited (ASX:CVW, ClearView or the Company) submit their report, together with the
financial report of the consolidated entity (the Group) for the year ended 30 June 2019 (the financial year):
Directors
The following persons were Directors of ClearView during the financial year and since the end of the financial year
unless otherwise noted:
• Bruce Edwards (Chairman)
• David Brown
• Gary Burg
• Michael Alscher (Resigned as Alternate to Mr Thomson and appointed as Director on 20 November 2018)
• Nathanial Thomson
•
•
•
Satoshi Wakuya (Resigned as Director on 20 November 2018)
Simon Swanson (Managing Director)
Susan Young
The biographies for the Directors of ClearView are detailed below.
Current directors
Bruce Edwards BSc, MA, FIAA
Independent non-executive Chairman
Bruce is a qualified actuary with over 25 years in
actuarial consulting, including five years as Managing
Director of KPMG Actuaries. In recent years, Bruce has
held directorships with a number of life and general
insurance companies and superannuation fund trustees,
and has acted as Chairman for three life insurance
distribution companies. Bruce is a director of Munich Re
in Australia (a life and general reinsurance company).
Bruce also lectures in actuarial studies at Macquarie
University and is a past President and active member of
the Rotary Club of Sydney.
Bruce was appointed to the Board on 22 October 2012
and was the Chairman of the ClearView Board Audit
Committee, the Board Risk and Compliance Committee
and the Nomination and Remuneration Committee, up
until his appointment as Chairman of the Board on 18
May 2016. Bruce remains a member of the Board Audit
Committee, the Board Risk and Compliance Committee
and the Nomination and Remuneration Committee.
David Brown BCom, MSc, Dip Inv, Dip Mktg,
ASIP, MAICD, F Fin
Independent non-executive Director
David has significant experience in investment
management and asset allocation of superannuation
and insurance funds. He is the Chief Investment Officer
for National Superannuation Fund Ltd in Papua New
Guinea and recently stepped down from being a Director
of the PNG Institute of Directors. He is the former Head
of Private Markets for Victorian Funds Management
Corporation and former Senior Funds Manager for
Queensland Investment Corporation. David is a former
Director of LifeHealthcare Pty Limited and a former
Chairman of the Australian Private Equity and Venture
Capital Association Limited.
David was appointed to the Board on 22 October
2012 and currently serves as a member of the
Board Audit Committee and the Board Risk and
Compliance Committee.
10 | CLEARVIEW ANNUAL REPORT 2019
Gary Burg B.ACC (Wits), MBA (Wits)
Michael Alscher BCom
Independent non-executive Director
Non-executive Director
Gary has significant experience in building life insurance
businesses in South Africa and in Australia. Gary is
Chairman of UCW Limited, an ASX listed company and
is also a director of Alinta Energy Limited and Global
Capital Holdings (Australia) Pty Limited, a company
which manages principal investments on behalf of
various investors. He is a former director of, and investor
in, 3Q Holdings Limited and South African listed Capital
Alliance Holdings Limited (which owned Capital Alliance
Life Limited and Capital Alliance Bank Limited).
Gary is also a former director and investor in a number
of Australian based financial services businesses,
including PrefSure Life Limited and Insurance Line
Holdings Pty Limited.
Gary was appointed to the Board on 22 October 2012,
and currently serves as a member of the Board Audit
Committee, the Board Risk and Compliance Committee
and the Nomination and Remuneration Committee.
Michael is the Managing Partner and founder of Crescent
Capital Partners Management Pty Limited. Prior to
founding Crescent Capital Partners, Michael was a
consultant at Bain International and the LEK Partnership
where he spent considerable time working across
banking and insurance clients. After leaving consulting,
Michael was the Chief Operating Officer and a Director of
Gowings Bros Limited. Michael is the current Chairman
of Cardno Limited, Australian Clinical Laboratories Pty
Limited, National Media Services Group Pty Limited and
National Dental Care Pty Limited. He is also a former
Chairman and Director of Cover-More Group Limited and
LifeHealthCare Group Limited and a former Director of
Metro Performance Glass Limited.
Since 22 October 2012 Michael has served as a Non-
Executive Director and as an Alternate Director to
Nathanial Thomson at different times, with the most
recent appointment as Non-Executive Director being
effective 20 November 2018.
Nathanial Thomson BCom (Hons), LLB (Hons)
Non-executive Director
Nathanial is a partner of Crescent Capital Partners
Management Pty Limited. Nathanial has significant
consulting experience for financial institutions at
McKinsey & Co. He is the former deputy Chairman of
Cover-More Group Limited prior to its listing on the ASX,
a former director of Metro Performance Glass Limited,
prior to its listing on the ASX, and is currently a director
of Cardno Limited, National Dental Care Pty Limited,
Australian Clinical Labs and National Home Doctor
Service Pty Limited.
Nathanial was appointed to the Board on 22 October
2012 and currently serves as a member of the
Nomination and Remuneration Committee, Board Audit
Committee and Board Risk and Compliance Committee.
Simon Swanson BEC, BBus, ANZIIF (Fellow),
CIP, FCPA
Managing Director
Simon is an internationally experienced financial
services executive having worked for over 35 years
across life insurance, funds management, general
insurance and health insurance. He has successfully
led the largest life insurer (CommInsure, Sovereign and
Colonial) in three countries and spent half of his career
in the Asia Pacific region. Simon is a former Chairman
of ANZIIF’s Life, Health and Retirement Income Faculty
Advisory Board and former director of the Australian
Literacy and Numeracy Foundation.
Simon led the team that founded ClearView in its
current form and was appointed as Managing Director
on 26 March 2010.
CLEARVIEW WEALTH LIMITED | 11
DIRECTORS’ REPORT (CONTINUED) Former Directors
Susan Young BA (Hons), MA, FGIA, FCIS, MAICD, JP
Satoshi Wakuya Bachelor of Liberal Arts
Independent non-executive Director
Non-executive Director
Susan has over 30 years’ experience in senior executive
roles internationally, with 15 years of experience in
investment banking, followed by senior management
roles in the corporate and professional services sector.
She retired as a Partner of Spencer Stuart, and previously
held operational management roles as both a divisional
CFO and Joint Venture CEO/ President for a Lend Lease
Group company. Susan currently serves on the board
of the Westmead Institute for Medical Research and
is a Governor of WWF Australia. She has served as a
non-executive Director on ClearView’s superannuation
trustee board over the last 9 years, including holding the
position as its Chairperson for two years.
Susan was appointed to the Board on 14 December
2016 and is a member of each of the Board Committees.
She was appointed Chairperson of the Nomination
and Remuneration Committee and Board Risk and
Compliance Committee on 1 July 2017, and Chairperson
of the Board Audit Committee on 25 August 2017.
Satoshi is the General Manager, Head of Business
Development Division for Sony Life. Satoshi has over
10 years’ experience in the life insurance industry in
Japan and has held a number of senior management
positions within Sony Life’s ultimate parent company,
Sony Corporation. Prior to joining Sony, Satoshi held
roles within the Japanese Ministry of Foreign Affairs and
Sumitomo Mitsui Banking Corporation in which he engaged
in Japan’s governmental loan aid and forex operations
that developed his financial business background.
Satoshi was appointed to the Board from 14 December
2016 until his resignation on 20 November 2018.
12 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) Company Secretary
Athol Chiert, BCOM, BACC, 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 and was part of the team that founded
ClearView in its current form. He was previously the CFO
of PrefSure Holdings Limited and PrefSure Life Limited and
also served as a director and executive of the Global Capital
Group both in Australia and South Africa.
Athol has over 20 years experience in the finance industry
including holding directorships on investee and subsidiary
entities. Athol commenced his professional career as an
accountant with Arthur Andersen. Athol is a volunteer and
contributor to a number of not for profit organisations.
Former Company Secretary
Elizabeth Briggs, BMedia LLB was appointed Company
Secretary from 4 April 2018 until her resignation on 24
July 2019. She was also the General Counsel of ClearView.
Elizabeth has over 10 years’ experience working in financial
services working across the life insurance, superannuation,
wealth management and financial advice sectors. Elizabeth
joined ClearView in 2012 and prior to this worked in funds
management and in private practice. Her experience
extends to advising multinational organisations across
Europe and the United States.
Elizabeth is a member of the Law Society of NSW and ASFA,
a mentor of junior lawyers through the NSW Law Society
and supporter and contributor to a number of not for
profit organisations.
Appointed Actuary of ClearView
Life Assurance Limited
Ashutosh Bhalerao B.Ec, FIAA is the Appointed Actuary of
ClearView Life Assurance Limited (ClearView Life).
Ashutosh joined ClearView as Deputy Appointed Actuary
in January 2014 and was appointed to his current role on
5 June 2014. Ashutosh has over 20 years experience in the
financial services industry, specialising in life insurance.
In the five years prior to joining ClearView, Ashutosh was
the Appointed Actuary for Swiss Re Life & Health Australia
Limited. Ashutosh has also held other senior actuarial roles
with TAL Limited, Challenger Limited and AMP Limited. He
has a wide range of experience in financial management
and reporting, product pricing, capital management, asset-
liability management, risk management and reinsurance.
Chief Actuary and Risk Officer
Greg Martin B.A, FIAA, FFIN, FAICD, CERA is the Chief
Actuary and Risk Officer of ClearView. Greg has over 35
years’ experience specialising in life insurance and funds
management and has held a number of Appointed Actuary
roles during his career.
Greg has fellowships with the Institute of Actuaries of
Australia, FINSIA and the AICD, and is a Chartered Enterprise
Risk Actuary. He has been a member of various regulatory,
industry and professional committees and Boards, including
past and ongoing membership of committees of the
Institute of Actuaries of Australia and the International
Actuarial Association, and has advised regulators and
published a number of professional and industry papers
and articles. Greg has a wealth of experience in the areas of
risk and capital management, financial management and
reporting, and product pricing and management.
CLEARVIEW WEALTH LIMITED | 13
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
Gary Burg
Company
UCW Limited
Period of Directorship
24 March 2016 - current
Michael Alscher
Metro Performance Glass Limited
31 March 2015 – 10 June 2016
Nathanial Thomson
Cardno Limited
Cardno Limited
6 November 2015 – current
6 November 2015 – 28 January 2016; and
24 May 2016 – current
Meetings of Directors
The number of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended
30 June 2019, and the number of meetings attended by each Director are as follows:
Board
Board Audit
Committee
Board Risk and
Compliance
Committee
Nomination and
Remuneration
Committee
Eligible to
Eligible to
Eligible to
Eligible to
attend
Attended
attend
Attended
attend
Attended
attend
Attended
11
11
11
9
11
5
11
11
11
9
11
7
10
4
10
11
6
6
6
-
2
-
6
-
6
5
6
-
2
-
5
-
6
6
6
-
2
-
6
-
6
4
6
-
2
-
5
-
7
-
7
-
7
-
7
-
7
-
7
-
7
-
6
-
Bruce Edwards
David Brown
Gary Burg
Michael Alscher1, 2
Nathanial Thomson
Satoshi Wakuya3
Susan Young
Simon Swanson
1
Michael Alscher was alternate director to Nathanial Thomson from 1 March 2018 to 20 November 2018 and was eligible and attended 3 meetings in his capacity as alternate director,
this has been included in the table above.
2 Michael Alscher was appointed non-executive director effective 20 November 2018
3
Satoshi Wakuya resigned as a director effective 20 November 2018
14 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED)
Directors’ shareholdings
The following table sets out each Director’s relevant interest in shares and rights or options in shares of the Company
or a related body corporate as at the date of this report.
Director
Bruce Edwards
David Brown
Gary Burg
Michael Alscher1
Nathanial Thomson1
Susan Young
Simon Swanson
Fully Paid Ordinary Shares
Executive Share Plan Shares
617,040
-
10,918,090
-
-
83,092
4,700,000
-
-
-
-
-
-
10,000,000
1 Mr Alscher and Mr Thomson represent the interests of CCP Bidco Pty Limited and its Associates that non-beneficially hold 394,493,860 shares.
Shares issued under the Executive Share Plan
The following table sets out the shares issued under the Executive Share Plan (ESP) during the year ended 30 June 2019.
Series
Opening balance (1 July 2017)
Exercised
Forfeited
Closing balance (30 June 2018)
No. of
shares
issued
No. of shares
forfeited/exercised
No. of
shares
total
-
-
-
(1,965,292)
(1,781,633)
(3,746,925)
49,003,595
(1,965,292)
(1,781,633)
45,256,270
For details of the ESP see section 7 of the notes to the financial statements.
As at the date of this report, ClearView has a total of 45,256,670 ESP shares on issue. No new shares were granted in the year
ended 30 June 2019.
During the financial year, 1,965,292 vested ESP shares were exercised with the outstanding ESP loan balance proceeds being
received by the Company and 1,781,633 forfeited shares were bought back and cancelled.
Performance rights issued under the Long Term Incentive Plan
The following table sets out the performance rights issued under the Long Term Incentive Plan (LTIP) during the year ended 30
June 2019.
Tranche
3A
3B
Closing balance (30 June 2018)
No. of performance
rights issued
No. of performance
rights forfeited/
exercised
No. of
performance rights
total
1,030,768
1,030,768
2,061,535
(64,949)
(64,949)
(129,897)
965,819
965,819
1,931,638
For details of the LTIP and relative vesting see section 7 of the notes to the financial statements and pages 56 to 59 of the
Remuneration Report.
Indemnification of Directors and Officers
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 cover provided 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 insurance, other than the
premium referred to above. Directors’ and Officers’ Liability Insurance contributed a proportion of the total Group professional
indemnity insurance premium.
CLEARVIEW WEALTH LIMITED | 15
DIRECTORS’ REPORT (CONTINUED)
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 Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191,
dated 24 March 2016 and in accordance with that Corporations Instrument amounts in this report, and the financial report,
have been rounded off to the nearest thousand dollars.
Auditor’s independence declaration and non-audit services
The Directors have received an independence declaration from the auditors, a copy of which is on page 68.
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 section 2 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 Section 2.6 to the financial statements do not compromise
the external auditor’s independence, based on advice received from the Board Audit 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 reward.
Annual Corporate Governance Statement
ClearView is committed to achieving high corporate governance standards. In accordance with the 3rd edition
ASX Corporate Governance Council’s Principles and Recommendations, the Company’s annual Corporate Governance
Statement, as approved by the Board, is published and available on the Company’s website at:
www.clearview.com.au/about-clearview/corporate-governance.
16 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) Operating and Financial Review
ClearView’s current operating structure comprises of three core business segments: Life Insurance, Wealth Management and
Financial Advice.
Life Insurance
ClearView manufactures products for
the Advised Life Insurance market.
ClearView does not participate in the
direct life, consumer credit insurance or
group life market segments.
Our product suite is branded
LifeSolutions. Policies are issued by
ClearView Life or via the ClearView
Retirement Plan (ClearView’s
superannuation fund).
Wealth Management
ClearView is a provider of wealth management products
in Australia’s retail funds management industry.
Our contemporary product suite includes two
investment and administration platforms,
WealthSolutions and WealthFoundations.
WealthSolutions is currently an outsourced investment
and administration platform issued via the ClearView
Retirement Plan (super and pension) and ClearView
Financial Management (IDPS).
WealthFoundations is a simple superannuation and
retirement income investment and administration
solution issued by the ClearView Retirement Plan and
underwritten by ClearView Life. It offers a range of
model portfolios.
Financial Advice
ClearView operates two Australian Financial
Services Licences (AFSL’s), ClearView Financial
Advice (CFA) and Matrix Planning Solutions
(Matrix).
LaVista Licensee Solutions also provides
outsourced B2B licensee services to self-
licensed and third party AFSLs.
CFA and Matrix provide licensing services and
business support to 227 financial advisers.
LaVista Licensee Solutions was launched in
November 2018.
CLEARVIEW WEALTH LIMITED | 17
DIRECTORS’ REPORT (CONTINUED) Royal Commission and regulatory changes
There has been an unprecedented amount of scrutiny, consolidation and disruption in the financial services industry and it
continues to intensify.
This unparalleled activity will most certainly lead to once-in-a-generation change, driven by four landmark inquiries and reports:
•
•
•
Banking and Financial Services Royal Commission (Royal Commission);
Parliamentary Joint Committee (PJC) Report on the life insurance industry;
Superannuation Productivity Commission (report into the efficiency and competitiveness of superannuation); and
• APRA Prudential Inquiry into the Commonwealth Bank of Australia.
ClearView remains committed to its core strategy of partnering with financial advisers to help more Australians protect
and grow their wealth. Our focus is on delivering quality products and exceptional service to customers, and expanding our
distribution footprint.
ClearView continues to push for open life insurance APLs across the industry which would give financial advisers the ability
to freely choose the most appropriate solution for their clients, based on their personal circumstances, needs and goals. The
industry has started to move in this direction and we are hopeful that this will lead to a substantial benefit for consumers,
advisers and ClearView.
The Royal Commission Final Report, released on 4 February 2019, contained 76 recommendations (and a range of related
observations) which have significant implications for financial services entities. We have outlined in the table below, an
indicative summary of the key recommendations relevant to ClearView.
Lines of Business
Life Insurance
Wealth
Management
Financial Advice
Other
Group
Recommendations
• Cap on life risk
commissions
• Deduction of
advice fees from
choice accounts
• Grandfathered
commissions
to cease
• Mortgage brokers
to have a best
interest duty
• Strengthened
regulatory
environment
• Duty of care
to not make
misrepresentations
• Avoidance of
life insurance
contracts
• Application of
unfair contract
terms
• Removal of
claims handling
exemption
• Enforceable
code
• Accountability
regime
• Trustee
obligations
• Further cap on life
risk commissions
• Ban on broker trail
commissions
• Oversight body
for regulators
• Civil penalty
provisions for
trustees
• One default
account per
person
• Accountability
regime
• Changing culture
and governance
• Remuneration
redesign
• Extension of
Banking Executive
Accountability
Regime (BEAR)
• Annual renewal
• Brokers to be
fee arrangements
and authority to
deduct fees
subject to same
laws that apply to
financial advisers
• Review on moving
to borrower pays
mortgage
brokerage fee
• Disclosure of lack
of independent
advice
• Creation of a
single central
disciplinary body
• Reporting on
compliance
concerns and
remediation
of misconduct
ClearView has reviewed the report’s findings and is continuing to assess the potential impacts of the recommendations on our
business. ClearView has already taken action to address applicable recommendations in the Final Report including the below in
relation to governance, culture and remuneration:
•
•
Completion of an externally facilitated governance review incorporating themes included in APRA’s Prudential Inquiry
into CBA;
An externally facilitated Culture program is currently underway with oversight by the Board and the Senior
Management Team;
• Ongoing consideration and review of management reporting and its effectiveness;
•
Review of ClearView’s remuneration framework. The remuneration framework continues to be developed and changes
made to SMT remuneration structures include clawback arrangements for STI bonuses (from FY20) and longer vesting
18 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) arrangements and clawbacks for LTI (also for new issues). ClearView continues to review its remuneration framework
with the intention of aligning it with the BEAR regime (as applies to ClearView). ClearView is also closely monitoring the
regulatory guidance and changes recently issued by APRA; and
•
ClearView is also currently increasing its investment in risk and compliance resourcing (quantity and expertise) to deliver
an uplift in its overall risk and compliance capacity and delivery. This includes separating the current Chief Actuary &
Risk Officer role and establishing a new separate Chief Risk Officer position within the ClearView executive team. The
recruitment process is underway as at the time of this report.
There is a significant amount of work required of the industry to understand the detail associated with the proposed changes
and any corresponding legislative reforms. On 19 August 2019, the Treasurer released an ‘Implementation Roadmap’
outlining a timetable for the introduction of legislative reform addressing the Banking and Financial Services Royal Commission
recommendations. As we work through these and come to more informed conclusions on the potential impacts of the
recommendations and reforms on our business, we will communicate these as appropriate.
In August 2019 the Treasurer referred to the House of Representatives Standing Committee on Economics the establishment
of an inquiry into progress made by relevant financial institutions in implementing the recommendations of the Royal
Commission.
There is no question that the Banking and Financial Services Royal Commission and the other landmark inquiries have
been confronting for the entire industry, but ClearView hopes that the reforms will raise the bar on ethical behaviour and
accountability in the financial services sector, and repair community issues of mistrust in financial services providers.
Regarding our appearance at the Banking and Financial Services Royal Commission, we note that ClearView closed the Direct
Life insurance business in May 2017 and our top priority has been to finalise the consumer remediation program (CRP).
ClearView implemented the CRP, which covered the categories of consumers and the level of remediation approved by
ASIC, with the CRP implemented in December 2018 and final reports on the CRP were provided to ASIC by ClearView and the
independent expert on 24 December 2018. ClearView has since agreed to a further communication (outlining details for the
ability to request a call review) being sent to potentially affected consumers which is being managed as part of ‘business as
usual’ functions.
In FY19, $2.4 million of costs (after tax) were incurred under the program and in relation to the Royal Commission. Given that
the direct life insurance business is closed both these above mentioned costs are considered unusual to the ordinary activities
of the business. These have been separately reported below the line in the full year result.
As outlined in the half year result, ClearView also implemented a financial advice remediation program, which involved a
retrospective review of life insurance advice that focused on four key areas relating to the appropriateness of the advice. The
program was approved by ASIC and final reports on the advice remediation program were provided to ASIC by the independent
expert on 12 July 2019. This program has now completed with residual activity being closed out under ‘business as usual’
functions.
In FY19, a further $0.8 million of program and remediation costs (after tax and net of recoverable amounts) were incurred
under the program. These costs have been included as part of Underlying NPAT given that the dealer groups continue to
operate.
Material business and operational risks
ClearView’s operations expose it to a variety of financial and non-financial risks. Risk management is an integral part of the
Group’s management processes and the Board continuously reviews material business risks.
The Board has adopted a formal Risk Management and Capital Strategy (RMCS) and a structured Risk Management Framework
(RMF) to ensure the early identification and adequate management of key risks, particularly those with the potential to impact
the Company’s future financial prospects and strategic imperatives.
The RMCS and RMF are fundamental to business decisions including resource allocation and prioritisation of activities.
Details of the Group’s risk management practices, including risk mitigation strategies, are set out in section 1 of the
30 June 2019 Annual Report.
CLEARVIEW WEALTH LIMITED | 19
DIRECTORS’ REPORT (CONTINUED) FY19 Results overview
Overview of result
The ClearView Group achieved the following results for year ended 30 June 2019:
After tax profit by segment, $M
Life Insurance
Wealth Management
Financial Advice
Listed entity and other
Underlying NPAT2
Policy liability discount rate effect
Cost out program implementation costs
Impairments
Amortisation of acquired intangibles
Direct Remediation Program and Royal Commission costs
Other costs6
Reported NPAT4
Embedded Value3
Net asset value4
Reported diluted EPS (cps)5
Underlying diluted EPS (cps)5
FY19
$M
22.0
3.6
1.0
(1.5)
25.1
6.6
(3.8)
(18.9)
(1.2)
(2.4)
(1.4)
4.0
FY18
$M
26.1
5.2
1.8
(0.7)
32.4
(0.9)
-
-
(4.0)
-
(0.8)
26.6
672.7
670.4
439.1
444.3
0.62
3.94
4.14
5.03
%
change1
(16%)
(30%)
(44%)
(98%)
(22%)
Large
Large
Large
Large
Large
Large
(85%)
0%
(1%)
(85%)
(22%)
1 % movement, FY18 to FY19 unless otherwise stated.
2
Underlying NPAT consists of consolidated profit after tax adjusted for amortisation (not including capitalised software), the effect of changing discount rates on insurance policy liabilities
and costs considered unusual to the Group’s ordinary activities.
3
Embedded Value at 4% discount rate margin, including a value for future franking credits, accrued franking credits and Employee Share Plan (ESP) loans. Embedded Value as at 30 June
2018 restated to remove Financial Advice client book including franking credits. Embedded Value at 30 June 2019 includes various assumption changes from 30 June 2018 calculations.
Refer to further detail in the sections that follow.
Net Asset Value as at 30 June 2019 excluding ESP Loans.
Impacted by the dilutive effect of shares issued under the DRP, ESP shares vested/forfeited during the period and changes to the number of ESP shares ‘in the money’ given the changes
4
5
in ClearView’s share price period on period.
6
Considered unusual to the ordinary activities of the business. See further details on page 24.
20 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED)
Chart 1: Segment performance Underlying NPAT FY16-FY19
Life Insurance underlying NPAT ($m)
Wealth Management underlying NPAT ($m)
Financial Advice underlying NPAT ($m)
Impacted by claims and lapse experience;
product pricing repositioning, review of
distribution relationships, reset of cost base
and revised actuarial assumptions in 2H FY19
Impacted by materially reduced flows and
negative investment performance; product
repricing and positioning, review of approach
including technology
Increase in compliance and restitution
costs with program of work substantially
completed in 2H FY19; roll out of new
fee structure in 1H FY20 and launch of
outsourced B2B licensee services
24.5
24.9
26.1
12.2
13.6
12.4
22.0
10.1
12.1
12.7
12.5
11.9
5.2
2.6
3.6
1.5
2.6
2.1
3.9
2.3
1.6
2.7
1.4
1.3
2.2
1.0
1.2
1.8
0.8
1.0
1.5
0.8
0.7
FY16
FY17
FY18
FY19
FY16
FY17
FY18
FY19
FY16
FY17
FY18
1H
2H
1H
2H
1H
2H
1.0
0.9
0.1
FY19
The FY19 result does not reflect the key strategic actions completed in 2H FY19 that are likely to have a positive longer term effect
on the emergence of sustainable profit growth from the material increase in the life insurance in-force portfolio (+12% in FY19).
Underlying NPAT, the Board’s key measure of Group profitability and basis for dividend payment decisions, decreased 22% to
$25.1 million (FY18: $32.4 million) with fully diluted Underlying EPS decreasing by 22% to 3.94 cps (FY18: 5.03 cps). Reported
NPAT, decreased 85% to $4 million (FY18: $26.6 million) with reported diluted EPS decreasing by 85% to 0.62 cps (FY18: 4.14
cps). This result reflected:
• A challenging market environment (increased market volatility, uncertainty and negative consumer sentiment);
•
•
Poor lapse and claims experience (-$10.8 million negative experience; FY18 -$7.6 million). The claims experience includes a
$1.8 million impact from the change in income protection claims assumptions in FY19; and
Reducing interest rates and a lower discount rate in policy liability, offset by impairment write-offs of Goodwill, Intangibles
and other costs considered unusual to the ordinary activities (see table on page 24).
The business strategy and focus has been reset and ClearView remains positioned to take advantage of the structural changes
in the market. Key initiatives in FY19 included:
•
•
•
•
•
•
•
Completed a material cost transformation program, including IT strategy review. The business is now focused on effective
cost management, coupled with a reinvigorated IT strategy and road map. Some reinvestment in the risk and compliance
functions and the shift to new technology platforms is expected.
Implemented the direct consumer remediation program and the life insurance advice remediation program.
Terminated certain poor performing life insurance distribution relationships (lapse rates above acceptable norms) with the
product pricing and repositioning of ClearView LifeSolutions implemented in the last quarter of FY19. These actions will result
in some reduced ‘head line’ sales in the shorter term, but overall business quality and profitability is expected to improve
going forward.
Repricing and enhancement of contemporary wealth management products given competitor solutions and recent
pricing changes – aimed at supporting net flows, with a shorter term profit impact as the price changes flow through the
in-force portfolios.
Reviewed our Financial Advice business strategy, dealer group pricing model and launched LaVista Licensee Solutions.
LaVista is a new outsourced B2B licensee services which offers services to meet the needs of the growing number of self-
licensed financial advisers and position ClearView to capture opportunities arising from structural change.
Reset of the expense, claims, lapse and discount rate assumptions for valuations and business management to take into
account observed recent experience.
Positioned the life insurance business to capitalise on opportunities arising from the breakdown of vertical integration and
the opening up of APLs. ClearView is likely to be a beneficiary of disruption as more previously aligned advice businesses are
able to access our products and services for the first time.
CLEARVIEW WEALTH LIMITED | 21
DIRECTORS’ REPORT (CONTINUED)
The investment in technology, alongside ongoing expansion of our IFA footprint, is likely to drive medium-to-long term
growth, notwithstanding short-term headwinds. ClearView has growth embedded in its expanding distribution footprint which
underpins the growth profile but, in the near term is focused on new business quality.
A further analysis of the FY19 result by segment is provided in the sections that follow.
Cost base, technology review & changes
The chart below shows a 6% increase in the operating cost base from $80.2 million in FY18 to $84.8 million in FY19.
Chart 2: Operating expense analysis FY18 vs FY19 cost base
80.2
1.9
1.5
1.5
84.8
(0.3)
$m
YTD Ju ne FY18 cost base
ESP expense
Financial advice progra m an d re m ediation costs
Fu nctional costs
Other costs
YTD Ju ne FY19 cost base
Key components of the movements include:
•
•
•
•
Employee share expense (ESP) – reflects the increased costs associated with the issue of performance rights to the Senior
Management Team (SMT) as outlined in the Remuneration report (including relevant vesting and service conditions).
Financial advice program and remediation costs – reflects the program, compliance and restitution costs incurred in
FY19. The program of work involved a retrospective review of life insurance advice in the dealer groups that focused on four
key areas relating to the appropriateness of the advice. This is now substantially complete with the costs of finalising the
program included in the FY19 result.
Functional costs – overall had a marginal decrease that was partially offset by increases, in areas that support business
growth including administration, contact centre, claims and underwriting. This predominantly reflects underlying volume
growth in the in-force base. These were offset by reduced distribution costs. Financial advice support costs were broadly in
line with FY18.
Other costs – increase in other costs including additional shared services resourcing, software amortisation and costs
associated with the launch of LaVista. Software amortisation includes the acceleration of the existing amortisation profile
due to a change in the expected useful life of existing capitalised software.
The FY19 cost base was set in early 2018 on the expectation of continued growth and consistent market conditions. The
business had since inception, invested and added resources ahead of the curve to support growth. This includes prioritising
incremental costs above those required for ClearView’s scale (expense overruns) to build capability for the future. In this
context, initial start-up costs and business investment costs have been incurred prior to achieving scale.
Expense overruns initially lower reported profits but this reverses as scale is achieved, the in-force portfolio increases and
underlying profit is realised. In FY19, the non-deferred expense overruns across the Life Insurance and Wealth Management
‘manufacturing’ businesses had a negative impact on UNPAT of $2.0 million (FY18: $2.5 million).
22 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) The increase in the Life Insurance in-force premium over time has progressively reduced expense overruns in the Life Insurance
segment with the actual Life Insurance non-deferred overruns reflecting an experience profit of $1.1 million for the year (FY18:
$0.5 million).
Investment in WealthFoundations and the contemporary wealth platform is however causing overruns in the Wealth
Management segment; $3.1 million (FY18: $3.0 million). This is driven by a fixed cost structure that is yet to achieve scale.
Furthermore, the expense allowances for the Master Trust (expressed as a percentage of FUM balances) are higher than
contemporary products, in particular WealthSolutions where information technology and administration is outsourced. As the
Master Trust business runs off, this will impact expense overruns until WealthFoundations can support its cost base.
Given the industry outlook and associated slowdown in growth, the approach of investing ahead of the curve needed to change.
Furthermore, ease of doing business, online and mobile engagement, and adviser business efficiency are key themes across
the industry. ClearView’s rate of improvement in its life insurance customer facing technology has not been fast enough. The
technology supporting our outsourced wealth management wrap platform has also fallen behind the market.
In response, ClearView has in 2H FY19:
•
Implemented a cost transformation program to rebalance the group’s cost base in light of current market conditions and
align with the strategic objectives. The impact of this includes:
•
•
•
Annualised cash cost savings of $10 million per annum (including capitalised IT costs and acquisition costs in life
insurance that impacts profit over time);
An upfront implementation after tax cost of $3.8 million (see table that follows in next section);
Some reinvestment back into the business with the strengthening of the risk and compliance team to support ongoing
regulatory change and risk management functions.
•
Reviewed our approach to technology with completion of an IT strategic review. The impact of this includes:
•
•
Plans to replace the life insurance policy administration system (PAS) and underwriting engine (URE) to a modern, high
efficiency platform; and
Commencement of a strategic review of the wrap platform and wealth technology with a focus on the simplification
of key back office systems, potentially moving to software as a service (SaaS) and Managed Services solutions.
The business is focused on effective cost management, coupled with a reinvigorated IT strategy and road map. The investment
in technology (over time), alongside ongoing expansion of the IFA footprint is expected to drive medium to long-term growth.
The table below reconciles the FY19 operating expenses analysed in Chart 2 with the reported operating expenses in the
annual financial statements.
Reconciliation of operating expenses to reported operating expenses per financial statements
Operating expenses per chart 2
Custody and investment management expenses
Depreciation and software amortisation
Stamp duty
Medical costs
Interest expense
Strategic review costs
Cost out program implementation costs
Recoverable adviser related costs
Direct remediation and Royal Commission costs
Retention bonuses
Other expenses
FY19
$M
FY18
$M
84.8
9.8
(7.8)
10.4
2.2
0.7
-
5.4
2.4
3.4
2.1
1.1
80.2
9.5
(6.4)
8.8
2.1
0.4
1.1
-
3.6
-
-
2.4
Operating expenses per financial statements
114.6
101.7
CLEARVIEW WEALTH LIMITED | 23
DIRECTORS’ REPORT (CONTINUED)
Other adjustments, impairment and amortisation
Items which are identified by the Board as not representing the underlying performance of the business are not included
in Underlying NPAT. The determination of these items is made after consideration of their nature and materiality and is
applied consistently from period to period. Items not included in Underlying NPAT primarily result from costs relating to major
restructuring initiatives, impacts on policy liability from changes in discount rates, impairments of assets, amortisation of
acquired intangibles and other transactions outside the ordinary course of business.
The following items impacted the reported NPAT and comprised the items outlined in the following table (with additional
explanations provided below the table).
Reconciling items
($M) (Net of Tax)
Amortisation of acquired intangibles
Policy liability discount rate effect
Cost out program implementation costs
Capitalised software impairment
Goodwill and client book impairment
Other costs
Total
Amortisation of acquired intangibles
FY19
$M
FY18
$M
%
Change
(1.2)
6.6
(3.8)
(6.0)
(12.9)
(3.8)
(21.1)
(4.0)
(0.9)
-
-
-
(70%)
Large
Large
-
-
(0.8)
(5.7)
Large
Large
Amortisation of intangibles is associated with the acquisition of wealth management and life insurance businesses from Bupa
and financial advice businesses, that is, ComCorp and Matrix Planning Solutions. These are reported separately to remove the
non-cash effect of the write-off of these acquired intangibles. The reduction in the amortisation between periods is related
to the acquisition of businesses from Bupa given certain client books have now been written off in full. The $1.2 million
amortisation relates to the financial advice client books in June 2019. The balance of the acquired intangibles held in the
Financial Advice segment were fully impaired as part of the impairment testing completed in June 2019.
Policy liability discount rate effect
The policy liability discount rate effect is the result of changes in the long-term discount rates used to determine insurance
policy liabilities. The life insurance policy liability (based on AIFRS) is discounted using market discount rates that typically vary
at each reporting date and create volatility in the policy liabilities, and consequently, earnings. ClearView separately reports
this volatility which represents a timing difference in the release of profit and has no impact on underlying earnings. This
movement in policy liability creates a cash flow tax effect. The reduction in long-term discount rates over FY19 caused an
increase in after-tax reported profit of $6.6 million (FY18: -$0.9 million).
Cost out program implementation costs
These relate to the upfront implementation costs associated with the cost out program in 2H FY19 and includes redundancy
costs, IT transformation costs and an onerous rent provision. These costs are associated with a major restructuring initiative
and are considered unusual to the ordinary activities.
24 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) Capitalised software impairment
ClearView has previously capitalised its software development costs and amortised these costs over a four-year period. In
accordance with the impairment testing requirements under AASB 136 – Impairment of Assets, and subsequent to the FY19 IT
strategy review, the carrying values of ClearView’s capitalised software have been revised.
As a result, certain software development costs were impaired at 30 June 2019 for obsolete or reduced functionality, or had
their useful life reduced due to changes in the direction of the information technology strategy. This resulted in a software
impairment of $6.0 million (after tax) at 30 June 2019.
An additional amortisation expense of $1.5 million has also been recognised in FY19 due to the reduced useful life of the
existing software intangibles and associated acceleration of amortisation (based on a revised intangible asset amortisation
policy and the expected future benefits expected to be received).
The impairment of capitalised software at 30 June 2019 associated with the change in IT strategic direction has been reported
as a cost considered unusual to the group. However, the acceleration of amortisation due to a change in useful life has been
recognised as part of Underlying NPAT. This also ensures consistent treatment of the amortisation of capitalised software
period to period.
This resulted in a reduction of the software carrying cost from $18.3 million at 31 December 2018 to $8.6 million as at
30 June 2019.
Impairment of acquired Financial Advice client books and goodwill
ClearView understands that operational efficiency and scale will become a key requirement of any future dealer group offering
(including those offered to third party AFSLs), as grandfathered commissions and other “conflicted remunerations” are
ultimately removed. The future state for dealer groups requires the removal of cross subsidisation between the manufacturer
and advice businesses and the replacement of grandfathered revenue streams which have supported economic value across
the industry.
Given the structural changes underway in the industry including the expected changes to grandfathered revenue streams
and the implementation of a proposed new fee structure in our dealer groups (shift to a ‘flat membership fee’ model paid
by practices as opposed to the historical industry practice of a client fee split), an Embedded Value calculation is no longer
considered meaningful for the Financial Advice segment.
In accordance with the impairment testing requirements under AASB 136 – Impairment of Assets, and subsequent to the
dealer group review, the carrying values of goodwill and client books in this segment have been revised. Goodwill and the client
books have been assessed and tested based on a discounted cash flow model (value-in use). This has been prepared assuming
a set of assumptions including the repricing of dealer services fees and removal of grandfathered rebates and cross subsidies
over time.
Based on the testing performed, the $7.9 million carrying value of goodwill and $4.9 million of client books in the Financial
Advice cash generating unit was impaired at 30 June 2019. The total impairment of both these assets ($12.9 million) has been
reported as a cost considered unusual to the group.
Based on impairment testing, the net assets of the Financial Advice segment will be included in the Embedded Value
calculations, with an overall net reduction of $28.3 million (including previously reported value of franking credits of $7.7
million) in the Embedded Value at 30 June 2019.
Other costs considered unusual to the ordinary activities
Costs that are considered unusual to ClearView’s ordinary activities and therefore not reflected as part of Underlying NPAT
predominantly include expenses incurred in relation to costs associated with the Direct Remediation Program ($0.9 million
after tax), Royal Commission costs ($1.5 million after tax) and retention bonus payments paid to key individuals in September
2018 ($1.4 million after tax). In FY18, the strategic review costs of $0.8 million related to the costs associated with the
Cooperation Agreement between ClearView and Sony Life. These costs ceased from 1 July 2018, being the effective date of
termination of the Cooperation Agreement.
CLEARVIEW WEALTH LIMITED | 25
DIRECTORS’ REPORT (CONTINUED) Operating segment review
Life Insurance
Where are we today?
ClearView LifeSolutions is our single, contemporary product series. It is designed to meet the unique needs of our customers
today but flexible enough to adapt, as their needs change over time.
ClearView LifeSolutions is available through financial advisers in conjunction with personal advice.
1
2
3
4
Investment Trends 2017 and 2018 Planner Risk Report.
Rated Number 1 in claims customer satisfaction in the Beddoes Institute’s Industry Claims Journey Study (2019) which tracked the experience of 500 customers across the industry who
have had an income protection, trauma or TPD claim.
Risk research houses generally rate our product on the 1st or 2nd quartile. This assists advisers in formulating their advice and product comparisons.
APLs are where ClearView products are placed on third party dealer group approved product lists.
26 | CLEARVIEW ANNUAL REPORT 2019
Established infrastructure and distribution Ranked first and second quartile on 3Established in 20112018 Planner RiskReportOverall Satisfaction:InsurerClearView5324APLSNo. 1Adviser satisfaction1No. 1Customer claims satisfaction2Highly-rated by Investment Trends, DEXX&R/Money Management/Canstar/Money Magazine/Beddoes Institute2018 Planner RiskReportOverall Satisfaction:InsurerClearView2017 Planner RiskReportOverall Satisfaction:InsurerClearViewDIRECTORS’ REPORT (CONTINUED) Operating review
The FY19 financial performance is discussed below.
Life Insurance result:
12 Months to 30 June 2019 ($M)1
1H
2H
FY18
1H
2H
FY19
Change2
2018
2019
%
Gross life insurance premiums
104.7
110.5
215.2
117.0
116.6
233.6
1.4
2.9
Interest income
Net claims incurred
Reinsurance premium expense
Commission and other variable expenses
Operating expenses
Movement in policy liabilities
Underlying NPBT
Income tax (expense) / benefit
Underlying NPAT
Amortisation of acquired intangibles
Policy liability discount rate effect
Impairments
Cost out program implementation costs
Direct Remediation Program and
Royal Commission costs
Other costs
Reported NPAT
Analysis of Profit ($M)
Expected Underlying NPAT3
Claims experience
Lapse experience
Expense experience
Other
Underlying NPAT
1.1
(16.9)
(27.2)
(33.7)
(24.3)
14.2
17.9
(5.4)
12.5
(1.4)
(0.7)
-
-
-
-
1.2
(16.0)
(30.0)
(30.0)
(24.9)
8.9
19.6
(6.0)
13.6
(1.4)
(0.2)
-
-
-
-
2.3
(32.9)
(57.2)
(63.7)
(49.2)
23.1
37.5
(11.4)
26.1
(2.8)
(0.9)
-
-
-
-
1.5
(17.0)
(34.1)
(30.6)
(26.9)
7.1
17.0
(5.1)
11.9
-
2.2
-
-
-
-
10.4
12.0
22.4
14.1
(18.9)
(37.5)
(25.6)
(25.0)
3.9
14.9
(4.8)
10.1
-
4.4
(5.0)
(1.5)
(2.0)
(0.9)
5.1
12%
27%
9%
25%
(12%)
5%
(52%)
(15%)
(13%)
(35.9)
(71.6)
(56.2)
(51.9)
11.0
31.9
(9.9)
22.0
(16%)
-
(100%)
6.6
(5.0)
(1.5)
(2.0)
Large
Large
Large
Large
(0.9)
Large
19.2
(14%)
2018
2019
%
1H
2H
FY18
1H
2H
FY19
Change2
16.0
(3.2)
(0.8)
0.2
0.2
16.2
(2.3)
(1.3)
0.3
0.7
32.2
(5.5)
(2.1)
0.5
0.9
16.0
(2.1)
(2.9)
0.6
0.2
12.5
13.6
26.1
11.9
15.9
(3.1)
(2.7)
0.5
(0.4)
10.1
31.9
(5.2)
(5.6)
1.1
(1%)
(6%)
168%
106%
(0.2)
(125%)
22.0
(16%)
1
Shareholder view excludes the life investments contracts (i.e. unit linked business) and deconsolidates retail unit trusts and reflects fees earned by the shareholder less expenses
incurred. Inter-segment revenues/expenses are not eliminated in the shareholder view. Gross life insurance premiums reflected net of variable stamp duty costs.
2 % change represents the movement from FY18 to FY19.
3
Expected Underlying NPAT of $31.9 million reflects expected profit margins on in-force portfolios based on actuarial assumptions. FY19 reflects the impacts on margin of LIF reforms (as
the commission caps reduce, margin improves), the changes to claims assumptions at 30 June 2018 (in particular the increase in the IP claims assumption), pricing changes (including
reinsurance costs) and shifts in business mix between periods.
CLEARVIEW WEALTH LIMITED | 27
DIRECTORS’ REPORT (CONTINUED)
Life Insurance Underlying NPAT down 16% to $22.0 million (FY18: $26.1 million), Reported NPAT down 14% to
$19.2 million (FY18: $22.4 million):
Life Insurance remains the key profit driver. The expanding distribution footprint and new business volumes relative to the size
of the in-force portfolio led to a material increase in the in-force portfolio (+12%) which underpins the growth profile.
The key negatives impacting on the FY19 Life Insurance result include:
•
•
•
•
•
•
Reduction in overall industry sales and elevated lapses. Weak market conditions are due largely to changes to adviser
remuneration and poor consumer sentiment.
Some poor performing distribution relationships from a relatively small number of AFSLs.
Some pricing issues in ClearView’s pricing structures versus competitors.
Net adverse claims performance is mainly attributed to the income protection (IP) portfolio (94% or $4.9 million).
Margins have been impacted by mix of business and pricing versus competitors.
ClearView’s technology (access and ease of doing business).
In response, ClearView has:
•
•
•
•
•
•
Implemented a revised pricing structure from March 2019 and the inforce portfolio began transitioning to the new
rates (subject to a 10% cap on the increase) from April 2019. These pricing changes reflect both evolving market
relativities and underlying claims and reinsurance costs developments.
Terminated certain distribution relationships with poor lapse experience. These actions will result in some reduced
‘head line’ sales in the shorter term, but overall business quality and profitability is expected to improve.
Implemented a project to replace its main life insurance technology.
Reset the cost base of the business to current market conditions as opposed to investing ahead of the curve.
Further work on product pricing and positioning and retention initiatives are planned for FY20.
Revised its expense, lapse and claims assumptions for valuations and business management to take into account
recent observed experience.
The investment in technology, alongside ongoing expansion of the distribution footprint, is likely to drive medium-to-long term
growth, notwithstanding short-term headwinds. The business is now focused on effective cost management, coupled with a
reinvigorated IT strategy and road map.
Chart 4: Life Insurance key performance indicators
Life in-force premium1 ($M)
Life new business2 ($M)
Active Life APLs3 ($M)
252.6
8.8
28.9
224.8
9.6
30.9
214.8
184.2
189.5
10.7
32.7
146.1
150.7
10.9
34.1
105.7
115.7
9.6
35.1
71.0
40.3
19.7
42.4
19.7
39.2
17.3
34.7
19.0
20.6
15.7
22.6
21.9
27.5
14.3
13.2
532
419
343
256
191
FY15
FY16
FY17
FY18
FY19
FY15
FY16
FY17
FY18
FY19
FY15
FY16
FY17
FY18
FY19
Old Book
Non-Advice
LifeSolutions
1H
2H
1
2
In-force premium is defined as annualised premium in-force at the balance date.
Life Insurance contemporary new business or sales represents the amount of new LifeSolutions annual written premium sold during the period, net of policies cancelled from inception
and excludes age based/ CPI increases.
3
APLs are where ClearView products that are placed on third party dealer group approved product lists.
28 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED)
ClearView LifeSolutions is now on 532 APLs (up 27% on 419 last year) and remains well positioned to capitalise on the opening
up of APLs. The advice market is starting to broaden their APLs, driven by changing client expectations, adviser demand and
consolidation or closure of the larger dealer groups. Gaining access to larger licensees will materially expand ClearView’s
distribution footprint over time.
In-force premiums increased 12% to $252.6 million in FY19. The Life Insurance in-force movement is driven by the net impacts
of new business, price increases, lapse and CPI/aged-based variances. The Life Insurance in-force portfolio at 30 June 2019
is made up of ClearView LifeSolutions, ($214.8 million; +17%); non-advice ($8.9 million; -9%) and the Old Life Book
($28.9 million -6%).
Key observations include:
•
•
•
The mix of products making up the in-force portfolio has changed materially with the flagship product ClearView
LifeSolutions, now representing 85% of total in-force premiums. This links to the margin shifts across the portfolio.
The direct business was closed in 2H FY17 which means the in-force portfolio is in run off.
The increased scale is driven by sales of new contemporary products. This has progressively reduced expense overruns with
actual non-deferred overruns reflecting an experience profit of $1.1 million in FY19.
Gross premiums increased 12% to $233.6 million with Life Insurance sales of contemporary products down 7% to $39.2
million. As noted earlier, a key component of the retention strategy to improve lapse performance is a review of certain
distribution relationships (adviser groups) that have elevated lapse rates. Through the course of the year, ClearView has
strategically terminated some relationships with high lapse distributors. The impacts on new business (looking back on FY19)
and breakdown of sales are illustrated in the graph below.
Chart 5: Life Insurance new business by half and full year by channel
1H FY19
2H FY19
22.6
3.1
21.9
2.4
19.7
2.6
17.3
0.4
19.5
19.5
17.1
16.9
39.2
34.5
42.3
42.4
5.7
39.2
2.7
36.7
36.5
H1 FY18
H1 FY19
H2 FY18
H2 FY19
FY15
FY16
FY17
FY18
FY19
IFA/Aligned
Terminated relationships
IFA/Aligned
Terminated relationships
After adjusting for terminated relationships, overall new business volumes are broadly inline between FY19 and FY18, with
sales of $36.5 million (FY18: $36.7 million). This follows a similar pattern in the view of new business volumes by half year
period.
CLEARVIEW WEALTH LIMITED | 29
DIRECTORS’ REPORT (CONTINUED) Chart 6: Life Insurance Underlying NPAT analysis
31.9
$m
FY19 Expected U n derlying N PAT1
(5.1)
1.1
(5.6)
(0.2)
22.0
Claim s im pact2
Lapse im pact2
Expense im pact2
Other2
FY19 Actual U n derlying N PAT3
Claims experience
The poor claims experience (relative to the claims assumptions in the life insurance policy liability determined at 30 June 2018)
across products resulted in an experience loss in FY19 of $5.1 million (FY18: $5.5 million loss). This is broken down by product
as follows:
•
•
•
ClearView LifeSolutions lump sum portfolio reflects a broadly neutral experience in FY19 (FY18: $1.4 million adverse experience).
ClearView LifeSolutions IP portfolio reflects adverse experience of $4.9 million in FY19 (FY18: $1.9 million adverse
experience). This includes the $1.8 million impact from the change in the IP claims assumptions in June 2019.
Direct portfolios (closed to new business) reflects adverse experience in FY19 of $0.2 million (FY18: $2.2 million
adverse experience).
Overall net claims adverse performance is mainly attributed to the IP book, with the lump sum portfolio having a net neutral
experience over the same period. Actuarial best-estimate assumptions adopt a long-term view and are based on expectations
that claims experience will average out over time.
Key observations include:
•
•
•
The ClearView LifeSolutions lump sum portfolio has been profitable over the six-year period (average annual experience
profits of $0.1 million), albeit with some volatility between periods, in particular 2H FY18. Given the size of the portfolio and
reinsurance arrangements in place, some statistical volatility can be expected.
Overall, the direct portfolios, including the book that was closed to new business in FY17, had an average annual
experience loss of $0.1 million. This offsets the profits made on the ClearView LifeSolutions lump sum portfolio.
The surplus reinsurance program of the Old Book (acquired in 2010) retains more risk than ClearView LifeSolutions products
but has historically reflected claims profits over a long period of time, albeit with some volatility between periods.
•
An enhanced actuarial reserving basis was adopted for IP claims in FY17 resulting in a $2.6 million loss in that year.
1
Expected Underlying NPAT of $31.9 million reflects expected profit margins on in-force portfolios based on actuarial assumptions. FY19 reflects the impacts on margin of LIF reforms (as
the commission caps reduce, margin improves), the changes to claims assumptions at 30 June 2018 (in particular the increase in the IP claims assumption), pricing changes (including
reinsurance costs) and shifts in business mix between periods.
2
3
Reflects actual experience for the relevant item in the FY19 result and the difference between actual and expected experience for the relevant period.
FY19 Underlying NPAT for the relevant segment. Underlying NPAT consists of consolidated profit after tax adjusted for amortisation (not including capitalised software), the effect of
changing discount rates on insurance policy liabilities and costs considered unusual to the Group’s ordinary activities.
30 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) The following graphs reflect the claims experience over the last five years.
Chart 7: Claims experience ($M)
Claims experience1
3
2
1
0
-1
-2
-3
-4
$m
1.7
0.8
0.1
0.8
0.1
0.2
-0.3
0.1
0.1
0.2
-0.6
(0.3)
0.1
-0.4
-0.4
(0.7)
1.2
0.9
-2.7
(0.6)
0.7
-1.0
-1.0
(1.3)
-0.4
-1.6
-1.2
(3.2)
-1.0
-0.3
-1.0
(2.3)
-0.5
-1.4
-0.2
(2.1)
-0.1
1H15
2H15
1H16
2H16
1H17
2H17
1H18
2H18
1H19
LifeSolutions lump sum
LifeSolutions Income protection
Non-advice/Old Book
2H FY19 includes
$1.8 million from
change in
IP assumptions
0.5
-3.5
(3.1)
2H19
Key actions that have been adopted to improve the claims performance include:
•
•
•
ClearView adjusted the pricing of ClearView LifeSolutions in 2H FY19. Stepped death and TPD cover rates were reduced,
with IP and trauma rates increased, reflecting both evolving market relativities and underlying claims and reinsurance
costs developments.
We also note that APRA has called on the industry to address the persistent problems with IP claims. ClearView is engaging
in industry initiatives to drive a more sustainable claims and pricing outcome for these products.
As at 30 June 2019, the claims assumptions have been increased taking into account observed experience. The following
changes have been made:
•
•
ClearView LifeSolutions Death claims rate assumptions increased by 10%;
ClearView LifeSolutions IP cost of claims increased by 10% (predominantly by decreasing claims termination rates);
and
•
Non-advice claims rate assumptions increased by 3%.
The net impact of these claims changes reduced the Embedded Value at 30 June 2019 by $10.9 million.
Lapse experience
The adverse lapse experience (relative to the lapse assumptions in the Life Insurance policy liability determined at
30 June 2018) across products resulted in an experience loss in FY19 of $5.6 million (FY18: $2.1 million loss).
This is broken down as follows:
•
•
•
ClearView LifeSolutions lump sum portfolio reflects adverse experience in FY19 of $2.9 million (FY18: $1.4 million
adverse experience);
ClearView LifeSolutions IP portfolio reflects adverse experience in FY19 of $2.0 million (FY18: $0.4 million adverse
experience); and
Direct portfolios (closed to new business) reflects adverse experience in FY19 of $0.7 million (FY18: $0.3 million
adverse experience).
1
Experience measured against the assumptions applicable at each reporting date.
CLEARVIEW WEALTH LIMITED | 31
DIRECTORS’ REPORT (CONTINUED)
The recent adverse lapse experience and trend has been driven by:
•
•
•
•
Lump sum pricing issues in certain cohorts of ClearView LifeSolutions that is intended to be addressed in part by the pricing
changes. Given that lump sum and IP products are for the most part sold as a ‘bundle’ this has also impacted lapses on the
income protection products.
Certain distribution relationships with some adviser groups have experienced elevated lapse rates.
There are suggestions of some heightened lapses in the first year of the LIF reforms (it takes a year for the two-year
responsibility period to kick in) which went live on 1 January 2018, in particular for policies with upfront commission.
Anecdotally, given recent consumer sentiment around the Royal Commission, this may have had some impacts throughout
FY19, coupled with general economic conditions.
The following graphs reflect the lapse experience over the last five years:
Chart 8: Lapse experience ($M)
Lapse experience1
0.7
0.4
0.7
-0.3
0.3
0.2
0.3
-0.2
0.1
-0.2
(0.2)
-0.1
0.3
-0.5
(0.2)
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
-3.5
$m
-0.3
-0.3
(0.7)
-0.1
-0.2
-1.1
-0.5
-0.2
(0.8)
(1.3)
-0.1
-0.9
-0.2
-0.2
(1.3)
-1.5
-1.4
-0.9
-1.1
-0.1
(2.7)
-0.5
(2.9)
1H15
2H15
1H16
2H16
1H17
2H17
1H18
2H18
1H19
2H19
LifeSolutions lump sum
LifeSolutions Income protection
Non-advice/Old Book
Key actions that have been adopted to improve the lapse performance include:
•
•
•
•
•
A review of certain distribution relationships (adviser groups) resulting in the termination of certain relationships. These
actions will result in some reduced ‘head line’ sales in the shorter term, but overall business quality and profitability is
expected to improve.
A revised pricing structure from March 2019 and the inforce portfolio is transitioning to the new rates (subject to a 10% cap
on the increase) from April 2019.
Further work on product pricing and positioning and retention initiatives are planned for FY20 given competitor pricing
positions.
Retention strategies and effects in life insurance, will take time to fully implement and flow through to overall lapse
performance.
As at 30 June 2019, the lapse assumptions have been increased and re-shaped. In particular, the inforce portfolio has
been segmented with assumptions adjusted for various underlying components. This includes higher lapse experience for
already-terminated relationships. The ‘contagion’ run-off of these in-force portfolios has therefore been factored into the
resetting of the lapse assumptions. The following changes have been made to the lapse assumptions (in broad terms):
•
•
•
ClearView LifeSolutions - assumptions increased by circa 1% p.a.;
Non-advice - assumptions increased by 2% p.a.; and
Old Book - assumptions to remain unchanged.
The net impact of these changes reduced the Embedded Value at 30 June 2019 by $15.5 million.
1
Experience measured against the assumptions applicable at each reporting date.
32 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED)
Other key points in FY19 Life Insurance result
•
•
•
•
•
•
•
•
Non-deferred expense experience improved from a $0.5 million profit in FY18 to a $1.1 million profit in FY19, demonstrating
that expense overruns are being absorbed as scale is achieved.
The Life Insurance maintenance expense assumption has been reduced in the Embedded Value calculations, given the
expenses now being achieved, and implementation of the cost out program and budgeted expenses in the FY20 business
plan. The net impact of the change in expense assumption increased the Embedded Value at 30 June 2019 by $11.2
million.
Investment earnings are impacted by the reallocation of shareholder capital to the Life Insurance segment (given the
growth in the business and related capital requirements).
The increased reinsurance expense is aligned to the growth in in-force portfolios and reflects the upfront reinsurance
support provided in the first year of a policy by the reinsurer.
Lower Life Insurance initial commission in FY19 was driven by the implementation of the LIF reforms (the upfront
commission cap reduced to 80% in calendar year 2018 and 70% in calendar year 2019). These acquisition costs are
deferred and amortised within the policy liability over the expected life of the policies, in accordance with accounting
standards.
In the short-term, the implementation of the LIF reforms will reduce profit margins given the shift to a hybrid commission
model but will unwind and improve as the upfront commission cap reduces from 80% to 60% in 2020.
Changes in variable expenses relate to stamp duty and medical policy acquisition costs driven by increased new
business volumes.
The growth in the in-force portfolios of contemporary products is partially offset by the run-off of the higher margin Old Life
insurance book. This has more recently become less of an impact given the proportion of ClearView LifeSolutions portfolio
to the overall in-force base (85%).
CLEARVIEW WEALTH LIMITED | 33
DIRECTORS’ REPORT (CONTINUED) Operating segment review
Wealth Management
Where are we today?
ClearView is focused on building a material wealth management business by manufacturing, administering and distributing
investment solutions, and leveraging existing Life Insurance relationships.
1
Private label relates to WealthSolutions product where information technology and administration services are outsourced to Avanteous with ClearView
being the relevant licenced operator.
34 | CLEARVIEW ANNUAL REPORT 2019
Established in 2011Established in 2014Highly ratedby Chant WestChant West 2019 rating of 4 Apples for ClearView WealthFoundations Super and Pension, and ClearView WealthSolutions Super and Pension. A 4 Apples rating refl ects a “high quality fund”. Contemporary technology platform for WealthFoundations; Private label1 for WealthSolutions.WealthFoundations upgraded to include 24 model portfolios including 9 index models for five different risk profiles.(Wealth migration of Master Trust Product onto new platform completed in FY18)ModerateBalancedGrowthHigh growthEquity growthModel portfoliosDIRECTORS’ REPORT (CONTINUED) Operating review
The FY19 financial performance is discussed below.
Wealth Management result
12 Months to June ($M)1
Fund management fees
Interest income
Variable expenses3
Funds management expenses
Operating expenses
Underlying NPBT
Income tax (expense)/benefit
Underlying NPAT
Amortisation of acquired intangibles
Impairments
Cost out program implementation costs
Other costs
Reported NPAT
2018
2019
%
1H
18.0
0.2
(3.3)
(4.7)
(7.0)
3.3
(0.7)
2.6
-
-
-
-
2H
18.2
0.2
(3.2)
(4.8)
(7.5)
3.0
(0.4)
2.6
(0.1)
-
-
-
FY18
36.2
0.5
(6.4)
(9.5)
(14.5)
6.2
(1.1)
5.2
(0.1)
-
-
-
1H
17.7
0.3
(3.0)
(4.9)
(7.5)
2.6
(0.5)
2.1
-
-
-
-
2.6
2.5
5.1
2.1
2H
16.7
0.2
(2.9)
(4.6)
(7.8)
1.7
(0.2)
1.5
(0.1)
(1.1)
(0.4)
(0.2)
(0.3)
FY19 Change2
34.4
0.5
(5.9)
(9.5)
(15.3)
(5%)
17%
(8%)
0%
5%
4.3
(31%)
(0.6)
(40%)
3.6
(30%)
(0.1)
(1.1)
(0.4)
(0.2)
0%
Large
Large
Large
1.8
(63%)
Wealth Management Underlying NPAT down 30% to $3.6 million (FY18: $5.2 million), Reported NPAT down 63% to $1.8 million
(FY18: $5.1 million):
ClearView began investing significantly in its Wealth Management business in FY15. The premise behind ClearView’s initial foray into
wealth management remains in tact - the convergence of life insurance and wealth management creates a unique opportunity for
companies that manufacture and distribute both products.
ClearView’s contemporary wealth management solutions, which include a range of model portfolios and investment administration
platforms, are only accessible through financial advisers.
The aligned adviser network has provided a solid distribution base for Wealth Management, but the independent financial adviser
(IFA) segment represents ClearView’s largest opportunity. Gaining support from both the aligned and IFA network is important for
diversifying sales and growing funds under management (FUM).
Average FUM balances (and fee margin earned) is the key profit driver in wealth management. ClearView does not invest directly in
assets but outsources the selection and ongoing management of underlying shares and securities to third party
fund managers.
The FY19 result reflects:
•
•
Materially reduced flows, investment under-performance and pricing changes in 2H FY19, leading to a reduction in fees. This,
coupled with the fixed cost base, and a lack of scale on the in-house contemporary platform had a negative impact on the result.
Net outflows of $25 million in contemporary products ($15 million in 2H FY19); materially below net inflows of $332 million in
FY18. Net outflows from the closed Master Trust product is $136 million in FY19, up 8% on FY18 (net outflows of $126 million).
This resulted in a decrease in FUM of 1% to $2.76 billion.
Key contributing factors to the disappointing performance have been:
•
•
•
•
Outsourced wrap technology falling behind competitors;
Underperforming model portfolios versus peers;
Delays in achieving the life insurance and wealth management integration objectives;
Response to competitive platform pricing changes; and
• General adverse sentiment to the retail section of financial services during FY19.
1
Shareholder view excludes the life investments contracts (i.e. unit linked business) and deconsolidates retail unit trusts and reflects fees earned by the shareholder less expenses incurred. Inter-
segment revenues/expenses are not eliminated in the shareholder view.
2 % change represents the movement from FY18 to FY19.
3
Variable expenses include the platform fee payable on WealthSolutions and the internal advice fee payable to the Financial Advice segment on the
Master Trust product
CLEARVIEW WEALTH LIMITED | 35
DIRECTORS’ REPORT (CONTINUED) In response, ClearView has:
•
•
•
•
•
Repositioned and lowered its wrap platform pricing from February 2019. This also flowed through the in-force portfolios.
Changed a number of models and fees on its contemporary WealthFoundations product in November 2018. Further work
on product pricing and positioning are in train for 1H FY20.
Strategic review of the wrap platform and wealth technology is underway with a focus on the simplification of key
back office systems. The life insurance and wealth management integration strategy is linked to the life insurance
technology project.
Reviewing the approach to investment products to broaden their market appeal and remove the dependency on
short-term peer relative performance and to develop market differentiated products.
Commenced a project related to its superfund1 (part of the broader wealth strategy review) including any potential impacts
on its trustee licence.
These initiatives are expected to be a core part of the focus of the business in FY20.
Longer term, the business will continue to benefit from the consumer shift away from the institutions and banks, albeit with
some shorter term competitive pricing pressures.
The unprecedented level of merger and acquisition activity in the Australia financial services industry in the past few years has
resulted in fewer companies now providing both life and wealth solutions. A number of ClearView’s key competitors have, or
are in the process of, divesting assets. This structural change, and the subsequent distraction, provides a significant competitive
advantage for ClearView.
Manufacturers that offer both life insurance and wealth management solutions have a unique opportunity to maximise their
relationship with financial advisers.
The following graphs illustrate the performance of the Wealth Management business.
Chart 9: Wealth Management key performance indicators
Active Wealth APLs2 with ClearView Products
Wealth In-Force FUM3 ($B)
Wealth Contemporary Net Flows4 ($M)
44
41
30
9
5
1
2.50
0.06 0.12
0.30
2.13
1.90
0.11
0.61
0.20
0.80
1.08
2.79
0.19
0.41
1.29
2.76
0.18
0.45
1.32
1.18
1.07
1.00
0.90
0.80
FY15
FY16
FY17
FY18
FY19
FY15
FY16
FY17
FY18
FY19
Old Book
WealthSolutions
WealthFoundations
External Platforms
353
212
335
176
159
141
333
104
229
275
150
125
FY15
FY16
FY17
FY18
(10)
(25)
(15)
FY19
1H
2H
1
2
3
ClearView Retirement Plan.
APLs are where ClearView products are placed on third-party dealer group approved product lists.
FUM includes Funds Under Management (ClearView Master Trust, WealthFoundations and ClearView Managed Investment Schemes), Funds Under Administration on WealthSolutions
and FUM in ClearView MIS platform funds on external platforms.
4
Wealth Contemporary Product Net Flows is defined as inflows less redemptions into FUM but excludes management fees outflow and ClearView Master Trust product net flows given that
the product is not marketed to new customers.
36 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) FUM balances are down 1% to $2.76b at 30 June 2019 (average FUM balances are up 1%). The movement is driven by the net
impacts of net flows, funds management fees and investment market movement-based variances:
•
•
•
Made up of WealthSolutions ($1.3 billion; average FUM +7%), WealthFoundations ($0.5 billion; average FUM +14%),
External Platforms ($0.2 billion; average FUM +6%) and Master Trust ($0.8 billion; average FUM -12%).
The mix of products making up the portfolio has changed materially with contemporary products (including ClearView
platform funds on external platforms) now representing 70% of total FUM. This links to the margin shifts across
the portfolio.
Performance of investment markets remains key to attracting flows and supporting the Master Trust FUM given the product
is not actively marketed to new customers. Performance has lagged in the shorter term given the defensive positioning of
the portfolios.
The repricing of WealthSolutions in 2H FY19 has two key objectives:
•
•
Improve the fee competitiveness, particularly to price appropriately given competitor solutions and product positioning.
The market continues to be fluid with regard to pricing.
Progressively enhance model portfolios and platform funds to increase the suite of models available and create a
compelling value proposition for customers and advisers.
Inflows represent a material portion of overall FUM balances. Gross inflows of $294 million were achieved in FY19
predominantly into contemporary products (-48%).
Key observations include:
•
•
•
The Master Trust product is effectively a closed book with a portion of FUM in pension phase. The FY19 result includes
impacts from the margin compression of the gradual run-off of the Master Trust product that is being replaced by lower
margin new business written for new contemporary products (fee income down 12% to $18.2 million in line with average
FUM balances (FY18: $20.6 million)).
WealthSolutions fee income is up 3% compared to an increase in average FUM balances of 6%; WealthSolutions fees are up
to $12.0 million (includes external platforms of $1.8 million) (FY18: $11.7 million). This was adversely impacted by a lower
net average fee rate of 0.80% (vs 0.86% in FY18) reflective of the price changes.
WealthFoundations fee income is up 6% to $4.2 million (FY:18 $4.0 million) compared to an increase in average FUM of
14%. This was adversely impacted by a lower net average fee rate of 0.96% (vs 1.1% in FY18) reflective of the launch of
new products and price changes.
• Overall the average fee margin earned between periods was down to 1.23% from 1.36% in FY18.
•
•
•
•
•
•
Investment market performance was up 7% compared to a positive 6% investment return in FY18.
The decrease in variable expenses (-8%) can be attributed to a reduction in the inter-segment advice fee (50bps) paid
to Financial Advice on Master Trust FUM (down 12% in line with average Master Trust FUM). Platform fees payable on the
WealthSolutions portfolio were broadly flat albeit with average FUM increasing 7%. This was driven by a reduction in pricing
in 2H FY19 to reposition the portfolio and remain competitive. Funds management expenses were broadly flat in line with
the average FUM balances (+1%) between periods.
The increase in operating expenses (+5%) can be attributed to the costs incurred to enhance the contemporary platform
and product (including increased technology and software amortisation costs). This has been partially offset by a reduction
in wealth administration costs due to greater efficiencies from the improved scale of business (between periods) and
migration of the Master Trust product onto a single administration platform (completed at end of FY18).
Expense overruns (after tax) are broadly flat at $3.1 million (FY18:$3.0 million). The current overruns reflect the investment
in the contemporary platform and WealthFoundations product that is yet to achieve scale relative to initial system and
ramp up costs. This remains a key consideration.
The tax expense includes a tax benefit of $0.7 million in FY19 (FY18:$0.3 million) comprising exempt fees in the
Master Trust product range and the positive impact from a tax benefit arising from superannuation insurance
premium deductions.
Investment earnings are impacted by the reallocation of shareholder capital between segments and movement in market
interest rates earned on the capital invested in short-term deposits and fixed interest assets between periods.
CLEARVIEW WEALTH LIMITED | 37
DIRECTORS’ REPORT (CONTINUED) Operating segment review
Financial Advice
Where are we today?
ClearView has established itself as a provider of licensing solutions to the Australian market.
Our comprehensive offer features two aligned dealer groups providing traditional licensing and dealer services plus the
recently-launched LaVista Licensee Solutions which provides outsourced B2B licensee services to other Australian Financial
Services Licensees (AFSLs).
1
CoreData Licensee Report 2017, 2018 and 2019.
38 | CLEARVIEW ANNUAL REPORT 2019
23310411051431Aligned network (Advisers #)ADVISER TECHNOLOGYRANKED NO.1 BY ADVISERS*COMPLIANCE SUPPORTRANKED NO.1 BY ADVISERS*RESEARCHRANKED NO.1 BY ADVISERS*RANKED NO.1 BY ADVISERS*RANKED NO.1 BY ADVISERS*RANKED NO.1 BY ADVISERS*REVENUE PAYMENTSRANKED NO.1 BY ADVISERS*TECHNICAL SERVICESRANKED NO.1 BY ADVISERS*No. 1Australia’s leading licensee1DIRECTORS’ REPORT (CONTINUED) The FY19 financial performance is discussed below.
Financial Advice result
12 months to June ($M)1
Net financial planning fees
Interest and other income
Operating expenses
Underlying NPBT
Income tax (expense) / benefit
Underlying NPAT
Amortisation of acquired intangibles
Cost out program implementation costs
Impairment of goodwill and intangibles
Other costs
Reported NPAT
2018
2019
%
2H
8.7
0.3
FY18
17.4
0.5
1H
8.8
0.4
2H
8.4
0.2
(7.7)
(15.3)
(9.1)
(7.2)
(16.4)
1H
8.8
0.2
(7.6)
1.3
(0.4)
1.0
(0.6)
-
-
-
1.3
(0.4)
0.8
(0.5)
-
-
-
2.6
(0.8)
1.8
(1.1)
-
-
-
0.1
-
0.1
(0.6)
-
-
-
FY19 Change2
17.2
0.6
(1%)
37%
7%
1.4
(44%)
(0.4)
(44%
1.0
(44%)
(1.1)
(0.4)
(0.3)
-
(12.9)
0%
Large
Large
Large
1.3
(0.4)
0.9
(0.5)
(0.4)
(0.3)
(0.3)
0.4
0.3
0.7
(0.5)
(13.7)
Large
Financial Advice Underlying NPAT down 44% to $1.0 million (FY18: $1.8 million), Reported NPAT reflects a loss of
$13.7 million (FY18 profit: $0.7 million)
The aligned dealer groups, together have 227 financial advisers operating under their licences.
Key issues in the segment have been growing compliance costs, risks managing advice sector exposure (resulting in limited
growth in adviser numbers) and a general reduction in adviser productivity over time.
The future state for dealer groups requires the removal of cross subsidisation between the manufacturer and advice business
and the replacement of grandfathered revenue streams which have supported economic value in the industry for some time.
The grandfathered revenue streams total circa $1.8 million per annum in our dealer groups are the net amounts retained
(predominantly related to rebates and dealer service fees). These exclude the financial support from our manufacturing
businesses (see details that follow).
The institutional model of vertical integration - whereby institutions own each part of the value chain from manufacturing
to distribution (advice) - has been under increasing pressure with both financial advisers and clients agitating for
greater independence.
This is resulting in vertical disintegration across the industry with some institutions voluntarily selling or closing their dealer
group businesses. At the same time a large number of professional financial advisers are seeking to leave institutional dealer
groups and gain their own Australian Financial Services Licence (AFSL).
In response, ClearView has:
•
•
•
•
Recently launched LaVista, a new outsourced B2B licensee services offer to meet the needs of the growing number of
self-licensed financial advisers and support services to third party dealer groups. This positions ClearView to capture
opportunities arising from structural change. ClearView now offers comprehensive licensing and dealer services to
professional financial advisers who want the backing of a well-resourced company but don’t want to be aligned to a bank
or institution.
A new, flat membership fee structure was announced in August 2019 and will be rolled out across the Matrix and CFA
dealer groups from 1 November 2019. The new fee arrangement represents a fairer, more sustainable pricing model and
better reflects the actual cost of providing licensing services.
Continued investment in the rollout of front-end compliance and monitoring technology (Lumen) across the dealer groups.
As part of the LaVista roll out and repositioning of our dealer groups over time, the intention is to replace the grandfathered
revenue streams and remove the cross subsidies that exist in our businesses and develop a sustainable revenue base that
allows the dealer groups and LaVista to continue to invest and support its financial adviser client base.
1
Shareholder view excludes the life investments contracts (i.e. unit linked business) and deconsolidates retail unit trusts and reflects fees earned by the shareholder less expenses incurred.
Inter-segment revenues/expenses are not eliminated in the shareholder view.
2 % change represents the movement from FY18 to FY19.
CLEARVIEW WEALTH LIMITED | 39
DIRECTORS’ REPORT (CONTINUED) The group’s revised dealer group fees will be market competitive and are in line with broader changes across the industry.
Key industry developments include:
•
•
•
•
Increased compliance and regulation to ensure AFSLs and their authorised representatives manage their legal obligations.
Heightened litigation and rising Professional Indemnity insurance premiums across the industry.
Higher consumer expectations including more personalised, regular and proactive service and advice.
The imminent removal of grandfathered commissions and rebates.
Underlying NPAT for Financial Advice was $1.0 million (-44%). Key drivers of financial performance in the Financial Advice
segment are as follows:
•
•
•
•
Net adviser service fees and membership fees earned (circa $7 million per annum prior to repricing);
Financial support from ClearView’s manufacturer businesses;
Grandfathered platform rebates (likely sunset date of January 2021); and
Dealer Service Fees (DSF) earned on third party platforms.
Underlying NPAT was impacted by increased operating expenses (+7%) driven by compliance program and restitution costs
that were incurred in FY19 ($1.1 million after tax).
Other key points to note in the result are as follows:
•
•
Net financial planning fees are broadly neutral; and
Interest income reflects the reallocation of shareholder capital between segments and changes in market interest rates
between periods.
Reported NPAT for Financial Advice was a loss of $13.7 million (FY18: Reported NPAT of $0.7 million) and was impacted by the
impairment of Goodwill and Intangibles ($12.9 million as outlined earlier in the report).
40 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) Operating segment review Listed Entity/Other
Listed Entity/Other result
12 months to June 2019 ($M)1
Interest income
Operating expenses
Operating earnings NPBT
Income tax (expense) / benefit
Operating earnings NPAT
Interest expense on corporate debt (after tax)
Underlying NPAT
Cost out program implementation costs
Direct Remediation and Royal Commission costs
Other costs
Reported NPAT
2018
2019
%
1H
0.1
(0.7)
(0.6)
(0.1)
(0.7)
(0.2)
(0.8)
-
-
(0.3)
(1.1)
2H
0.2
(0.5)
(0.2)
0.5
0.3
(0.2)
0.1
-
-
(0.5)
(0.4)
FY18
0.3
(1.2)
(0.8)
0.4
(0.4)
(0.3)
(0.7)
-
-
(0.8)
(1.5)
1H
0.2
(0.7)
(0.5)
-
(0.5)
(0.2)
(0.7)
-
(0.4)
-
2H
0.2
(0.6)
(0.4)
(0.1)
(0.5)
(0.3)
(0.8)
(1.5)
-
-
FY19 Change2
0.4
(1.2)
(0.9)
3%
7%
8%
(0.2)
(135%)
(1.0)
(0.5)
(1.5)
(1.5)
(0.4)
172%
71%
129%
100%
100%
-
-
(1.1)
(2.3)
(3.4)
125%
1
Shareholder view excludes the life investments contracts (i.e. unit linked business) and deconsolidates retail unit trusts and reflects fees earned by the shareholder less expenses
incurred. Inter-segment revenues/expenses are not eliminated in the shareholder view. Certain costs incurred in 1H19 were reclassified between segments in 2H19 and are shown on a net
basis.
2 % change represents the movement from FY18 to FY19.
This segment includes the Investment earnings on cash and investments held in the listed and central services entities and in
the shareholders’ fund of ClearView Life, less costs associated with maintaining a listed entity. The Company manages capital
at the listed entity level in accordance with its Internal Capital Adequacy Assessment Process (ICAAP) policy.
The Listed segment financial results for the year ended 30 June 2019 are shown in the table above. Underlying NPAT was
-$1.5 million (FY18: -$0.7 million) and Reported NPAT of -$3.4 million (FY18: -$1.5 million). Notable items include:
•
•
•
Investment earnings which are broadly in line between periods, albeit with some reallocation of physical cash
between segments.
Interest on corporate debt relating to loan establishment and line fees on the $60 million NAB debt facility that was
refinanced in June 2017. $15 million has been drawn down to fund the cash component of the FY18 final dividend and
the cash payment for purchasing ClearView shares to support the ClearView SMT LTIP share plan (recognised as treasury
shares).
Costs that are considered unusual to ClearView’s ordinary activities include expenses incurred in relation to costs
associated with the cost out program implemented in 2H FY19 and costs associated with the Sony Cooperation Agreement
in the prior year.
Statement of financial position
The Group’s Statement of financial position, which is set out on page 71, reflects the key metrics below.
• Net assets at 30 June 2019 decreased to $439.1 million (June 2018: $444.3 million) comprising:
•
•
•
•
•
Reported profit of $4.0 million;
Opening balance adjustments on adoption of AASB 9 (-$1.0 million);
FY18 net cash dividend (-$8.9 million);
Movements in the Share Based Payments Reserve due to the treatment of the ESP in accordance with the accounting
standards (+$4.1 million) and ESP loans settled through the FY18 final dividend (+$0.8 million); and
The cash payment (-$4.2 million) for purchasing ClearView shares to support the ClearView SMT LTIP share plan
(recognised as treasury shares).
• Net asset value per share (including ESP loans) of 69.2 cents per share (June 2018: 71.3 cents per share).
CLEARVIEW WEALTH LIMITED | 41
DIRECTORS’ REPORT (CONTINUED)
The net asset value per share is reflected above on a fully diluted basis, as ClearView ESP shares have been issued to employees
and contractor participants as at 30 June 2019 (in accordance with the ClearView ESP Rules). The ClearView ESP shares on issue
have a corresponding non-recourse loan from ClearView to facilitate the purchase of ClearView ESP shares by the participants. The
shares and loans are not reflected in the statutory accounts as they are accounted for as an option in accordance with Australian
Accounting Standards. If the loan is not repaid, the relevant ClearView ESP shares are cancelled or reallocated in accordance with
the ClearView ESP Rules.
Embedded Value
Life Insurance and Wealth Management are long-term businesses that involve long-term contracts with customers and complex
accounting treatments. Embedded Value represents the discounted value of the future net cash flows anticipated to arise from
the in-force life policies and investment client balances as at the valuation date.
As noted earlier in the report, an Embedded Value calculation is no longer considered meaningful for the Financial Advice
segment. Only the net assets of the Financial Advice segment is now included in the Embedded Value calculations.
EV calculations at a range of risk discount margins (DM) is shown below.
Risk margin over risk free rate: ($M), (unless stated otherwise)
3% DM 4% DM 5% DM
Life Insurance
Wealth Management
Financial Advice
Value of In-Force (VIF)
Net Worth
Total EV
ESP Loans
Total EV Incl. ESP Loans
Franking Credits:
Life Insurance
Wealth Management
Financial Advice
Net Worth
Total Franking Credits
Total EV Incl. Franking Credits and ESP Loans
EV per Share Incl. ESP Loans (cents)
EV per Share Incl. Franking Credits and ESP Loans (cents)
Chart 10: Embedded Value movement analysis
481.6
452.5
426.6
66.8
63.1
59.8
-
-
-
548.4
515.6
486.4
26.4
26.4
26.4
574.7
541.9
512.8
29.1
29.1
29.1
603.9
571.1
541.9
69.1
17.5
-
19.8
106.4
710.2
89.2
104.9
65.3
16.5
-
19.8
101.6
672.7
84.3
99.4
61.9
15.7
-
19.8
97.4
639.3
80.0
94.4
701.2
673.2
28.1
8.2
38.0
5.5
3.4
8.8
661.7
31.3
672.7
0.3
15.0
8.3
14.0
6.2
556.6
536.3
32.3
112.3
32.3
104.6
Expected gain
N et capital m ove m ents
Restated 30 Ju ne 2018 after restate m ents an d m odelling differences
Restate m ents an d m odelling differences
EV - 30 Ju ne 2018 (as published)
42 | CLEARVIEW ANNUAL REPORT 2019
524.8
32.3
104.6
541.9
29.1
101.6
V N B
FU M A m ark to m arket an d business m ix
I m pact of claim s
I m pact of discontin uances
Franking credit/ESP loan changes
EV - 30 Ju ne 2019 (pre assu m ption changes)
Pricing changes
Discou nt rate changes
Cost im pacts
Assu m ption an d basis changes
EV - 30 Ju ne 2019
EV
Franking credits
ESP loans
DIRECTORS’ REPORT (CONTINUED)
The key movements in the EV between FY18 and FY19 are described in detail below.
Restatements (-$28.1 million)
•
Restatement predominantly driven by removal of Financial Advice client books (value of inforce) from the Embedded Value
calculation and valuation of business at net assets (-$30.7 million including $7.7 million franking credits).
Net capital applied (-$8.2 million)
•
FY18 final cash dividend (-$20.0 million) paid in September 2018 with $11.1 million reinvested as part of the Dividend
Reinvestment Plan.
• Movements in the Share Based Payments Reserve (+$4.9 million).
•
Cash payment (-$4.2 million) related to the on-market purchase of ClearView shares to support the SMT LTIP share plan
(recognised as treasury shares).
Expected gain (+$38.0 million)
•
Expected gain represents the expected unwind of the discount rate within the value of in-force and investment earnings on
net worth.
VNB added (-$5.5 million)
•
•
•
•
•
The value added by new business written (VNB) over the period.
The current value of new business is suppressed by the acquisition costs incurred (relative to lower new business volumes).
The acquisition cost overruns should decrease over time as the cost transformation program takes effect and ClearView
benefits from the breakdown of vertical integration and the opening up of APL’s.
ClearView LifeSolutions VNB has also been adversely impacted due to the hybrid commission model under the LIF reforms
(noting VNB will improve as the upfront commission cap reduces from 80% in calendar year 2018 to 60% in 2020).
The Life Insurance business has been repriced to target more profitable segments.
The Wealth Management business is being repriced given competitive pressures (reduction in inflows), which is expected to
result in increased and improved flows over time.
Claims experience (-$3.4 million)
•
Adverse claims experience loss (relative to planned margins) predominately due to higher than expected IP claims.
Excludes $1.8 million impact from change in claims assumptions which is reflected under assumptions and basis changes.
See further commentary on claims experience on page 31.
Lapse experience on the life insurance book and FUM discontinuances (-$8.8 million)
•
•
Life Insurance lapse impact of -$8.1 million reflects the EV impact of lapses. Recent adverse lapse experience and trend is
outlined on page 32. The overall retention strategy will take time to flow through to overall lapse performance.
For the Wealth Management business, discontinuance rates (outflows) were slightly higher than expected
(impact of -$0.7 million), mainly related to competitive pricing pressures.
FUM mark to market and business mix (-$0.3 million)
•
Investment under performance on FUM (due to positioning of portfolios) and mix of businesses, resulted in lower fee
income relative to expectations over the period and a lower present value of future fees at the end of the period.
Cost impacts (-$15.0 million)
•
•
•
This includes costs considered unusual to the ordinary activities of the business (-$13.6 million).
Listing and interest costs on corporate debt (-$1.9 million) were impacted by the Group’s listed overhead costs and
amounts drawn down under the corporate debt facility which are not allowed for in the EV.
Maintenance expense positive experience (+$0.5 million) which reflects the increase in the Life Insurance in-force premium
over time that has progressively reduced non-deferred expense overruns (experience profit of $1.1 million). This is offset
by the investment in WealthFoundations and the contemporary wealth platform that is causing overruns in the Wealth
Management segment (-$0.6 million).
CLEARVIEW WEALTH LIMITED | 43
DIRECTORS’ REPORT (CONTINUED) Assumption and basis changes (-$14.0 million)
•
•
•
Reduction in the maintenance expense assumption due to the actual expense rates now achieved in life insurance and
the cost transformation program completed in 2H FY19 (+$11.2 million). The business is now focused on effective cost
management, coupled with a reinvigorated IT strategy and road map.
Increased claims assumptions based on observed experience in particular income protection claims (-$10.9 million).
ClearView LifeSolutions IP cost of claims increased predominantly by adjusting the claims termination rates.
Increased lapse assumptions to take into account recent observed experience (-$15.5 million). The lapse assumptions
have been increased and re-shaped. In particular, the in-force portfolio has been segmented with assumptions adjusted
for underlying experience. This includes higher lapse rates for already-terminated relationships. The “contagion” run-off of
these in-force portfolios has therefore been factored into the resetting of the lapse assumption.
•
Commission rate and other modelling changes (+$1.2 million).
Discount rate changes (+$31.3 million)
•
•
•
The discount rate risk margin, refers to the margin above the 10-year bond yield. The 10-year bond yield adopted for the
Embedded Value has been 4% for a substantial period of time. The rationale has been to keep the Embedded Value overall
discount rate adopted consistent between periods to remove any volatility from smaller movements between periods.
Given the substantial reduction in long-term rates over the last year, the risk free discount rate has now been reduced to be
closer to the yield curve as at 30 June 2019. In addition, the inflation assumption has also been reviewed.
The net impact of the change in risk free assumption (from 4% to 2%) and linked inflation assumptions is to increase the
Embedded Value at 30 June 2019 by $31.3 million.
Pricing and other impacts (-$8.3 million)
•
•
This includes a -$2.7 million impact due to the repricing of ClearView LifeSolutions (including reinsurance repricing impacts)
and -$5.2 million impact due to repricing and repositioning of the Wealth Management contemporary products as noted
earlier in the report.
The balance of -$0.3 million relates to tax impacts of the policy liability discount rate effects in the period and other
experience items.
ESP and franking credits: (-$6.2 million)
•
Net movement in ESP loans and franking credits between periods. The franking credit movement includes the impact of
modelling enhancements, repricing, credits distributed with the FY18 final dividend and other items.
Chart 11: Embedded Value sensitivity analysis @ 4%DM
Inflation -0.5%;+0.5%
-6.5
6.8
Rate-free rate +1%;-1%
-21.5
24.4
FUMA -10%;+10%
Expenses +10%;-10%
-6.3
6.3
-12.3
12.3
Discontinuance Rates +1%;-1%
-24.0
Claims +10%;-10%
-22.0
27.0
22.4
-25
-20
-15
-10
-5
00
5
10
15
20
25
44 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) Capital Management
Capital Position at 30 June 2019
The following charts reflect the net capital position of the Group as at 30 June 2019:
Chart 12: Capital position as at 30 June 2019
Capital Position ($m) – 30 June 2019
Reserved capital ($m)1 – 30 June 2019
439.1
(21.4)
57.0
76.8
(12.5)
66.8
(350.9)
(76.8)
15.0
5.0
32.3
Net Assets
at 30 June
2019
Less:
Intangible
Adjustments2
Less:
Capital Base
Adjustments
Regulatory
Capital Base
Less: Reserved
Capital
Add: Debt
Funding
Faculty
Net Capital
Position at 30
June 2019
PCA
Risk Capital
ECB offset
Reserved Capital
1
Reserved capital includes the minimum regulatory capital, risk capital which is additional capital held to address the risk of breaching regulatory capital and a working capital reserve held
to support the capital needs of the business beyond the risk reserving basis.
2
Intangible adjustments relate to goodwill, acquired intangibles and capitalised software.
Capital position as at 30 June 2019 by segment and regulated entity
e
c
n
a
r
u
s
n
I
e
f
i
L
$M
402.9
(5.1)
t
n
e
m
e
g
a
n
a
M
h
t
l
a
e
W
$M
10.7
(3.4)
d
e
t
a
l
u
g
e
R
A
R
P
A
s
e
i
t
i
t
n
E
$M
r
e
h
t
O
$M
4.0
417.7
t
n
e
m
e
g
a
n
a
M
h
t
l
a
e
W
$M
7.6
e
c
i
v
d
A
l
a
i
c
n
a
n
i
F
$M
6.0
d
e
t
a
l
u
g
e
R
C
I
S
A
s
e
i
t
i
t
n
E
d
e
t
a
l
u
g
e
R
l
l
A
s
e
i
t
i
t
n
E
r
e
h
t
O
/
2
C
H
O
N
p
u
o
r
G
$M
$M
$M
$M
13.5
431.2
7.8
439.1
-
(8.5)
(0.2)
-
(0.2)
(8.7)
(12.7)
(21.4)
397.8
7.4
4.0
409.2
7.4
6.0
13.3
422.6
(4.9)
417.6
Net Assets as at 30 June 2019
Intangible adjustments4
Net assets after intangible
adjustments as at 30 June 2019
Capital base adjustment
Deferred Acquisition Costs (DAC)
(336.3)
Other adjustments to capital base3
(14.1)
-
-
-
-
(336.3)
-
-
-
(336.3)
-
(336.3)
(14.2)
(0.1)
(0.1)
(0.2)
(14.4)
(0.2)
(14.6)
Regulatory Capital Base
47.4
7.3
4.0
58.7
7.3
5.9
13.2
71.9
(5.1)
66.8
Prescribed capital amount
(20.0)
(3.3)
(3.4)
(26.6)
(5.0)
(0.6)
(5.6)
(32.3)
-
(32.3)
Available Enterprise Capital
27.4
4.1
0.6
32.1
2.3
5.2
7.5
39.6
(5.1)
34.5
Enterprise capital benchmark (ECB)
ECB offset3
Risk capital1
Excess (Deficit) over Internal
Benchmark as at 30 June 2019
Debt funding facility
Net Capital position as at 30 June
2019
12.5
-
(42.0)
(2.4)
(2.1)
-
1.7
-
-
-
0.6
-
12.5
-
-
-
12.5
-
12.5
(44.4)
(1.9)
(3.1)
(5.0)
(49.4)
(7.6)
(57.0)
0.2
-
0.4
-
2.2
-
2.6
-
2.8
(12.7)
(10.0)
-
15.0
15.0
(2.1)
1.7
0.6
0.2
0.4
2.2
2.6
2.8
2.3
5.0
1
2
3
As at 30 June 2019, risk capital is held in regulated entities at 97.5% probability of adequacy (POA). Risk capital at 99% POA is held in the NOHC².
NOHC is a non operating holding company regulated by APRA under the Life Insurance Act.
Regulatory capital includes a $12.5 million inadmissible asset reserve for tax credits within the ClearView Retirement Plan (CVRP) relating to insurance premiums paid via rollover. There is
currently not sufficient taxable income in the CVRP currently to utilise these tax credits. While strategies to utilise the carried forward losses in the CVRP are in progress there are risks and
uncertainties involved. Furthermore, a project for the CVRP (part of a broader wealth strategy review), has commenced. For this reason an offset is held against the ECB risk reserve for
$12.5 million.
4
Intangible adjustments relate to goodwill, acquired intangibles and capitalised software.
CLEARVIEW WEALTH LIMITED | 45
DIRECTORS’ REPORT (CONTINUED)
The net capital position of the Group, after including amounts drawn down under the Debt Funding Facility, was $5.0 million
at 30 June 2019. ClearView is fully capitalised with Common Equity Tier 1 capital to fund its current business plans and
anticipated medium-term growth. Key points to note:
•
•
•
•
•
Under the APRA capital standards, adjustments are made to the capital base for various asset amounts that are deducted,
for example, intangibles, goodwill and deferred tax assets (net of deferred tax liabilities).
The regulated entities had $2.8 million of net assets in excess of internal benchmarks as at 30 June 2019.
Internal benchmarks exceed regulatory capital requirements and include capital held for the protection of ClearView’s
regulatory capital position for risk outcomes where the regulatory capital cannot be readily accessed and to protect the
various regulated entities’ regulatory licences.
A working capital reserve has historically been held to support the capital needs of the business beyond the risk-reserving
basis. This included the net capital that was required to support the medium-term new business plans (in accordance with
the Internal Capital Adequacy Process).
ClearView generates positive cash flows from its in-force portfolio which is subsequently reinvested to generate new
business. Given the quantum of new business written relative to the size of the in-force book during the ‘start-up phase’ of
the business, the cash flows generated were insufficient to fund new business growth. This strain has reduced materially
with the underlying business now approaching self-funding capability from the in-force portfolio flows. This is expected to
occur from FY20 onwards. As a result no further capital is held as a working capital reserve at 30 June 2019 ($3.4 million
utilised in FY19).
The net capital position of the Group as at 30 June 2019 represents a decrease of $9.6 million since 30 June 2018. This reflects
the following key items.
Chart 13: Capital position waterfall
25
15
15
1
(12)
(25)
(4)
(9)
(1)
5
30 Ju ne 2018 capital position
Dra w do w n of debt
N et capital absorbed by business gro w th
Regulatory an d risk capital
Purchase of treasury shares
Change in inad m issible an d deferred tax assets
FY19 U n derlying N PAT
FY18 final dividen d
Other
30 Ju ne 2019 capital position
The Company entered into a $60 million Debt Facility Agreement in July 2017 (Debt Funding Facility) for the following key reasons:
•
•
To provide future capital funding in the event that growth is materially above what is currently anticipated; and
To meet the liquidity needs of the Group or to capitalise on other opportunities.
To date, $15 million of the Debt Funding Facility has been drawn down to fund the cash component of the FY18 final dividend
and the cash payment for purchasing ClearView shares on market to support the ClearView SMT LTIP share plan (recognised as
treasury shares). The Board has to date, determined that entering into the Debt Funding Facility is both the most cost effective
and efficient way to support the current funding needs of ClearView over the short- to medium-term.
46 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) Dividends and on-market buyback
The Board has historically sought to pay dividends at sustainable levels with a target payout ratio of between 40% and 60% of
Underlying NPAT. Furthermore it has been the intention to maximise the use of its franking account by paying fully franked dividends.
ClearView has also previously operated a Dividend Reinvestment Plan (DRP):
•
•
•
Shareholders have been provided the opportunity to reinvest into the Company while retaining capital within the Group;
Given ClearView’s preference to retain capital and the illiquidity of the share trading, it was not considered appropriate to minimise
the dilutive impact of the DRP through the on-market purchase of the number of shares to satisfy the DRP participation; and
ClearView has at times sought support for any shortfall in shareholder participation by underwriting the shortfall to
maintain the capital base within the group.
ClearView’s ability to pay a franked dividend depends upon factors including its profitability, the availability of franking credits
and its funding requirements which in turn may be affected by trading and general economic conditions, business growth, and
regulation. The Board has decided not to declare a full year dividend in 2019 (2018: $20.05 million or 3.00 cents per share).
•
•
•
•
•
Given the illiquidity of the share, the share price does not always reflect the Company’s view of intrinsic value, which is
particularly relevant when the business is undergoing a significant transformation process, under challenging conditions. In such
circumstances, the Board believes that buying back shares below intrinsic value is in the best interests of ClearView shareholders.
In December 2018, the Board determined to extend its on market buy-back within the 10/12 limit for a period up until
December 2019. Since January 2014, the total number of shares bought back and cancelled under the scheme is 593,824.
No shares were bought back under the scheme in the full year ended 30 June 2019. Effective Friday 30 August 2019, the
Board has approved the recommencement of this 10/12 limit on market buy-back program and ClearView’s appointed
broker for the buy-back is Blue Ocean Equities Pty Limited.
Furthermore, the Board is considering alternative capital management initiatives that would allow the Debt Funding Facility to be
replaced with one or more longer term capital solutions that would make the capital structure of the overall group more efficient.
In the interim, and until such time as this more permanent capital solution is implemented, the Debt Funding Facility will
be utilised to fund the on market buy-back program)1. Given the positive cash flow generation under the FY20 business
plan, the funding drawn down under the Debt Funding Facility can also be repaid from cash flows expected to be generated
by the in-force portfolios over the medium-term.
The ongoing operation of the buyback is subject to market conditions and ClearView’s capital management requirements
from time to time. See capital position risks outlined below.
Selective buy-back
As approved by Shareholders at the ClearView 2018 Annual General Meeting (AGM) and disclosed on market, ClearView
undertook a selective buy-back of unvested Executive Share Plan (ESP) Shares in November 2018. 1,781,633 were selectively
bought-back and cancelled on the terms outlined in the ClearView AGM Notice of Meeting, Appendix 3C and Appendix 3F.
These announcements are under the Shareholders tab on the ClearView website.
Shares purchased on-market for performance rights
As previously disclosed, the Board determined that a Long Term Incentive (LTIP) structure delivered via a grant of Performance
Rights to the Senior Management Team (SMT) was the most appropriate structure to achieve its key remuneration objectives.
An Employee Share Trust (EST) was created and Performance Rights were granted in FY18 and HY19 on the terms described in
the FY18 Annual Report. Computershare is the appointed Trustee for the EST and during FY19, in accordance with ClearView’s
Securities Trading Policy, their broker was instructed to undertake an on-market purchase of shares to be held in Trust until
such time as the Performance Rights vest or are forfeited. A total of 4,840,566 shares were purchased on-market in FY19 at an
overall average price of 87 cents per share. Further details are provided in the Remuneration Report.
Capital Position Risks
As at 30 June 2019, ClearView has two capital reserving risks as follows:
•
As noted at note 3 under chart 12 on page 45, the ClearView Retirement Plan has a $12.5 million deferred tax asset related to
accumulated tax losses carried forward. ClearView Life is holding a regulatory inadmissible asset reserve against this pending
its recovery. A project is in progress to recover this amount in FY20. Given the intended recovery , a credit has been taken
against the internal capital benchmark in the short term (and included in the capital movement waterfall on page 46). There
is a risk this recovery is delayed or not fully achieved which could result in a long term capital requirement and/or write off of
the asset.
1
Debt funding facility has a $15 million buy-back cap as at the date of this report.
CLEARVIEW WEALTH LIMITED | 47
DIRECTORS’ REPORT (CONTINUED) •
ClearView has a substantial credit exposure to Swiss Re that exceeds regulatory admissibility limits from APRA which
applies until 31 December 2019 and provides relief of $31 million to its regulatory capital requirements. A project to
replace the temporary extension with a permanent capital support mechanism is in progress to be completed before 31
December 2019. There is a risk that delay in implementing this solution could increase ClearView Life’s regulatory capital
requirements until a solution is implemented. An amount of $4 million is included in the regulatory and capital movement
in the waterfall on page 46.
Business outlook
Current challenging market conditions are expected to persist in the short to medium term, which is likely to impact on:
• Overall industry sales volumes, lapse rates, competitor pricing and performance;
•
Consumer sentiment due largely to negative publicity related to the Banking and Financial Services Royal Commission but
also the broader economy; and
•
Financial advisers given consequences of FASEA, the Life Insurance Framework (LIF) commission caps and rules.
The business strategy and focus has been reset, positioning ClearView to take advantage of structural changes in the market,
notwithstanding significant short-term headwinds.
Key areas of focus for FY20 include:
• Upgrading major elements of the core Life Insurance and desktop technology.
•
•
Repositioning the Financial Advice segment and rolling out LaVista to create a sustainable revenue model without cross
subsidies over time.
Completing a strategic review of Wealth Management platforms and technology with a focus on the simplification of key
back-office systems. A project related to its superfund1 (part of a broader wealth strategy review) has commenced.
• Additional work on the pricing, positioning and retention strategies for Life Insurance and Wealth Management.
•
Further investment in the risk and compliance functions.
Life Insurance remains the key profit driver. Our growth profile is underpinned by our in-force book and embedded growth in
our expanding distribution footprint. IFA support for ClearView LifeSolutions continues to grow, with ClearView ranked number
one for overall adviser satisfaction in 2018 by independent research house, Investment Trends.
The breakdown of institutional vertical integration and the subsequent opening up of APLs is creating opportunities for
ClearView to reach new audiences. Additional distribution relationships, combined with the maturation of our existing life
insurance APLs, will lead to a material increase in our in-force portfolio.
The company’s near term focus is on lifting business quality. This is likely to result in flat short-term new business sales
(excluding terminated relationships) but more profitable business.
While ClearView remains profitable - adverse claims and lapse experience in recent years is holding the company back from
translating solid growth in the inforce book into corresponding profit growth. Shorter term profit growth will be achieved by
effective cost management, improving lapse and claims performance, and the execution of our distribution strategy.
•
Key initiatives and actions are being implemented, which are expected to improve lapse performance over time. Lapse
assumptions have also been increased and reshaped, factoring higher lapse rates for already-terminated relationships.
•
Increased claims assumptions, in particular on the income protection portfolio, have also been made.
Support for the mandating of life insurance product choice from industry associations, consumer organisations and the media
is growing. This would see our addressable market expand materially.
In Financial Advice, industry consolidation and the effective exit of the banks from personal advice has displaced hundreds of
advisers who are looking for alternative licensing arrangements. As the CoreData Licensee of the Year for three consecutive
years, Matrix is strongly positioned to pick up quality advisers looking for an experienced, well-resourced dealer group. The
launch of LaVista Licensee Solutions in late 2018 gives IFAs another way to engage with ClearView. In addition to access to life
insurance and wealth management products, advisers can now leverage ClearView’s back-office infrastructure and licensee
support services of our dealer groups via LaVista.
1
ClearView Retirement Plan
48 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) Early interest in LaVista is encouraging with a strong pipeline of potential clients.
ClearView maintains a positive longer term outlook.
Our three segments; Life Insurance, Wealth Management and Financial Advice are well-positioned to capture opportunities
from a rebound in market conditions and consumer sentiment. There is a clear strategy in place for adapting to the changing
financial services landscape and we continue to build, expand and strengthen our relationships with IFAs. This, combined with our
investment in technology, is likely to drive medium to long term growth.
Changes in state of affairs
There were no other significant changes in the state of affairs of the Group apart from than those discussed above, during the
year ended 30 June 2019.
Auditor’s independence declaration
The auditor’s independence declaration is included on page 68.
CLEARVIEW WEALTH LIMITED | 49
DIRECTORS’ REPORT (CONTINUED) Other Executive KMP
•
•
•
•
•
•
Christopher Blaxland-Walker
General Manager, Distribution
Athol Chiert
Chief Financial Officer and Company Secretary
Todd Kardash
General Manager, Licensee Services
Deborah Lowe
General Manager, People and Operations
Greg Martin
Chief Actuary and Risk Officer
Justin McLaughlin
Chief Investment Officer
Former Executive KMP
•
•
Elizabeth Briggs (Ceased 24 July 2019)
General Counsel and Company Secretary
Louise Hulley (Ceased 11 March 2019)
General Manager, Technology
Overview of Remuneration Strategy and Objectives
ClearView’s remuneration approach has the following
objectives:
• Attract, retain and motivate skilled employees;
•
•
•
•
Reward and recognise employees for
strong performance;
Reward employees in a way that aligns
remuneration with prudent risk-taking and the
long-term financial soundness of the business,
and with gains to its shareholders;
Maintain a competitive, yet financially-viable salary
structure; and
Clarify responsibilities and decision-making authority
in relation to remuneration at ClearView.
Remuneration Report
This Remuneration Report, which forms part of the Directors’
Report, sets out information about the remuneration of
ClearView’s Directors and its Key Management Personnel
(KMP) for the financial year ended 30 June 2019.
The term “KMP” refers to those persons having authority
and responsibility for planning, directing and controlling the
activities of the consolidated entity, directly or indirectly,
including any Director of the consolidated entity.
The prescribed details for each person covered by this report
are detailed below under the following headings:
• Details of the Directors and KMP;
• Overview of Remuneration Strategy and Objectives;
• Remuneration Framework;
•
Remuneration of Directors and KMP including share based
payments granted as compensation; and
• Key terms of employment contracts.
Details of the Directors and KMP
The Non-executive Directors of the Group and Company
during or since the end of the financial year were:
•
•
•
•
•
•
•
Bruce Edwards
(Chairman, Independent Non-executive Director)
David Brown
(Independent Non-executive Director)
Gary Burg
(Independent Non-executive Director)
Michael Alscher
(Alternate Non-executive Director to Mr Thomson until
20 November 2018; Appointed Non-executive Director on
20 November 2018)
Nathanial Thomson
(Non-executive Director)
Satoshi Wakuya (Resigned 20 November 2018)
(Non-executive Director)
Susan Young
(Independent Non-executive Director)
The KMP of the Group and the Company in addition to the
Non-executive Directors during or since the end of the
financial year were:
Managing Director
•
Simon Swanson
Managing Director
50 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) Remuneration Framework
Remuneration Governance
ClearView’s Remuneration Policy (Policy) was updated in 2019
and is compliant with the obligations set out by the Australian
Prudential Regulatory Authority (APRA) under Prudential
Standards CPS 510 ‘Governance’ and SPS 510 ‘Governance’. It
also forms part of ClearView’s Risk Management System and
overall Risk Management Framework (in accordance with the
Prudential Standards). The Board has approved this Policy and
retains overall responsibility for all remuneration decisions
in respect to persons relevant to each entity. The Policy is
reviewed at least once every three years. Any changes to the
Policy must also be approved by the Board.
ClearView has an established Group Nomination
and Remuneration Committee (Remuneration Committee)
which, among other things, is responsible for overseeing
the remuneration and human resource practices for the
Group. Key responsibilities of the Remuneration Committee
are as follows:
•
•
•
•
•
•
•
Reviewing and recommending to the Board ClearView’s
Remuneration Policy, including its effectiveness and
compliance with legal and regulatory requirements;
Identifying any material deviations of remuneration
outcomes from the intent of the Remuneration Policy,
including any unreasonable or undesirable outcomes
that flow from existing remuneration arrangements;
Reviewing and making annual recommendations to the
Board on the remuneration of the Managing Director,
Senior Management Team (SMT) members (all of whom
are KMP listed above) and other persons whose activities
may, in the Remuneration Committee’s opinion, affect the
financial soundness of ClearView;
Reviewing and making annual recommendations to
the Board on the remuneration structures, including
risk-adjusted performance targets, for those persons or
categories of persons which, in the Board’s opinion, could
individually or collectively affect the financial soundness
of ClearView, ensuring that due regard is given to the
balance between the achievement of business objectives
and the associated risk;
Reviewing and making annual recommendations to the
Board on the remuneration structures of external persons
retained directly by ClearView under contract whose
activities, individually or collectively, may affect the
financial soundness of ClearView;
Reviewing compliance with the relevant regulatory and
prudential requirements;
Ensuring it has the necessary experience and expertise in
setting remuneration and sufficient industry knowledge
and/or external advice to allow for effective alignment of
remuneration with prudent risk-taking, supplementing its
expertise with appropriate external expert advice;
•
•
Reviewing and recommending to the Board (and if
required to shareholders) any short-term and long-term
incentive payments for the Managing Director and Senior
Management Team (SMT); and
Reviewing and providing recommendations to the
Board (and if required to shareholders) in relation to
any termination benefits for Non-executive Directors,
Managing Director, other SMT members and key persons
which exceed one year’s average base salary as defined
in the Corporations Act 2001.
ClearView’s Remuneration Policy is in place to:
•
•
Outline employee obligations and ClearView’s obligations;
Set out roles, responsibilities and accountabilities
of the KMP;
• Set out clear reporting and controls;
•
•
Define various terms to ensure a common
understanding; and
Clarify what happens if this policy or associated
procedures are breached.
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 Group performance. By adopting a robust
approach to remuneration, the Group 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 KMP remuneration is made up of three components:
•
Fixed Remuneration;
• Short Term Incentive (STI); and
• Long Term Incentive (LTI).
ClearView is closely monitoring the regulatory guidance and
changes recently issued by APRA. Changes will be made
to the remuneration policy and internal policies to ensure
ongoing compliance once more information is known and the
changes take effect.
CLEARVIEW WEALTH LIMITED | 51
DIRECTORS’ REPORT (CONTINUED)
The design of remuneration structures and performance
conditions will reflect ClearView’s key risks, as relevant to
particular roles by:
Ensuring that the components of remuneration
appropriately balance risk and business outcomes,
having regard to the percentage of “at risk” to “not at
risk” remuneration that is, variable to fixed remuneration;
Using appropriate risk-adjusted objectives
in ClearView’s incentive awards for key persons
and categories of persons;
Appropriate use of long-term incentives and clawbacks
to ensure performance can be suitably validated and the
consequence of the risk to which ClearView has
been exposed can be fully assessed; and
•
•
•
•
Any increase to individual remuneration for the Managing
Director, SMT and any other person whose activities may,
in the Remuneration Committee’s opinion, affect the financial
soundness of ClearView, must be approved by the Board on
the recommendation of the Remuneration Committee after
engaging and taking advice, where appropriate.
Short Term Incentive (STI) plan
The STI plan for KMP aims to provide a common motivation
to act in the best interests of the Company to reach or
exceed Company goals for the financial year. They are
based on rewarding an individual with a bonus calculated as
a percentage of Fixed Remuneration. Company performance
targets are set for the KMP by the Board (on recommendation
of the Remuneration Committee).
Ensuring any sign-on and termination payments
with respect to Directors, SMT members and other
key personnel, comply with legislative requirements,
are appropriate and prudent and contain suitable hurdles.
For FY19, the award of the STI component for KMP is based
on the achievement of two company goals weighted,
as on the table on the following page and personal
targets and objectives.
For FY20 the value of the bonus pool will be determined by
company goals and awarded based on personal targets
and objectives set for the KMP by the Managing Director.
Any payment of KMP bonuses is recommended by the
Remuneration Committee and approved by the Board.
Fixed Remuneration
Fixed Remuneration is made up of base remuneration
and superannuation. Base salary includes cash salary
and any salary sacrifice items. The Group provides employer
superannuation contributions of 10% of each KMP’s base
salary, capped at the relevant maximum contribution base.
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,
Key Performance Indicators (KPI’s) and risk profiles.
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.
Fixed Remuneration is reviewed annually, following the end
of the 30 June performance year.
Independent market remuneration data was purchased
from two independent sources and reviewed to benchmark
the Fixed Remuneration for KMP for the 2019 financial year.
The sources were the Financial Industry Remuneration
Group (FIRG) and Aon Hewitt reports. Both are primary
providers of data and the most appropriate for roles in
the industry in which ClearView operates. The benchmarking
reports were used as a guide, and were not a substitute
for thorough consideration of all the issues by the
Remuneration Committee.
No formal consulting advice was sought from independent
external research houses and Remuneration Consultants
in setting the 2019 Fixed Remuneration.
52 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) Company Goal
Description
1.
Underlying
Net Profit after
Tax (UNPAT)1
2.
Embedded
Value Growth
UNPAT is the Board’s key measure of group profitability and the
basis on which dividend payments are determined. It consists
of reported net profit after tax adjusted for amortisation
(not including capitalised software), the effect of changing
discount rates on insurance policy liabilities and costs which are
considered unusual to the Group’s ordinary activities.
Life insurance and wealth management are long term
businesses that involve long term contracts with customers and
complex accounting treatments. Embedded Value calculations
are used as key measures to assess the performance of the
business from period to period. An Embedded Value represents
the discounted value of the future cash flows anticipated
to arise from the in-force life policies and investment client
balances as at the valuation date.
Min
%
Target
%
Max
%
%
Achieved
FY19
0%
50%
60%
0%
0%
50%
60%
0%
1 UNPAT for the purposes of bonus calculations excludes the after tax interest on corporate debt.
0%
100% 120%
0%
Overall 0% of the target STI range for company goals was achieved based on the range of outcomes. The result may vary from
reported Underlying NPAT and Embedded Value given that for STI calculations the impacts of net capital raised,
cash dividend payments, assumption and model changes between periods and any impacts of key longer term decisions
made by the Board are excluded.
The FY19 STI on financial outcomes were adversely impacted by the poor claims and lapse experience across each of the key
contributors to the STI calculation. Whilst KMP had personal targets and objectives in FY19, given the company results each
KMP was assessed as not meeting their personal targets and objectives, hence 0% of the personal target was achieved.
This resulted in no STI being made payable to the SMT. However, this does not reflect the numerous achievements made in
FY19 that will underpin the future financial results. The underlying fundamentals of the business remains strong with the
expanding distribution footprint and related new business volumes leading to a material increase in the in-force portfolios
which underpins the growth profile.
Sound risk management practices act as a gateway qualifying condition to the STI. Furthermore, underpinning the
achievement of the financial goals is sound business strategy, leadership, client focus, product development, superior services
and continuous improvement of systems and processes. Given that the target STI component is considered moderate in
the industry in which the Group operates it has to date not been considered appropriate to introduce deferral provisions
for the STI component. This however will change from FY20 for both STI and LTI components for KMP, with appropriate
clawback arrangements being considered.
As outlined in the table, STI outcomes fall within a range of 0% to 120% of the Target STI with 100% pegged to achieving
target performance (as set out in the Board approved Business Plan). The resultant potential maximum STI awards for KMP
range from 0% to 60% of Fixed Remuneration as follows:
SMT Member
Simon Swanson
Athol Chiert
Christopher Blaxland-Walker
Elizabeth Briggs
Louise Hulley
Deborah Lowe
Gregory Martin
Justin McLaughlin
Todd Kardash
Target STI % Maximum STI % Minimum STI % Actual Achieved %
50%
30%
30%
30%
30%
30%
30%
30%
30%
60%
36%
36%
36%
36%
36%
36%
36%
36%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
CLEARVIEW WEALTH LIMITED | 53
DIRECTORS’ REPORT (CONTINUED)
Long Term Incentive Plan (LTIP)
Background
The Company has previously used its Employee
Share Plan as a long term incentive for key
employees and contractor participants.
ClearView in its current form was created by the
acquisition and successful integration of the life
insurance, wealth management and financial advice
businesses acquired from MBF Holdings Pty Limited
(Bupa Australia) on 9 June 2010 (the Acquisition).
Key attributes of the Acquisition were as follows:
•
•
•
Potential to use the platform acquired to create
a new non-bank owned life insurance and wealth
management company that could bring innovation
to the market and challenge the incumbents;
No material legacy issues, enabling speed to
market; and
No material exposure to group life, pre global financial
crisis income protection, consumer credit insurance or
capital guaranteed products.
ClearView was required to undertake a significant
transformation to:
•
•
•
•
•
Build out a new management team with a track record in
growing life insurance, wealth management and financial
advice businesses;
Develop and launch advice based products providing
access to new market segments;
Utilise the strong cash flow generated by the
in-force portfolios at the time of the Acquisition to fund
the initial growth phase in the Advice Life market and
stem the outflows in the acquired Wealth Management
in-force portfolios;
Expand into the independent financial advice market,
with products having the quality to be included on the
Approved Product Lists of third party dealer groups; and
Raise sufficient capital to fund the next phase of growth
for the business.
ClearView was therefore required to undergo a significant
transformation, that has been achieved over the last
seven years with the development of systems, launch
of LifeSolutions (full suite of life insurance advice
products), WealthSolutions (ClearView Wrap platform)
and WealthFoundations (wealth mid-market product),
the recruitment of employees, experienced self employed
financial advisers and distribution partners.
ClearView has an existing ownership-based compensation
scheme for the Senior Management Team (SMT), key
management and revenue generators of the Group to assist
in the recruitment, rewarding, retention and motivation of
employees. This scheme was designed to recognise leaders
54 | CLEARVIEW ANNUAL REPORT 2019
and reward those decisions and actions which have a direct
and positive impact on the results that ClearView delivers for
shareholders, at the time and in the future.
The Executive Share Plan (ESP) was established to assist in
the recruitment of the SMT and employees with deep life
insurance and wealth management experience, to execute on
a core strategy and thereby to show ClearView’s recognition of
the employees’ contribution, by providing an opportunity
to share in the future growth and profitability of ClearView.
The ESP was set up in the context of the “start up phase”
and the nature of the ClearView business at the time when
the scope and the timing of any future success of the business
was still unknown and uncertain. The ESP aligns
the interests of participants more closely with the interests
of shareholders including the extension of the ESP to financial
advisers in November 2011.
Benchmarking of the LTI for the SMT was originally performed
by PricewaterhouseCoopers (PwC), an independent
Remuneration Consultant, in February 2013.
The Board subsequent to this review decided in
February 2013 to:
•
•
•
Remove any cap on the issue of shares under the ESP to
retain the flexibility to use it as a recruitment tool for both
employees and financial advisers;
Remove the interest on the loans that had until this
date been capitalised and treated as part of the limited
recourse principal, except that after tax dividends
on Shares issued under the ESP was applied towards
reduction of the loan; and
Issue further grants to participants where
considered appropriate (aligned to the overall
remuneration review of the SMT members by PwC).
These further LTI grants were issued in a “lump sum”
rather than on the basis of an annual grant and were
aligned to the achievement of an increase in the share
price of ClearView.
The Board decided to initially remove the interest rate on
the loans for all participants given that the interest imposed
was significantly diluting the efficacy of the ESP as an
employee recruitment and retention tool, in particular for
those staff receiving the earlier grants of ESP shares and
to achieve its purpose given the start up phase of the
business at the time. The Board believed, notwithstanding
the removal of the interest rate on the loans, that the long
term interests are aligned given that value is only attributed
to participants through an increase in the share price and
that a key component of the STI component is also aligned
to the longer term, being the Embedded Value (refer to STI
section above).
In June 2019 the Board determined that interest would be
payable on loan extensions for fully vested ESP shares for
contractor participants. This will be implemented in FY20.
DIRECTORS’ REPORT (CONTINUED) The use of derivatives over ClearView Securities could distort
the proper functioning of performance and vesting conditions
of the ESP. Accordingly, derivatives over ClearView ESP shares
are not permitted to be held in relation to any ClearView
ESP shares that are unvested or the subject of a holding lock
under the ESP.
Overview of the Existing Executive Share
Plan (ESP or Plan)
In accordance with the provisions of the Plan, as approved
by shareholders at the 2015 Annual General Meeting,
the ownership-based compensation scheme allows
participation in the Plan of:
•
•
Employee Participants - These participants are key
managers, members of the Senior Management Team
and the Managing Director; and
Contractor Participants - These participants are
financial advisers.
Eligible Employees under the Plan Rules therefore include
both Employee Participants and Contractor Participants of the
Company and its related body corporates.
Non-executive Directors are ineligible to participate in the Plan
in accordance with the Plan Rules.
Offer and consideration
Under the ESP, the Board may invite Eligible Employees
to participate in an offer (Offer) of fully paid ordinary shares
in ClearView, subject to the terms of conditions of the ESP.
Each ClearView Share is issued at a price to be determined
by the Board prior to making an Offer and this price is set out
in the invitation (Invitation) to Eligible Employees. This price
may be the market price of a Share (as defined in the ESP
Rules) on the date of the Invitation. Taking into account the
liquidity, volatility, and the average trading activities of the
ClearView Shares, the Board determined in February 2013
that it is appropriate and reasonable for ClearView to adopt
the Volume Weighted Average Price (VWAP) over a 3 month
period to determine the market value of the ClearView Shares
for the purposes of ESP issues. This has been implemented
for all ESP Share issues since that date. Prior to this, no ESP
Shares were issued at a price below 50 cents per share,
being the price at which the original capital raising was
completed in June 2010.
Restrictions on offer
Shares may not be offered under the ESP to an Eligible
Employee if that Eligible Employee would hold, after the
issue of the Shares, an interest in more than 5% of the issued
Shares of ClearView or be able to control the voting rights of
more than 5% of the votes that might be cast at a general
meeting of ClearView.
As at the date of this Report, the Board has not set a limit
on the number of Shares that may be issued under the
Plan. The Board or Board Authorised Delegates approve the
issue of new ESP shares and monitors the overall quantum
of ESP shares on issue, relative to the interests of existing
shareholders and the overall objectives of the business.
Financial assistance
The Company may provide financial assistance to an Eligible
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 and is repayable in
accordance with the terms of the accompanying Invitation or
as follows:
•
•
For Share issues prior to 14 February 2013 - within 60
days (or a longer period determined by the Board in its
discretion) after the 5th anniversary of the grant of the
financial assistance (unless it is required to be repaid
at an earlier date owing to the operation of the Rules); or
immediately in the event of certain “disqualifying
circumstances” including failure to meet performance or
vesting conditions, cessation of the Employee Participant’s
employment in circumstances defined in the ESP Rules or
termination of the Contractor Participant’s contract with
a Group Company for the provision of services.
For Employee Participants, the financial assistance is secured
over the shares and rights attached to the shares.
The Board has delegated authority to Mr Swanson, Mr Chiert
and Mr Thomson to approve granting an extension to the
loan term of all ESP participants who remain employees at
the expiration of their loan term for a period until a Change
in Control of the Company (as defined in the ESP Rules).
Holding lock
The shares granted under the ESP to participants are subject
to a holding lock restricting the holder from dealing with the
shares, unless otherwise provided under the Invitation. Where
all performance conditions and/or vesting conditions (if any)
attaching to the Shares issued prior to 14 February 2013 have
been satisfied (or waived) a holding lock will cease to have
effect if:
•
•
The Board accepts a disposal request (as defined in the
ESP Rules) (Disposal Request); or
5 years have passed from the Acquisition Date; or
If the Participant:
•
•
is an Employee Participant, their employment with
the Group ceases, or
is a Contractor Participant, their contractor agreement
is terminated; or
• The ESP is terminated, or
• The holding lock period otherwise ceases;
provided that the Financial Assistance and any interest that
has been accrued have been repaid.
For Share issues from 14 February 2013 the Holding Lock
ceases on vesting or forfeiture of Shares.
CLEARVIEW WEALTH LIMITED | 55
DIRECTORS’ REPORT (CONTINUED) The holding lock is imposed through the share registry and
in accordance with the ASX Listing Rules. Participants will not
be able to sell their ESP Shares on ASX or have an off-market
transfer registered (and are also otherwise prohibited from
dealing in the shares) while the holding lock is in place.
If the participant is a Contractor Participant, following the
removal of the holding lock over the Shares of the participant,
the participant may not sell, or otherwise deal with, any such
Shares without the prior written consent of the Company,
which consent the Company may give or withhold in its
absolute discretion and which consent may be given subject
to conditions.
Eligible Employees are entitled under the ESP Rules to make
a Disposal Request provided the performance and vesting
conditions have been met (or waived). The holding lock
applicable to their ESP shares will cease to have effect
upon the Board (in its absolute discretion) accepting the
Disposal Request. ClearView may dispose of these ESP shares
on behalf of the participant in one or more of the following
ways (at the discretion of the Board):
•
•
Reallocate the Shares to give effect to acquisitions
by other Eligible Employees under the ESP;
Sell to the Company in accordance with buy-back
provisions of the Corporations Act; or
• Offer or sell to buyers on the ASX.
(b) After 14 February 2013:
• 12 months after a Change of Control; or
•
•
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 Crescent Capital Partners and its
Associated Entities no longer holding 20% of the voting
rights of the Company.
(c) After 1 July 2015:
•
•
For ESP Shares issued to employee participants after
1 July 2015, unless stated otherwise in the participants
Invitation Offer, all performance and vesting conditions
in relation to these shares, are not deemed to have been
met upon a Change of Control.
“Control” is defined as Crescent Capital Partners and its
Associated Entities no longer holding 20% of the voting
rights of the Company.
The above provisions concerning change of control apply
only to Employee Participants and not Contractor Participants
under the ESP.
Services from consultants - 2018 review and
new LTIP
The amount payable by these Eligible Employees to ClearView
following such a disposal is the amount outstanding in
relation to the financial assistance, including accrued interest.
The Eligible Employees may retain any surplus proceeds.
The Remuneration Committee seeks and considers advice
from independent, external remuneration consultants where
appropriate. Remuneration consultants are engaged directly
by and report to the Remuneration Committee.
In 2017, it was considered appropriate for the Remuneration
Committee to engage AON Hewitt Associates Pty Ltd.
(Aon Hewitt) to benchmark overall remuneration for the
SMT and non-executive Directors. The advice from Aon
Hewitt was used as a guide, and was not a substitute
for a thorough consideration of all the issues by the
Remuneration Committee.
An outcome of the Aon Hewitt review highlighted that the
existing LTIP for the SMT was primarily vested and as such
it was necessary to consider what would represent an
appropriate new LTI, as part of the overall remuneration
structure for SMT members. The value of the existing LTIP
rested in the interest free component of the ESP loan
backed plan, and receiving dividends on the ESP shares that
are financed by these ESP loans. In considering a new LTI
scheme, three key objectives were focused on:
Change of Control
Under the ESP Rules, all performance and vesting conditions
in relation to Shares held by an Eligible Employee who is an
Employee Participant are deemed to have been satisfied
upon a Change of Control unless stated otherwise in the
participants Invitation Offer. A Change of Control is defined
under the ESP Rules as being:
(a) Until 14 February 2013:
•
•
•
A person who did not Control the Company at the date of
issue of the Plan 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 holds more than 50% of the
Shares in ClearView.
56 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED)
1. Provides appropriate remuneration to the SMT to ensure a component of remuneration remains delivered in equity and is
focused on longer term performance;
2.
Acts as an incentive to remain employed at ClearView (a delayed vesting mechanism); and
3.
Alignment of the interests of the key management with the interests of shareholders.
PricewaterhouseCoopers (PwC) was engaged by the Remuneration Committee in 2017, to implement a new
LTIP structure for the SMT.
Taking into account current market practice the Board felt that an LTI structure delivered via a grant of Performance Rights
would be the most appropriate structure to achieve the key objectives. The LTI structure was approved by the Board, on
recommendation of the Remuneration Committee, on 21 June 2017. The first awards under the new LTI were made in FY18.
The key terms of the LTIP plan are set out in the table below.
Performance rights granted as compensation
The number of performance rights granted as compensation to each participant, in accordance with the LTIP (as noted earlier
in the Report), is as follows:
SMT Member
Simon Swanson4
Athol Chiert
Christopher Blaxland-Walker
Deborah Lowe
Gregory Martin
Justin McLaughlin
Todd Kardash
Elizabeth Briggs5
Louise Hulley6
Total
2018 issue1
2019 issue2
1,142,857
357,143
285,714
114,286
428,571
250,000
285,714
44,643
44,643
718,899
224,656
179,725
71,890
269,587
157,259
179,725
129,897
129,897
Total
1,861,756
581,799
465,439
186,176
698,158
407,259
465,439
174,540
174,540
Vested3
791,246
247,265
197,812
79,125
296,717
173,085
197,812
74,180
-
Forfeited
1,070,510
334,534
267,627
107,051
401,441
234,174
267,627
100,360
174,540
2,953,571
2,061,535
5,015,106
2,057,242
2,957,864
1
Number of performance rights issued to participants in October 2017 and April 2018.
2 Number of performance rights issued to participants in September 2018.
3
4
5
6
Number of shares to be vested based on actual achievement. Board approved in August 2019.
Performance rights to be granted to Simon Swanson were satisfied by the on-market purchase of ClearView ordinary shares.
Performance rights vested in accordance with Plan Rules.
Louise Hulley departed on 11 March 2019. In accordance with the Plan Rules her performance rights were forfeited.
CLEARVIEW WEALTH LIMITED | 57
DIRECTORS’ REPORT (CONTINUED) Key Scheme Details
Description
1. Instruments
2. Eligibility
3. Quantum
Performance Rights – being a right to receive one share for no consideration, contingent on
the vesting conditions being met. The awards also have the ability to be cash settled in certain
circumstances.
Open to nominated SMT members.
Each participant will have set LTI dollar value determined as part of their remuneration package. This
dollar value will be converted into a set number of Performance Rights based on an agreed VWAP
share price, being the share price at grant date and a notional value applied to the award, based on
typical performance or valuation discounts derived from remuneration consultants research.
4. Performance Period
The Performance Rights are be subject to a performance period that ends on 30 June 2019.
5. Vesting Conditions
The participants must remain employed by the ClearView Group as at the vesting date (30 June
2019), in addition to meeting performance based vesting conditions.
The specifics of the vesting conditions include:
•
•
50% of the Performance Rights will be measured against an Embedded Value target as set
out in the FY18 Business Plan and measured immediately after the financial year 30 June
2019. At 90% achievement of embedded value, 50% of the awards will vest with straight line
vesting between 90% and 100%.
50% of the Performance Rights will be measured against a relative Total Shareholder Return
target, based on an agreed basket of peer companies (ranked against the S&P ASX 200
Diversified Financials Index). To measure the performance against the TSR condition:
• The TSR of the companies in the peer group is calculated for the relevant period, with the share
price at the start and end based on a 5 day VWAP price; and
• The companies in the peer group are ranked according to their TSR performance. ClearView’s
TSR is calculated for the relevant period and ranked based on its percentile performance
against the peer group. The number of rights that vest are determined according to a vesting
scale: at less than the 50th percentile no rights vest, at the 50th percentile 50% vests and
at the 75th percentile 100% vests. Straight line vesting applies between the 50th and 75th
percentiles.
If there is a change of control event then the unvested Performance Rights will remain on foot
and continue to be tested against the Embedded Value performance hurdle and a continuing
employment service condition as noted above. The TSR falls away in these circumstances.
6. Change of Control
Achievement of the performance rights are as follows:
Vesting condition
Outcome
Embedded Value target at
30 June 2019
Achievement of 97% of
Embedded Value target
Vesting
scale
85%
TSR target
Total
Below the 50th percentile
0%
Weighting
Allocation of
CVW shares
50%
50%
42.5%
0%
42.5%
This resulted in the awarding of 42.5% of the performance rights issued with the balance being forfeited. This will result in the
allocation of 2.1 million shares held in the ESS Trust to participants as outlined in the table on the previous page. The remaining
2.7 million shares will be held in the ESS Trust for future issues.
58 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) The number of performance rights that were approved to be granted as compensation to each participant on 21 August 2019
is as follows:
SMT Member
Simon Swanson1
Athol Chiert
Christopher Blaxland-Walker
Deborah Lowe
Gregory Martin
Justin McLaughlin
Todd Kardash
Total
2020 issue2
897,868
280,584
224,467
196,408
336,700
196,408
224,467
2,356,902
Key terms of the FY20 issue under the LTIP scheme are as follows:
Key Scheme Details
Description
1. Instruments
2. Eligibility
3. Quantum
Performance Rights – being a right to receive one share for no consideration, contingent on
the vesting conditions being met. The awards also have the ability to be cash settled in certain
circumstances.
Open to nominated SMT members.
Each participant will have set LTI dollar value determined as part of their remuneration package.
This dollar value will be converted into a set number of Performance Rights at grant date based on
an agreed value per share, being 90% of the Embedded Value per share of $0.99³.
4. Performance Period
The Performance Rights are be subject to a performance period that ends on 30 June 2022.
5. Vesting Conditions
The participants must remain employed by the ClearView Group as at the vesting date (30 June
2022), in addition to meeting performance based vesting conditions.
The specifics of the vesting conditions include:
•
•
100% of the Performance Rights will be measured against an Underlying NPAT target for the
year ended 30 June 2022 (adjusted for interest on corporate debt), as set out in the three
year FY20 Business Plan and measured immediately after the financial year 30 June 2022.
At 90% achievement of the Underlying NPAT target, 0% of the Awards will vest with straight
line vesting between 90% and 100%.
6. Change of Control
If there is a change of control event then the unvested Performance Rights will remain on foot
and continue to be tested against the Underlying NPAT performance hurdle and a continuing
employment service condition as noted above.
7. Other
The performance rights vesting includes compliance and risk management stage gates and will
be subject to an appropriate claw back mechanism that is in the process of being developed.
Further details on the FY20 LTI cash based scheme will be provided in the FY20 Remuneration Report.
1
2
3
Performance rights to be granted to Simon Swanson were satisfied by the on-market purchase of ClearView ordinary shares.
Number of performance rights approved on 21 August 2019 to be issued to participants but not yet granted.
Embedded Value at 30 June 2019 4% discount rate margin, including a value for future franking credits, accrued franking credits and Employee Share Plan (ESP) loans.
CLEARVIEW WEALTH LIMITED | 59
DIRECTORS’ REPORT (CONTINUED)
Consequences of ClearView’s performance on shareholder wealth
The following tables set out the summary information about the Group’s earnings and movements in shareholder wealth for
five years to 30 June 2019:
Revenue1 ($’000)
Net profit after tax ($’000)
Underlying Net Profit after Tax
Dividend (Final) (cents)
Basic EPS (cents)
Diluted EPS (cents)
Fully diluted Underlying EPS (cents)
Embedded Value2 ($m)
Embedded Value per share (cents)2
Share Price at the beginning of the year (cents)
Share Price at the end of the year (cents)
30 Jun 19
30 Jun 18
30 Jun 17
30 Jun 16
30 Jun 15
385,755
372,207
333,503
295,828
253,640
3,959
25,090
-
0.63
0.62
3.94
673
99.4
116.0
66.0
26,596
32,353
13,150
30,362
23,615
27,235
12,572
20,533
3.00
4.33
4.14
5.03
701
104.9
145.0
116.0
2.75
2.20
2.11
4.88
662
100.6
95.0
145.0
2.50
4.39
4.27
4.92
624
94.8
95.0
95.0
2.10
2.43
2.36
3.85
494
84.7
80.0
95.0
1
2
Revenue from continuing operations excludes net fair value gains/losses in financial assets.
Embedded Value at 4% discount rate margin, including a value for future franking credits, franking credits included in the net worth and ESP loans.
Franking credits have been included in the net worth and prior periods have been restated to reflect this.
Remuneration of Directors and KMP
Non-executive Directors’ remuneration
Non-executive Directors are remunerated by way of one base fee (inclusive of Superannuation Guarantee) that is based on
market rates for comparable companies for the time commitment and responsibilities undertaken by
Non-executive Directors. The level of remuneration for each Non-executive Director is set by the Remuneration Committee,
within the total annual remuneration limits approved by the shareholders at a general meeting. Any increase to individual
Non-executive Director remuneration must be approved by the Board on the recommendation of the Remuneration Committee
after engaging and taking advice, where appropriate. All reasonable out of pocket expenses incurred in connection with
a Director’s duties on behalf of ClearView Wealth are reimbursed. There is no direct link between Non-executive Directors’
remuneration and the annual results of ClearView Wealth or its related entities. The Non-executive Director remuneration
is based on the role of the individual director, their membership on Board Committees, and directorships of other
ClearView entities.
Non-executive Directors are not entitled to participate in equity schemes of the Company, and are not entitled to receive
performance-based bonuses. Non-executive Directors are not entitled to retirement benefits other than in respect of any
superannuation entitlements.
The present limit on aggregate remuneration for Non-executive Directors is $1,000,000 including superannuation
(2018: $1,000,000). Directors’ fees can be paid as superannuation contributions. The fee pool is the only source of
remuneration for Non-executive Directors.
60 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED) The compensation of each Non-executive Director for the year ended 30 June 2019 is set out below:
Short term
employee benefits
Post
employment
Share based
payments
Total
Salary
& Fees
2019
$
Non-executive Directors
B Edwards
150,000
D Brown
G Burg
N Thomson1
M Alscher1
S Wakuya²
S Young
Total
77,626
85,000
85,000
49,077
31,111
86,758
564,572
Bonus
$
Non-
monetary
Termination
Payment
Superannuation
$
$
$
Executive Share
Plan of total
remuneration
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,374
-
-
-
-
8,242
15,616
-
-
-
-
-
-
-
-
150,000
85,000
85,000
85,000
49,077
31,111
95,000
580,188
1
Mr Alscher’s appointment as alternate Director to Mr Thomson was revoked and he was appointed as Director on 20 November 2018. Mr Thomson and Mr Alscher have agreed they will
receives no fees as Director although fees are payable to Crescent Partners Management Pty Ltd of which they are employees.
2 Mr Wakuya resigned as Director on 20 November 2018.
The compensation of each Non-executive Director for the year ended 30 June 2018 is set out below:
Short term
employee benefits
Post
employment
Share based
payments
Total
Salary
& Fees
2018
$
Non-executive Directors
B Edwards
D Brown
G Burg
M Lukin1
N Thomson2
A Sneddon3
M Alscher 4
S Wakuya5
S Young
Total
150,000
77,626
85,000
-
85,000
58,145
53,333
80,000
86,758
675,862
Bonus
$
Non-
monetary
Termination
Payment
Superannuation
$
$
$
Executive Share
Plan of total
remuneration
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,374
-
-
-
-
-
-
8,242
15,616
-
-
-
-
-
-
-
-
-
-
150,000
85,000
85,000
-
85,000
58,145
53,333
80,000
95,000
691,478
1 Mr Lukin received no fees as an Alternate Director. Mr Lukin’s appointment as Alternate Director for Mr Alscher was revoked 1 March 2018.
2 Mr Thomson has agreed that he will receive no fees as a Director although fees are payable to Crescent Partners Pty Limited of which he is an employee.
3 Mr Sneddon resigned as a Director on 1 March 2018.
4
Mr Alscher resigned as a Director and was appointed as an Alternate Director to Mr Thomson on 1 March 2018. During he tenure as a Director Mr Alscher agreed that he will receive no
fees as a Director although fees are payable to Crescent Partners Pty Limited of which he is an employee. Mr Alscher receives no fees as an Alternate Director.
5 Mr Wakuya has agreed he will receive no fees as a Director although fees are payable to Sony Life Insurance Co., Ltd.
CLEARVIEW WEALTH LIMITED | 61
DIRECTORS’ REPORT (CONTINUED)
Managing Director and Senior Management Team remuneration
The compensation of each member of the KMP of the Group for the year ended 30 June 2019 is set out below:
Short term
employee benefits
Post
employment
Share based payments
Total
Salary &
Fees
Bonus
Retention
Bonus³
Non-
monetary
Termination
Payment
Superan-
nuation
Executive
Share Plan4
2019
$
$
$
$
$
$
$
Long Term
Incentive
Plan
$
Perfor-
mance
based
%
$
S Swanson
A Chiert
G Martin
J McLaughlin
T Kardash
694,642
409,596
425,596
347,783
349,085
C Blaxland-Walker
359,601
D Lowe
E Briggs¹
L Hulley²
Total
344,323
309,757
210,689
-
-
-
-
-
-
-
-
-
300,000
15,235
210,000
11,806
210,000
15,235
180,000
-
200,000
11,806
200,000
11,806
180,000
7,364
160,000
160,000
-
-
-
-
-
-
-
-
-
-
20,531
-
804,549 60.2% 1,834,957
20,531
40,250
251,422 53.2% 943,605
20,531
40,250
301,705 54.5% 1,013,317
27,333
-
175,995 48.7% 731,110
25,019
43,816
201,137 53.6% 830,863
20,531
15,792
201,137 51.5% 808,867
20,531
29,307
80,455 43.8% 661,980
20,531
8,792
106,440 45.5% 605,520
144,734
16,754
-
- 30.1% 532,178
3,451,072
1,800,000 73,252
144,734 192,292
178,207 2,122,841 51.5% 7,962,397
1
Ceased as General Counsel and Company Secretary on 24 July 2019. Repayment of the portion of the retention bonus paid to Elizabeth Briggs, relevant to the portion of the retention
period not worked, has been requested.
2
Ceased as General Manager, Technology on 11 March 2019. The portion of the retention bonus paid to Louise Hulley, relevant to the portion of the retention period not worked, was not
recouped as determined by the Remuneration Committee and Board.
3
As reported in the 2018 remuneration report, in August 2018 the Board considered that there was a period of uncertainty given the decision to end the Collaboration Agreement with
Sony Life and agreed to a retention plan to retain key individuals. The retention plan was payable on 1 September 2018
with a clawback agreement in place until 31 August 2020.
4
Benefit calculated under the Binomial model in respect of the future value of the ESP shares issued.
The compensation of each member of the KMP of the Group for the year ended 30 June 2018 is set out below:
Short term
employee benefits
Post
employment
Share based payments
Total
Salary &
Fees
Bonus
Non-
monetary
Termination
Payment
Superan-
nuation
Executive
Share Plan1
2018
$
$
$
$
$
$
Long Term
Incentive
Plan
$
Perfor-
mance
based
%
$
S Swanson
A Chiert
G Martin
J McLaughlin
T Kardash
678,756
398,456
414,564
337,897
344,160
C Blaxland-Walker
347,566
D Lowe
S Cummings2
303,577
178,314
-
-
-
-
-
-
-
-
264,673
22,321
255,732
21,657
E Briggs3
L Hulley4
Total
14,635
11,476
14,635
-
11,476
11,476
4,764
-
-
-
-
-
-
-
20,032
20,032
20,032
26,833
20,032
20,032
23,432
-
-
-
144,976
13,092
-
-
20,032
21,347
-
352,859
33.1% 1,066,282
48,300
110,269
26.9% 588,533
48,300
132,322
28.7% 629,853
-
77,188
17.5% 441,918
19,564
88,215
22.3% 483,447
8,697
88,215
20.4% 475,986
16,100
13,496
4,830
35,286
13.4% 383,159
-
3.9%
349,878
5,333
10.2%
317,189
-
5,333
8.9%
304,069
3,523,695
43,978
68,462
144,976 204,896
159,287
895,020
21.8% 5,040,314
1
2
3
Benefit calculated under the Binomial model in respect of the future value of the ESP shares issued.
Ceased General Manager, Development on 31 January 2018.
Appointed as General Counsel and Company Secretary on 4 April 2018. Bonus relates to period from 1 July 2017 to 3 April 2018.
4
Appointed as General Manager, Technology on 4 April 2018. Bonus relates to period from 1 July 2017 to 3 April 2018.
62 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED)
Share Based Payments Granted As Compensation
Limited recourse loans have been granted by the Company to the ESP Participants to fund the acquisition of shares under
the ESP.
The following tables outlines the ESP loans made to KMP or their related entities as at 30 June 2019 and 30 June 2018:
2019
S Swanson
A Chiert
G Martin
J McLaughlin
T Kardash
C Blaxland-Walker
D Lowe
E Briggs
L Hulley
Total
Balance at
beginning
Loans
Granted
$
Interest
charged1
$
Repay-
ments
$
Loan
Cancelled
$
Balance at
end
$
Highest in
period
$
5,953,803
2,024,514
2,525,704
1,268,824
1,262,851
1,247,103
494,051
146,776
67,936
15,049,802
-
-
-
-
-
-
-
-
-
-
172,468
(159,000)
45,306
(39,750)
59,942
(47,700)
36,960
(23,850)
29,971
(23,850)
29,929
(19,836)
1,326
394
(8,324)
(2,497)
1,225
(69,161)
-
-
-
-
-
-
-
-
-
5,967,271
5,967,271
2,030,070
2,030,070
2,537,946
2,537,946
1,281,524
1,281,524
1,268,972
1,268,972
1,257,195
1,257,195
487,053
494,051
144,673
146,776
-
67,936
377,521
(393,968)
- 14,974,710
From August 2018, the Board resolved that interest would only be charged on vested shares for SMT participants. The Board
further resolved and acknowledged, given the length of time between the initial ESP share issues, that SMT are likely to start
selling vested shares on the ASX during the appropriate trading windows going forward.
The following tables outlines the ESP loans made to KMP or their related entities as at 30 June 2018 and 30 June 2017:
2018
S Swanson
A Chiert
G Martin
J McLaughlin
T Kardash
C Blaxland-Walker
D Lowe
S Cummings
E Briggs
L Hulley
Total
Balance at
beginning
Loans
Granted
$
Interest
charged1,2
$
Repay-
ments
$
Loan
Cancelled
$
Balance at
end
$
Highest in
period
$
5,998,853
2,026,710
2,526,710
1,268,824
1,263,355
1,244,192
493,325
358,728
147,998
69,628
15,398,323
-
-
-
-
-
-
-
-
-
-
-
100,700
(145,750)
34,242
42,719
21,453
21,359
21,093
8,356
6,056
1,067
494
(36,438)
(43,725)
(21,863)
(21,863)
(18,183)
(7,630)
(6,754)
(2,289)
(2,186)
-
-
-
-
-
-
-
-
-
-
5,953,803
5,998,853
2,024,514
2,026,710
2,525,704
2,526,710
1,268,415
1,268,824
1,262,851
1,263,355
1,247,103
1,247,103
494,051
358,030
494,051
358,728
146,776
147,998
67,936
69,628
316,190
(306,681)
- 15,407,832
CLEARVIEW WEALTH LIMITED | 63
DIRECTORS’ REPORT (CONTINUED) Shares granted to KMP and equity holdings
During and since the end of the financial year no shares (2018: Nil) were granted by the Company to KMP under the ESP.
The following table outlines the ESP shares issued to KMP or their related entities as at the date of this report:
Director, KMP, to
which the series
relates
Justin McLaughlin
Athol Chiert / Justin
McLaughlin
Simon Swanson
Simon Swanson
Simon Swanson
Greg Martin
Todd Kardash
Share series
Series 61,2,6,8
Series 71,2,6,8
Series 101,3,6,8
Series 111,4,6,8
Series 121,5,6,8
Series 151,5,6,8
Series 161,5,6,8
Series 161,5,6,8
Chris Blaxland-Walker
Series 267
Series 267
Series 267
Series 438
Series 44
Series 45
Series 51a
Series 51b
Athol Chiert
Greg Martin
Todd Kardash
Chris Blaxland-Walker
Chris Blaxland-Walker
Chris Blaxland-Walker
Deborah Lowe
Deborah Lowe
Fair value
at grant
date (pre-
modification1)
Fair value
at grant
date (post-
modification1)
Exercise
price per
share ($)
Aggregate
value at
grant date
($)
Expiry date9
0.10
0.07
0.11
0.08
0.06
0.10
0.10
0.10
0.29
0.29
0.29
0.20
0.23
0.27
0.19
0.22
0.10
0.59
51,500
30/06/2013
0.10
0.11
0.08
0.06
0.13
0.13
0.13
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0.49
0.50
0.58
0.65
0.50
0.50
0.50
0.57
0.57
0.57
1.01
1.01
1.01
0.96
0.96
98,057
224,074
323,295
241,927
196,271
127,366
127,366
29/09/2014
26/03/2015
26/03/2015
26/03/2015
01/07/2015
01/09/2016
01/09/2016
289,798
Change in control
289,798
Change in control
144,899
Change in control
16,718
19,372
21,883
25/11/2018
25/11/2019
25/11/2020
49,733
Change in control
57,586
Change in control
1
On the 14th February 2013, the Board approved a change to the rules of the ESP which changed the interest rate charged on the financial assistance granted to the ESP Participants from
the RBA official cash rate plus 25 basis points to zero percent. This resulted in changes to the inputs of the option pricing model which had an impact on the fair value of the option at the
date of the change.
2
Change of control provision was triggered on 23 October 2009 by Guiness Peat Group (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.
Shares vested 1 year from date of commencement of employment on 26 March 2011.
Shares vested 2 years from date of commencement of employment on 26 March 2012.
Change of control provision was triggered on 26 September 2012 by CCP Bidco obtaining a shareholding above 50%.
The Board approved granting an extension of the loan term until such time as there is a change of control in the Company.
Special condition relating to shares issued to KMP in Series 26: the shares may be sold on change of control with 50% of the funds held for in escrow for a period of 12 months.
Vesting conditions have been met up to the date of this report.
Expiry represents either the relevant vesting or holding lock period.
3
4
5
6
7
8
9
64 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED)
The following table summaries the performance and vesting conditions for shares issues to Employee Participants under the
ESP as at the date of this report are:
Series
Vesting Conditions
Performance Conditions
Series 6 – 30 June 2008 Issue
Series 7 – 29 September 2009 Issue
Series 10 – 25 June 2010 Issue
Series 11 – 25 June 2010 Issue
Series 12 – 25 June 2010 Issue
Series 15 – 18 August 2011 Issue
Series 16- 6 October 2011 Issue
Series 24- 22 August 2012 Issue
Series 26- 16 April 2013 Issue
Nil1
Nil1
Nil2
Nil2
Nil2,4
Nil4
Nil4
Nil4
Upon a change in control of the company3
Series 27- 16 April 2013 Issue
First year anniversary upon the change in control
Series 31- 14 October 2013 Issue
Upon a change in control of the company
Series 32- 14 October 2013 Issue
First year anniversary upon the change in control
Series 35- 31 January 2014 Issue
Upon a change in control of the company
Series 36- 31 January 2014 Issue
First year anniversary upon the change in control
Series 38- 30 May 2014 Issue
Series 39- 30 May 2014 Issue
Series 40- 30 May 2014 Issue
Series 43- 26 November 2014 Issue
Series 44- 26 November 2014 Issue
Series 45- 26 November 2014 Issue
Series 46- 30 March 2015 Issue
Series 47- 30 March 2015 Issue
Series 48- 30 March 2015 Issue
Series 50a - 30 July 2015 Issue
Series 50b - 30 July 2015 Issue
Series 50c - 30 July 2015 Issue
Series 51a & 51b - 23 December 2015
Issue
Series 52 - 27 April 2016 Issue
Series 54 - 20 June 2016 Issue
Remain an employee of the company for 4 years from
Grant date of shares
Remain an employee of the company for 5 years from
Grant date of shares
Remain an employee of the company for 6 years from
Grant date of shares
Remain an employee of the company for 4 years from
Grant date of shares
Remain an employee of the company for 5 years from
Grant date of shares
Remain an employee of the company for 6 years from
Grant date of shares
Remain an employee of the company for 4 years from
Grant date of shares
Remain an employee of the company for 5 years from
Grant date of shares
Remain an employee of the company for 6 years from
Grant date of shares
Remain an employee of the company for 4 years from
Grant date of shares
Remain an employee of the company for 5 years from
Grant date of shares
Remain an employee of the company for 6 years from
Grant date of shares
Upon a change in control of the company
Remain an employee of the company for 4 years from
Grant date of shares
Remain an employee of the company for 4 years from
Grant date of shares
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
1
2
3
4
Change of control provision was triggered on 23 October 2009 by GPG increasing its shareholding above 50%.
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 (vested); and
Series 12: 4 million shares at an issue price of 65 cents vesting on 26 September 2012 (vested) on change of control of ClearView.
The Shares issued to Mr Swanson have vested progressively each year as outlined above.
Special condition relating to shares issued to KMP in Series 26: 100% of the shares may be sold on change of control, but 50% are held in escrow after employment for 1 year thereafter.
Change of control provision was triggered on 26 September 2012 by CCP Bidco obtaining a shareholding above 50%.
CLEARVIEW WEALTH LIMITED | 65
DIRECTORS’ REPORT (CONTINUED)
Unless explicitly stated in the Participants Offer Documentation all unvested Shares will automatically vest in accordance with
the rules of the Plan upon a change of control as outlined above.
LTIP Awards
The following LTIP Awards were in existence at the end of the current reporting period:
Tranche
1A
1B
2A
2B
3A
3B
Issue Date
20 October
2017
20 October
2017
Number
Grant date
Vesting date
Vesting
conditions
Fair value at
grant date
1,432,143
1,432,143
20 October
2017
20 October
2017
30 June 2019
Embedded Value
(EV) target
30 June 2019 Total shareholder
return (TSR)
performance
4 April 2018
22,321
4 April 2018
30 June 2019
Embedded Value
(EV) target
4 April 2018
22,321
4 April 2018
1 September
2018
1 September
2018
965,819
965,819
1 September
2018
1 September
2018
30 June 2019 Total shareholder
return (TSR)
performance
30 June 2019
Embedded Value
(EV) target
30 June 2019 Total shareholder
return (TSR)
performance
$1.38
$0.03
$1.38
$0.03
$0.95
$0.50
The following table outlines the fully paid ordinary shares of the Company (including those held under the ESP) owned by the
Directors and KMP as at 30 June 2019:
s
n
o
i
t
i
d
n
o
c
g
n
i
t
s
e
v
o
t
t
c
e
j
b
u
s
s
e
r
a
h
S
.
o
N
-
-
g
n
i
t
s
e
v
o
t
t
c
e
j
b
u
s
.
o
N
s
n
o
i
t
i
d
n
o
c
t
o
n
s
e
r
a
h
S
t
a
e
c
n
a
l
a
B
i
f
o
g
n
n
n
g
e
b
i
.
o
N
r
a
e
y
l
a
i
c
n
a
n
fi
.
o
N
n
o
i
t
a
s
n
e
p
m
o
c
s
a
d
e
t
n
a
r
G
.
o
N
r
a
e
y
l
a
i
c
n
a
n
fi
f
o
d
n
e
e
c
n
a
l
a
B
g
n
i
t
s
e
v
o
t
t
c
e
j
b
u
s
d
l
e
h
e
c
n
a
l
a
B
.
o
N
s
e
g
n
a
h
c
r
e
h
t
o
t
e
N
-
599,900
- 10,918,090
17,140
617,040
- 10,918,090
.
o
N
s
n
o
i
t
i
d
n
o
c
-
-
d
e
t
s
e
v
e
c
n
a
l
a
B
.
o
N
d
n
e
r
a
e
y
t
a
-
-
t
e
y
t
o
n
t
u
b
d
e
t
s
e
V
.
o
N
e
l
b
a
s
i
c
r
e
x
e
-
-
.
o
N
e
l
b
a
s
i
c
r
e
x
e
d
n
a
d
e
t
s
e
V
-
-
-
-
-
-
-
-
-
-
-
-
-
60,981 14,700,000
- 10,000,000
- 10,000,000
25,265
2,924,512
1,000,000
1,500,000
-
1,500,000
2,309
83,092
-
-
-
-
-
1,647,060
-
1,500,000
-
1,500,000
20,000
1,667,059
500,000
1,000,000
-
1,000,000
90,976
3,825,117
1,000,000
2,000,000
-
2,000,000
-
1,247,525
247,525
1,000,000
-
1,000,000
-
-
588,445
523,505
172,754
157,052
-
-
-
-
-
-
2019
B Edwards
G Burg
S Swanson
A Chiert
S Young
J McLaughlin
T Kardash
G Martin
- 10,000,000 14,639,019
1,000,000
1,500,000
2,899,247
-
-
80,783
-
1,500,000
1,647,060
500,000
1,000,000
1,647,059
1,000,000
2,000,000
3,734,141
C Blaxland-Walker
247,525
1,000,000
1,247,525
D Lowe
E Briggs
523,505
157,052
-
-
588,445
172,754
66 | CLEARVIEW ANNUAL REPORT 2019
DIRECTORS’ REPORT (CONTINUED)
Key terms of employment contracts
The following contractual and other arrangements are in place in respect of the KMP as at the date of this report.
Notice period
by either the
employee or the
Company
Other
Term
Ongoing 12 months
In the case of redundancy, a severance payment of 13
weeks' base salary (or any greater payment required
under the National Employment Standards (NES)).
Target
Incentive
% of base
salary
Maximum
Incentive
% of base
salary
50%
60%
KMP
Simon
Swanson
Athol Chiert
Ongoing 6 months
notice for the
first 3 years of
employment,
3 months notice
after 3 years
For all terminations after the first 3 years of employment
an additional 26 week payment is payable.
30%
36%
Christopher
Blaxland-
Walker
Ongoing 12 months
In the case of redundancy, a severance payment of 13
weeks' base salary (or any greater payment required
under the NES).
30%
36%
Deborah Lowe Ongoing 6 months
Greg Martin
Ongoing 6 months
Justin
McLaughlin
Ongoing 6 months
Todd Kardash Ongoing 12 months
In the case of redundancy, a severance payment of 13
weeks' base salary (or any greater payment required
under the NES).
In the case of redundancy, a severance payment of 13
weeks' base salary (or any greater payment required
under the NES).
In the case of redundancy, a severance payment of 26
weeks’ base salary (or any greater payment required
under the NES).
In the case of redundancy, a severance payment of 13
weeks' base salary (or any greater payment required
under the NES).
30%
36%
30%
36%
30%
36%
30%
36%
All current Directors are subject to re-election by shareholders at least every 3 years. All current KMP 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 Corporation Act 2001.
On behalf of the Directors
Mr Bruce Edwards
Chairman
28 August 2019
CLEARVIEW WEALTH LIMITED | 67
DIRECTORS’ REPORT (CONTINUED)
Auditor’s Independence
Declaration
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 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 15, 20 Bond Street
Sydney NSW 2000
28 August 2019
Dear Directors
Auditor’s Independence Declaration to 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 2019, 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 sincerely
DELOITTE TOUCHE TOHMATSU
Max Murray
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards
Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
2019 financial report contents
Consolidated statement of profit or loss and other
comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cashflows
Notes to the financial statements
1. About this report
(a) General Information
(b) Statement of compliance
(c) Basis of preparation
(d) Basis of consolidation
(e) Business combinations
(f) Materiality
(g) Significant accounting policies
(h) Critical judgements and estimates
(i) Risk management
2. Results for the year
2.1
Segment performance
2.2
Earnings per share
2.3 Dividends
2.4
Fee and other revenue
2.5
Investment income
2.6 Operating expenses
2.7
Taxes
3. Receivables, payables and investments
3.1 Receivables
3.2
Payables
3.3
Investments
3.4
Financial risk management
4. Non-financial assets and liabilities
4.1 Goodwill and intangibles
4.2
Recoverability of goodwill and intangibles
4.3
Provisions
5. Life insurance and investment contracts
5.1
5.2
Accounting for life insurance
and investment contracts
Disaggregated information
by Statutory Fund
70
71
72
73
75
76
76
76
76
77
78
78
78
79
82
83
84
86
86
87
87
88
92
93
93
94
96
103
104
105
107
109
110
112
5.3
Sources of profit
5.4
Policy Liabilities
5.5
Capital adequacy
5.6
Actuarial methods and assumptions
5.7
Critical accounting judgements and
key sources of estimation uncertainty
114
115
116
118
120
6. Capital structure and financial risk management 121
6.1
Issued capital
6.2 Movements in reserves
6.3
Shares granted under the executive
share plan
6.4
Financing facilities
6.5
Capital risk management
7. Employee disclosures
7.1
Key management personnel compensation
7.2
Share based payments
8. Related parties and other Group entities
8.1
Equity interests in subsidiaries
8.2
Transactions between the Group and
its related parties
8.3
Investment in controlled unit trusts
9. Other disclosures
9.1 Notes to the Consolidated Statement of
cash flows
9.2
Contingent liabilities and contingent assets
9.3
Leases
9.4
Capital commitments
9.5 Guarantees
9.6 New accounting standards
9.7 Other significant accounting policies
9.8
Subsequent events
Director’ Declaration
Independent Auditor’s Report
Shareholders’ Information
Directory
122
122
123
123
124
125
126
126
137
138
139
141
142
143
143
144
145
145
145
148
158
149
150
156
159
The Financial Report was authorised for issue by the Directors on 28 August 2019.
CLEARVIEW WEALTH LIMITED | 69
Consolidated statement of profit or loss
and other comprehensive income
For the year ended 30 June 2019
Consolidated
Note
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
243,114
(71,613)
171,501
123,116
91,138
215,171
(56,741)
158,430
127,744
86,033
385,755
372,207
-
-
-
-
-
-
-
-
8,029
8,029
23,845
23,845
68,082
41,195
-
-
453,837
(116,257)
80,345
413,402
(94,161)
61,244
(127,718)
(129,903)
8,029
23,845
-
-
-
-
-
-
(114,561)
(101,687)
(4,521)
(2,735)
(9,006)
(10,432)
-
(21,509)
1,319
19,212
(95,896)
(64,840)
4,926
(967)
3,959
-
(37,681)
17,234
4,599
(72,041)
(55,733)
-
-
-
-
-
-
-
-
-
-
32,522
(5,926)
26,596
(34,173)
1,463
(32,710)
21,110
1,085
22,195
3,959
26,596
(32,710)
22,195
0.63
0.62
4.33
4.14
-
-
-
-
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 on financial assets
Net operating revenue
Claims expense
Reinsurance recoveries revenue
Commission and other variable expenses
Operating expenses
Depreciation and amortisation expense
Impairment
Change in life insurance policy liabilities
Change in reinsurers’ share of life insurance liabilities
Change in life investment policy liabilities
Movement in liability of non-controlling interest in controlled
unit trusts
Profit/loss before income tax expense
Income tax (expense) benefit
Total comprehensive income/loss for the year
Attributable to:
Equity holders of the parent
Earnings per share
Basic (cents per share)
Diluted (cents per share)
To be read in conjunction with the accompanying Notes.
2.4
2.5
2.6
2.6
2.6
5.4
5.4
5.4
2.7
2.2
70 | CLEARVIEW ANNUAL REPORT 2019
Consolidated statement of financial position
For the year ended 30 June 2019
Consolidated
Note
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’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
Goodwill
Intangible assets
Total assets
Liabilities
Payables
Current tax liabilities
Provisions
Life insurance policy liabilities
Life investment policy liabilities
Liability to non-controlling interest in controlled unit trusts
Deferred tax liabilities
Borrowings
Total liabilities
Net assets
Equity
Issued capital
Retained losses
Executive Share Plan Reserve
Profit reserve
General reserve
Total equity
To be read in conjunction with the accompanying Notes.
3.3
3.1
5.4
2.7
4.1
4.1
3.2
2.7
4.3
5.4
5.4
2.7
6.1
6.2
6.2
6.2
6.2
200,197
176,363
11,038
8,047
1,981,312
2,057,192
389,078
412,359
38,786
104,515
95,669
43,088
98,685
38,243
3,404
17,682
-
-
-
-
8,848
10,979
237
179
934
12,511
8,893
1,150
20,452
24,710
-
-
-
-
-
-
2,451,665
2,470,862
403,757
438,267
51,955
31,106
2,178
7,320
8,146
6,634
(151,652)
(197,116)
1,152,535
1,198,780
933,155
976,079
6,857
2,177
24
-
-
-
9,241
8,145
26
-
-
-
2,122
15,000
2,924
803
1,042
-
15,000
-
2,012,613
2,026,553
24,861
18,454
439,052
444,309
378,896
419,813
446,043
(26,372)
16,087
-
438,289
446,043
(9,274)
(105,479)
12,509
-
16,087
18,952
3,294
438,289
(64,969)
12,509
31,200
2,785
3,294
2,785
439,052
444,309
378,896
419,813
CLEARVIEW WEALTH LIMITED | 71
Consolidated statement of changes in equity
For the year ended 30 June 2019
Consolidated
Balance at 30 June 2017
Profit for the year
Total comprehensive income for the year
Recognition of share based payments
Dividend paid (inclusive of costs)
Share
capital
$’000
421,717
-
-
-
-
Dividend Reinvestment Plan (inclusive of costs)
12,181
ESP loans settled through dividend
ESP shares vested/(forfeited)
Transfers
-
4,391
-
Balance at 30 June 2018
438,289
12,509
Change on initial application of AASB 9
-
-
Restated balance as at 1 July 2019
438,289
12,509
2,785
Profit for the year
Total comprehensive income for the year
Recognition of share based payments
Dividend paid (inclusive of costs)
-
-
-
-
Dividend Reinvestment Plan (inclusive of costs)
11,119
Share
based
payments
reserve
General
reserve
Profit
reserve
Retained
losses
Attributable
to the
owners of
the parent
$’000
10,068
$’000
(487)
-
-
2,174
-
-
771
(504)
-
-
-
-
-
-
-
1,187
2,085
2,785
-
-
-
2,889
-
-
746
(57)
-
-
-
-
-
-
-
509
-
$’000
$’000
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(15,648)
415,650
26,595
26,595
-
26,595
26,595
2,174
(18,136)
(18,136)
-
-
-
(2,085)
(9,274)
(1,008)
12,181
771
5,074
-
444,309
(1,008)
(10,282)
443,301
3,959
3,959
-
(20,048)
-
-
-
-
3,959
3,959
2,889
(20,048)
11,119
746
1,273
(4,186)
(26,372)
439,052
-
821
(4,186)
446,043
16,087
3,294
ESP loans settled through dividend
ESP shares vested/(forfeited)
Treasury shares
Balance at 30 June 2019
To be read in conjunction with the accompanying Notes.
72 | CLEARVIEW ANNUAL REPORT 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
Company
Balance at 30 June 2017
Profit for the year
Total comprehensive profit/(loss) for the year
Recognition of share based payments
Dividend paid (inclusive of costs)
Share
capital
$’000
421,717
-
-
-
-
Dividend Reinvestment Plan (inclusive of costs)
12,181
ESP loans settled through dividend
ESP shares vested/(forfeited)
Transfers
Balance at 30 June 2018
Profit for the year
Total comprehensive profit/(loss) for the year
Recognition of share based payments
Dividend paid (inclusive of costs)
Dividend Reinvestment Plan
ESP loans settled through dividend
ESP shares vested/(forfeited)
Treasury shares
Balance at 30 June 2019
To be read in conjunction with the accompanying Notes.
Share
based
payments
reserve
General
reserve
Profit
reserve
Retained
losses
Attributable
to the
owners of
the parent
$’000
10,068
$’000
(487)
$’000
$’000
25,636
(61,379)
395,554
-
-
2,174
-
-
771
(504)
-
-
4,391
-
438,289
12,509
-
-
-
-
11,119
-
821
(4,186)
-
-
2,889
-
-
746
(57)
-
-
-
-
-
-
-
1,187
2,085
2,785
-
-
-
-
-
-
509
-
23,700
(1,505)
23,700
(1,505)
-
(18,136)
-
-
-
-
-
-
-
-
-
(2,085)
31,200
(64,969)
7,800
(40,510)
7,800
(40,510)
-
(20,048)
-
-
-
-
-
-
-
-
-
-
22,195
22,195
2,174
(18,136)
12,181
771
5,074
-
419,813
(32,710)
(32,710)
2,889
(20,048)
11,119
746
1,273
(4,186)
446,043
16,087
3,294
18,952
(105,479)
378,896
CLEARVIEW WEALTH LIMITED | 73
Consolidated statement of cash flows
For the year ended 30 June 2019
Consolidated
Note
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
Cash flows from operating activities
Receipts from clients and debtors
Payments to suppliers and other creditors
Receipts from/(payments to) Group entities
Withdrawals paid to life investment clients
Dividends and trust distributions received
Interest received
Interest on borrowings and other costs of finance
Income taxes paid
Net cash (utilised)/generated by operating activities
9.1
583,827
610,882
(327,441)
(347,754)
-
-
(344,563)
(299,786)
26,275
27,900
(1,461)
(12,576)
(48,039)
20,441
25,306
(1,129)
(3,502)
4,457
-
(4,500)
22,602
-
-
229
(712)
(12,576)
5,043
-
(280)
17,890
-
-
145
(419)
(3,502)
13,834
Cash flows from investing activities
Net cash movement due to investment in subsidary
-
-
(14,400)
(35,200)
Payments for investment securities
Proceeds from sales of investment securities
Acquisition of property, plant and equipment
Acquisition of capitalised software
Fixed interest deposits redeemed/(invested)
Loans (granted)/repaid
Dividends received from subsidiary
(1,821,876)
(1,402,009)
2,008,545
1,253,078
(399)
(6,076)
(5,830)
623
-
(426)
(10,263)
(20,358)
(2,124)
-
-
-
-
-
-
-
-
-
-
-
(102)
7,800
(57)
23,700
Net cash generated (utilised) by investing activities
174,987
(182,102)
(6,702)
(11,557)
Cash flows from financing activities
Net movement in liability of non-controlling interest in unit
trusts
(107,764)
131,920
-
Treasury shares
Repayment of ESP loans
ESP shares vested/(forfeited)
Dividend paid (net of costs)
Debt drawn down
(4,186)
746
1,273
(8,183)
15,000
771
5,074
(5,954)
-
Net cash (utilised) generated in financing activities
Net increase/(decrease) 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.
(103,114)
131,811
23,834
(45,834)
176,363
222,197
200,197
176,363
74 | CLEARVIEW ANNUAL REPORT 2019
-
(4,186)
746
1,273
(8,183)
15,000
4,650
2,991
8,047
11,038
-
-
771
5,074
(5,954)
-
(109)
2,167
5,880
8,047
Notes to the Financial Statements
For the year ended 30 June 2019
1. About this report
(a) General Information
(b) Statement of compliance
(c) Basis of preparation
(d) Basis of consolidation
(e) Business combinations
(f) Materiality
(g) Significant accounting policies
(h) Critical judgements and estimates
(i) Risk management
76
76
76
76
77
78
78
78
79
CLEARVIEW WEALTH LIMITED | 75
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
1. About this report
(a) 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 2.1.
(b) Statement of compliance
These financial statements are general purpose financial
statements which have been prepared in accordance with
the Corporations Act 2001, Accounting Standards and
Interpretations, and comply with other requirements of the law.
The financial statements comprise the consolidated financial
statements of the Group and the separate financial statements
of the parent entity. For the purpose of preparing the
consolidated financial statements, the Company is a for-profit
entity. Accounting Standards comprise 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 28 August 2019.
(c) Basis of preparation
The consolidated financial statements have been prepared on
the basis of historical cost, except financial instruments that
are measured at revalued amounts or fair values at the end of
each reporting period, as explained in the accounting policies
below. Historical cost is generally based on the fair values of
the consideration given in exchange for goods and services. Fair
value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date, regardless of whether
that price is directly observable or estimated using another
valuation technique. In estimating the fair value of an asset
or a liability, the Group takes into account the characteristics
of the asset or liability if market participants would take those
characteristics into account when pricing the asset or liability
at the measurement date. Fair value for measurement and/or
disclosure purposes in these consolidated financial statements
is determined on such a basis, except for share-based payment
transactions that are within the scope of AASB 2, leasing
transactions that are within the scope of AASB 117, and
measurements that have some similarities to fair value but are
not fair value, such as net realisable value in AASB 102 or value
in use in AASB 136.
In addition, for financial reporting purposes, fair value
76 | CLEARVIEW ANNUAL REPORT 2019
measurements are categorised into Level 1, 2 or 3 based on the
degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
•
•
•
Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the entity can
access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or
liability.
The Company is a company of the kind referred to in ASIC
Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191, dated 24 March 2016, and in accordance
with that Corporations Instrument, amounts in the financial
report are rounded off to the nearest thousand dollars, unless
otherwise indicated.
All amounts are presented in Australian dollars, unless
otherwise noted.
(d) Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the
Company and its subsidiaries. Control is achieved when the
Company:
• has power over the investee;
•
is exposed, or has rights, to variable returns from its
involvement with the investee; and
• has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee
if facts and circumstances indicate that there are changes to
one or more of the three elements of control listed above.
When the Company has less than a majority of the voting rights
of an investee, it has power over the investee when the voting
rights are sufficient to give it the practical ability to direct the
relevant activities of the investee unilaterally. The Company
considers all relevant facts and circumstances in assessing
whether or not the Company’s voting rights in an investee are
sufficient to give it power, including:
•
•
the size of the Company’s holding of voting rights relative to
the size and dispersion of holdings of the other vote holders;
potential voting rights held by the Company, other vote
holders or other parties;
•
rights arising from other contractual arrangements; and
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
1. About this report continued
•
any additional facts and circumstances that indicate that
the Company has, or does not have, the current ability
to direct the relevant activities at the time that decisions
need to be made, including voting patterns at previous
shareholders’ meetings.
AASBs). The fair value of any investment retained in the former
subsidiary at the date when control is lost is regarded as the fair
value on initial recognition for subsequent accounting under
AASB 9, when applicable, the cost on initial recognition of an
investment in an associate or a joint venture.
Consolidation of a subsidiary begins when the Company obtains
control over the subsidiary and ceases when the Company loses
control of the subsidiary. Specifically, income and expenses
of a subsidiary acquired or disposed of during the year are
included in the consolidated statement of profit or loss and
other comprehensive income from the date the Company
gains control until the date when the Company ceases to
control the subsidiary.
Profit or loss and each component of other comprehensive
income are attributed to the owners of the Company and to
the non-controlling interests. 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.
When necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies into
line with the Group’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses
and cash flows relating to transactions between members of
the Group are eliminated in full on consolidation.
Changes in the Group’s ownership interests in
existing subsidiaries
Changes in the Group’s ownership interests in subsidiaries that
do not result in the Group losing control over the subsidiaries
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.
When the Group loses control of a subsidiary, a gain or loss is
recognised in profit or loss and is calculated as the difference
between (i) the aggregate of the fair value of the consideration
received and the fair value of any retained interest and (ii) the
previous carrying amount of the assets (including goodwill), and
liabilities of the subsidiary and any non-controlling interests. All
amounts previously recognised in other comprehensive income
in relation to that subsidiary are accounted for as if the Group
had directly disposed of the related assets or liabilities of the
subsidiary (that is, reclassified to profit or loss or transferred to
another category of equity as specified/permitted by applicable
(e) Business combinations
Acquisitions of businesses are accounted for using the
acquisition method. The consideration transferred in a business
combination is measured at fair value which is calculated as
the sum of the acquisition-date fair values of assets transferred
by the Group, liabilities incurred by the Group to the former
owners of the acquiree and the 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 share-based
payment arrangements of the acquiree or share-based
payment arrangements of the Group entered into to replace
share-based payment arrangements of the acquiree
are measured in accordance with AASB 2 ‘Share-based
Payment’ at the acquisition date; and
assets (or disposal groups) that are classified as held for sale
in accordance with AASB 5 Non-current 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
CLEARVIEW WEALTH LIMITED | 77
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
1. About this report continued
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.
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 at the acquisition date that,
if known, would have affected the amounts recognised as at
that date.
(f) Materiality
Information has only been included in the financial report to
the extent that it has been considered material and relevant to
the understanding of the financial statements. A disclosure is
considered material and relevant if, for example:
•
the amount in question is significant because of its
size or nature;
78 | CLEARVIEW ANNUAL REPORT 2019
it is important for understanding the results of the
ClearView group;
it helps explain the impact of significant changes in the
ClearView group; and/or
it relates to an aspect of the ClearView group’s operations
that is important to its future performance.
(g) Significant accounting policies
The significant accounting policies adopted in the preparation
of the financial report are contained in the notes to the financial
statements to which they relate. All accounting policies have
been consistently applied to the current year and comparative
period, unless otherwise stated.
(h) Critical judgements and estimates
In the application of the Group’s accounting policies, the
Directors are 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.
The critical judgments that the Directors have 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 and allocation of expenses
between acquisition and maintenance costs (section 5.7);
• Assets arising from reinsurance contracts (section 5.7);
• Recoverability of intangible assets and goodwill (section 4.2);
• Deferred tax assets (section 2.7).
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 1. About this report continued
(i) Risk management
Risk management strategy and framework, roles and
responsibilities
Risk management is an integral part of the Group’s
management process. The Group’s Board has adopted
a formal Risk Management and Capital Strategy (RMCS)
and Risk Management Framework (RMF) to assist it in
identifying and managing the key risks to achieving the
Group’s objectives. The RMCS and RMF are fundamental
to the business decisions of the Group, including resource
allocation decisions and prioritisation of activities.
The 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 RMCS and RMF considers the key stakeholders in the
Group, beyond the shareholders, including:
• The benefit, security and expectations of policyholders,
members of the ClearView Retirement Plan and
investment product and advice clients;
• Risk impacts on and from our staff, our distribution
partners and suppliers and counterparties; and
• Requirements and objectives of our regulators.
The RMCS specifies the Board’s risk appetite and tolerance
standard which guides the Group in its decisions as to the
acceptance, management and rejection of risks. A risk
register is maintained that identifies the key risks of the Group
by type, impact and likelihood, and indicates the key process
and mechanisms to control, mitigate or transfer those risks
within the allowed tolerances. The RMCS and RMF includes
suitable monitoring mechanisms.
Insurance risk
As part of the RMCS and RMF, the Group has adopted an
Internal Capital Adequacy Assessment Process (ICAAP)
with respect to supporting the residual risk exposures
retained by the Group and the ongoing capital needs
of the Group.
The Group’s activities expose it to a variety of risks,
both financial and non-financial. Key risks include:
• Asset risks, including investment market risk (interest rate
risk and equity price risk), investment management risk,
credit risk and liquidity risk;
•
Insurance risk;
• Asset-liability mismatch risk;
• Expense and discontinuance (lapses, withdrawals and loss
of client) risks; and
• Non-financial risks - regulatory environment, operational,
resilience and strategic risks.
The key risks are discussed in more detail below:
Asset risks
The primary asset risks borne by the Group 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 Group which vary with the
level of Policyholder and client funds under management
and under administration, as well as related reputational
exposure (for further detail on Asset risks refer to section 3).
The risks under the life insurance contracts written by ClearView Life are exposed 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
Benefits paid on death or ill
Benefits defined by the
contracts with fixed terms
health that are fixed and not at
insurance contract are
(Term Life and Disability)
the discretion of the issuer
determined by the contract
obligation of the issuer and
Mortality
Morbidity
Discontinuance rates
are not directly affected by the
Expenses
performance of the underlying
assets or the performance of
the contracts as a whole
Policy Terms
Premium Rates
CLEARVIEW WEALTH LIMITED | 79
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
1. About this report continued
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.
(a) Risk management objectives and policies for
mitigating insurance risk
ClearView Life issues term life insurance contracts and
disability insurance contracts. The performance of ClearView
Life and its continuing ability to write business depends
on its ability to manage insurance risk. The Group’s RMCS
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 Regulation 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 is
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 ClearView Life is principally written
on individual lives (not group business). Individual business
is not expected to provide significant exposure to risk
concentration. Nonetheless, insurance risk is concentrated
to the eastern seaboard of Australia and its capital cities.
80 | CLEARVIEW ANNUAL REPORT 2019
The residual risk exposure is reduced through the use of
reinsurance and is subject to review by the reinsurers from
time to time.
(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 ClearView Life’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 ClearView Life.
Asset-Liability mismatch risk
Asset-liability mismatch risk arises to the extent to which
the assets held by the Group 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
Group primarily relate to the extent that the Group 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 ClearView Life
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.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; and
• Similarly, assets held to support the policy liabilities and
risk capital of the ClearView Life No.1 statutory fund are
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 1. About this report continued
maintained, in accordance with the Board’s investment
Policy and Guidelines, in high quality, fixed interest assets
and cash that closely match those policy liabilities and
capital reserves.
Expense and 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.
The risks are principally managed via the Group’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 – regulatory environment,
operational, resilience and strategic risks
The Group 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 RMCS and
RMF. Key elements of the RMF include:
•
•
Internal Group risk and compliance team. The adequacy
of the team’s resources are periodically reviewed as
the nature, size and complexity of ClearView changes.
This is a core area of focus with investment in the team
increasing in FY20;
A Breach and Incident Management process which
ensures that breaches and incidents are identified,
reported and assessed;
• Detailed compliance registers, reporting timetables and
due diligence processes;
• A detailed overall risk register which identifies the key
risks, mitigations and controls, inherent and residual risks,
and risk owners;
• A fraud and cyber Risk Management Framework which
provides governance for the prevention, detection and
recovery in the case of attempted and materialised internal
and external fraud events, and information security events;
• A monthly Risk Management and Compliance Committee
which focuses, among other items, on the RMCS
and RMF;
•
Internal audit, whistleblowing policy and facilities,
detailed financial reconciliations and unit pricing
checking processes, detailed information technology
development and implementation processes;
• Comprehensive internal management information
reporting and monitoring, emerging risk exposures
reporting, staff training programs, staff recruitment
standards (including fit and proper standards);
• Annual Business Continuity and Disaster Recovery
Testing; and
•
Initiatives to ensure that an appropriate risk culture within
the business is maintained including, Board and Senior
Management Team focus, an adopted culture statement,
including risk management as a formal part of all key
business decisions, and appropriate risk management
supporting remuneration structures and monitoring
of Risk Culture Indicators.
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, ClearView Financial
Advice and Matrix Planning Solutions are also required
to maintain minimum regulatory capital as required by
ASIC; and
• ClearView Life Nominees is required to maintain
an Operational Risk Financial Requirement (ORFR)
as determined in accordance with Superannuation
Prudential Standard 114. SPS 114 requires that the
trustee maintains adequate financial resources to
address losses arising from the operational risks
that may affect the ClearView Retirement Plan.
In addition, the Group maintains capital reserves in
accordance with its Board adopted ICAAP that retains capital
reserves to support its retained risk exposures, ensures
there is a low likelihood that the Group (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 that
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.
CLEARVIEW WEALTH LIMITED | 81
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 2. Results for the year
This section provides information about the Group’s financial performance in
the period, including:
2.1 Segment performance
2.2 Earnings per share
2.3 Dividends
2.4 Fee and other revenue
2.5 Investment income
2.6 Operating expenses
2.7 Taxes
83
85
86
86
87
87
88
82 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
2. Results for the year
2.1 Segment performance
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 Advice; and
• Listed Entity/Other.
(a) Life Insurance (“protection” products)
ClearView provides life insurance protection products through
its wholly owned subsidiary ClearView Life. The products
provided by ClearView Life include:
•
•
A comprehensive range of life protection products
distributed via both CFA and Matrix financial advisers and
third party, external advisers (IFAs). The product suite,
LifeSolutions, was launched in December 2011 and is a
high quality advice based product suite, providing top
quartile benefits and terms at market competitive prices.
LifeSolutions includes term life, permanent disability,
trauma and critical illness benefits, child cover, accident
covers, income protection and business expense covers.
Policies can be issued directly or via the ClearView
Retirement Plan as superannuation; and
An in-force portfolio of Non-Advice life protection products
that were previously sold through direct marketing, and
related channels. Products include term life, accidental
death, injury covers, trauma and critical illness and funeral
insurance. These products are no longer marketed to
customers. The direct life insurance business was closed in
May 2017.
(b) Wealth Management (“investment” products)
ClearView provides wealth management products via four
primary avenues:
•
Master Trust - Life investment contracts issued by
ClearView Life. Products include ordinary savings,
superannuation and allocated pension products, with the
latter two provided via the ClearView Retirement Plan;
•
•
•
WealthSolutions - A superannuation and retirement income
wrap (issued via the ClearView Retirement Plan) and an
Investor Directed Portfolio Service (IDPS) Wrap (provided
by CFML). This is offered via the WealthSolutions platform
which was launched in December 2011. WealthSolutions
includes a broad menu of investment funds, ASX listed
shares, term deposits, ClearView managed funds and
Separately Managed Account (SMA) offering. It also provides
a number of model portfolios managed by ClearView for
superannuation and non superannuation investors;
WealthFoundations - Life investment contracts issued
by ClearView Life. Products include superannuation and
allocated pension products, issued via the ClearView
Retirement Plan. WealthFoundations includes a menu
of investment options with transparent investment in
underlying funds; and
Managed Investment Schemes (MIS) - Products are
issued via ClearView Financial Management Limited
(CFML) as the ASIC licensed Responsible Entity and include
MIS products available on ClearView’s WealthSolutions
platform and external platforms.
(c) Financial Advice
ClearView provides financial advice services through its wholly
owned subsidiaries ClearView Financial Advice (CFA) and Matrix
Planning Solutions (Matrix). Our comprehensive financial
advice offering features two aligned dealer groups providing
traditional licensing and dealer services plus the recently
launched LaVista Licensee Solutions (LaVista) which provides
outsourced B2B licensee services to other Australian Financial
Services Licensees (AFSLs).
(d) Listed Entity/Other
This represents the investment earnings on the cash and
investments held in the listed and central services entities
and in the shareholders fund of ClearView Life, less the costs
associated with maintaining a listed entity and interest
expense on corporate debt. The Group manages capital at the
listed entity level in accordance with its ICAAP policy.
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 on the
following page.
CLEARVIEW WEALTH LIMITED | 83
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 2. Results for the year continued
The accounting policies of the reportable segments are the same as the Company’s accounting policies.
Segment revenue
Life Insurance
Wealth Management
Financial Advice
Listed entity/Other
Total Revenue
Inter-Segment Revenue
Consolidated Revenue
2019
$’000
2018
$’000
2019
$’000
2018
$’000
2019
$’000
2018
$’000
174,353
129,185
110,348
352
160,702
126,350
114,546
343
-
-
-
-
(28,483)
(29,734)
-
-
174,353
129,185
81,865
352
160,702
126,350
84,812
343
Consolidated segment revenue
414,238
401,941
(28,483)
(29,734)
385,755
372,207
Underlying profit is the Groups key measure of business performance and is disclosed below by segment:
2019
Underlying net profit/(loss) after tax
Amortisation of acquired intangibles1
AIFRS policy liability discount rate effect
(net of tax)2
Cost out program implementation costs3
Impairments3
Royal Commission and direct remediation costs3
Other costs3
Reported profit/(loss) after tax
2018
Underlying net profit/(loss) after tax
Amortisation of acquired intangibles1
AIFRS policy liability discount rate effect
(net of tax)2
Strategic review cost (net of tax)4
Reported profit/(loss) after tax
Life
Insurance
Wealth
Management
Financial
Advice
Listed Entity/
Other
21,994
-
6,638
(1,547)
(4,952)
(2,060)
(900)
19,174
26,085
(2,833)
(906)
-
3,635
(90)
-
(397)
(1,081)
-
(205)
1,862
5,163
(90)
-
-
1,005
(1,121)
-
(1,544)
-
-
-
(330)
(324)
-
(13,739)
(3,340)
1,780
(1,121)
-
-
(676)
-
-
(806)
(1,481)
Total
25,090
(1,211)
6,638
(2,384)
(1,435)
3,958
32,352
(4,044)
(906)
(806)
26,596
(402)
(1,471)
(3,817)
(12,890)
-
(18,923)
22,346
5,073
659
1
The amortisation of the intangibles is associated with the acquisition of wealth and life insurance businesses from Bupa, ComCorp financial advice business and Matrix dealer group. These
are separately reported to remove the non-cash effect of the write-off of these acquired intangibles. However, amortisation associated with capitalised software is reported as part of
underlying net profit after tax.
2
3
The policy liability discount rates effect is the result of the changes in long term discount rates used to determine the insurance policy liability. The life insurance policy liability (based on
AIFRS) is discounted using market discount rates that typically vary at each reporting date and create volatility in the policy liabilities and consequently earnings. ClearView separately
reports this volatility which represents a timing difference in the release of profit and has no impact on
underlying earnings. This movement in policy liability creates a cash flow tax effect.
Certain costs were recognised in relation to the cost out program implementation costs, impairment of capitalised software, goodwill and client books, the Royal Commission, direct
remediation program and retention bonuses. These costs are considered unusual to the ordinary activities of the Group and are therefore not reflected as part of Underlying NPAT.
Further details are provided on page 24 of the Operating and Financial Review. Amounts stated are after tax.
4
Certain costs were recognised predominantly in relation to Cooperation Agreement entered into with Sony Life and the evaluation of strategic options and Sony Life becoming a new
strategic shareholder. The costs are considered unusual to the ordinary activities of the Group and are therefore not reflected as part of Underlying NPAT.
84 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 2. Results for the year continued
2.2 Earnings per share
Earnings per share (cents)
Basic earnings (cents)
Diluted earnings (cents)
Basic earnings per share
Consolidated
2019
2018
0.63
0.62
4.33
4.14
Basic earnings per share is calculated based on profit attributable to shareholders of ClearView Wealth Limited and the
weighted average number of ordinary shares outstanding. 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 ($'000)
Earnings used in the calculation of basic earnings per share ($'000)
3,959
3,959
26,596
26,596
Weighted average number of ordinary shares for the purpose of basic earnings per share ('000's)
623,778
614,309
Diluted earnings per share
Diluted earnings per share is based on profit attributable to shareholders of ClearView Wealth Limited and the weighted
average number of ordinary shares outstanding after adjustments for the effects of all dilutive potential ordinary shares,
such as options and performance rights issued under the employee share plan. The earnings used in the calculation of
diluted earnings per share are as follows:
Profit for the year attributable to owners of the Company ($'000)
Earnings used in the calculation of total diluted earnings per share
3,959
3,959
26,596
26,596
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
(000's)
Shares deemed to be dilutive in respect of the employee share plan (000's)1
Weighted average number of ordinary shares used in the calculation of diluted earnings per
share (all measures) (000's)
623,778
614,309
13,300
28,414
637,077
642,723
1
Performance rights have been determined to be dilutive, however as the performance rights are fully backed by treasury shares there is no dilutive effect on the value of ClearView
Wealth Limited’s shares.
CLEARVIEW WEALTH LIMITED | 85
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 2. Results for the year continued
2.3 Dividends
Dividend payments on Ordinary shares
2018 final dividend (2018: 2017 final dividend) (cps)
Total dividends on ordinary shares paid to owners of the Company
Dividends not recognised in the consolidated statement of
financial position
Dividends declared since balance date
Consolidated and Company
2019
$’000
Per share
2018
$’000
Per share
3.00
3.00
20,048
20,048
2.75
2.75
18,136
18,136
2019 final dividend (2018: 2018 final dividend) (cps)
-
-
3.0
20,048
Dividend franking account
Amount of franking credit available for use in subsequent
financial years
28,272
29,520
The Directors have not declared a dividend for the year ended 30 June 2019 (2018: $20.05 million).
2.4 Fee and other revenue
Financial advice fees
Funds management fees
Other income
Total fee and other revenue
Revenue from contracts from customers
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
81,155
83,379
41,501
43,312
460
1,053
123,116
127,744
-
-
-
-
-
-
-
-
Revenue from contracts with customers arises primarily from the provision of investment management and financial advisory
services. Revenue is recognised when control of services is transferred to the customer at an amount that reflects the
consideration which ClearView is entitled to in exchange for the services provided. As the customer simultaneously receives and
consumes the benefits as the service is provided, control is transferred over time. Accordingly, revenue is recognised over time.
Fee rebates provided to customers are recognised as a reduction in fee revenue.
Investment management and related fees
Fees are charged to customers in connection with the provision of investment management and other related services. These
performance obligations are satisfied on an ongoing basis, usually daily, and recognised when it becomes not highly probable that
the performance obligations will be met and a reversal will not occur in the future.
Financial advice fees
Financial advice fees consist of commissions and fee-for-service revenue and are earned for providing customers with financial
advice and performing related advisory services. These performance obligations are a series of distinct services that are
substantially the same and have the same pattern of transfer. Accordingly, revenue is recognised over time.
A substantial majority of the financial advisory fees received are paid to advisers. Financial advisory fees are presented gross of
the related cost which is presented in Fees and commission expenses in the Consolidated income statement.
86 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 2. Results for the year continued
2.5 Investment income
Interest income
Dividend income
Distribution income
Total investment income
Dividend income - accounting policy
Consolidated
Company
2019
$’000
27,856
26,275
37,007
91,138
2018
$’000
25,202
20,441
40,390
86,033
2019
$’000
229
7,800
-
2018
$’000
145
23,700
-
8,029
23,845
Dividend income from investments is recognised when the Group’s right to receive payment has been established.
Interest income - accounting policy
Interest income 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.
Distribution income - accounting policy
Distribution income from investments in unit trusts is recognised on a receivable basis as of the date the unit value is
quoted ex-distribution.
2.6 Operating expense
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 (excluding cost out program)
Directors’ fees
Consolidated
2019
$’000
2018
$’000
41,075
9,517
50,592
50,547
2,812
188
857
36,113
9,505
45,618
50,713
1,880
376
819
Total employee costs and directors’ fees
54,404
53,788
Other expenses
Interest and other costs of finance
Strategic review costs
Royal Commission and direct remediation costs
Cost out program implementation costs
Total other expenses
Total operating expenses
706
-
3,406
5,453
9,565
1,129
1,152
-
-
2,281
114,561
101,687
4,521
2019
$’000
3,440
-
3,440
10
-
617
627
304
-
-
150
454
Company
2018
$’000
595
-
595
10
-
-
559
569
419
1,152
-
-
1,571
2,735
CLEARVIEW WEALTH LIMITED | 87
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 2. Results for the year continued
Depreciation and amortisation expenses
Depreciation expenses
Software amortisation
Amortisation of acquired intangibles
Impairment
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
2.7 Taxes
Income tax
a) Income tax recognised in profit or loss
Income Tax expense/(benefit) comprises:
Current tax expense
Deferred tax expense
Over provided in prior years – current tax expense
Under provided in prior years – deferred tax expense
Income tax expense/(benefit)
b) Tax losses
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
680
7,113
1,211
21,508
30,512
677
5,711
4,044
-
10,432
Consolidated
2019
$
2018
$
-
-
-
37,681
37,681
2019
$
-
-
-
-
-
Company
2018
$
298,410
127,680
130,910
323,350
104,200
105,750
101,350
130,100
-
-
-
-
557,000
554,800
104,200
105,750
114,000
133,450
114,000
133,450
-
121,950
584,770
417,134
-
-
80,000
135,400
20,000
121,950
-
-
778,770
807,934
134,000
255,400
1,335,770
1,362,734
238,200
361,150
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
542
673
6,564
(203)
(980)
(1,566)
733
968
1,131
5,926
(364)
(923)
(804)
627
(398)
(379)
(1,269)
961
(1,464)
(1,085)
Unused tax losses for which no deferred tax asset has been
recognised
32,635
40,998
32,635
32,635
Potential tax benefit
9,790
10,627
9,790
9,790
88 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 2. Results for the year continued
2.7 Taxes continued
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 before income tax expense
4,926
32,522
(34,173)
21,110
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
Policyholder tax (expense) credit recognised as part of the change in
policyholder liabilities in determining profit before tax
Profit before income tax excluding tax charged to policyholders
Prima facie tax calculated at 30%
Tax effect of amounts which are non deductible/assessable in
calculating taxable income:
Franking credits on dividends received
Non assessable income
Non deductible expenses
Under/(over) provision in prior years
Income tax expense/(benefit) attributable to shareholders
Income tax expense/(benefit) attributable to policyholders
Income tax expense/(benefit)
d) Amounts recognised directly in equity
Aggregate current and deferred tax arising in the reporting period and
not recognised in net profit or loss or other comprehensive income but
directly debited or (credited) to equity:
6,904
5,991
-
-
11,830
3,549
38,513
11,554
(34,173)
(10,252)
21,110
6,333
-
(629)
4,560
391
7,781
(6,904)
968
-
(2,340)
(7,110)
(765)
1,334
(206)
11,917
(5,991)
5,926
-
11,304
(176)
(1,464)
-
-
-
(308)
(1,085)
-
(1,464)
(1,085)
Current tax
Deferred tax
-
(77)
-
(294)
-
-
-
-
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.
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.
Deferred tax balances
Deferred tax assets
The balance comprises temporary differences attributable to:
Accruals not currently deductible
Depreciable and amortisable assets
Provisions not currently deductible
Unrealised losses carried forward
Capital business expense
Rental lease incentives
Share trust funding costs
Deferred tax asset
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
28,272
29,520
28,272
29,520
376
1,623
3,263
3,405
79
100
-
519
1,606
3,195
4,825
139
132
563
51
-
106
-
79
-
-
40
-
-
-
139
-
-
8,847
10,979
236
179
CLEARVIEW WEALTH LIMITED | 89
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 2. Results for the year continued
2.7 Taxes continued
Deferred tax liabilities
The balance comprises temporary differences attributable to:
Unrealised gains on investments
Prepaid expenses
Fees not derived
Research and development capitalised assets
Deferred tax liability
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
385
474
459
803
2,122
396
526
960
1,042
2,924
-
-
803
803
-
-
-
1,042
1,042
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 $32.6 million (tax effected $9.8 million) consolidated and $32.6 million (tax
effected $9.8 million) for the Company.
Taxation
Income tax expense represents the sum of the tax currently payable (or receivable) and deferred tax. The Group’s current tax
and deferred tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting
period or the relevant period in which the liability is settled or the asset realised. Current tax is net of any tax instalment paid.
Current tax
The tax currently payable (or receivable) is based on taxable profit for the year less tax instalments paid. Taxable profit differs
from profit before tax as reported in the consolidated statement of profit or loss and other comprehensive income because of
items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally
recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences
to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be
utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other
than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting
profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
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 end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax liabilities and assets are offset when there is a legally enforceable right to set off current tax assets against current
tax liabilities and 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.
90 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
2. Results for the year continued
2.7 Taxes continued
Goods and services tax
Revenues, expenses and assets are recognised net of the
amount of goods and services tax (GST), except:
•
•
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
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.
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 includes subsidiaries as identified in 8.1.
Under the Tax Act, ClearView Wealth Limited 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 Wealth Limited 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.
Critical accounting estimates and key sources
of uncertainty
Deferred tax asset – timing differences
The Board has considered that it is probable that sufficient
taxable income will be available against which deductible
temporary differences can be utilised.
Deferred tax asset – Capital Losses
ClearView Life has amounts of realised and unrealised
capital losses within its superannuation business in its No.
2 and No. 4 Statutory Funds. ClearView has a Deferred Tax
Asset (DTA) policy in place to cap the upper limit on the
deferred tax asset amount recognised on balance sheet.
This DTA cap is based on the capital losses estimated to
be utilised in the foreseeable future and is expressed as
a percentage of the value of the investments held. Any
amount exceeding the cap will not be recognised on balance
sheet. The same methodology has been adopted for unit
pricing purposes and this financial report.
As at the reporting date, the DTA cap is above the DTA
amount recognised in respect of the carried forward realised
and unrealised capital losses and it is likely that these losses
can be fully recovered in the foreseeable future. There is no
unrecognised DTA on these losses.
In addition to the above, the Group has accumulated capital
losses that arose within the Company that relate to the capital
losses realised on the historic disposal of a subsidiary entity.
At the current time, it is unlikely that the capital losses can be
recouped and no DTA is recognised in respect of these losses.
Tax credits on insurance premiums
Since 2017, the income tax expenses and charges in the
ClearView Retirement Plan (CVRP) were no longer sufficient
to support the tax benefits and credits on the insurance
premiums paid by policyholders via LifeSolutions Super
rollovers in full. As a result, part of the premium (tax credit) is
currently being supported by ClearView Life Assurance (CLAL)
and ClearView Wealth Limited Group (CWL) shareholders and
is carried as a receivable in the financial statements ($12.5
million as at 30 June 2019). While strategies to utilise the
carried forward losses in the CVRP are in progress there are
risks and uncertainties involved. Furthermore, a project for
the CVRP (part of a broader wealth strategy review), has been
commenced.
CLEARVIEW WEALTH LIMITED | 91
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
3. Receivables, payables
and investments
This note provides information about the Group’s receivables, payables and
investments including:
•
an overview of the financial instruments held by the Group
• accounting policies
•
information about determining the fair value of the instruments, including
judgements and estimation uncertainty involved.
3.1 Receivables
3.2 Payables
3.3 Investments
3.4 Financial Risk Management
93
93
94
96
92 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 3. Receivables, payables and investments
3.1 Receivables
Trade receivables
Outstanding life insurance premium receivable
Provision for outstanding life insurance premiums
Accrued dividends
Investment income receivable
Outstanding settlements
Prepayments
Receivables from controlled entities
Related party receivables
Loans receivable
Provision for loans receivable
Other debtors
Total receivables
Consolidated
2019
$’000
327
7,809
(1,043)
1,418
496
1,056
3,201
-
13,396
10,113
(1,372)
3,385
38,786
2018
$’000
391
6,148
(956)
2,512
917
6,643
4,050
-
8,638
10,736
-
4,009
43,088
Company
2018
$’000
2019
$’000
-
-
-
-
-
-
17
158
-
3,570
(356)
15
-
-
-
-
-
-
31
6,464
7,719
3,468
-
-
3,404
17,682
$16.7 million (2018: $15.5 million) of Total consolidated receivables are expected to be recovered more than 12 months from
the reporting date and nil (2018: $7.7 million) of Total receivables for the Company are expected to be recovered more than 12
months from the reporting date.
Receivables - accounting policy
Receivables are measured at amortised cost, less any allowance for Expected Credit Losses (ECL’s), except for prepayments which
are measured at historical cost.
The Group has recognised ECL’s of $1.4 million (Company $0.3 million) on loans receivable. There were no other material ECL’s on
financial assets at the balance date.
The Group applies a simplified approach to calculating ECL’s therefore, the Group does not track changes in credit risk, but instead
recognises a loss allowance based on lifetime ECL’s at each reporting date. The group has established a provision matrix that
is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic
environment.
3.2 Payables
Trade payables
Reinsurance premium payable
Employee entitlements
Life insurance premiums in advance
Life investment premium deposits
Lease incentive in advance
Payables to controlled entities
Outstanding investment settlements
Other creditors
Total payables
Consolidated
Company
2019
$’000
5,451
2018
$’000
4,881
36,494
15,162
3,739
5,021
877
469
780
-
2,935
1,210
672
856
847
-
2,766
901
2019
$’000
345
2018
$’000
197
-
5
-
-
-
-
6
-
-
-
6,410
9,035
-
97
-
3
51,955
31,106
6,857
9,241
CLEARVIEW WEALTH LIMITED | 93
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 3. Receivables, payables and investments continued
$1.3 million (2018: $1.6 million) of Total consolidated payables are expected to be settled more than 12 months from the
reporting date and $nil million (2018: nil) of total payables of the Company are expected to be settled more than 12 months
from the reporting date.
Payables - accounting policy
Payables are measured at the nominal amount payable. Given the short term nature of most payables, the nominal amount
payable approximates fair value.
3.3 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/Infrastructure
Held directly
Held indirectly via unit trust
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
-
-
389,078
412,359
242,920
303,467
673,425
545,055
-
-
-
-
916,345
848,522
389,078
412,359
441,715
369,950
483,205
393,339
811,665
876,544
-
-
253,302
332,126
253,302
332,126
-
-
-
-
-
-
-
-
-
-
-
-
Total investments
1,981,312
2,057,192
389,078
412,359
Accounting policy – financial instruments
Recognition and derecognition of financial assets and liabilities
Financial assets and financial liabilities are recognised at the date the Group becomes a party to the contractual provisions
of the instrument. At initial recognition, financial assets are classified as and subsequently measured at fair value through
profit or loss, fair value through other comprehensive income (OCI), and amortised cost. The classification of financial assets
at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for
managing them.
Financial assets are derecognised when the contractual rights to the cash flows from the financial assets expire, or are
transferred. A transfer occurs when substantially all the risks and rewards of ownership of the financial asset are passed to an
unrelated third party. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled
or expires.
Financial assets and liabilities
Financial assets measured at fair value through profit or loss
Financial assets measured on initial recognition as financial assets measured at fair value through profit or loss are initially
recognised at fair value, determined as the purchase cost of the asset, exclusive of any transaction costs. Transaction costs are
expensed as incurred in profit or loss. Any realised and unrealised gains or losses arising from subsequent measurement at fair
value are recognised in profit or loss in the period in which they arise.
94 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
3. Receivables, payables and investments continued
The Group has elected to use their fair value option for investments as there would otherwise be an accounting mismatch as
the assets are held against investment policy liabilities.
Financial assets at amortised cost (debt instruments)
The Group measures financial assets at amortised cost if both of the following conditions are met:
•
•
The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual
cash flows; and
The contractual term of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to
impairment testing. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group’s financial assets at amortised cost includes trade receivables and loans receivables.
Impairment of financial assets
The adoption of AASB 9 changes the Group’s accounting for impairment losses for financial assets by replacing AASB 139’s
incurred loss approach with a forward-looking expected credit loss (“ECL”) approach. The Group recognises an allowance for
expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss.
ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash
flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected
cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the
contractual terms. ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in
credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the
next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since
initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of
the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group
does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date.
The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking
factors specific to the debtors and the economic environment.
The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases,
the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is
unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the
Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial
position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a
net basis, to realise the assets and settle the liabilities simultaneously.
FV hierarchy
The table below summarises financial instruments carried at fair value, by valuation method. The different levels have been
defined as follows:
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included within level 2 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
•
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
CLEARVIEW WEALTH LIMITED | 95
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 3. Receivables, payables and investments continued
Financial assets
2019
Equity Securities
Fixed Interest Securities
Unit Trusts
Total
2018
Equity Securities
Fixed Interest Securities
Unit Trusts
Total
Financial Liabilities
2019
Life investment policy liability
Total
2018
Life investment policy liability
Total
Level 1
Level 2
Level 3
$’000
$’000
$’000
Total
$’000
242,920
-
-
441,715
1,296,678
-
-
-
-
242,920
441,715
1,296,678
1,539,598
441,715
- 1,981,313
303,467
-
-
483,205
1,270,520
-
-
-
-
303,467
483,205
1,270,520
1,573,987
483,205
- 2,057,192
-
-
-
-
1,152,535
1,152,535
1,198,780
1,198,780
-
-
-
-
1,152,535
1,152,535
1,198,780
1,198,780
3.4 Financial Risk Management
Management of Financial Instruments
The financial assets of the Group (other than shareholder cash holdings) 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 and shareholder
cash are managed within the Group by the internal management and the finance department.
(a) 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.
96 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 3. Receivables, payables and investments continued
(b) 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 Group through:
•
•
•
Maintaining the level of interest rate exposure within the tolerances set by the Board in the RMCS;
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 ICAAP 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.
Equity 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 2019, ClearView’s shareholder related assets were not invested in equities and
therefore not exposed to equity price 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 Group 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 monies 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 ICAAP with respect to the Group’s residual fee risk
exposure.
(c) 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 Group’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. The CIC is charged
with maintaining the credit quality of ClearView assets within the Board’s investment guidelines.
The large majority of debt assets invested in by the Group 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 Group’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.
The Group does not expect any of its material counterparties to fail to meet their obligations and does not currently require
collateral or other security to support these credit risk exposures.
Specific capital reserves are held against credit risk under the regulatory capital requirements of ClearView Life and credit risk is
considered within the Company’s ICAAP.
The Group does have significant credit risk exposure to counterparties but these counterparties have a high credit rating.
CLEARVIEW WEALTH LIMITED | 97
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 3. Receivables, payables and investments continued
3.4 Financial Risk Management continued
The following table reflects the shareholder financial assets with credit risk exposure monitored by the CIC. It excludes policy
holder financial assets and therefore represents shareholder assets invested in interest bearing securities at the balance date.
Cash and cash equivalents and debt securities/fixed interest
securities
Rating
AAA to AA-
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
202,898
169,406
202,898
169,406
11,038
11,038
8,047
8,047
In addition to the credit risk exposures above, the Group’s balance sheet as at 30 June 2019 reflects a $95.7 million (2018:
$38.2 million) exposure to Swiss Re Life & Health Australia Ltd in relation to reinsurer’s share of policy liabilities. Further
details on the Swiss Re credit exposure are provided on page 48. Credit risk associated with receivables is considered minimal.
The main receivables balance is in relation to receivables from outstanding premiums receivable, accrued dividends, loans
receivable, prepayments, outstanding settlements and related party receivables. The concentration of other receivables is
spread across the various debtors with no single significant debtor except for related party receivables. Further details on the
related party receivable recoverability is outlined on page 47.
(d) Liquidity risk
Liquidity risk is primarily the risk that the Group 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, members
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 Group and/or reputational damage via association.
The primary risk is controlled through focusing the Group’s assets, as well as policyholder and member assets and the
investment of client funds controlled by ClearView Life, into assets which are highly marketable and readily convertible into
cash. In addition, the Group maintains suitable cash holdings at call and an appropriate overdraft facility.
The Group’s cash flow requirements are reviewed and forecast daily for a one 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.
Under the terms of the Group’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.
98 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 3. Receivables, payables and investments continued
3.4 Financial Risk Management continued
The risks in respect of external (third party) funds are controlled via the Group’s product options list and Approved Product
List, which restricts the external funds available to investment managers and funds 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 other than those provided for.
Consolidated
Less than
3 months
3 to 6
months
6 months
to a year
1 year
and over
Over
5 years
$’000
$’000
2019
Receivables
Outstanding life insurance premiums
net of provision
Accrued dividends
Investment income and distribution
income
Loan receivables
Prepayments
Related party receivable
Total
2018
Receivables
Outstanding life insurance premiums
net of provision
Accrued dividends
Investment income and distribution
income
Loan receivables
Prepayments
Related party receivable
Total
2019
Trade receivables
Receivables from controlled entities
Loan receivables
Total
2018
Trade receivables
Receivables from controlled entities
Related party receivables
Loan receivables
Total
$’000
1,531
1
-
-
3,970
451
-
5,953
31
-
-
-
3,966
165
12,546
16,700
1,770
1,185
2
-
-
-
-
-
$’000
3,154
6,738
1,418
496
629
1,938
850
15,223
7,645
5,167
2,514
917
442
2,169
917
$’000
52
27
-
-
176
647
-
902
442
25
-
-
172
671
-
Total
$’000
4,768
6,766
1,418
496
8,741
3,201
13,396
38,786
11,042
5,194
2,514
917
-
-
-
-
-
-
-
-
-
-
-
-
4,019
748
-
5,498
462
7,719
604
10,735
-
-
4,050
8,636
19,771
1,310
6,539
14,864
604
43,088
Less than
3 months
3 to 6
months
6 months
to a year
1 year
and over
Over
5 years
$’000
$’000
$’000
$’000
$’000
19
158
-
177
6
6,464
-
-
6,470
5
-
-
5
5
-
-
-
5
6
-
-
6
8
-
-
3,468
3,476
1
-
3,214
3,215
13
-
7,719
-
7,732
-
-
3
-
-
-
-
-
-
Company
Total
$’000
31
158
3,214
3,404
32
6,464
7,719
3,468
17,683
CLEARVIEW WEALTH LIMITED | 99
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 3. Receivables, payables and investments continued
3.4 Financial Risk Management 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 principal cash flows.
Consolidated
2019
Payables
Current tax liabilities
Provisions
Reinsurance payable1
Total
2018
Payables
Current tax liabilities
Provisions
Reinsurance payable1
Total
2019
Payables
Current tax liabilities
Provisions
Total
2018
Payables
Current tax liabilities
Provisions
Total
Less than
3 months
3 to 6
months
6 months
to a year
1 year
and over
$’000
13,425
-
1,095
36,494
51,014
13,315
-
954
15,162
29,431
$’000
479
2,178
1,876
-
$’000
223
-
$’000
1,250
-
2,007
1,497
-
-
4,533
2,230
2,747
486
8,146
1,883
-
570
-
1,487
-
1,685
1,149
-
-
Over
5 years
$’000
83
-
846
-
929
85
-
963
-
10,515
2,255
2,636
1,048
Less than
3 months
3 to 6
months
6 months
to a year
1 year
and over
Over
5 years
$’000
6,747
-
-
6,747
7,843
-
-
7,843
$’000
109
2,177
24
2,310
81
8,146
26
8,253
$’000
$’000
$’000
-
-
-
-
1,316
-
-
1,316
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$’000
15,460
2,178
7,321
36,494
61,453
15,943
8,146
6,634
15,162
45,885
Company
Total
$’000
6,856
2,177
24
9,057
9,241
8,146
26
17,413
1
Reinsurance payable represents reinsurance premium payable on reinsurance due in respect of life insurance premium.
100 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
3. Receivables, payables and investments continued
3.4 Financial Risk Management continued
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 and credit spread risks, 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 shareholder’s exposure to interest rate risk at the balance sheet date by the earlier of contractual
maturities or re-pricing.
2019
Financial assets
Variable interest rate instruments:
Cash and cash equivalents
Fixed interest securities
Total
2018
Financial assets
Variable interest rate instruments:
Cash and cash equivalents
Fixed interest securities
Total
Consolidated
Company
Weighted
average
interest rate
Less than
6 months
Weighted
average
interest rate
Less than
6 months
%
$’000
%
$’000
0.10
2.58
0.61
2.39
98,383
104,515
202,898
70,723
98,683
169,406
0.10
-
0.60
-
11,038
-
11,038
8,047
-
8,047
Interest rate sensitivity analysis for floating rate financial instruments
The sensitivity analysis below has 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 0.5% (2018: 0.5%) 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.
CLEARVIEW WEALTH LIMITED | 101
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 3. Receivables, payables and investments continued
3.4 Financial Risk Management continued
The following table illustrates the effect on the Group from possible changes in market risk that are 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
2019
$’000
+281
2018
$’000
±537
2019
$’000
+281
2018
$’000
±537
2019
$’000
+39
2018
$’000
±28
2019
$’000
±39
2018
$’000
±28
±0.5% (2018: ±0.5%)
The method used to prepare the sensitivity analysis has not changed in the year. Based on the market exposure management
believe that the interest rate variation above is considered appropriate in the current environment.
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.
(j) 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
direct exposure to foreign currency.
Forward foreign exchange contracts
The Group currently does not make use of forward foreign exchange contracts.
102 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
4. Non-financial assets
and liabilities
This note provides information about the Group’s non-financial assets and
liabilities, including:
•
specific information about each type of non-financial asset and
non-financial liability
• Goodwill and intangibles
• Provisions
• accounting policies
•
information about determining the fair value of the assets and liabilities,
including judgements and estimation uncertainty involved.
4.1 Goodwill and intangibles
4.2 Recoverability of intangible assets
and goodwill
4.3 Provisions
104
105
107
CLEARVIEW WEALTH LIMITED | 103
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 4. Non-financial assets and liabilities
4.1 Goodwill and intangibles
2019
Gross carrying amount
Goodwill
$’000
Capitalised
software
$’000
Client
Book
$’000
Matrix Brand
$’000
Consolidated
Total
intangibles
$’000
Balance at the beginning of the financial year
20,452
40,946
65,017
Acquired directly during the year
Balance at the end of the financial year
-
20,452
6,076
47,022
-
65,017
200
-
200
106,163
6,076
112,239
Accumulated amortisation and impairment
losses
Balance at the beginning of the year
Amortisation expense in the current year
Impairment expense in the current year
Balance at the end of the financial year
Net book value
Balance at the beginning of the financial year
Balance at the end of the financial year
2018
Gross carrying amount
-
-
7,941
7,941
20,452
12,511
22,634
7,113
8,618
38,365
18,312
8,657
Goodwill
$’000
Capitalised
software
$’000
58,819
1,211
4,949
64,981
6,198
36
Client
Book
$’000
-
-
-
-
200
200
Matrix Brand
$’000
Balance at the beginning of the financial year
20,452
30,683
65,017
Acquired directly during the year
Balance at the end of the financial year
-
20,452
10,263
40,946
-
65,017
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
-
-
-
Balance at the beginning of the financial year
Balance at the end of the financial year
20,452
20,452
16,923
5,711
22,634
13,760
18,312
54,775
4,044
58,819
10,242
6,198
200
-
200
-
-
-
200
200
81,453
8,326
13,567
103,345
24,710
8,893
Total
intangibles
$’000
95,900
10,263
106,163
71,698
9,755
81,453
24,202
24,710
As required under accounting standards the Group completes an impairment assessment at each reporting date. As at
30 June 2019, an impairment charge of $21.5 million was recognised in relation to goodwill ($7.9 million), capitalised software
($8.6 million) and client books ($4.9 million). This is discussed further in section 4.2.
104 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 4. Non-financial assets and liabilities continued
Goodwill and Intangibles accounting policy
Goodwill
Goodwill acquired in a business combination is recognised at
cost and subsequently measured at cost less any
accumulated impairment losses. The cost represents the
excess of the cost of a business combination over the fair value
of the identifiable assets acquired and liabilities assumed.
Capitalised costs
Costs are capitalised when the costs relate to the creation
of an asset with expected future economic benefits which
are capable of reliable measurement. Capitalised costs are
amortised on a straight-line basis over the estimated useful
life of the asset, commencing at the time the asset is first
put into use or held ready for use, whichever is the earlier.
Client books
Client book intangibles represent the value of the in-force
insurance and investment contracts, and value of the
existing financial advice and funds management revenues.
Each client book has its own assessment of useful life
depending on the nature of the clients in each segment and
their relative characteristics, based on age, demographics
and type of product to which it relates. The policy adopted
to write-off the client books resembles the anticipated
ageing profile of the revenue stream.
Amortisation
Intangible assets with finite useful lives are amortised on a
straight-line basis over the useful life of the intangible asset.
The estimated useful lives are generally:
2019
2018
Software
Up to 3 years
Up to 4 years
Client books
6–10 years
6–10 years
Brand
Goodwill
indefinite
indefinite
indefinite
indefinite
Impairment testing
Goodwill and intangible assets that have indefinite useful
lives are tested at least annually for impairment. Other
intangible assets are reviewed for impairment whenever
events or changes in circumstances indicate that the
carrying amount may not be recoverable.
For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units or CGUs). An
impairment loss is recognised when the goodwill carrying
amount exceeds the CGU’s recoverable amount.
4.2 Recoverability of intangible assets
and goodwill
Goodwill and client book intangibles
The goodwill and intangibles primarily arose from the
acquisition of ClearView Group Holdings Pty Limited in June
2010, the business of Community and Corporate Pty Limited
in April 2009 and Matrix Planning Solutions Limited in
October 2014 as well as other business combinations where
ClearView Wealth Limited was the acquirer.
The goodwill that arose on acquisition was allocated
across the Financial Advice, Life Insurance and Wealth
Management CGU’s of the Group based on the expected
synergies expected to be gained by each CGU within the
Group. At the balance date goodwill was allocated $4.0
million to the Life Insurance segment and $8.5 million to
the Wealth Management segment.
The goodwill recognised within the Life Insurance and
Wealth Management CGU’s is tested for impairment
triggers using the embedded value methodology by
comparing the carrying value of goodwill to the in-force
portfolios written to date.
The recoverable amount for the Wealth Management
and Life Insurance CGU’s has been determined based on
the embedded value calculations as at 30 June 2019.
The embedded value is a calculation that represents the
economic value of the shareholder capital in the business
and the future profits expected to emerge from the business
currently in-force expressed in today’s dollars. No account
is taken of future new business in the embedded value
calculations.
The estimated embedded value of the business has
been calculated based on the following key assumptions
and estimates:
• Mortality and morbidity (claims)
•
Investment returns;
• Persistency (lapse);
• Outflows;
• Maintenance costs; and
• Discount rates.
The embedded value uses assumptions that are consistent
with those adopted for policy liabilities in this financial
report. See section 5.6 for actuarial estimates and
assumptions.
As at 30 June 2019, no impairment was required to the
carrying value of goodwill within the Life Insurance and
Wealth Management CGU’s.
CLEARVIEW WEALTH LIMITED | 105
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 4. Non-financial assets and liabilities continued
Impairment of acquired Financial Advice
Capitalised software impairment
Client Books and Goodwill
ClearView understands that operational efficiency and
scale will become a key requirement of any future financial
advice businesses (including those offered to third party
AFSLs), as grandfathered commissions and other “conflicted
remunerations” are ultimately removed. The future state for
dealer groups, requires the removal of cross subsidisation
between the manufacturer and advice business and
replacement of grandfathered revenue streams that has
supported economic value in the industry for some time.
Given the structural changes in the financial advice business,
future expected banning of grandfathered revenue streams,
and the implementation of a proposed new fee structure
(shift to a ‘flat fee’ model paid by practices as opposed to the
historical industry practice of a client fee split), an Embedded
Value calculation is no longer considered meaningful for the
Financial Advice segment. The Financial Advice client book
previously reported has been removed from the embedded
value calculations at 30 June 2019.
In accordance with the impairment testing requirements
under AASB 136 – Impairment of Assets, and subsequent
to the dealer group review, the carrying values of Goodwill
and Client Books in this segment have been revised. Goodwill
and the Client Books have been assessed and tested
based on a discounted cash flow model (value-in use).
This has been prepared assuming a set of assumptions
including the repricing of dealer services fees and removal
of grandfathered rebates and cross subsidies (over time),
LaVista rollout and discount rates consistent with those
adopted in the embedded value calculation for the Life
Insurance and Wealth Management segments.
Based on the testing performed, the $7.9 million carrying
value of Goodwill and $4.9 million of Client Books in the
Financial Advice cash generating unit was impaired at
30 June 2019.
At each reporting period the internally generated software
is assessed for any impairment triggers. If any such
indication exists, the recoverable amount of the asset
is estimated. The impairment indicators for software
intangibles are defined as:
•
•
•
•
The ability of the software to provide the functionality
required from the business to use the asset;
The software is being utilised for the purposes that it
was designed;
The availability of alternative software that the business
has available; and
Product mix – the Group no longer sells the products
that are administered on the PAS or utilises the provided
functionality.
ClearView has previously capitalised its software
development costs and amortised these costs over a four-
year period. In accordance with the impairment testing
requirements under AASB 136 – Impairment of Assets, and
subsequent to the FY19 IT strategy review, the carrying
values of ClearView’s capitalised software have been revised.
As a result, certain software development costs were
impaired at 30 June 2019 for obsolete or reduced
functionality, or had their useful life reduced due to changes
in the IT direction. This resulted in a software impairment of
$8.6 million at 30 June 2019.
An additional amortisation expense of $1.5 million has
also been recognised in FY19 due to the reduced useful
life of the existing software intangibles and associated
acceleration of amortisation (based on a revised intangible
asset amortisation policy and the expected future benefits
expected to be received).
This resulted in a reduction of the software carrying cost
from $18.3 million at 30 June 2018 to $8.7 million as at 30
June 2019.
106 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 4. Non-financial assets and liabilities continued
4.3 Provisions
Current and non current
Make good provision
Employee leave provisions
Provision for restructuring
Provision for remediation
Other provisions
Total
Make good provision1
Balance at the beginning of the financial year
Additional provisions raised
Utilised during the period
Unutilised provisions transferred
Balance at the end of the financial year
Employee leave provision2
Balance at the beginning of the financial year
Additional provisions raised
Utilised during the period
Balance at the end of the financial year
Provision for Restructuring3
Balance at the beginning of the financial year
Additional provisions raised
Utilised during the period
Balance at the end of the financial year
Provision for remediation4
Balance at the beginning of the financial year
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
Additional provisions raised
Utilised during the period
Balance at the end of the financial year
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
508
4,115
1,800
625
272
7,320
374
137
(3)
0
508
4,342
832
(1,059)
4,115
374
4,342
-
1,815
103
6,634
419
136
(49)
(132)
374
3,849
1,093
(600)
4,342
-
1,407
1,800
-
-
(1,407)
1,800
-
1,815
888
(2,078)
625
103
392
(223)
272
1,623
576
(385)
1,815
1,161
95
(1,153)
103
-
-
-
-
24
24
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26
26
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26
17
(19)
24
18
18
(10)
26
1
2
3
4
The provision for make good represents the accrued liability for expected costs in relation to the restoration of leased premises on the termination of the lease. The provisions are expect-
ed to be settled on vacating the leased premises on expiration of the relevant lease.
The provision for employee leave represents annual leave and long service leave entitlements accrued by employees. The provisions are expected to be utilised in accordance with the
pattern of consumption of employees utilising their leave entitlements.
The provision for restructuring relates to the expected costs in relation to the IT transformation project and onerous lease provision.
The provision for remediation relates to the direct remediation program, remaining compensation and program costs not yet paid as at 30 June 2019.
CLEARVIEW WEALTH LIMITED | 107
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 4. Non-financial assets and liabilities continued
Accounting policy - 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
the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision
is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those
cash flows (where the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party,
a 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.
Onerous contracts
Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is
considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the
contract exceed the economic benefits expected to be received from the contract.
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.
108 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 5. Life insurance and
investment contracts
The Group’s life insurance activities are conducted through its registered life insurance company ClearView Life
Assurance Limited. This section explains how ClearView Life Assurance measures its life insurance and investment
contracts, including the methodologies and key assumptions applied. It also details the key components of the
profits that are recognised in respect of the life insurance contracts and the sensitivities of those profits to variations
in assumptions.
5.1 Accounting for life insurance
and investment contracts
5.2 Disaggregated information
by Statutory Fund
5.3 Sources of profit
5.4 Policy Liabilities
5.5 Capital adequacy
5.6 Actuarial methods and assumptions
5.7 Critical accounting judgements and
key sources of estimation uncertainty
110
112
114
115
116
118
120
CLEARVIEW WEALTH LIMITED | 109
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
5. Life insurance and investment contracts
5.1 Accounting for life insurance and investment contracts
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 profit or
loss and other 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. 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 Assurance 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 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.
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 Life Insurance Premium
in Advance (part of 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.
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.
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.
110 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 5. Life insurance and investment contracts continued
Reinsurance
Amounts paid to reinsurers under life insurance contracts
held by ClearView Life are recorded as an outward
reinsurance expense and are recognised in the statement
of profit or loss and other 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.
Policy acquisition costs
The policy acquisition costs incurred are recorded in the
statement of profit or loss and other comprehensive income
and represent the fixed and variable costs of acquiring new
business. The policy acquisition costs include commission,
policy issue and underwriting costs, and related costs.
The acquisition costs incurred in relation to life insurance
contracts are capitalised in the valuation of policy liabilities.
Basis of expense apportionment
All expenses of the life insurance business incurred by
ClearView Life and charged to the statement of profit or loss
and other comprehensive income have been apportioned
in accordance with Part 6, Division 2 of the Life Act. These
expenses are related to non-participating business as
ClearView Life only write this category of business.
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 held within
statutory fund No.1. 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 LPS340 Valuation
of Policy Liabilities).
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
recognised 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 5.6.
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.
CLEARVIEW WEALTH LIMITED | 111
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 5. Life insurance and investment contracts continued
5.2 Disaggregated information by Statutory Fund
Abbreviated income statement
2019
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
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 expense
Net profit attributable to members of ClearView Life
Assurance Limited
Abbreviated statement of financial position
2019
Investments in subsidiaries and controlled unit trusts
ClearView Life Assurance Limited
Shareholders
Fund
Statutory
Fund No.1
Statutory
Fund No.2
Statutory
Fund No.4
Total
$’000
$’000
$’000
$’000
$’000
Australian Non-Participating
-
-
-
5
-
5
-
-
-
-
-
-
5
(2)
3
243,114
(71,613)
-
2,870
-
174,371
(116,257)
80,346
1,319
-
-
9
7
(4)
12
-
-
-
-
-
20,150
60,346
29,002
243,114
(71,613)
20,159
63,228
28,998
109,498
283,886
-
-
-
(116,257)
80,346
1,319
-
(9,622)
(86,274)
(95,896)
19,212
(131,161)
27,830
(8,655)
-
-
19,212
(23)
(21,816)
(153,000)
(9,633)
10,070
1,408
(2,132)
19,610
(719)
19,175
437
(724)
18,891
ClearView Life Assurance Limited
Shareholders
Fund
Statutory
Fund No.1
Statutory
Fund No.2
Statutory
Fund No.4
Total
$’000
3,450
$’000
$’000
$’000
$’000
-
476
1,153,420
1,157,346
Australian Non-Participating
Policy liabilities ceded under reinsurance
-
95,669
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
Dividend paid
Shareholders' retained profits
Shareholders' capital
Total equity
112 | CLEARVIEW ANNUAL REPORT 2019
5,244
8,694
-
-
4,859
4,859
3,835
194,508
290,177
(151,652)
-
38,908
(112,744)
402,921
-
701
-
95,669
9,940
210,393
1,177
1,163,360
1,463,408
-
374
345
719
458
-
(151,652)
1,152,161
1,152,535
909
45,021
1,153,070
1,045,904
10,290
417,504
(68,293)
221,846
3
-
(5,000)
(73,290)
77,125
19,175
1,200
-
242,221
160,700
3,835
402,921
1,021
437
(1,200)
-
258
200
458
9,414
(724)
-
-
8,690
1,600
163,988
18,891
-
(5,000)
177,879
239,625
10,290
417,504
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 5. Life insurance and investment contracts continued
Abbreviated income statement
2018
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
Change in life insurance policy liabilities
Change in reinsurers' share of life insurance liabilities
Change in life investment policy liabilities
Other expenses
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
2018
Investments in subsidiaries and controlled unit trusts
ClearView Life Assurance Limited
Shareholders
Fund
Statutory
Fund No.1
Statutory
Fund No.2
Statutory
Fund No.4
Total
$’000
$’000
$’000
$’000
$’000
Australian Non-Participating
-
-
-
12
-
12
-
-
-
-
-
-
12
(11)
214,905
(56,696)
-
2,293
-
160,502
(94,161)
61,244
17,185
266
(45)
15
5
-
241
-
-
49
-
-
22,135
54,977
11,333
88,445
-
-
-
215,171
(56,741)
22,150
57,287
11,333
249,200
(94,161)
61,244
17,234
-
(7,705)
(64,336)
(72,041)
4,829
(113,424)
36,175
(10,983)
(230)
(36)
(7,681)
8,272
-
4,599
(19,804)
(133,264)
4,305
(2,260)
32,811
(4,982)
1
25,192
591
2,045
27,829
ClearView Life Assurance Limited
Shareholders
Fund
Statutory
Fund No.1
Statutory
Fund No.2
Statutory
Fund No.4
Total
$’000
3,450
$’000
$’000
$’000
$’000
-
433
1,198,109
1,201,992
Australian Non-Participating
Policy liabilities ceded under reinsurance
-
38,243
-
-
38,243
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
Dividend paid
Shareholders' retained profits
Shareholders' capital
Total equity
3,129
6,579
-
-
2,747
2,747
3,832
163,446
201,689
(197,116)
(904)
13,992
179,663
(471)
1,212,101
1,419,898
-
-
(197,116)
-
383
1,198,397
1,198,780
25,557
(2,075)
2,691
28,920
(171,559)
(1,692)
1,201,088
1,030,584
373,248
1,221
11,013
389,314
(48,293)
193,256
1
-
(20,000)
(68,293)
72,125
25,192
3,400
-
221,848
151,400
3,832
373,248
2,267
591
8,931
2,045
156,161
27,829
(1,837)
(1,563)
-
-
1,021
200
1,221
-
(20,000)
9,413
1,600
163,989
225,325
11,013
389,314
CLEARVIEW WEALTH LIMITED | 113
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 5. Life insurance and investment contracts continued
5.3 Sources of profit
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
Components of profit related to movements in life insurance
liabilities
Planned profit margins released
Profit arising from the difference between actual investment income
and expected interest on policy liabilities
Profit arising from the difference between actual and expected
experience1
Impact of change in economic assumptions
Life insurance
Components of profit related to movements in life investment
liabilities
Profit arising from life investment contracts1
Life investment
Profit for the statutory funds
Profit for the shareholders fund
Profit for ClearView Life Assurance Limited
1
Includes costs considered unusual to the ordinary activities relevant to the segment.
23,786
4,774
24,816
3,835
(18,944)
(5,913)
9,559
19,175
2,441
25,179
(287)
(287)
2,623
2,623
18,887
27,828
3
1
18,891
27,829
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
114 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 5. Life insurance and investment contracts continued
5.4 Policy liabilities
Reconciliation of movements in policy liabilities
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
Life investment policy liabilities
Opening gross life investment policy liabilities
Net increase in life investment policy liabilities reflected in the
income statement
1,198,780
1,177,290
95,896
72,041
Decrease in life investment policy liabilities due to management fee
reflected in the income statement
(20,159)
(22,150)
Life investment policy contributions recognised in policy liabilities
153,132
269,366
Life investment policy withdrawals recognised in policy liabilities
(275,114)
(296,766)
Closing gross life investment policy liabilities
1,152,535
1,198,780
Life insurance policy liabilities
Opening gross life insurance policy liabilities
Movement in outstanding claims
Decrease in life insurance policy liabilities reflected in the income
statement
Closing gross life insurance policy liabilities
Total gross policy liabilities
Reinsurers' share of life insurance policy liabilities
Opening balance
Movement in outstanding reinsurance
(Increase)/decrease in reinsurance assets reflected in the income
statement
Closing balance
Net policy liabilities at balance date
Components of net life insurance policy liabilities
(197,116)
(207,632)
46,783
(1,319)
27,750
(17,234)
(151,652)
(197,116)
1,000,883
1,001,664
(38,243)
(38,214)
(19,212)
(15,338)
(18,300)
(4,599)
(95,669)
(38,243)
905,214
963,421
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
2019
$’000
317,336
482,115
2018
$’000
350,316
449,010
(1,399,856)
(1,384,891)
(600,404)
(585,565)
353,083
350,205
(247,321)
(235,360)
Company
2018
$’000
2019
$’000
-
-
-
-
-
-
-
-
-
-
-
-
CLEARVIEW WEALTH LIMITED | 115
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 5. Life insurance and investment contracts continued
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.
5.5 Capital adequacy
ClearView Life Assurance Limited (ClearView Life) is subject to minimum capital regulatory capital requirements in accordance
with Australian Prudential Regulation Authority (APRA) Life Insurance Prudential Standards. ClearView Life is required to maintain
adequate capital against the risks associated with its business activities and measure its capital to the “Prudential Capital
Requirement” (PCR).
ClearView Life has in place an Internal Capital Adequacy Assessment Process (ICAAP), approved by the Directors, to ensure it
maintains required levels of capital within each of its statutory and general funds. The capital adequacy position at balance date
for ClearView Life, in accordance with the APRA requirements, is as follows:
Capital position
Statutory fund
Statutory fund
Statutory fund
No. 1
No. 2
No. 4
Shareholder’s
Fund
Australian non-
participating
Australian non-
participating
Australian non-
participating
Net Assets (Common Equity Tier 1 Capital)
Intangible adjustments2
Net tangible assets after intangible
adjustments
Capital base adjustments
Deferred tax assets
Investment in subsidiaries
Deferred acquisition costs
Other adjustments to capital base1
Regulatory capital base
Prescribed Capital Amount (PCA)
Available Enterprise Capital (AEC)
Capital Adequacy Multiple
Prescribed capital amount comprises of:
Insurance Risk
Asset Risk
Asset Concentration Risk
Operational Risk
Aggregation benefit
LPS110 CLAL Minimum
Prescribed Capital Amount
2019
$’000
3,836
-
3,836
2019
$’000
402,921
(5,112)
397,809
2019
$’000
458
-
458
-
(1,590)
(3,450)
-
-
386
(34)
352
11.4
-
(34)
-
-
-
-
-
(336,303)
(12,547)
47,368
(19,966)
27,403
2.4
(6,720)
(3,854)
(4,284)
(7,293)
2,185
-
(34)
(19,966)
-
-
-
-
457
(5)
452
91.4
-
(4)
-
(1)
-
-
(5)
ClearView Life
Assurance
Limited
2019
$’000
417,505
(8,480)
409,024
(1,631)
(3,450)
(336,303)
(12,547)
55,094
(23,266)
31,828
2.4
(6,720)
(4,272)
(4,284)
2019
$’000
10,291
(3,368)
6,924
(41)
-
-
-
6,882
(3,260)
3,622
2.1
-
(380)
-
(2,880)
(10,175)
-
-
2,185
-
(3,260)
(23,266)
1
Regulatory capital includes a $12.5 million inadmissible asset reserve for tax credits within the ClearView Retirement Plan (CVRP) relating to insurance premiums paid via rollover. There is
currently not sufficient taxable income in the CVRP currently to utilise these tax credits. While strategies to utilise the carried forward losses in the CVRP are in progress there are risks and
uncertainties involved. Furthermore, a project for the CVRP (part of a broader wealth strategy review), has commenced. For this reason an offset is held against the ECB risk reserve for
$12.5 million.
2
Intangible adjustments relate to capitalised software.
116 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 5. Life insurance and investment contracts continued
5.5 Capital adequacy continued
Statutory fund
Statutory fund
Statutory fund
No. 1
No. 2
No. 4
Shareholder’s
Fund
Australian non-
participating
Australian non-
participating
Australian non-
participating
2018
$’000
3,832
-
3,832
2018
$’000
373,248
(13,486)
359,762
-
(1,643)
(3,450)
-
-
(304,658)
382
(19)
363
20.1
-
(19)
-
-
-
-
53,461
(11,849)
41,612
4.5
(4,115)
(2,678)
-
(6,509)
1,453
-
2018
$’000
1,221
-
1,221
-
-
-
1,221
(14)
1,208
93.9
-
(5)
-
(9)
-
-
2018
$’000
11,013
(4,827)
6,186
(34)
-
-
6,152
(3,425)
2,727
1.8
-
(429)
-
(2,996)
-
-
ClearView Life
Assurance
Limited
2018
$’000
389,314
(18,313)
371,001
(1,677)
(3,450)
(304,658)
61,216
(15,307)
45,910
4.0
(4,115)
(3,131)
-
(9,514)
1,453
-
(19)
(11,849)
(14)
(3,425)
(15,307)
Net Assets (Common Equity Tier 1 Capital)
Intangible adjustments1
Net tangible assets after intangible
adjustments
Capital base adjustments
Deferred tax assets
Investment in subsidiaries
Deferred acquisition costs
Regulatory capital base
Prescribed Capital Amount (PCA)
Available Enterprise Capital (AEC)
Capital Adequacy Multiple
Prescribed capital amount comprises of:
Insurance Risk
Asset Risk
Asset Concentration Risk
Operational Risk
Aggregation benefit
LPS110 CLAL Minimum
Prescribed Capital Amount
1
Intangible adjustments relate to capitalised software.
CLEARVIEW WEALTH LIMITED | 117
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 5. Life insurance and investment contracts continued
5.6 Actuarial methods and assumptions
Actuarial methods and assumptions
The effective date of the actuarial report on life insurance policy
liabilities and life investment policy liabilities is 30 June 2019. The
actuarial report was prepared by the ClearView Life Appointed
Actuary, Ashutosh Bhalerao. 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.
The methods used for the major product groups
are as follows:
Related Product Group
Method
Profit
carrier
Fund 1 Non-Advice Lump
Sum (including the Old Book)
Fund 1 LifeSolutions Lump
Sum Ordinary
Fund 1 LifeSolutions Lump
Sum Super
Fund 1 LifeSolutions Income
Protection Ordinary
Fund 1 LifeSolutions Income
Protection Super
Projection
Premiums
Projection
Premiums
Projection
Premiums
Projection
Premiums
Projection
Premiums
Fund 2 Investments
Fund 4 Investments
Accumulation
Accumulation
n/a
n/a
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 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.
(a) 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 1.4% (2018: 2.7%).
118 | CLEARVIEW ANNUAL REPORT 2019
Acquisition expenses: Per policy acquisition expense
assumptions were based on the actual acquisition expenses
incurred for the 12 months to 30 June 2019.
Maintenance expense and inflation: The per policy
maintenance expense assumptions were based on the longer
term per policy unit costs implied by ClearView Life’s 2020
business plan. Expense inflation of 1.4% p.a. (2018: 2.5% p.a.)
was assumed. These were updated at 30 June 2019 based on
recent actual expense rate experience and the implementation
of the cost out program.
Lapses: Rates adopted vary by product, duration, age,
commission type and premium frequency, and have been based
on an analysis of ClearView Life’s experience over recent years
with allowance for expected trends. The lapse assumptions have
been increased and reshaped as at 30 June 2019 to take into
account recent observed experience.
Mortality: Rates adopted vary by product, age, gender,
and smoking status. The primary underlying mortality tables
used were the AI-FSC 2004-2008 industry standard tables, which
were adjusted for industry experience and ClearView’s
own experience. The mortality claims assumptions have been
updated to take into account recent observed experience.
Morbidity (TPD, Income Protection and Trauma): Rates adopted
vary by age, gender, and smoking status. The primary rates
adopted are based on the AI-FSC 2004-2008 and ADI-FSC-KPMG
2007 - 2011 industry standard tables, which were adjusted
for industry experience and ClearView’s own experience. The
morbidity claims assumptions have been updated at 30 June
2019 to take into account recent observed experience.
(b) Effects of changes in actuarial assumptions
(over 12 months to 30 June 2019)
Effect on
profit margins
Increase/
(decrease)
Effect on policy
liabilities
Increase/
(decrease)
$’000
$’000
Assumption category
Discount rates and inflation
Maintenance expenses
Lapses
Mortality and morbidity
Total
25,793
25,099
(41,134)
(21,577)
(11,820)
(13,825)
-
-
2,5511
(11,274)
1.
Composed of a change in termination assumptions on Income Protection policies
which are currently under assessment or in the course of payment. For claims that
are currently being assessed, the underlying duration on claims assumptions was also
changed. Both of these changes had an increase in the policy liability.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 5. Life insurance and investment contracts continued
(c) 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 valuation.
for the type of products written. An investigation into the
actual experience of the insurance portfolio over recent years is
performed annually and ClearView Life’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 and
advice from ClearView’s reinsurers.
Lapse
Maintenance expenses and inflation
Maintenance expenses are set having regard to the cost base
in the three year Board adopted business plan. Per policy
maintenance expenses are assumed to increase in the future
with inflation, at a rate that allows for basic price increases (CPI).
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 as well
as industry experience to arrive at a best estimate of future
lapse rates.
Acquisition expenses
(d) Sensitivity analysis
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
Variable
Impact of movement in underlying variable
ClearView Life 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.
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 a change is absorbed into the policy liability profit margin
reserve in the first instance.
For life insurance contracts providing death benefits an 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 a change is absorbed into the policy liability profit margin reserve in the first instance.
The cost of claims under TPD, Income Protection and trauma cover depends on the incidence of policyholders
becoming disabled or suffering a “trauma” event such as a heart attack or stroke. Higher incidence or claims
duration would increase claim costs, thereby reducing profit and shareholder equity. Similar to mortality above,
a change in the morbidity assumptions is absorbed in the policy liability profit margin in the first instance. For
policyholders who are currently on claim there is no profit margin. Therefore, any change in claims costs due to
a change in expectation around claims duration is reflected through a change in the policy liability.
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 WEALTH LIMITED | 119
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 5. Life insurance and investment contracts continued
The table below illustrates how outcomes during the financial year ended 30 June 2019 in respect of the key actuarial
variables, would have impacted the reported life insurance policy liabilities, profit and equity for that financial year.
Variable
Interest rates
Mortality and morbidity
Lapses
Maintenance expenses
Impact on policy liabilities
Impact on net profit and
shareholder equity
Gross of
reinsurance
Net of
reinsurance
Gross of
reinsurance
Net of
reinsurance
$’000
18,040
$’000
17,413
(16,830)
(16,246)
-
-
-
-
-
-
-
-
-
-
-
-
$’000
(12,628)
11,781
(6,722)
6,722
(2,934)
2,934
(1,775)
1,775
$’000
(12,189)
11,372
(1,943)
1,943
(2,817)
2,817
(1,775)
1,775
Change in
variable
+ 100 bp
- 100 bp
110.0%
90.0%
110.0%
90.0%
110.0%
90.0%
* 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 ClearView Life’s experience in the current year in relation to those variables had been higher or
lower by 10% of that experienced.
5.7 Critical accounting judgements and key sources of estimation uncertainty
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 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;
The costs incurred in acquiring the policies, including commissions, underwriting and policy issue costs;
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 Group may not receive amounts due to it and these
amounts can be reliably measured.
120 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 6. Capital structure
This sections provides information in relation to the Group’s capital structure
and financing facilities
6.1 Issued capital
6.2 Movements in reserves
6.3 Shares granted under the executive
share plan
6.4 Financing facilities
6.5 Capital risk management
122
122
123
123
124
CLEARVIEW WEALTH LIMITED | 121
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
6. Capital structure and financial risk management
6.1 Issued capital
2019
2019
2018
No. of Shares
$’000
No. of Shares
Company
2018
$’000
Issued and fully paid ordinary shares
Balance at the beginning of the financial year
619,259,012
438,289
603,266,050
421,717
Dividend Reinvestment Plan (inclusive of costs)
Treasury Shares
Shares issued during the year (ESP vested/forfeited)
10,593,144
(4,840,566)
1,965,292
11,119
(4,186)
8,789,480
12,181
-
-
821
7,203,482
4,391
Balance at the end of the financial year
626,976,882
446,043
619,259,012
438,289
Executive share plan
Balance at the beginning of the financial year
Shares granted under employee share plan (section 7.2)
Shares forfeited during the year
Shares exercised during the year
Balance at the end of the financial year
Treasury shares
Balance at the beginning of the financial year
Treasury shares bought back
Balance at the end of the financial year
49,003,595
-
(1,781,633)
(1,965,292)
45,256,670
-
4,840,566
4,840,566
-
-
-
-
-
-
4,186
4,186
56,207,077
-
(2,521,437)
(4,682,045)
49,003,595
-
-
-
-
-
-
-
-
-
-
-
In accordance with AASB 2, Share-Based Payments the shares issued under the Executive Share Plan are treated as options and
are accounted for as set out in note 7.2.
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.
6.2 Movements in reserves
Retained losses
Balance at the beginning of the financial year
Change on initial application of AASB 9
Restated balance as at 1 July 2019
Net profit/(loss) attributable to members of the parent entity
Transfer from General Reserve3
Dividend paid during the year
Balance at the end of the financial year
Executive share plan reserve1
Balance at the beginning of the financial year
Recognition of share based payments
ESP loans settled through dividend
Proceeds from sale of ESP shares vested/forfeited (net of tax)
Balance at end of the financial year
122 | CLEARVIEW ANNUAL REPORT 2019
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
(9,274)
(1,008)
(15,648)
(64,969)
(61,379)
-
-
(10,282)
(15,648)
(64,969)
(61,379)
3,959
-
26,595
(2,085)
(20,048)
(18,136)
(40,510)
-
-
(1,505)
(2,085)
-
(26,372)
(9,274)
(105,479)
(64,969)
12,509
2,889
746
(57)
10,068
2,174
771
(504)
12,509
2,889
746
(57)
10,068
2,174
771
(504)
16,087
12,509
16,087
12,509
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 6. Capital structure and financial risk management continued
Profit Reserve
Balance at the beginning of the financial year
Net profit attributable to the parent entity
Dividend paid during the year
Balance at end of the financial year
General Reserve2
Balance at the beginning of the financial year
Transfer to retained losses3
Gain on sale of unvested ESP shares (net of tax)
Balance at end of the financial year
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
-
-
-
-
2,785
-
509
3,294
-
-
-
-
31,200
7,800
25,635
23,700
(20,048)
(18,136)
18,952
31,200
(487)
2,085
1,187
2,785
2,785
-
509
3,294
(487)
2,085
1,187
2,785
1
2
3
The above executive share plan reserve relates to share options granted by the Company to employee and contractor participants under the ClearView Executive Share Plan (Plan). Further
information about the Plan is set out in section 7.2.
The general reserve comprises the profit on sale of forfeited ESP shares ($2.8 million) where the shares were sold via an off market transfer with the proceeds being received by the
Company. The general reserve is not an item of other comprehensive income and the items in the general reserve will not be reclassified subsequently to profit or loss.
$2.1m had previously been recognised in the general reserve in relation to a fair value adjustment for contingent consideration on the acquisition of Matrix Planning Solutions Limited. In
2018 the contingency period ended with the consideration (ClearView Wealth Limited Shares held in Trust) being released to the beneficiaries of the Trust. Subsequent to this, the general
reserve was transferred to retained earnings.
6.3 Shares granted under the executive share plan
In accordance with the provisions of the ESP, as at 30 June 2019, key management, members of the senior management
team, the managing director and contractor participants have acquired 45,256,670 (2018: 49,003,595) ordinary shares. Shares
granted under the ESP carry rights to dividends and voting rights. Financial assistance amounting to $29,120,042 (2018:
$32,270,871) was made available to executives, senior employees and contractor participants to fund the acquisition of shares
under the ESP.
Since 2018, a total of 5,014,106 performance rights were issued to SMT members with a vesting period ending 30 June 2019.
2,057,242 of these performance rights vested having met the performance conditions with the balance being forfeited as at
the date of this report. Vested shares will be allocated from the ESS trust (held as treasury shares) with the balance of the trust
shares (2,783,324) being held for future issues. For further details see section 7.2
6.4 Financing facilities
Financing Facilities
The Group has access to the following facilities:
Bank Guarantees
– amount used
Overdraft and credit
– amount used
– amount unused
Bank Revolving Facility
– amount used
– amount unused
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
1,598
1,598
-
-
2,000
2,000
15,000
45,000
-
60,000
-
-
-
-
-
-
-
-
-
-
CLEARVIEW WEALTH LIMITED | 123
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 6. Capital structure and financial risk management continued
As at the reporting date the Company had a $60 million facility agreement with the National Bank Australia. $15 million has
been drawn down with the balance available for immediate use. Interest on the loan accrued at BBSY plus a margin of 0.67%
per annum, and was payable monthly. Furthermore, a line fee of 0.65% per annum was payable on the facility on a quarterly
basis. The facility is repayable on 23 August 2021, three years from the initial draw down. The covenants of the loan state that
the Group’s debt must not exceed 35% of the Group’s total debt and equity and the Group’s EBITDA must not be less than 3x
interest expense. The facility was secured by a number of cross guarantees, refer to section 9.5 for details.
ClearView Life Assurance Limited has a $2 million overdraft facility with National Australia Bank at a benchmark interest rate
of 8.12% 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 and was unutilised at 30 June 2019. There is
an additional $0.25 million credit card facility with National Australia Bank in the name of ClearView Administration Services
Pty Limited.
6.5 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 note 6.2).
The Company entered into a $60 million Debt Facility Agreement in July 2017 (Debt Funding Facility) for the following
key reasons:
• To provide future capital funding in the event that growth is materially above what is currently anticipated; and
• To meet the liquidity needs of the Group or to capitalise on other opportunities.
To date, $15 million of the Debt Funding Facility has been drawn down to fund the cash component of the FY18 final dividend
and the cash payment for purchasing ClearView shares on market to support the ClearView SMT LTIP share plan (recognised as
treasury shares). The Board has to date determined that entering into the Debt Funding Facility is both the most cost effective
and efficient way to support the current funding needs of ClearView over the short- to medium-term.
Given the illiquidity of the share, the share price does not always reflect the Company’s view of intrinsic value, which is
particularly relevant when the business is undergoing a significant transformation process, under challenging conditions. In such
circumstances, the Board believes that buying back shares below intrinsic value is in the best interests of ClearView shareholders.
In December 2018, the Board determined to extend its on market buy-back within the 10/12 limit for a period up until December
2019. Since January 2014, the total number of shares bought back and cancelled under the scheme is 593,824. No shares were
bought back under the scheme in the full year ended 30 June 2019. Effective Friday 30 August 2019, the Board has approved
the recommencement of this 10/12 limit on market buy-back program and ClearView’s appointed broker for the buy-back is Blue
Ocean Equities Pty Limited.
Furthermore, the Board is considering alternative capital management initiatives that would allow the Debt Funding Facility
to be replaced with one or more longer term capital solutions that would make the capital structure of the overall group
more efficient.
In the interim, and until such time as this more permanent capital solution is implemented, the Debt Funding Facility will be
utilised to fund the on market buy-back program1. Given the positive cash flow generation, the funding drawn down under the
Debt Funding Facility can also be repaid from cash flows generated by the in-force portfolios over the medium-term.
The ongoing operation of the buyback is subject to market conditions and ClearView’s capital management requirements from
time to time.
1
Debt Funding Facility agreement has a $15 million buy-back cap.
124 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
7. Employee disclosures
This section provides information on the remuneration of key management
personnel and the Group’s employee share plan
7.1 Key management personnel compensation 126
7.2 Share based payments
126
CLEARVIEW WEALTH LIMITED | 125
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 7. Employee disclosures
7.1 Key management personnel compensation
Transactions with KMP
Key management personnel compensation
Details of Key Management Personnel compensation are disclosed in the Directors’ Report on pages 50 to 67 of the Annual
Report. The aggregate compensation made to Key Management Personnel (KMP) of the Company and the Group is set out below:
Short-term employee benefits
Post-employment benefits
Share based payments
Total
Limited recourse loans
Consolidated
2019
2018
5,888,896
4,311,997
352,642
365,488
2,301,047
1,054,307
8,542,585
5,731,792
Limited recourse loans were granted to KMP ESP participants in May 2017. This limited recourse loan facility is secured by the
ESP shares held and became interest bearing from 30 November 2017 at 3 month BBSY rate plus a margin of 1%. This limited
recourse facility is reflected as loans on balance sheet of the listed entity.
In accordance with AASB 9, an expected credit loss (ECL) of $0.4m was recognised against the limited recourse loans given the
decrease in ClearView’s share price subsequent to the issue of the loans. The loans were granted up to a maximum of $1 per
vested ESP share held.
7.2 Share based payments
Share based payment arrangements
Share-based payment transactions of the Company
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.
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, with a corresponding increase in
equity. 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 equity- settled employee benefits reserve.
Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods
or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value
of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.
Executive Share Plan
ClearView operates the ClearView Executive Share Plan (ESP or Plan). In accordance with the provisions of the Plan, as approved by
shareholders at the 2018 Annual General Meeting, the ownership-based compensation scheme allows participation in the Plan of:
•
Employee Participants - These participants are key managers, members of the Senior Management Team (SMT) and the
Managing Director; and
•
Contractor Participants - These participants are financial advisers.
126 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 7. Employee disclosures continued
7.2 Share based payments continued
Eligible Employees under the Plan Rules therefore include
both Employee Participants and Contractor Participants of
the Company and its related body corporates. Non-executive
Directors are ineligible to participate in the Plan in accordance
with the Plan Rules.
Offer and consideration
Under the ESP, the Board may invite Eligible Employees to
participate in an offer (Offer) of fully paid ordinary shares
in ClearView, subject to the terms of conditions of the ESP.
Each Share is issued at a price to be determined by the
Board prior to making an Offer and this price is set out in
the invitation (Invitation) to Eligible Employees. This price
may be the market price of a Share (as defined in the ESP
Rules) on the date of the Invitation. Taking into account the
liquidity, volatility, and the average trading activities of the
ClearView Shares, the Board determined in February 2013
that it is appropriate and reasonable for ClearView to adopt
the Volume Weighted Average Price (VWAP) over a 3 month
period to determine the market value of the ClearView Shares
for the purposes of ESP issues. This has been implemented for
all ESP Share issues since that date.
Restrictions on offer
Shares may not be offered under the ESP to an Eligible
Employee if that Eligible Employee would hold, after the
issue of the Shares, an interest in more than 5% of the issued
Shares of ClearView or be able to control the voting rights of
more than 5% of the votes that might be cast at a general
meeting of ClearView.
As at the date of this Report, the Board has not set a limit
on the number of Shares that may be issued under the
Plan. The Board or Board Authorised Delegates approve the
issue of new ESP shares and monitors the overall quantum
of ESP shares on issue, relative to the interests of existing
shareholders and the overall objectives of the business.
•
immediately in the event of certain “disqualifying
circumstances” including failure to meet performance or
vesting conditions, cessation of the Employee Participant’s
employment in circumstances defined in the ESP Rules or
termination of the Contractor Participant’s contract with
a Group Company for the provision of services.
For Employee Participants, the financial assistance is secured
over the shares and rights attached to the shares.
The Board has delegated authority to Mr Swanson, Mr Chiert
and Mr Thomson to approve granting an extension to the loan
term of all ESP participants who remain employees at the
expiration of their loan term for a period until a Change
in Control of the Company (as defined in the ESP Rules).
ESP loans to SMT members became interest bearing at 3 months
BBSY rate plus a margin of 1% from 30 November 2017. Since
1 August 2018, the limited recourse loans secured by unvested
shares held by SMT members have become interest free.
Holding lock
The shares granted under the ESP to participants are subject
to a holding lock restricting the holder from dealing with the
shares, unless otherwise provided under the Invitation. Where
all performance conditions and/or vesting conditions (if any)
attaching to the Shares issued prior to 14 February 2013 have
been satisfied (or waived) a holding lock will cease to have
effect if:
•
The Board accepts a disposal request (as defined in the
ESP Rules) (Disposal Request); or
• 5 years have passed from the Acquisition Date; or
If the Participant:
•
•
is an Employee Participant, their employment with the
Group ceases, or
is a Contractor Participant, their contractor agreement is
terminated; or
Financial Assistance
• The ESP is terminated, or
The Company may provide financial assistance to an Eligible
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 and is
repayable in accordance with the terms of the accompanying
Invitation, or as follows:
• The holding lock period otherwise ceases;
provided that the Financial Assistance and any interest that
has been accrued have been repaid.
For share issues from 14 February 2013 the Holding Lock
ceases on vesting or forfeiture of Shares.
•
For Share issues prior to 14 February 2013 - within 60
days (or a longer period determined by the Board in its
discretion) after the 5th anniversary of the grant of the
financial assistance (unless it is required to be repaid at
an earlier date owing to the operation of the Rules); or
The holding lock is imposed through the share registry and in
accordance with the ASX Listing Rules. Participants will not be
able to sell their shares on ASX or have an off-market transfer
registered (and are also otherwise prohibited from dealing in
the shares) while the holding lock is in place.
CLEARVIEW WEALTH LIMITED | 127
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 7. Employee disclosures continued
7.2 Share based payments continued
If the participant is a Contractor Participant, following the
removal of the holding lock over the Shares of the participant,
the participant may not sell, or otherwise deal with, any such
Shares without the prior written consent of the Company,
which consent the Company may give or withhold in its
absolute discretion and which consent may be given subject to
conditions.
Eligible Employees are entitled under the ESP Rules to make
a Disposal Request provided the performance and vesting
conditions have been met (or waived). The holding lock
applicable to their ESP shares will cease to have effect upon
the Board (in its absolute discretion) accepting the Disposal
Request. ClearView may dispose of these ESP shares on behalf
of the participant in one or more of the following ways (at the
discretion of the Board):
•
•
Reallocate the Shares to give effect to acquisitions by other
Eligible Employees under the ESP;
Sell to the Company in accordance with buy-back provisions
of the Corporations Act; or
• Offer or sell to buyers on the ASX.
The amount payable by these Eligible Employees to ClearView
following such a disposal is the amount outstanding in relation
to the financial assistance, including accrued interest. The
Eligible Employees may retain any surplus proceeds.
Change of control
Under the ESP Rules, all performance and vesting conditions
in relation to Shares held by an Eligible Employee who is an
Employee Participant are deemed to have been satisfied upon
a Change of Control unless stated otherwise in the participants
invitation offer. A Change of Control is defined under the ESP
Rules as being:
(a) Until 14 February 2013:
•
•
A person who did not Control the Company at the date of
issue of the Plan 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 holds more than 50% of the
Shares in ClearView.
(b) After 14 February 2013:
• 12 months after a Change of Control; or
•
•
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 Crescent Capital Partners and its
Associated Entities no longer holding 20% of the voting
rights of the Company.
(c) After 1 July 2015:
•
•
For ESP Shares issued to employee participants after
1 July 2015, unless stated otherwise in the participants
Invitation Offer, all performance and vesting conditions in
relation to these shares, are not deemed to have been met
upon a Change of Control
“Control” is defined as Crescent Capital Partners and its
Associated Entities no longer holding 20% of the voting
rights of the Company.
The above provisions concerning change of control apply only
to Employee Participants and not Contractor Participants under
the ESP.
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.
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.
Long Term Incentive Plan
Since October 2017, ClearView operates the ClearView Long
Term Incentive Plan (LTIP). The LTIP underpins the Group’s
strategy of rewarding performance and retaining its key talent.
128 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 7. Employee disclosures continued
7.2 Share based payments continued
Offer and consideration
Under the LTIP, the Board may invite Eligible Employees to
participate in an offer of performance rights in ClearView
(Awards). Each Award represents a right to receive one
ordinary share in the capital of the Company (Share) or to
receive a cash payment equal to the value of one ordinary
share, subject to the rules of the LTIP Plan (LTIP Rules) and
the terms and conditions which an Eligible Employee is invited
to participate in the Plan (Invitation).
Vesting and exercise conditions
The Awards are divided into tranches but may be subject
to separate vesting conditions. The rights will vest only
where the Eligible Employees Recipient (Recipient) remains
employed by the Company and the vesting conditions are
satisfied.
The Awards are not subject to any Exercise Conditions.
A Recipient will be able to exercise their vested Awards,
in accordance with the LTIP Rules upon receiving a
vesting notice.
Settlement mechanism
Upon exercise the Board will determine whether the Awards
will be Equity Settled and/or Cash Settled.
If an Award is to be Equity Settled, the Company will arrange
for the Recipient to receive the requisite number of shares.
If an Award is to be Cash Settled, the Recipient will receive a
cash payment equal to:
•
•
the volume weighted average share price (VWAP) at
which the Company’s Shares were traded on the ASX in
the 90 days up to and including the day on which the
Award is validly exercised, or as otherwise determined by
the Board (acting reasonably); or
if the cash payment is calculated at a time of a Change
of Control Event, the price per share paid by the entity
acquiring the Company under the Change of Control
Event, or such other higher amount as otherwise
determined by the Board (acting reasonably).
Change of control and expiry date
On the occurrence of a ‘Change of Control Event’ (as defined
in the LTIP Rules, which includes when a bona fide takeover
bid is made to the holders of Shares), the Board may in its
absolute discretion determine (having regard to various
factors) the manner in which any or all of the Recipient’s
Award to be dealt with.
The expiry date of the Award is the fifth (5th) anniversary of
the Grant Date of the Award.
Employee share trust (EST)
The Board may elect to use such terms and conditions
as determined by the Board in its absolute discretion an
employee share trust for the purposes of holding Shares
before or after the exercise of an Award or delivering any
shares under these Rules. Under an employee share trust
structure, the trustee of the employee share trust would be
registered as the legal owner of the shares but the recipient
would be the beneficial owner.
Administration of the LTIP and EST
The LTIP and EST (where used) is administrated by the Board.
The Board may make rules and regulations for its operation
that are consistent with the rules of the LTIP.
The Company pays all costs and expenses of operating the
LTIP and EST (where used) as well as the funding for the EST
(where used). Employees are liable for any brokerage and tax
payable associated with their participation in the Awards.
Termination of the LTIP
The Board may resolve at any time to terminate, suspend,
or reinstate the operation of the LTIP.
CLEARVIEW WEALTH LIMITED | 129
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 7. Employee disclosures continued
7.2 Share based payments continued
Share-based payment arrangements
The following share-based payment arrangements were in existence during the current and comparative reporting periods:
Issue Date
Type of
Arrangement8
Number Grant date
Issue price
at grant
date
$
Expiry
date9
Fair value
at grant
date (pre
modifica-
tion1)
$
Fair value
at grant
date (post
modifica-
tion1)
$
Series
Series 66
30/06/2008 KMP
500,000
30/06/2008
30/06/2013
Series 72,6
29/09/2009 KMP
2,600,000
29/09/2009
29/09/2014
Series 103,6
25/06/2010 MD
2,000,000
25/06/2010
26/03/2015
Series 114,6
25/06/2010 MD
4,000,000
25/06/2010
26/03/2015
Series 125,6
25/06/2010 MD
4,000,000
25/06/2010
26/03/2015
Series 155,6
18/08/2011 KMP
2,000,000
1/07/2011
1/07/2015
Series 165,6
6/10/2011 KMP and SM
2,750,000
1/09/2011
1/09/2016
Series 186
Series 216
Series 236
1/03/2012 CP
25/05/2012 CP
6/08/2012 CP
2,500,000
10/02/2012
10/02/2017
1,375,000
7/05/2012
7/05/2017
1,281,650
6/08/2012
6/08/2017
Series 245,6
22/08/2012 SM
300,000
22/08/2012
22/08/2017
Series 256
21/12/2012 CP
950,000
21/12/2012
21/12/2017
Series 266,7
16/04/2013 KMP and SM
2,575,000
12/04/2013
Series 276
16/04/2013 SM
75,000
12/04/2013
50% Change
in Control;
50% 1 year
after
1 year post
Change in
Control
Series 28
Series 29
Series 30
Series 31
16/04/2013 CP
31/05/2013 CP
27/06/2013 CP
14/10/2013 SM
566,667
12/04/2013
12/04/2018
1,328,335
31/05/2013
31/05/2018
1,136,088
27/06/2013
27/06/2018
275,000
14/10/2013
Series 32
14/10/2013 SM
275,000
14/10/2013
Series 35
31/01/2014 SM
75,000
31/01/2014
Series 36
31/01/2014 SM
75,000
31/01/2014
Change in
Control
1 year post
Change in
Control
Change in
Control
1 year post
Change in
Control
Series 37
Series 38
Series 39
Series 40
Series 41
Series 42
Series 43
Series 44
31/01/2014 CP
30/05/2014 SM
30/05/2014 SM
30/05/2014 SM
30/05/2014 CP
9/07/2014 CP
1,473,283
31/01/2014
31/01/2019
621,667
30/05/2014
30/05/2018
621,667
30/05/2014
30/05/2019
621,667
30/05/2014
30/05/2020
285,925
30/05/2014
30/05/2019
3,406,814
9/07/2014
8/07/2019
26/11/2014 KMP and SM
2,396,866
26/11/2014
25/11/2018
26/11/2014 SM including KMP
132,013
26/11/2014
25/11/2019
and CP
Series 45
26/11/2014 KMP and SM
132,013
26/11/2014
25/11/2020
130 | CLEARVIEW ANNUAL REPORT 2019
0.59
0.49
0.50
0.58
0.65
0.50
0.50
0.50
0.50
0.54
0.55
0.58
0.57
0.57
0.69
0.68
0.64
0.61
0.61
0.65
0.65
0.65
0.75
0.75
0.75
0.75
0.79
1.01
1.01
1.01
0.10
0.07
0.11
0.08
0.06
0.10
0.10
0.12
0.13
0.17
0.16
0.16
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0.10
0.10
0.11
0.08
0.06
0.13
0.13
0.15
0.17
0.21
0.19
0.20
0.29
0.27
0.22
0.22
0.21
0.17
0.19
0.17
0.20
0.17
0.17
0.19
0.22
0.19
0.17
0.19
0.22
0.24
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 7. Employee disclosures continued
7.2 Share based payments continued
Issue Date
Type of
Arrangement8
Number Grant date
Issue price
at grant
date
$
Expiry
date9
Fair value
at grant
date (pre
modifica-
tion1)
$
Fair value
at grant
date (post
modifica-
tion1)
$
Series
Series 46
Series 47
Series 47
Series 48
Series 49
30/03/2015 SM
30/03/2015 SM
30/03/2015 CP
30/03/2015 SM
30/07/2015 CP
75,000
30/03/2015
30/03/2019
75,000
30/03/2015
30/03/2020
1,150,000
30/03/2015
30/03/2020
141,667
30/03/2015
30/03/2021
3,009,452
30/07/2015
30/07/2020
Series 50a
30/07/2015 SM
25,773
30/07/2015
30/07/2019
Series 50b
30/07/2015 SM
25,773
30/07/2015
30/07/2020
Series 50c
30/07/2015 SM
25,773
30/07/2015
30/07/2021
Series 51a
23/12/2015 SM including KMP
602,032
23/12/2015
23/12/2020
Series 51b
23/12/2015 SM including KMP
602,032
23/12/2015
23/12/2021
Series 52
Series 53
Series 54
Series 55
27/04/2016 SM
27/04/2016 CP
134,365
27/04/2016
27/04/2021
1,494,140
27/04/2016
27/04/2021
20/06/2016 SM including KMP
79,601
20/06/2016
20/06/2021
14/06/2017 CP
1,300,000
14/06/2017
14/06/2022
1.00
1.00
1.00
1.00
0.97
0.97
0.97
0.97
0.96
0.96
0.93
0.93
0.94
1.38
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0.22
0.25
0.25
0.28
0.19
0.17
0.19
0.22
0.19
0.22
0.20
0.20
0.20
0.30
1
2
3
4
5
6
7
8
9
On the 14th February 2013, the Board approved a change to the rules of the ESP which changed the interest rate charged on the financial assistance granted to the ESP Participants from
the RBA official cash rate plus 25 basis points to zero percent. This resulted in changes to the inputs of the option pricing model which had an impact on the fair value of the option at the
date of the change.
A Change of 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.
Shares vested 1 year from date of commencement of employment on 26 March 2011.
Shares vested 2 years from date of commencement of employment on 26 March 2012.
Change of control provision was triggered on 26 September 2012 by CCP Bidco obtaining a shareholding above 50%.
The Board approved granting an extension of the loan term until such time as there is a change of control in the Company.
Special condition relating to shares issued to KMP in Series 26: the shares may be sold on change of control with 50% of the funds held for in escrow for a period of 12 months.
KMP = Key Management Personnel, SM = Senior Management, MD = Managing Director, CP = Contractor Participant.
Expiry date represents either the relevant vesting or holding lock period.
CLEARVIEW WEALTH LIMITED | 131
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 7. Employee disclosures continued
7.2 Share based payments 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)
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)
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)
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)
Inputs into the model
Grant date share price ($)
Anticipated vesting price ($)
Expected volatility (%)
Anticipated option life (years)
132 | CLEARVIEW ANNUAL REPORT 2019
Series 6
Series 7
Series 10
Series 11
Series 12
0.59
0.58
25.26
3.00
0.49
0.55
30.24
1.75
0.50
0.54
28.78
2.75
0.58
0.63
28.78
2.75
0.65
0.71
28.78
2.75
Series 15
Series 16
Series 17
Series 18
Series 19
0.50
0.50
31.49
3.00
0.50
0.51
35.35
3.00
0.50
0.50
36.70
3.00
0.50
0.50
37.06
4.95
0.50
0.50
36.47
4.95
Series 20
Series 21
Series 22
Series 23
Series 24
0.50
0.50
36.61
5.00
0.50
0.49
36.94
4.95
0.50
0.49
37.33
5.00
0.54
0.53
37.85
5.00
0.55
0.54
37.99
3.00
Series 25
Series 26
Series 27
Series 28
Series 29
0.58
0.58
35.21
5.00
0.57
0.57
35.92
5.99
0.57
0.57
35.92
4.99
0.69
0.69
35.92
4.99
0.68
0.68
36.81
5.00
Series 30
Series 31
Series 32
Series 35
Series 36
0.64
0.64
36.90
5.00
0.61
0.61
22.20
5.00
0.61
0.61
22.20
6.00
0.65
0.65
22.01
5.00
0.65
0.65
22.01
6.00
Series 37
Series 38
Series 39
Series 40
Series 41
0.65
0.65
22.01
5.00
0.75
0.75
21.12
4.00
0.75
0.75
21.12
5.00
0.75
0.75
21.12
6.00
0.75
0.75
21.12
5.00
Series 42
Series 43
Series 44
Series 45
Series 46
0.79
0.79
16.78
5.00
1.01
1.01
19.79
4.00
1.01
1.01
21.56
5.00
1.01
1.01
24.18
6.00
1.00
1.00
20.84
4.00
Series 47
Series 48
Series 49
Series 50a
Series 50b
1.00
1.00
20.84
5.00
1.00
1.00
20.84
6.00
0.97
0.97
20.15
5.00
0.97
0.97
20.15
4.00
0.97
0.97
20.15
5.00
Series 50c
Series 51a
Series 51b
Series 52
Series 53
0.97
0.97
20.15
6.00
0.96
0.96
20.03
5.00
0.96
0.96
20.03
6.00
0.93
0.93
20.31
5.00
0.93
0.93
20.31
5.00
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 7. Employee disclosures continued
7.2 Share based payments continued
Inputs into the model
Grant date share price ($)
Anticipated vesting price ($)
Expected volatility (%)
Anticipated option life (years)
Series 54
Series 55
0.94
0.94
20.55
5.00
1.38
1.38
20.11
5.00
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
Issued during the financial year
Forfeited during the year
Exercised during the year
Balance at the end of the financial year
2019
2018
Weighted
average exercise
price
Number of
shares
Weighted
average exercise
price
0.57
56,207,077
-
1.03
0.63
0.55
-
(2,521,437)
(4,682,045)
49,003,595
0.61
-
1.39
0.53
0.57
Number of
shares
49,003,595
-
(1,781,633)
(1,965,292)
45,256,270
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
As at the date of this report, ClearView has a total of 45,256,670 ESP shares on issue. No new shares were granted in the year
ended 30 June 2019.
During the financial year, 1,965,292 vested ESP shares were exercised with the outstanding ESP loan balance proceeds being
received by the Company and 1,781,633 forfeited ESP shares were bought back and cancelled.
The following table outlines the vesting conditions and performance conditions of share based payment arrangements in
existence during the period.
Employee participants
Series
Vesting Conditions
Series 6 – 30 June 2008 Issue
Series 7 – 29 September 2009 Issue
Series 10 – 25 June 2010 Issue
Series 11 – 25 June 2010 Issue
Series 12 – 25 June 2010 Issue
Series 15 – 18 August 2011 Issue
Series 16 - 6 October 2011 Issue
Series 17 - 1 March 2012
Series 24 - 22 August 2012 Issue
Nil1
Nil1
Nil2
Nil2
Nil2,4
Nil4
Nil4
Nil4
Nil4
Series 26 - 16 April 2013 Issue
Upon a change in control of the company3
Series 27 - 16 April 2013 Issue
First year anniversary upon the change in control
Performance
Conditions
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
CLEARVIEW WEALTH LIMITED | 133
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 7. Employee disclosures continued
7.2 Share based payments continued
Series
Vesting Conditions
Series 31 - 14 October 2013 Issue
Upon a change in control of the company
Series 32 - 14 October 2013 Issue
First year anniversary upon the change in control
Series 35 - 31 January 2014 Issue
Upon a change in control of the company
Series 36 - 31 January 2014 Issue
First year anniversary upon the change in control
Series 38 - 30 May 2014 Issue
Series 39 - 30 May 2014 Issue5
Series 40 - 30 May 2014 Issue
Remain an employee of the company for 4 years from Grant date of
shares
Remain an employee of the company for 5 years from Grant date of
shares
Remain an employee of the company for 6 years from Grant date of
shares
Performance
Conditions
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Series 43 - 26 November 2014 Issue5 Remain an employee of the company for 4 years from Grant date of
Nil
Series 44 - 26 November 2014 Issue
Series 45 - 26 November 2014 Issue
Series 46 - 30 March 2015 Issue5
Series 47 - 30 March 2015 Issue
Series 48 - 30 March 2015 Issue
Series 50a - 30 July 2015 Issue5
Series 50b - 30 July 2015 Issue
Series 50c - 30 July 2015 Issue
Series 51a & 51b - 23 December
2015 Issue
Series 52 - 27 April 2016 Issue
Series 54 - 20 June 2016 Issue
shares
Remain an employee of the company for 5 years from Grant date of
shares
Remain an employee of the company for 6 years from Grant date of
shares
Remain an employee of the company for 4 years from Grant date of
shares
Remain an employee of the company for 5 years from Grant date of
shares
Remain an employee of the company for 6 years from Grant date of
shares
Remain an employee of the company for 4 years from Grant date of
shares
Remain an employee of the company for 5 years from Grant date of
shares
Remain an employee of the company for 6 years from Grant date of
shares
Upon a change in control of the company
Remain an employee of the company for 4 years from Grant date of
shares
Remain an employee of the company for 4 years from Grant date of
shares
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
1
2
3
4
5
Change of control provision was triggered on 23 October 2009 by GPG increasing its shareholding above 50%.
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 progres-
sively 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 (vested); and
Series 12: 4 million shares at an issue price of 65 cents vesting on 26 September 2012 (vested) on change of control of ClearView.
The Shares issued to Mr Swanson have vested progressively each year as outlined above.
Special condition relating to shares issued to KMP in Series 26: 100% of the shares may be sold on change of control, but 50% are held in escrow after employment for 1 year thereafter.
Change of control provision was triggered on 26 September 2012 by CCP Bidco obtaining a shareholding above 50%.
Vested as at the date of the report.
134 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 7. Employee disclosures continued
7.2 Share based payments continued
Contractor participants
Series
Vesting conditions 1
Performance
conditions
Series 18 – 1 March 2012 Issue 4 years and 346 days from the date of issue and achievement of specific
Nil
target
Series 19 – 3 April 2012 Issue
Series 21 – 25 May 2012 Issue
4 years and 346 days from the date of issue and achievement of specific
target
4 years and 347 days from the date of issue and achievement of specific
target
Series 22 – 29 June 2012 Issue
5 years from the date of issue and achievement of specific target
Series 23 – 6 August 2012 Issue 5 years from the date of issue and achievement of specific target
Series 25 – 21 December 2012
Issue
Series 28 – 16 April 2013 Issue
5 years from the date of issue and achievement of specific target
4 years and 361 days from the date of issue and achievement of specific
target
Series 29 – 31 May 2013 Issue
5 years from the date of issue and achievement of specific target
Series 30 – 27 June 2013 Issue
5 years from the date of issue and achievement of specific target
Series 37 – 31 January 2014
Issue
Series 41 – 30 May 2014 Issue
Series 42 – 9 July 2014 Issue
5 years from the date of issue and achievement of specific target
5 years from the date of issue and achievement of specific target/balanced
scorecard
5 years from the date of issue and achievement of specific target/balanced
scorecard
Series 47 – 30 March 2015
Issue
5 years from the date of issue and achievement of specific target/balanced
scorecard
Series 49 – 30 July 2015 Issue
5 years from the date of issue and achievement of specific target/balanced
scorecard
Series 53 – 27 April 2016 Issue
5 years from the date of issue and achievement of balanced scorecard
Series 55 – 14 June 2017 Issue
5 years from the date of issue and achievement of balanced scorecard
1
Subject to qualifying circumstances as outlined in the ESP Plan Rules.
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Unless otherwise stated in the Invitation Letter to an individual employee participant, the vesting conditions in the ESP rules
stipulate that shares issued in terms of the Plan to employees participants will either automatically vest with a change of
control of the Company (for shares issued prior to 14 February 2013) and for all other issues 12 months after a change in
control. The change of control provisions do not apply to shares issued in terms of the plan to contractor participants.
On 26 September 2012 CCP Bidco Pty Limited and its Associates (CCP Bidco), CCP Bidco’s off-market takeover bid for all the
ordinary shares in ClearView became unconditional which resulted in accelerating the vesting of the shares in the ESP at that
time, including all Series 10 to 24 which had been issued to employee participants prior to the change of control. Series 7 was
issued prior to 23 October 2009, where the change of control provision was triggered upon GPG obtaining control of ClearView.
CLEARVIEW WEALTH LIMITED | 135
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
7. Employee disclosures continued
7.2 Share based payments continued
Shares that were forfeited during the year
The following table shows the shares that were fortfeited due to the vesting conditions not being met.
Date
22/11/2018
Total
Number of share cancelled
Cancelled from
1,781,633
Series 42, 43, 47, 49, 53, 55
1,781,633
Shares that were exercised during the year
The following table shows the shares that were exercised due to the vesting conditions being met.
Number of share exercised
Exercised from
Date
12/07/2018
31/08/2018
19/09/2018
9/11/2018
18/04/2019
10/05/2019
Total
LTIP Awards
1A
1B
2A
2B
3A
3B
498,625
650,000
500,000
16,667
150,000
150,000
1,965,292
Series 30
Series 25
Series 29
Series 38
Series 16
Series 16
Fair value at
grant date
$1.38
$0.03
The following LTIP Awards were in existence at the end of the current reporting period:
Tranche Issue Date
Number
Grant date
Vesting date
Vesting conditions
20 October
2017
20 October
2017
1,432,143 20 October 2017
30 June 2019
Embedded Value (EV) target
1,432,143 20 October 2017
30 June 2019
Total shareholder return
(TSR) performance
4 April 2018
22,321
4 April 2018
30 June 2019
Embedded Value (EV) target
$1.38
4 April 2018
22,321
4 April 2018
30 June 2019
Total shareholder return
(TSR) performance
1 September
2018
1 September
2018
965,819
965,819
1 September
2018
1 September
2018
30 June 2019
Embedded Value (EV) target
30 June 2019
Total shareholder return
(TSR) performance
$0.03
$0.95
$0.50
Performance rights vested and forfeited as at the date of this report
Achievement of the performance rights are as follows:
Vesting condition
Outcome
Embedded Value target at
30 June 2019
Achievement of 97% of
Embedded Value target
Vesting
scale
85%
TSR target
Total
Below the 50th percentile
0%
Weighting
Allocation of
CVW shares
50%
50%
42.5%
0%
42.5%
This resulted in the awarding of 42.5% of the performance rights issued with the balance being forfeited. This will result in the
allocation of 2.1 million shares held in the ESS Trust to participants. The remaining 2.7 million shares will be held in the ESS
Trust for future issues.
136 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 8. Related parties and
other Group entities
This section provides information on the Group’s structure and how it affects
the financial position and performance of the Group as a whole. In particular,
there is information about:
8.1 Equity interests in subsidiaries
8.2 Transactions between the Group and
its related parties
8.3 Investment in controlled unit trusts
138
139
141
CLEARVIEW WEALTH LIMITED | 137
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
8. Related parties and other Group entities
8.1 Equity interests in subsidiaries
Details of the percentage of ordinary shares held in subsidiaries.
Name of Entity
Parent entity
Principal Activity
Parent
Entity
Country of
incorporation
2019
%
2018
%
Ownership interest
ClearView Wealth Limited (CWL)
Holding Company
-
Australia
Subsidiaries
ClearView Group Holdings Pty Limited (CGHPL)
Holding Company
CWL
ClearView Life Assurance Limited (CLAL)
Life Company
CGHPL
ClearView Financial Management Limited (CFML)
Responsible Entity
CGHPL
ClearView Life Nominees Pty Limited (CLNPL)
Trustee
ClearView Administration Services Pty Limited
(CASPL)
Administration
Service Entity
ClearView Financial Advice Pty Limited (CFAPL)
Advice Company
Matrix Planning Solutions Limited (MPS)
Advice Company
Matrix Planning Investments Pty Limited (MPI)
Affiliate Financial Planning Pty Limited
ClearView Employee Share Trust (CVEST)
Non operating
Non operating
Trustee
LaVista Licensee Solutions Pty Limited
Service Company
CLAL
CWL
CWL
CWL
MPS
CFA
CWL
CWL
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Controlled unit trusts
CVW Index Fund Interest Fund (previously CVW
International Bonds Fund)
CVW Schroder Equity Opportunities Fund
CVW Fixed Interest Fund
CVW Index International Shares Fund (previously
CVW SSGA International Shares Fund)
CVW Listed Property Fund
CVW Cash Fund
CVW CFS Infrastructure Fund
CVW RARE Emerging Markets Fund
CVW Antipodes Global Fund
CVW Hyperion Australian Shares Fund
CVW Index Property and Infrastructure Fund
(previously CVW Vanguard Listed International
Infrastructure Fund)
CVW Index Emerging Markets Fund (previously
Vanguard Emerging Markets Fund)
CVW Index Australian Shares Fund (previously
CVW Plato Australian Shares Fund)
CVW Stewart Investors Worldwide Sustainability
Fund
Wholesale Fund
CLAL
Australia
Wholesale Fund
Wholesale Fund
Wholesale Fund
Wholesale Fund
Wholesale Fund
Wholesale Fund
Wholesale Fund
Wholesale Fund
Wholesale Fund
Wholesale Fund
CLAL
CLAL
CLAL
CLAL
CLAL
CLAL
CLAL
CLAL
CLAL
CLAL
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Wholesale Fund
CLAL
Australia
100
Wholesale Fund
CLAL
Australia
Wholesale Fund
CLAL
Australia
81
45
100
100
100
100
100
100
100
100
100
100
100
100
43
54
95
61
70
57
47
23
100
100
100
100
100
100
100
100
100
100
100
0
0
95
42
56
93
67
70
50
49
21
94
99
99
77
21
CASPL was incorporated to centralise the administrative responsibilities of the group which include salary disbursements and
settling all non-directly attributable overhead expenditure. CASPL recoups all expenditure by virtue of a management fee from
the various group companies and operates on a cost recovery basis (in accordance with an inter group agreement).
138 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 8. Related parties and other Group entities continued
Controlled unit trusts are not members of the tax consolidated group. Members of the ClearView tax consolidated group
include the parent entity and its subsidiaries. CWL is regulated as a Non-Operating and Holding Company by the Australian
Prudential Regulation Authority (APRA) under the Life Insurance Act 1995, and via its subsidiaries, holds an APRA life insurance
licence (CLAL), and APRA registrable superannuation entity (RSE) licence (CLN), an ASIC funds manager responsible entity (RE)
licence (CFML) and operates two ASIC financial adviser licences (CFA and MPS).
8.2 Transactions between the Group and its related parties
Other related parties include:
• Entities with significant influence over the Group;
• Associates; and
• Subsidiaries.
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been
eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related
parties during the financial year ended 30 June 2019 are disclosed below:
•
•
Directors fees were paid to Crescent Capital Partners Pty Limited the manager of the parent entity’s majority shareholder
CCP Bidco Pty Limited; and
Directors fees were paid to Sony Life Insurance Co., Ltd. until Mr Wakuya’s resignation from the Board on 20 November
2018.
The ultimate parent entity in the Group is ClearView Wealth Limited which is incorporated in Australia.
Outstanding balances between the Group and its related parties
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-
(5,098,974)
1,055,051
364,567
282,174
(2,878,825)
15,593
-
8,776
-
(6,251,638)
5,098,974
-
(345,515)
(661,055)
7,651
(2,434,891)
- 12,546,734
-
-
14,211,898
(1,055,051)
345,515
-
(43,970)
-
(87,033)
191,021
-
-
849,443
199,925
(364,567)
661,055
43,970
-
-
(1,685,187)
-
-
-
-
(1,344,729)
(282,174)
(7,651)
-
-
-
730,058
-
-
-
-
440,233
CLEARVIEW WEALTH LIMITED | 139
2019
ClearView
Wealth
Limited
ClearView Life
Assurance
Limited
ClearView
Financial
Management
Limited
ClearView
Financial
Advice Pty
Limited
Matrix
Planning
Solutions
Limited
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
8. Related parties and other Group entities continued
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2,878,825
2,434,891
87,033
1,685,187
730,058
(15,593)
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(191,021)
(8,776)
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(12,546,734)
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(849,443)
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$
$
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(3,757,852)
1,089,188
604,816
(278,190)
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14,567 7,718,520
$
-
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$
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5,148,224
3,757,853
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(239,290)
(637,743)
9,220 (4,338,103)
-
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(1,448,063)
(1,089,188)
239,290
-
(36,002)
-
(327,725)
231,459
-
-
916,510
(65,656)
(604,816)
637,743
36,002
-
-
(1,207,563)
-
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(1,138,634)
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(9,220)
-
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(335,579)
-
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(66,609)
242,824
4,338,103
327,725
1,207,563
335,579
-
-
-
-
-
6,451,794
ClearView
Administration
Services Pty
Limited
ClearView Life
Nominees
Pty Limited
Lavista
Licensee
Solutions Pty
Limited
ClearView
Retirement Plan1
CFML Managed
Investment
Schemes
2018
ClearView
Wealth
Limited
ClearView Life
Assurance
Limited
ClearView
Financial
Management
Limited
ClearView
Financial
Advice Pty
Limited
Matrix
Planning
Solutions
Limited
ClearView
Administration
Services Pty
Limited
ClearView Life
Nominees
Pty Limited
(14,567)
-
(231,459)
-
-
-
-
-
-
-
-
-
-
-
-
-
(246,026)
-
(7,718,520)
ClearView
(7,718,520)
-
-
Retirement Plan
1
The non-current receivable from ClearView Retirement Plan relates to contribution tax funding payments for tax benefits on the life insurance premium. Due to the tax loss position in
ClearView Retirement Plan, settlement of this amount is subject to the utilisation of tax losses. Various options for the ClearView Retirement Plan are being considered.
140 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
8. Related parties and other Group entities continued
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Investment
Schemes
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(916,510)
(5,148,224)
1,448,063
65,656 1,138,634
66,609
6,451,794
246,026 7,718,520
-
916,570
-
Transactions other than financial instrument transactions
No Director has entered into a material contract with the Company or the ClearView Group since the end of the previous
financial year and there were no material contracts involving Directors’ interests existing at year end. Other transactions with
directors, executives and their related parties are conducted on arm’s length terms and conditions, and are deemed trivial or
domestic in nature. These transactions are in the nature of personal investment, life insurance policies and superannuation.
8.3 Investment in controlled unit trusts
Name
Controlled unit trusts
CVW Index Fixed Interest Fund
(previously CVW Pimco International Bonds Fund)
CVW Schroder Equity Opportunities Fund
CVW Fixed Interest Fund
CVW Index International Shares Fund
(previously CVW SSGA International Shares Fund)
CVW Listed Property Fund
CVW Cash Fund
CVW CFS Infrastructure Fund
CVW RARE Emerging Markets Fund
CVW Antipodes Global Fund
CVW Hyperion Australian Shares Fund
CVW Index Property and Infrastructure Fund
(previously CVW Vanguard Listed International
Infrastructure Fund)
CVW Index Emerging Markets Fund
(previously CVW Vanguard Emerging Markets Fund)
CVW Index Australian Shares Fund
(previously CVW Plato Australian Shares Fund)
Consolidated
2019
Consolidated
2018
Type
$’000
%
$’000
%
Debt
42,744
100.00
19,741
95.45
Equities
Debt
Equities
Property
Debt
Property
Equities
Equities
Equities
Property
109,351
312,295
86,649
20,151
201,032
122,087
53,593
46,727
13,738
11,334
43.42
54.43
95.11
61.44
70.14
56.67
46.59
22.96
100.00
100.00
112,758
356,281
96,536
21,465
222,097
146,017
90,883
31,656
17,736
14,701
42.36
55.70
92.99
66.51
70.19
50.29
48.72
21.08
93.72
99.00
Equities
5,932
100.00
10,520
98.70
Equities
43,801
81.37
44,284
77.49
CVW Stewart Investors Worldwide Sustainability Fund
Equities
84,463
44.58
13,867
20.70
Total
1,153,897
1,198,542
CLEARVIEW WEALTH LIMITED | 141
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
9. Other disclosures
9.1 Notes to the Consolidated Statement of
cash flows
143
9.2 Contingent liabilities and contingent assets 143
9.3 Leases
9.4 Capital commitments
9.5 Guarantees
9.6 New accounting standards
9.7 Other significant accounting policies
9.8 Subsequent events
144
145
145
145
148
148
142 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
9. Other disclosures
9.1 Notes to the Consolidated Statement of cash flows
Consolidated
Company
Net profit/(loss) for the year
2019
$’000
3,959
2018
$’000
26,596
Fair value gains on financial assets at fair value through profit and loss
(68,082)
(41,194)
Amortisation, depreciation and impairment
Employee share plan expense
Other non cash items
Interest and dividend received from controlled entity
30,515
2,889
-
-
10,432
2,174
23
-
Reinvested trust distribution income/interest income
(37,241)
(49,681)
Movement in provisions
Movements in liabilities to non-controlling interest in controlled unit trust
(Increase)/decrease in receivables
Decrease/(increase) in deferred tax asset
Increase/(decrease) in payables
Increase/(decrease) in policy liabilities
Increase/(decrease) in current tax liability
Net cash (utilised)/generated by operating activities
Cash and cash equivalents – accounting policy
(2,058)
64,840
(4,204)
1,329
24,186
(58,207)
(5,967)
48,039
(1,826)
55,733
(5,685)
635
(9,474)
9,101
7,623
4,457
2019
$’000
4,971
-
-
2018
$’000
22,195
-
-
2,889
2,174
-
-
(7,800)
(23,700)
-
-
-
-
-
-
11,394
5,163
(58)
(385)
-
131
249
-
(5,967)
7,622
5,044
13,834
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.
9.2 Contingent liabilities and contingent assets
There may be outstanding claims and potential claims against the ClearView Group in the ordinary course of business. The ClearView
group does not consider the outcome of any such claims known to exist at the date of this report, either individually or in aggregate
is likely to have a material effect on its operations or financial position. The Directors are of the opinion that provisions are not
required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is
not capable of reliable measurement.
Certain subsidiaries act as trustee for various trusts. In this capacity, the subsidiaries are liable for the debts of the trusts and are
entitled to be indemnified out of the trust’s assets for all liabilities incurred on behalf of the trusts.
In the ordinary course of business, certain ClearView subsidiaries enter into various types of investment contracts that can give rise to
contingent liabilities. It is not expected that any significant liability will arise from these transactions as any losses or gains are offset
by corresponding gains or losses on the underlying exposure.
Buyback arrangements
ClearView has contractual arrangements with a limited number of financial advice businesses to purchase its book of business at an
agreed multiple to recurring revenues subject to certain conditions being met. This buy-back arrangement is known as Buyer of Last
Resort (BOLR). It is anticipated that one adviser on this contractual arrangement may initiate the purchase of their book of business
in the coming year at a price that is not yet determined, may include deferred or uncertain components, or may be commercially
settled with the adviser retaining ownership of the business. It is possible that the market value or resale value of such a business
may be less than the cost to the Group. Due to the uncertainty of these circumstances, no value can be reliably placed on the
contingent liability at 30 June 2019.
CLEARVIEW WEALTH LIMITED | 143
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 9. Other disclosures continued
Industry and regulatory compliance investigations
ClearView is subject to review from time to time by regulators. ClearView’s principal regulators are APRA, ASIC and AUSTRAC,
although other government agencies may have jurisdiction depending on the circumstances. The reviews and investigations
conducted by regulators may be industry-wide or specific to ClearView and the outcomes of those reviews and investigations
can vary and may lead, for example, to the imposition of penalties, variations or restrictions to licences, the compensation of
customers, enforceable undertakings or recommendations and directions.
ClearView has recently undertaken remediation programs in relation to its closed Direct Life insurance business and a
retrospective review of life insurance advice in its dealer groups. These remediation programs are now substantially complete
and compensation has been paid to affected customers where possible. The costs of completing the programs have been
included in the FY19 result.
Other
The Company in the ordinary course of business has guaranteed the obligations of one of its subsidiaries in respect of its
obligations for leasehold premises.
The Company has guaranteed the obligations of one of its subsidiaries in respect of employee entitlements of employees who
were previously employed by MBF Holding Pty Limited (Bupa Australia).
The Company in the ordinary course of business has provided a letter of financial support to its subsidiary ClearView
Administration Services, the centralised administration entity of the group.
Other than the above, the Directors are not aware of any other contingent liabilities in the Group at the year end.
9.3 Leases
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Total
Lease commitments relate to:
Consolidated
2019
$’000
2,397
1,503
3,900
2018
$’000
2,168
2,606
4,774
Company
2018
$’000
-
-
-
2019
$’000
-
-
-
•
•
•
ClearView Group’s offices in various locations. Under these arrangements ClearView generally pays rent on a periodic basis
at rates agreed at the inception of the lease;
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; and
Printers and copiers utilised in the business. The Group does not have an option to purchase the leased assets at expiry of
the leases.
In respect of non-cancellable operating leases the following liabilities have been recognised:
Make good provision
Current
Non-current
Total
144 | CLEARVIEW ANNUAL REPORT 2019
Consolidated
2019
$’000
2018
$’000
2019
$’000
Company
2018
$’000
200
308
508
100
274
374
-
-
-
-
-
-
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 9. Other disclosures continued
9.4 Capital commitments
The Group has committed to the following capital commitments subsequent to the year end.
Technology projects and service agreements
Total
9.5 Guarantees
Consolidated
Company
2019
$’000
3,195
3,195
2018
$’000
5,526
5,526
2019
$’000
-
-
2018
$’000
-
-
The facility entered into with the National Australia Bank is guaranteed jointly and severally by:
• ClearView Group Holdings Pty Limited
ACN 107 325 388
• ClearView Administration Services Pty Limited
ACN 135 601 875
• ClearView Financial Management Limited1
ACN 067 544 549
• Matrix Planning Solutions Limited1
ACN 087 470 200
• ClearView Financial Advice Pty Ltd1
ACN 133 593 012
The guarantees are supported by collateral (in the form of the shares) of the entities.
9.6 New accounting standards
The following new and revised Australian Accounting Standards and Interpretations have been adopted in the current year and
have affected the amounts reported in these financial statements.
New and revised AASBs affecting amounts reported and/or disclosures in the financial statements
The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting
Standards Board (the AASB) that are relevant to their operations and effective for an accounting period that begins on or after
1 July 2018. New and revised Standards and amendments thereof and Interpretations effective for the current year that are
relevant to the Group include:
Standard/Interpretation
AASB 9 Financial Instruments and related amending Standards
AASB 15 Revenue from Contracts with Customers and related amending Standards
AASB 2016-6 Amendments to Australian Accounting Standards – Applying AASB 9 Financial Instruments with AASB 4
Insurance Contracts
Impact of changes to Australian Accounting Standards and interpretations adopted in the current year
AASB 9 ‘Financial Instruments’
AASB 9 Financial Instruments replaces AASB 139 Financial Recognition and Measurement. AASB 9 includes revised guidance
on the classification and measurement of financial instruments, including a new expected credit loss model for calculation of
impairment on financial assets, and new general hedge accounting requirements. It also carries forward guidance on recognition
and derecognition of financial instruments from AASB 139. The standard became mandatory for reporting periods beginning on or
after 1 January 2018.
1
For entities that hold an Australian Financial Services License (AFSL) the recovery granted from the guarantee is limited to the extent that it does not result in the Company breaching it’s
AFSL conditions.
CLEARVIEW WEALTH LIMITED | 145
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
9. Other disclosures continued
The adoption of AASB 9 changes the Group’s accounting for impairment losses for financial assets by replacing AASB 139’s
incurred loss approach with a forward-looking expected credit loss (“ECL”) approach. AASB 9 requires an allowance to be
recognised for ECLs on all loans and other debt financial assets not held at FVPL. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract and the cash flows that are expected to be received. The shortfall is
then discounted at an approximation to the asset’s original effective interest rate.
The Group has undertaken an assessment of the impact to classification and measurement and the accounting for impairment
losses under the new standard below:
•
•
The Group’s investments are designated at fair value through profit or loss on initial recognition and are subsequently
remeasured to fair value at each reporting date. The Group’s other financial instruments (i.e. loans, receivables and payables)
are held at amortised cost. Under the current business model, the adoption of AASB 9 does not materially change the
accounting for investments and other financial instruments; For Contract assets and Trade and Other Receivables, the Group
has adopted the simplified approach to calculate ECLs based on lifetime expected credit losses. A provision model has been
established based on historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the
economic environment.
For other debt financial assets (such as adviser loans), the ECL impact analysis is based on the 12-month ECL. The 12-month
ECL is the portion of lifetime ECLs that results from default events on a financial instrument that are possible within 12 months
after the reporting (or assessment) date. However, when there has been a significant increase in credit risk since origination,
the allowance will be based on the lifetime ECL. Upon adoption of AASB 9 the Group has assessed its loans and other
receivables under the 12-month ECL model and recognised a provision of $1.0 million. The ECL impact analysis is based on the
12-month ECL. The 12-month ECL is the portion of lifetime ECLs that results from default events on a financial instrument that
are possible within 12 months after the reporting (or assessment) date.
It is the Group’s policy, on adoption of the new standard, to recognise the initial increase in allowance through opening retained
earnings with any future impairment allowances recognised through profit or loss.
AASB 15 ‘Revenue from Contracts with Customers’
AASB 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts
with customers. AASB 15 will supersede the current revenue recognition guidance including AASB 118 ‘Revenue,’ AASB 111
‘Construction Contracts’ and the related Interpretations when it becomes effective.
The core principle of AASB 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. Specifically, the Standard introduces a 5-step approach to revenue recognition:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
AASB 15 applies to annual periods beginning on or after 1 January 2018. AASB 15 introduces a single model for the recognition of
revenue based on when control of goods and services transfers to a customer. Revenues derived under the Insurance Contracts
and Financial Instruments standards, which represents a large proportion of the Groups revenue, are excluded from AASB 15 and
hence, that revenue is not impacted by the adoption of the standard.
The Group has assessed its contracts with customers and the key revenues impacted by the adoption of the standard are derived
from contracts entered into with clients to provide advisory services and asset management services. Our assessment of these
contracts and the requirements under the standard regarding the estimation and constraint of variable consideration noted
that the transaction price is highly susceptible to factors outside ClearView’s influence such as client retention, changes in-force
premiums, flows of funds under management and investment market movements.
146 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 9. Other disclosures continued
Prior experience with contracts of this nature is considered of little predictive value in determining the transaction price and it is
the Group’s view that these revenues are constrained until those uncertainties are resolved over the passage of time.
This earnings pattern is consistent will the Group’s current accounting policy and does not result in any material changes upon
initial recognition.
The Group adopted the modified approach. Under this approach opening balance of equity is adjusted at the date of initial
application but not the prior year comparatives. The adoption of AASB 15 does not result in a material adjustment to the opening
retained earnings.
Standards and Interpretations in issue not yet adopted
At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not
yet effective.
Standard/Interpretation
AASB 16 ‘Leases’
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
1 January 2019
30 June 2020
At the date of authorisation of the financial statements, the following IASB Standards and IFRIC Interpretations (for which
Australian equivalent Standards and Interpretations have not yet been issued) were in issue but not yet effective.
Standard/Interpretation
AASB 17 - Insurance Contracts
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
1 January 2022
30 June 2023
Impact of changes to Australian Accounting Standards and interpretations in issue not yet adopted
IFRS 17 ‘Insurance Contracts’
IFRS 17 requires insurance liabilities to be measured at a current fulfilment value and provides a more uniform measurement
and presentation approach for all insurance contracts. These requirements are designed to achieve the goal of a consistent,
principle-based accounting for insurance contracts. The Australian equivalent of IFRS 17 will supersedes AASB 1038 Insurance
Contracts as of 1 January 2021.
The Directors of the Company anticipate that the application of IFRS 17 in the future is likely to have a material impact on
the amounts reported and disclosures made in the Group’s consolidated financial statements. The Group is in the process of
putting a project in place to implement the new standard and it is therefore not practicable to provide a reasonable estimate of
the effect of IFRS 17 at this time.
AASB 16 ‘Leases’
AASB 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial
statements of both lessees and lessors. The accounting model for lessees will require lessees to recognise all leases on balance
sheet, except for short-term leases and leases of low value assets.
AASB 16 applies to annual periods beginning on or after 1 January 2019. The Group has completed its assessment of the
impact of AASB 16 on its existing leases and effective 1 July 2019 expects to recognise a value in use asset and corresponding
lease liability of circa $4m. There is no material profit impact on the adoption of the new standard.
CLEARVIEW WEALTH LIMITED | 147
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 9. Other disclosures continued
9.7 Other significant accounting policies
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
The Group as lessee
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The
aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
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.
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 reporting date.
Termination benefit
A liability for a termination benefit is recognised at the earlier of when the entity can no longer withdraw the offer of the
termination benefit and when the entity recognises any related restructuring cost.
9.8 Subsequent events
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 Group, the results of those operations
or the state of the affairs of the Group in future financial years.
148 | CLEARVIEW ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED) 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 section 1 ; and
(d) The Directors have been given the declarations required by section 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
Mr Bruce Edwards
Chairman
28 August 2019
CLEARVIEW WEALTH LIMITED | 149
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019 (CONTINUED)
Independent Auditor’s Report
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 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 Audit of the Financial Report
Opinion
We have audited the financial report of ClearView Wealth Limited (the “Company”) and its
subsidiaries (the “Group”) which comprises the consolidated statement of financial position
as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive
income, the consolidated statement of changes in equity and the consolidated statement
of cash flows for the year then ended, and notes to the financial statements, including a
summary of significant accounting policies and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the
Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Company and Group’s financial position as at 30
June 2019 and of their financial performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations
2001.
Basis for Opinion
those standards are
We conducted our audit in accordance with Australian Auditing Standards. Our
responsibilities under
the Auditor’s
Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Group in accordance with the auditor independence requirements of
the Corporations Act 2001 and the ethical requirements of the Accounting Professional and
Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code)
that are relevant to our audit of the financial report in Australia. We have also fulfilled our
other ethical responsibilities in accordance with the Code.
further described
in
We confirm that the independence declaration required by the Corporations Act 2001,
which has been given to the directors of the Company, would be in the same terms if given
to the directors as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
150 | CLEARVIEW ANNUAL REPORT 2019
Independent Auditor’s Report
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial report for the current period. These matters were
addressed in the context of our audit of the financial report as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter
How the scope of our audit responded to
the Key Audit Matter
Actuarial Valuations
As at 30 June 2019 the Group’s life
insurance policy liabilities was $(151.7)
million calculated on the basis of
recognised actuarial methods and
assumptions, as disclosed in Note 5.
Significant management judgement is
involved, including assumptions that
have been identified as having high
estimation uncertainty and include:
• Appropriateness of assumptions
used in valuations, especially in
respect of ClearView experience
vs market experience;
• Accuracy of the expense
allocation basis and its impact
on the policy liability;
• Basis of determination of the
Best Estimate Liabilities and
Liabilities
Profit
components
the policy
liabilities;
Margin
of
• Allowances for discretions; and
• Quality of data used for the
valuation.
In conjunction with our actuarial specialists
our procedures included, but were not limited
to:
• Assessing the valuation methodology,
valuation process and the valuation
model to ensure compliance with
APRA’s Life Prudential Standard 340,
“Valuation of Policy Liabilities”;
• Validating the assumptions used by
management (including interest rates,
lapse rates, mortality, morbidity and
expense ratios);
• Testing the mathematical accuracy of
the model;
• Comparing model outputs to results
of experience studies for
reasonableness;
• Evaluating
the appropriateness of
technical and peer review;
• Reviewing the reasonableness of the
year’s changes
reserves and
analysis of profit conducted by
management;
in
• Assessing management’s expense
allocation basis, including the
allocation to statutory funds and
determination of policy liability;
• Challenging the appropriateness of
management’s selection of profit
carriers and product groupings in
respect of the policy liabilities; and
• Assessing the appropriateness of the
disclosures in Note 5.4 to the financial
statements.
CLEARVIEW WEALTH LIMITED | 151
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
Impairment of intangible assets
including goodwill
As at 30 June 2019 the carrying
amount of intangible assets and
goodwill for the Group was $21.4
million as disclosed in Note 4.1. The
intangible assets and goodwill are
allocated between three cash-
generating units (CGUs) which are
tested separately for impairment.
For the Life and Wealth CGUs the
Entity performs an Embedded Value
(EV) calculation to support its
impairment analysis. For the Financial
Advice the Entity performs a
Discounted Cashflow (DCF).
The evaluation of the recoverable
amount of the goodwill and intangible
assets requires significant judgement
in determining the key assumptions
supporting the expected future cash
flows of the business.
The key EV assumptions include:
• Life
insurance
intangible:
morbidity/ mortality rates, lapse
rates,
rates,
discount
maintenance costs; and
• Wealth management
and
financial planning
intangible:
investment returns, lapse rates
and maintenance costs.
The key DCF assumptions include:
• Future cash flows;
• Discount rate; and
• Terminal growth rate.
As a result of a change in business
model for the Financial Advice business
driven by a new fee structure an
impairment of $12.8m has been
recognised.
152 | CLEARVIEW ANNUAL REPORT 2019
In conjunction with our valuation specialists
our procedures included, but were not limited
to:
• Assessing the methodology used by
management;
• Evaluating the documented basis for
key assumptions used in the EV and
DCF calculations;
• Reviewing management’s assessment
of indicators of impairment by:
•
•
•
•
•
•
to
plans,
Challenging the identification of
the CGU’s;
Comparing assumptions used in
the models
historical
future business
performance,
the
and
strategy
assumptions used in the policy
liability calculation;
Challenging the key assumptions
utilised in the models including
the revenue and expense growth
rates and the discount rate by
comparing them to corroborating
support
historical
including
results, economic and other
forecasts;
Performing a sensitivity analysis
on
to
the key assumptions
the assessment of
support
impairment
its
indicators and
impact on the headroom;
Testing on a sample basis, the
mathematical accuracy of the
discounted cash
flow model,
agreeing budgeted cash flows to
the latest Board approved budget
and assessing the performance
against budget/forecasts in prior
periods; and
Assessing the appropriateness of
the disclosures in Note 4.1 and
Note 4.2
financial
statements.
the
to
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
Impairment of capitalised software
As at 30 June 2019, the Group has
$8.66m of software intangibles, which
have been internally generated and
capitalised.
the
effectiveness and utilisation of the
developed software assets requires
significant judgement.
Determining
capitalising
When
software
development costs, in accordance with
the
relevant accounting standards
management assess if the development
will generate future probable economic
benefit. Software
intangibles are
subsequently measured at cost less
accumulated amortisation and any
impairment.
Our procedures included, but were not limited
to;
• Assessing management’s recognition
of development costs as capitalised
software
the
relevant
requirements
specifically
standards,
accounting
focusing on whether it is probable that
the assets will generate
future
economic benefits;
complied
of
with
the
• Evaluating management’s assessment
of the software intangibles useful life;
• Reviewing management’s impairment
assessment and challenging the level
at which the recoverable amount was
determined by management;
revealed
indicators
In the current reporting period, the
Group performed a strategic IT review
which
of
impairment. On that basis management
impairment analysis,
performed an
determining
recoverable
amount of the capitalised software was
less than the carrying amount and
recognised an impairment of $8.62m.
In addition, the useful life of a number
of software intangibles were adjusted
resulting
in $1.5m of accelerated
amortisation.
that
the
• Evaluating whether management’s
recoverable
the
with
relevant
determination of
amount
requirements
accounting standards;
complies
the
the
of
• Assessing the mathematical accuracy
of management’s impairment model;
• Performing procedures to address the
completeness and accuracy of the data
used in the impairment model; and
• Comparing
the
higher
the
recoverable amount determined by
management to the current carrying
value, assessing the appropriateness
of the amount impaired; and
of
• Assessing the appropriateness of the
disclosures in Note 4.1 and Note 4.2 to
the financial statements.
Other Information
The directors are responsible for the other information. The other information comprises
the information included in the Group’s annual report for the year ended 30 June 2019,
but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially
inconsistent with the financial report or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
CLEARVIEW WEALTH LIMITED | 153
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the 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 the financial report that gives a true and fair view and is free
from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of
the Group to continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the Group or to cease operations, or has no realistic alternative but to
do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a
whole is free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with the
Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions
of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise
professional judgement and maintain professional scepticism throughout the audit. We
also:
•
Identify and assess the risks of material misstatement of the financial report,
whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
• Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the director’s use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast significant doubt
on the Group’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the
related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause
the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial report,
including the disclosures, and whether the financial report represents the
underlying transactions and events in a manner that achieves fair presentation.
154 | CLEARVIEW ANNUAL REPORT 2019
• Obtain sufficient appropriate audit evidence regarding the financial information of
the entities or business activities within the Group to express an opinion on the
financial report. We are responsible for the direction, supervision and performance
of the Group’s audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were
of most significance in the audit of the financial report of the current period and are
therefore the key audit matters. We describe these matters in our auditor’s report unless
law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh
the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 50 to 67 of the Directors’
Report for the year ended 30 June 2019.
In our opinion, the Remuneration Report of ClearView Wealth Limited, for the year ended
30 June 2019, complies with section 300A of the Corporations Act 2001.
Responsibilities
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.
DELOITTE TOUCHE TOHMATSU
Max Murray
Partner
Chartered Accountants
Sydney, 28 August 2019
CLEARVIEW WEALTH LIMITED | 155
INDEPENDENT AUDITOR’S REPORT (CONTINUED) Shareholder’s Information
As at 15 August 2019
Substantial shareholders
As at the date of this Annual Report, the following entities have notified ClearView that they hold a substantial holding
in shares.
No. of shares
as per notice
% of issued
capital
394,493,860
199,699,801
101,254,639
58.26%
29.49%
14.95%
Rank
Name
CCP Bidco Pty Ltd and Associates1
Perpetual Corporate Trust Limited
Sony Life Insurance Co., Ltd2
1
2
3
1
2
Crescent Capital Partners Management Pty Limited represent the interests of CCP Bidco Pty Limited (CCP Bidco) and Perpetual Corporate Trust Limited
(Perpetual) as manager. Perpetual’s 29.49% is therefore included in the 58.26% holding of CCP Bidco in the table above.
Sony Life Insurance Co., Ltd’s (Sony Life) 14.9% shareholding is held through its custodian, HSBC Custody Nominees (Australia) Limited and under the
Option Agreement signed with Crescent and therefore also included in the 58.26% holding of CCP Bidco in the table above.
No. of shares
as per notice
% of issued
capital
130,651,835
19.30%
66,950,844
57,252,851
43,582,632
39,554,404
33,786,569
30,893,528
28,458,809
18,347,733
18,300,838
16,262,175
13,551,813
13,169,338
10,844,571
10,304,057
10,000,000
8,235,295
7,500,000
6,302,827
4,840,566
9.89%
8.46%
6.44%
5.84%
4.99%
4.56%
4.20%
2.71%
2.70%
2.40%
2.00%
1.95%
1.60%
1.52%
1.48%
1.22%
1.11%
0.93%
0.71%
Twenty largest shareholders (as at August 2019)
Rank
Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC Custody Nominees (Australia) Limited
Perpetual Corporate Trust Limited
CCP Bidco Pty Ltd
CCP Trusco 4 Pty Limited
Citicorp Nominees Pty Limited
CCP Bidco Pty Limited
CCP Trusco 5 Pty Limited
CCP Trusco 1 Pty Limited
BNP Paribas Noms Pty Ltd
Portfolio Services Pty Ltd
CCP Trusco 3 Pty Limited
CCP Trusco 2 Pty Limited
J P Morgan Nominees Australia Pty Limited
National Nominees Limited
Portfolio Services Pty Ltd
Mr Simon Swanson
Salamanca Group Trust (Switzerland) SA
Perpetual Corporate Trust Ltd
Wintol Pty Ltd
CPU Share Plans Pty Ltd
156 | CLEARVIEW ANNUAL REPORT 2019
SHAREHOLDERS’ INFORMATION AS AT AUGUST 2019 (CONTINUED)
Ordinary share capital
There are 677,074,118 fully paid ordinary shares held by 1,655 shareholders. All the shares carry one vote per share.
Distribution of shareholders
The distribution of Shareholders as at 31 July 2019 is as follows:
Range
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - 9,999,999,999
Total
Unmarketable parcels
Minimum $ 500.00 parcel at $ 0.6750 per unit
Shares under voluntary escrow
There are no shares subject to voluntary escrow as at 30 June 2019.
Total holders
298
399
257
493
208
Units
100,487
1,144,702
1,947,184
16,280,075
657,601,670
1,655
677,074,118
% of issued
capital
0.01
0.17
0.29
2.40
97.12
100.00
Minimum
parcel size
741
Holders
236
Units
43,825
CLEARVIEW WEALTH LIMITED | 157
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Directory
Current Directors
Bruce Edwards (Chairman)
David Brown
Gary Burg
Michael Alscher
Nathanial Thomson
Susan Young
Simon Swanson
Managing Director
Simon Swanson
Company Secretary
Athol Chiert
Appointed Actuary
Ashutosh Bhalerao
Chief Actuary and
Risk Officer
Greg Martin
Registered Office
and Contact Details
Level 15, 20 Bond Street
Sydney NSW 2000
GPO Box 4232
Sydney NSW 2001
Telephone: +61 2 8095 1300
Facsimile: +61 2 9233 1960
Email: ir@clearview.com.au
Website: www.clearview.com.au
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
GPO Box 2975
Melbourne VIC 3001
Telephone:
1300 850 505
+61 3 9415 4000
Facsimile:
+61 3 9473 2500
www.computershare.com.au
Auditors
Deloitte Touche Tohmatsu
Stock Listing
ClearView Wealth Limited is listed on
the Australian Securities Exchange (ASX)
under the ASX code “CVW”.
Annual Corporate
Governance Statement
The ClearView Annual Corporate
Governance Statement may be viewed
at www.clearview.com.au/about-
clearview/corporate-governance
CLEARVIEW WEALTH LIMITED | 159
ClearView Wealth Limited
ABN 83 106 248 248
GPO Box 4232
Sydney NSW 2001
T 132 979
www.clearview.com.au
ASX code CVW
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