NobleOak Annual Report 2018

Plain-text annual report

2018 ANNUAL REPORT NobleOak Life Limited For the year ended 30 June 2018 The Noble Oak Tree The oak tree is the symbol of our company and we use it in our name and logo. It embodies many of the principles that underpin our values, such as strength, wisdom and nobility, and links to our heritage with the Ancient Order of Druids. The Druids of Ancient Britain revered nature and the oak tree was held sacred to them. They believed that eating acorns would give them prophetic powers. The meaning of Druid is thought to relate to the Celtic word for ‘knowledge or wisdom of the oak’. These majestic trees can live up to 1,000 years and reach heights of 25m or more. In a world of ongoing change and instability within the Australian financial services industry, NobleOak is proud that after 140 years, we are standing tall and delivering the protection Australians deserve. WHO WE ARE We are an independent life insurer, and public unlisted Australian company. We do not own any distribution channels or adviser networks. NobleOak was established in 1877 as The Druids Friendly Society of NSW. We are a demutualised friendly society regulated by APRA, and our products are backed by global reinsurers for extra security. In 2012 NobleOak rebranded and launched its new direct strategy to become a leading provider of direct (non- advised) better value Life insurance, with excellent client service and high quality comprehensive products. At NobleOak we predominately target self-directed mass-affluent Australians. We also partner with a few organisations and white-label our products for an ongoing fee to diversify our revenue. We select these partners carefully to ensure they are delivering unique value to their members or clients. WHAT WE BELIEVE At NobleOak, we truly believe in providing the best for our clients and being the trusted insurer they need. Our strategy has been built on the four core beliefs below: WE BELIEVE AUSTRALIANS DESERVE BETTER We believe Life insurance is a need, not a want. For too long Australians have had to pay too much for the quality Life insurance they need to protect themselves and their family. NobleOak strips out unnecessary costs to provide more affordable cover backed with personal service. At NobleOak, our vision is to help Australians protect themselves and their loved ones by providing the best value Life and Income Protection insurance available. 2 Annual Report 2018 WE BELIEVE AUSTRALIANS SHOULD FEEL CONFIDENT AT CLAIM TIME We believe Life insurance should be done right from the start, and clients should know what they are covered for. We ask a few more health and lifestyle questions at application time, so clients have greater certainty at claim time. WE BELIEVE IN KEEPING OUR CLIENTS HAPPY We focus on exceeding customer expectations and limiting our marketing costs, so we can provide better personal service, award-winning cover and lower premiums. It’s not rhetoric. We really do put clients first. WE BELIEVE IN A GOOD NIGHT’S SLEEP Our products have no hidden clauses or tricks. We simply provide great value, comprehensive Life insurance so our clients can sleep more comfortably at night. 3 NobleOak Life LimitedOUR VALUES ADAPTABILITY We are responsive to and drive positive change continually to ensure our clients get the best service and products they can. We continually improve and learn. DELIVERY We deliver results, not excuses. This includes both to our clients and to each other. When we say we are going to do something, we do it. Our Australian based service team is highly accessible to our clients. Each person at NobleOak lives by these values: NOBILITY We put our clients first at all times. We act with integrity. We are here to protect Australians with better cover, by making Life insurance more accessible and affordable. SIMPLICITY We use simple, clear communication and avoid jargon. We aim to make getting Life insurance and Income Protection easier and explain the process clearly to our clients. Our PDSs (Product Disclosure Statements) are written clearly with no fine print so clients know exactly what they are covered for. We provide professional, friendly, and fast service. NobleOak recruits high performers with a genuine desire to make a difference and provide better protection to Australians. 4 Annual Report 20185 NobleOak Life Limited6 Annual Report 2018OUR PRODUCTS We continue to provide comprehensive cover at a lower cost, with award winning personal service. As we do not pay large upfront commissions to advisers, we pass savings to our clients through lower premiums and invest in better service. We offer a range of cover types to protect clients against the financial impacts of accidents, death and sickness without the need for financial advice. Life Cover Death and terminal illness cover up to $15 million of cover. Trauma (Critical Illness) Insurance Cover for 38 conditions up to $2 million of cover. Total & Permanent Disability Insurance Lump sum payment in the event of disablement due to sickness or injury up to $5 million of cover. Income Protection Insurance Provides up to 75% of income (up to $25,000 per month). Business Expenses Insurance Provides protection for fixed business expenses up to $25,000 per month. SMSF Insurance Life Cover up to $15 million and TPD Insurance up to $5 million of cover. 7 NobleOak Life Limited OUR RECENT ACHIEVEMENTS >120% Number of Policies (Core) >110% Inforce Annual Gross Premium (Core) >105% Sales (Core) >90% Profit before Tax >220% Net Assets *Growth from 2016 to 2018 8 Annual Report 2018Satisfaction 96.4% Service 95.8% Recommendation >90% Of our clients felt that the service provided during the quotation and application was ‘good’ or ‘excellent’ Of our clients felt that the service provided to date was ‘good’ or ‘excellent’ Of our clients would recommend NobleOak’s products and services to others Feefo Customer ratings website ‘Gold Trusted Service Award’ Strategic Insights Strategic Insights ‘2017 Direct Life Insurance Customer Service Award Finalist’ ‘2017 Direct Life Insurance Term Life Award Finalist’ Direct Life Insurance Excellence Awards Direct Life Insurance Excellence Awards NobleOak Direct Life Insurance Awarded Canstar for NobleOak Direct Income Protection Awarded Canstar for ‘2018 Outstanding Value Award’ ‘2018 Outstanding Value Award’ T A NDING VA L U E S O U T 2018 D I R E RUSNI EFIL TC ECN A Net Promoter Score (NPS) 27% Market leading loyalty and advocacy score Website Traffic >86% Increase in website users YOY Growth in Digital >200% Revenue growth through Digital YOY (excluding Online Partners) Digital New Online Quote Tool launch Real time quotes for customers Systemisation New Cloud Contact Centre launch Improve call flows and customer service Product Launch of new NEOS product range To target NEOS members 9 20182018NobleOak Life Limited10 Annual Report 2018CONTENTS Chairman’s Letter Board of Directors CEO’S Report Leadership Team Directors’ Report Directors’ Declaration Auditor’s Independence Declaration Independent Auditor’s Report Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Cash Flows Statement of Changes in Equity Notes to the Financial Statements 11 12 14 16 20 21 29 30 31 34 35 36 37 38 NobleOak Life LimitedCHAIRMAN’S LETTER This Report provides an overview of our performance in the 2018 financial year, another pivotal year in the growth of our business. This year will undoubtedly be looked back on as transformational for financial services and in particular, the life insurance industry. REGULATORY ENVIRONMENT The financial services industry saw unprecedented levels of change and review throughout the year. This was driven largely through the Royal Commission into Financial Services and ASIC’s review of Direct Life Insurance. Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry The Royal Commission hearings commenced in February 2018, following several instances of misconduct in the banking and financial advice sectors. Revelations during the hearings indicate a failure in the implementation of past reforms and underpinning company cultures that do not always put their customers’ interests first. While I believe this environment validates NobleOak’s positioning in the Australian market place, as well as our focus on corporate culture and conduct, we will carefully monitor the findings and manage our reputation risk. While NobleOak has not been asked to participate in the Royal Commission investigation at this stage, we continue to work with our team and business partners to ensure we limit our exposure and risk. On behalf of the Board, I am pleased to present the 2018 NobleOak Life Limited Annual Report. 12 Annual Report 2018ASIC Review of Direct Life Insurance On 30 August 2018, ASIC released findings from its investigation into direct life insurance. This review looked at sales practice, including outbound selling, claims experiences, lapse rates, product design, policy documentation, procedures, and sales incentives. NobleOak participated in this review and has provided ASIC with all requirements. NobleOak continues to reply to all of ASIC’s requests. Their key industry findings appear to have limited impact on NobleOak, as we do not outbound call or offer the types of products highlighted as poor value in their review. We will of course, continue to respond to any requests or changes required from this review, and continue to support any initiatives that will ultimately benefit our customers. CONSOLIDATION The landscape of life insurance continues to change with several major institutions deciding to exit their life insurance business. The industry is unquestionably moving away from vertically integrated arrangements. Our direct to customer model continues to be validated by these changes and the potential for scaling further remains as many competitors are distracted with large integration projects. IMPLEMENTATION OF STRATEGY FOR GROWTH Our strategy this year has been to focus on delivering growth and building scale for the business. I am pleased to advise that we achieved a significant increase in sales delivered from both our Core (NobleOak branded direct business) and Partnership business. In 2018, in-force premium for our “core” (NobleOak branded) life insurance offering, increased to $27 million. This represents an increase of 45% from 2017. Total gross in-force premium including our “active partnership” business (PPS, Avant and new partnership NEOS), increased from $22 million in July 2017 to $37 million as at 30 June 2018. This represents an increase of 65% as Avant and PPS started to accelerate their distribution. CAPITAL In March 2018, NobleOak raised $12 million in capital from existing investors and a new strategic investor, Private Portfolio Managers. The funds raised will continue to be deployed to drive growth and invest in scalable business systems. OUR PARTNERS In early 2018, we entered into an arrangement with NEOS Life, an Australian Life Insurance business focused solely on distribution through the adviser/retail market. This strategic partnership, whereby NobleOak underwrites life insurance, TPD, Trauma and Income Protection cover, further broadens our distribution footprint, providing greater top line diversification. Our other partnerships, Avant and PPS, continue to build and deliver on their growth ambitions and I would like to thank their teams for their ongoing commitment and contribution to our growth. FINANCIAL PERFORMANCE In 2018, we returned a profit before tax of $4.3 million. This represents an increase of 55% from 2017. This is a very pleasing result and reflects the significant growth for the business during the year and our relentless focus on implementing on our core strategy to build shareholder value. RISK MANAGEMENT FRAMEWORK The Royal Commission and ASIC Direct Life Insurance Review have reaffirmed our decision to strengthen our focus on our regulatory, strategic and operational risk management framework. The NobleOak Management Team and Board believe ongoing investment in managing risk is critical to our longer term growth aspirations. To that end, we will continue to foster a culture that proactively addresses risks to ensure the sustainability of the business. LOOKING AHEAD In 2018, NobleOak delivered growth in a low growth market environment that has seen widespread disintegration of trust within the community. NobleOak is well positioned to take advantage of this disruption and further grow our business. No doubt more industry head winds may emerge in the coming year, but the Board believes we are very well placed to deal with these while further building shareholder value. Paul Sampson Chairman 13 NobleOak Life LimitedBOARD OF DIRECTORS PAUL SAMPSON Chairman and Non-Executive Director Paul has over 28 years of experience in Life Insurance and wealth management. He was previously CEO of AXA Life Insurance Co. Japan, Non-Executive Director of AXA Asia Pacific Holdings, and Chairman of National Mutual Funds Management. Paul is currently a Non-Executive Director of SouthPeak Investment Management Pty Ltd and Adam Smith Asset Management. Paul has been successful in turnaround management, implementing customer-centric strategies, and developing alternate distribution channels. He holds a Bachelor of Business Degree from NSW Institute of Technology and has been a member of the Certified Practicing Accountant (CPA) EMERY FEYZENY Non-Executive Director Emery has over 44 years of experience in the superannuation industry, including 15 years as a partner at KPMG. He established and headed KPMG Superannuation Services Pty Ltd for 18 years and advised the Superannuation Senate Select committee on the taxation of superannuation funds in Australia. He is currently a Director of REI Superannuation Fund and Chair of the Fund’s Investment Committee. He holds a Bachelor of Science and is a Senior Associate of the Australian and New Zealand Institute of Insurance and Finance, a member of the Institute and Faculty of Actuaries and a member of the Australian Institute of Company Directors. 14 Annual Report 2018KEVIN HAMMAN Non-Executive Director Kevin has over 30 years of experience in the financial services industry including senior management and Director roles in investment and private banking. Kevin currently holds several executive directorships in private companies in the financial services, property development and investment industries. Kevin holds a Bachelor of Commerce Degree, a Diploma in Financial Services and Finance, and the Associate Diploma with The Institute of Bankers. He is a Member of the Australian Institute of Company Directors. ANTHONY R BROWN Chief Executive Officer and Director Anthony has been CEO of NobleOak for over 6 years. He has over 27 years of experience in marketing, strategy, operations and distribution. He was previously COO at AMP Capital, Head of Strategy and Marketing at AMP, Head of Commercial Insurance Marketing at Suncorp, and Manager at KPMG. Anthony has completed the General Management Program at Harvard Business School, Boston, has an MBA from the AGSM, and is a Chartered Accountant. He also holds a Bachelor of Economics degree (University of Sydney) and a Master of Commerce degree (University of NSW). STEPHEN HARRISON Deputy Chairman and Non-Executive Director Stephen has over 35 years of experience in financial services, funds management and private equity and accounting fields. He has held Director positions with Investec Funds Management and the Australian subsidiary of US-based fund manager Sanford C Bernstein. Stephen has been a founder and has held directorships in a number of listed companies, both in Australia and overseas. He was previously Director Financial Services for BDO Nelson Parkhill, Chartered Accountants. Stephen is currently Chairman and Director of Sinetech Limited and Chairman of Conscious Capital Funds Management. MARTIN EDWARDS Non-Executive Director Martin is the General Manager – New Ventures, Avant Mutual Group and a Director of Doctors Financial Services Pty Limited, MyPracticeManual Limited, and Hoxton MPM Pty Ltd. Martin has over 22 years’ of experience holding multiple General Manager roles in Treasury, capital, strategy and insurance. Martin is a fellow of the Institute of Actuaries of Australia. Other previous positions include MBF’s Group Treasurer and leadership roles at Commonwealth Bank and Trowbridge Consulting. Martin attended the General Management Program at Harvard Business School and holds a Bachelor of Science. 15 NobleOak Life LimitedCEO’S REPORT I am pleased to report that 2018 was another year of strong growth for NobleOak. The results reflect the commitment and focus on meeting our customers’ needs in a market marred by the revelations from the Royal Commission and falling consumer confidence in the financial services industry. GROWTH NobleOak continues to grow strongly. Throughout 2018, the in-force premium of our “core” (NobleOak branded) direct business increased by 45%. This represented an increase in sales of 43% year on year, through focusing on providing quality and affordable cover. Our relatively new “active partnership” business (PPS, Avant and new partnership NEOS) increased by 165%. This “active partnership” business now excludes Freedom Insurance (Freedom) and Freedom was discontinued by NobleOak in July 2017 as shown in last year’s Annual Report. All of Freedom’s new business was transferred to and is now issued directly by Swiss Re. The premium from Freedom Insurance shown in these accounts is in run off, reducing each year. CANSTAR OUTSTANDING VALUE AWARDS In March, we were again awarded the Canstar Outstanding Value Award for Direct Income Protection for 2018. This is our third award for Income Protection. In June we also won the Canstar Outstanding Value Award for Direct Life cover, again, the third such award in a row. NobleOak is the only life insurer to win three consecutive awards for outstanding value for Direct Life Insurance and Income Protection. These six awards secure NobleOak’s position as the pre-eminent direct insurer in providing outstanding value to clients, and provide us with valuable marketing opportunities. 16 Annual Report 201817 NobleOak Life LimitedFEEFO GOLD TRUSTED SERVICE AWARD We also received the Gold Trusted Service Award from Feefo for the second year in a row. This award is only provided to companies that have received consistent ratings for exceptional service from our customers. GROWTH WITH PARTNERS Our established partnerships with PPS and Avant delivered growth in sales in their respective target segments. We are also pleased to welcome our new partnership with NEOS Life. NobleOak ceased to be the issuer for Freedom policies in 2017 with new business transferring to Swiss Re from 1 July 2017. PPS Our relationship with PPS commenced in 2013 and since the launch of PPS Professional Choice portfolio of Life products in mid-2016, sales growth continues as their unique product offering builds momentum. The PPS in-force premium has now grown to $7.8 million. Avant Avant specialises in providing a range of insurances to medical professionals. Avant is also a major equity partner. The Avant membership is continuing to show support for the range of specialised Life insurance products including Life, TPD, Income Protection. The Avant in-force premium has now grown to $1.9 million. NEOS In early 2018, we entered into an agreement with NEOS Life to underwrite the NEOS Protection suite of life insurance cover types which was launched in June. NEOS sells exclusively through financial advisers and manages the entire value chain. The NEOS portfolio is now being marketed through independent financial advisers with positive early signs. CAPITAL GROWTH In 2018, we raised $12 million from our existing shareholders and a new strategic shareholder, Private Portfolio Managers. The strong support from our investor base has further confirmed their support for the vision and strategic direction for NobleOak. A proportion of this capital has been used to fund the execution of a new multi-channel marketing campaign to further drive growth and start to build a more recognisable brand. GROWTH OF MARKETING INVESTMENT A new pilot advertising campaign was developed by Young and Rubicam (Y&R) advertising agency in June 2017 promoting our “a smarter way to insure your life’’ tagline. This tagline is designed to position NobleOak as a challenger brand with our unique business model and strong value proposition of quality, affordable cover. Learnings from this pilot have been incorporated into our new “No Bull” advertising campaign which launched in August 2018. This is the most significant “above the line” advertising campaign NobleOak has invested in to boost our brand recognition and generate further leads and sales. The initial response from this campaign is pleasing, and results will be closely monitored on an ongoing basis. “NobleOak continues to grow strongly. Throughout 2018, the in-force premium of our “core” (NobleOak branded) direct business increased by 45%. This represented an increase in sales of 43% year on year, through focusing on providing quality and affordable cover.” 18 Annual Report 2018GROWTH IN DIGITAL GROWTH OF STAFF Over the course of the past year we have accelerated our investment and expansion of our digital marketing channels to support the growth of the business. Our continued focus on Paid Search and Organic Search combined with the introduction of Programmatic, Display and Social channels has seen an 86% increase in web users from 72,000 (FY17) to 134,000 (FY18). In October 2017, NobleOak launched our online quote tool. Customers are now able to obtain a live quote for all our covers with just a few clicks. Since then 19,000 online quotes have been completed, streamlining the customer experience and improving contact rates for all digital channels. As a result of the above initiatives, sales from our digital channels increased by over 200%, representing 22% of sales for the financial year. By June 2018, digital share of sales for the month had increased to 35% and we expect this trend to continue INFRASTRUCTURE As the business grew in 2018, it was necessary to invest in more scalable infrastructure. This included investment in additional functionality in our workflow and CRM systems as well as the implementation of a more robust management reporting system that provides better metrics across the business. We also invested in a new telephone auto dialler to streamline processes within our sales team by automatically contacting customers who have requested call backs for quotes. The auto dialler integrates with our CRM system for a more seamless customer experience. Our workforce grew by 35% during the year. We continue to recruit people that not only have the necessary skills and experience to deliver on their role, but also fit with our “customer- first” philosophy and can contribute to a high performance culture. The increase in the number of full-time staff was driven by the growth in our business especially within our Sales and Service, Quality Assurance and Digital Marking teams. The NobleOak team is diverse, representing many nationalities, cultures, ages and genders. During 2018, our strategy to develop a high performance team was implemented with key highlights as follows: ˚ Workshops with staff to identify areas of improvement in service delivery. ˚ Regular product training for all staff. Leadership training across all people leaders. ˚ ˚ Refinement of our performance management and career development process. ˚ Refinement of our reward and recognition programmes, linked to our values of Nobility, Simplicity, Adaptability and Delivery. CLAIMS The key to our business is paying claims. In 2018 we paid 100% of genuine claims. At a time of great emotional and financial distress, we strive to ensure we pay these claims as quickly as possible. Our published service standards have been set higher than those required under the FSC Code of Practice to ensure we provide the best service possible. SUMMARY The last 12 months have seen significant growth in our business, in line with our strategic intent. This has been across all areas of our business: customers, distribution, infrastructure and our people. While we expect further regulatory change in 2019, we are confident we will continue our growth trajectory and build a more valuable business with the customer at the centre of everything we do. I hope you are pleased with progress. Anthony R Brown Chief Executive Officer 19 NobleOak Life Limited LEADERSHIP TEAM ANTHONY R BROWN Chief Executive Officer and Director Anthony has been CEO of NobleOak for over 6 years. He has over 27 years of experience in marketing, strategy, operations and distribution. He was previously COO at AMP Capital, Head of Strategy and Marketing at AMP, Head of Commercial Insurance Marketing at Suncorp, and Manager at KPMG. Anthony has completed the General Management Program at Harvard Business School, Boston, has an MBA from the AGSM, and is a Chartered Accountant. He also holds a Bachelor of Economics degree (University of Sydney) and a Master of Commerce degree (University of NSW). PATRICIA PRIEST Chief Financial Officer Patricia has worked in senior finance and strategy roles within the insurance industry across the world. Most recently Patricia was CFO of Munich Re based in Spain and Portugal. She also led finance teams in Zurich Australia and Aon in the UK. She is a Canadian Chartered Accountant, who commenced her career at Deloitte in Toronto. She holds the Diploma in Insurance from the Chartered Insurance Institute in the UK. MATTHEW WILSON Chief Risk Officer Matthew is an experienced corporate lawyer and risk governance practitioner with diverse corporate experience across financial services businesses in Australia and New Zealand. Matthew is a NSW legal practitioner and holder of an unrestricted practising certificate. He holds a Bachelor of Laws and Graduate Diploma of Legal Practice from UTS Sydney, and is a member of the Law Society of NSW and the Risk Management Institute of Australia. He is a Senior Associate of the Australian and New Zealand Institute of Insurance and Finance and has a Diploma of Financial Planning. PHIL HILL Chief Underwriter Phil has worked in the Life Insurance industry in Australia for over 40 years, both in reinsurance and with a number of major life offices including CommInsure and Tower. He has worked in Senior Management positions in all areas of risk insurance including Underwriting, Claims, Product Development and Risk Management. His primary area of responsibility has involved Underwriting and he has held Chief Underwriter roles with various Life offices over the past 30 years. He joined NobleOak in 2014 as Chief Underwriter and Claims Manager and was appointed as NobleOak’s Head of Underwriting in 2016. He is a Senior Associate with the Australian and New Zealand Insurance Institute and holds a Diploma in Business Management. He is also a Senior Associate of the Australian Life Underwriters and Claims Association. 20 Annual Report 2018DIRECTORS’ REPORT The Directors of NobleOak Life Limited (the Company) present their report, together with the Financial Statements of the Consolidated Group, being the Company and its controlled entity, for the financial year ended 30 June 2018. 21 NobleOak Life LimitedNAMES, PARTICULARS AND EXPERIENCE OF DIRECTORS i) Particulars of the qualifications and experience of each Director as at the date of this report are as follows: Paul Sampson Non-Executive Director appointed on 6 February 2013. Appointed as Chairman on 27 February 2013. Over 28 years’ experience in the Life Insurance and Wealth Management industry as CEO, Non-Executive Director and consultant. Currently a Non-Executive Director of SouthPeak Investment Management Pty Ltd and Non-Executive Director of Adam Smith Asset Management. Chairman of Board of Directors Member of the Board Audit and Risk Management Committees and Remuneration & Nominations Committee Member of the Finance & Investment Committee Previously Non-Executive Director of AXA Asia Pacific Holdings and Chairman of National Mutual Funds Management. Age 62. Formerly President and CEO of AXA Life Insurance Co. Japan. Holds a Bachelor of Business Degree from NSW Institute of Technology and has been a member of the Certified Practicing Accountants (CPA) Emery Feyzeny Non-Executive Director appointed on 24 February 2011. Appointed as Chairman on 1 July 2011. Resigned as Chairman on 27 February 2013. Chairman of the Risk Management Committee Over 44 years’ experience in the superannuation industry including 15 years as a partner at KPMG. He established and headed KPMG Superannuation Services Pty Ltd for 18 years. Appointed by APRA to undertake remediation process for members superannuation under the trusteeship of Commercial Nominees and has advised the Superannuation Senate Select Committee on the taxation of superannuation funds. Member of the Board Audit Committee. Chairman of the Remuneration & Nominations Committee Age 68. Currently a Director of REI Superannuation Pty Ltd a $1.5 billion industry Superannuation Fund and Chair of the Fund’s Investment Committee. Bachelor of Science, Senior Associate of the Australian and New Zealand Institute of Insurance and Finance, a member of the Institute and Faculty of Actuaries and a member of the Australian Institute of Company Directors. Anthony R Brown Executive Director appointed on 31 July 2013. Over 27 years’ experience in marketing, strategy, operations and distribution specialising in financial services. Previously COO at AMP Capital, Head of Strategy and Marketing at Hillross (AMP); Head of Marketing and Product Development at Promina insurance; Head of Commercial Insurance Marketing at Suncorp and Manager at KPMG. Chief Executive Officer of the Company. Responsible Officer for the Company. Chairman of the Product & Appraisal Committee Completed the General Management Program at Harvard Business School (Boston), Holds a Masters of Business Administration (from the AGSM), is a Chartered Accountant and holds a Bachelor of Economics from the University of Sydney. Age 51. 22 Annual Report 2018NAMES, PARTICULARS AND EXPERIENCE OF DIRECTORS (CONT.) Deputy Chairman of the Board of Directors. Chairman of the Board Audit Committee and Member of the Risk Management Committee. Age 61. Stephen J Harrison Non-Executive Director appointed on 27 January 2011. Appointed as Deputy Chairman on 1 July 2011. Over 35 years’ experience in the financial services, funds management, private equity and accounting fields. Has held Director positions with Investec Funds Management and the Australian subsidiary of US based fund manager Sanford C. Bernstein. Has been a founder and held directorships in a number of listed companies both in Australia and overseas. Previously was National Director, Financial Services for BDO Nelson Parkhill, Chartered Accountants. Was a non-executive Director of Blue Energy Limited, an ASX listed entity and Power Air Corporation, a US listed renewable energy company. Former Director of Exoma Energy Limited, an ASX listed entity, and current Chairman and Director of Sinetech Limited, an ASX listed entity. Current Chairman of Conscious Capital Funds Management. Certified Practicing Accountant, Bachelor of Economics, PS146 qualifications. Kevin Hamman Non-Executive Director appointed on 27 January 2011. Over 30 years’ of experience in Financial Services industry including senior management and director roles in Investment and Private Banking. Currently holds several executive directorships in private companies in both the financial services industry and property development and investment industry. Holds a Bachelor of Commerce Degree, a Diploma in Financial Services and Finance, and the Associate Diploma with The Institute of Bankers. Member of the Australian Institute of Company Directors. Chairman of the Finance & Investment Committee. Member of the Remuneration & Nominations Committee and Product & Appraisal Committee Age 57. Martin Edwards Non-Executive Director appointed on 26 October 2016. Over 22 years’ of experience holding multiple General Manager roles in Treasury, capital, strategy and insurance. Is currently the General Manager of New Ventures of the Avant Mutual Group and is a Director of Doctors Financial Services Pty Ltd, My Practice Manual Limited, and Hoxton MPM Pty Ltd. Previously he has held leadership roles with Commonwealth Bank, MBF Group and Trowbridge Consulting. Holds a Bachelor of Science Degree from the University of Sydney, attended the General Management Program at Harvard Business School and is a Fellow of the Institute of Actuaries of Australia. Member of the Finance & Investment Committee and Product & Appraisal Committee Age 42. ii) Directors that retired during the year: Mr K C Cohen, appointed 24 February 2016, resigned 12 September 2017. Directors that were appointed during the year: There were no new directors appointed during the year. All Directors have been in office since the start of the financial year to the date of this report unless otherwise indicated above. 23 NobleOak Life Limited iii) During the financial year, 12 Directors’ meetings, 4 Risk Management Committee meetings, 4 Board Audit Committee meetings, 4 Finance & Investment Committee meetings, 5 Remuneration & Nominations Committee meetings and 2 Product Appraisal Committee meetings were held. Attendances were as follows: Directors’ Meetings Risk Management Committee Board Audit Committee Finance & Investment Committee Meeting Remuneration & Nominations Committee Meeting Product & Appraisal Committee Meeting8 Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Mr EA Feyzeny3 Mr K Hamman6 Mr SJ Harrison1 Mr P Sampson2 Mr A R Brown7 Mr K C Cohen5 Mr M Edwards4 12 12 12 12 12 1 12 12 11 10 12 12 1 12 4 - 4 4 - - - 4 - 3 4 - - - 5 - 5 5 - - - 5 - 4 5 - - - - 4 - 4 - - 4 - 4 - 4 - - 4 5 5 - 5 - - 5 5 - 5 - - 2 2 2 2 2 2 Note 1. 2. 3. 4. 5. 6. 7. 8. Mr S J Harrison was Deputy Chairman of the Board of Directors, Chairman of the Board Audit Committee and member of the Risk Management Committee for the entire year. Mr P Sampson was Chairman of the Board of Directors and a member of the Board Audit Committee, Risk Management Committee, Finance & Investment Committee and Remuneration & Nominations Committee for the entire year. Mr E Feyzeny was Chairman of the Risk Management Committee and member of the Board Audit Committee and Remuneration & Nominations Committee for the entire year. Mr M Edwards was a member of the Finance and Investment Committee for the entire year and was appointed to the Product & Appraisal Committee on the 25 October 2017 when it was formed. Mr K C Cohen resigned as a Non-Executive Director on 12 September 2017. Mr K Hamman was Chairman of the Finance & Investment Committee and a member of the Remuneration & Nominations Committee for the entire year. He was appointed to the Product & Appraisal Committee on 25 October 2017 when it was formed. Mr A R Brown was appointed Chairman of the Product & Appraisal Committees on the 25 October 2017 when it was formed. The Product & Appraisal Committee was formed on the 25 October 2017. Its objective is to review, assess and approve key product development initiatives with the authorisation of the Board. 24 Annual Report 2018 iv) The Company keeps a register containing information about the Directors including each Director’s or related entity of the Director’s interest in securities issued by the Company or in a benefit fund of the Company. Name Number of Ordinary Shares Number of Options Related entity holding the security (Where applicable) Mr P Sampson 733,979 Sampson Family Holdings Pty Ltd ATF Sampson Superannuation Fund Mr P Sampson 80,000 40,000 Mr K Hamman 437,002 TK Consulting (Aust) Pty Ltd ATF The Hamman Family Trust Mr K Hamman 136,364 KH Investments Pty Ltd ATF KH Development Trust Mr K Hamman 227,273 Future Super KH Custodian Pty Ltd ATF Future Super Fund Mr K Hamman 172,727 Future Super KH Pty Ltd ATF Future Super Fund Mr K Hamman 113,000 40,000 Mr E A Feyzeny 150,000 Emery and Judy Feyzeny ATF Pluvial Superannuation Fund Mr E A Feyzeny 120,000 120,000 Mr S J Harrison 148,667 Julie McConaghy, S J Harrison’s wife Mr S J Harrison 30,454 120,000 Mr S J Harrison 635,579 Jasmah Investments Pty Limited ATF The Jasmah Investments Trust (Julie McConaghy, S J Harrison’s wife) Mr S J Harrison 38,000 MSJ Capital Pty Ltd ATF Harrison Superannuation Fund Mr A R Brown * 330,000 922,000 Mr A R Brown 3,532,073 Brohok Investment Co Pty Ltd Mr M Edwards 12,105,711 Representative of Avant Group Holdings Limited * Anthony Brown is a participant in the Performance Rights Plan (refer note 20d), in the current year 29,262 shares have been accrued in the share based payment reserve based on current year performance. These shares will vest in 2020 if conditions are met over the full measurement period up to 30 June 2020. (v) The following Directors have in the normal course of business, an interest in the Company as set out below: Mr P Sampson Insurance cover in Risk Fund No. 1. Mr M Edwards Board representative of Avant. Avant is a white label partner of NobleOak and all transactions are carried out under normal commercial terms. 25 NobleOak Life LimitedCOMPANY SECRETARY Ms Kiran Gill was company Secretary from 29 June 2016. Ms Gill resigned as Company Secretary on 11 August 2017 and Mr Anthony Brown was appointed Company Secretary on 8 September 2017. PRINCIPAL ACTIVITIES The principal activities of the Consolidated Group during the year were life insurance products including death, disability, trauma, income protection and business expenses insurance. DIRECTORS & KEY PERSONNEL REMUNERATION The Directors and Key personnel of NobleOak Life Limited during the year were: Non Executive Directors Executive Directors and Key Personnel Mr E A Feyzeny, appointed 24 February 2011 Mr A R Brown – Chief Executive Officer and Company Secretary, appointed 23 July 2012 and 8 August 2017 respectively Mr P Sampson, appointed 6 February 2013 Mrs P Priest – Chief Financial Officer, appointed 25 September 2017 Mr K Hamman, appointed 27 January 2011 Ms K Gill – Company Secretary, appointed 29 June 2016, resigned 11 August 2017 Mr S J Harrison, appointed 27 January 2011 Mr S Hitchcock – Chief Operating Officer, appointed 24 October 2016, resigned 25 January 2018 Mr A R Brown, appointed 31 July 2013 Mr S Balakrishnan – Chief Marketing Officer, appointed 5 June 2017 Mr K C Cohen, appointed 24 February 2016, resigned 12 September 2017 Mr M Edwards, appointed 26 October 2016 Mr M Wilson – Chief Risk Officer, appointed 1 October 2014 The compensation of the Directors and Key Personnel is set out below: Non Executive Directors* Short-term employee benefits Post-employment benefits Executive Directors and Key Personnel Short-term employee benefits Post-employment benefits Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ 265,360 25,170 317,930 28,385 265,360 25,170 317,930 28,385 290,530 346,315 290,530 346,315 1,501,940 71,707 911,354 43,566 1,501,940 71,707 911,354 43,566 1,573,647 954,920 1,573,647 954,920 1,864,177 1,301,235 1,864,177 1,301,235 *M Edwards is the Avant representative on the Board and does not receive director remuneration from NobleOak. 26 Annual Report 2018 OPERATING RESULTS AND REVIEW OF OPERATIONS The Statement of Comprehensive Income of the Consolidated Group shows a profit for the current year before income tax of $4,300,164. ($2,775,658 for 2017 financial year) In comparing the 2018 and 2017 results, the following is noted: ˚ ˚ ˚ ˚ ˚ ˚ The Company has continued to invest in order to deliver the growth in new sales premiums through its direct marketing and promotion activities, increased personnel to support the direct sales strategy and systemisation across all areas of the business. Reflective of the financial discipline, NobleOak has maintained very strong growth while maintaining profitability. The investment in sales and marketing efforts along with personnel has seen in-force premiums of the Company grow over $14m (gross premiums), an increase of 65% above the 2017 year end in-force premiums in the open benefit funds. The gross profit from sales of insurance products, net of direct costs generated during the 2018 financial year has increased by over $7.8m, representing a 59% increase on the 2017 results. This is the 5th year of continued growth in gross profit inline with the growth from sales of insurance products. Our partnerships continue to grow in the current year: ˚ ˚ ˚ We have seen growing success from PPS life insurance and Income protection products called Professionals Choice, which launched in June 2016. This product suit has generated over $6.3m in gross premiums collections during 2018 with in force premiums growing by over 160%. The Company in partnership with Avant established a new benefit fund for the distribution of Life insurance products in January 2017. This fund generated over $1.5m in gross premium collections during the year with in-force premiums growing by over 170%. In the current year, a new partnership was established the NEOS Life Benefit Fund. This product launched in June 2018 and to date is meeting expected launch growth rates. We are looking forward to this fund’s contributions to our insurance product pool in the future. Earnings reflect that NobleOak secured a payment of $2,000,000 from Swiss Re as part of the finalisation of the Freedom alliance partnership in March 2017, of which $500,000 was realised as revenue in 2017, and $1,500,000 was realised in 2018. During the year, the company secured additional capital of over $12m. This capital is being used to fund the significant marketing and promotion investment in 2019. SIGNIFICANT CHANGES IN STATE OF AFFAIRS Other than the matters disclosed, there were no significant changes in the state of affairs of the Consolidated Group during the financial year. AFTER BALANCE DATE EVENTS No matters or circumstances, other than that referred to in the financial statements or notes thereto, have arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the Consolidated Group, the results of those operations, or the state of affairs of the Consolidated Group in future financial years. FUTURE DEVELOPMENTS Disclosure of information regarding the likely developments in the operations of the Company in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the Company. Accordingly, this information has not been disclosed in this report. 27 NobleOak Life Limited REGULATORY CHANGE IMPACTS During the year there have been no regulatory changes that have impacted on the preparation and presentation of financial information or the capital structure of the company. DIVIDEND PAYMENTS No dividends have been paid or declared during the financial year. INDEMNIFICATION OF OFFICERS AND AUDITORS During the financial year, the Company paid insurance premiums to insure the Directors and Officers of the Company, and its related entities against any liability which may be incurred by the Directors or Officers in carrying out their duties in good faith, to the extent permitted by the Corporations Act 2001. The company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the company or of any related entities against a liability incurred as such an officer or auditor. ENVIRONMENTAL ISSUES The Consolidated Group’s operations are not regulated by any significant environmental regulations under a law of the Commonwealth or of a state or territory. PROCEEDINGS ON BEHALF OF COMPANY No person has applied for leave of Court to bring proceedings on behalf of the Company to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. AUDITOR’S INDEPENDENCE DECLARATION The auditor’s independence declaration is included in the financial report. This report is made in accordance with the resolution of the Board of Directors. On behalf of the Directors Paul Sampson Director Stephen Harrison Director Sydney, 6 September 2018 28 Annual Report 2018DIRECTORS’ DECLARATION The Directors of the Company declare that the attached financial statements and notes are in accordance with the Corporations Act 2001 and: comply with Accounting Standards and other mandatory professional reporting requirements, the Corporations Regulations 2001 and as stated in note 1 to the financial statements, compliance with International Financial Reporting Standards (IFRS); give a true and fair view of the financial position as at 30 June 2018 and the performance for the year ended on that date; in the opinion of the Directors there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; the allocation and distribution of the surplus of the Benefit Funds of the Company have been made in accordance with Division 5 of Part 4 of the Life Insurance Act 1995 and the Benefit Fund Rules of each Benefit Fund; and no assets of the Benefit Funds of the Company have been applied or invested in contravention of any relevant laws. This declaration is made in accordance with a resolution of the Board of Directors. On behalf of the Directors Paul Sampson Director Stephen Harrison Director Sydney, 6 September 2018 29 NobleOak Life LimitedAUDITOR’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 NobleOak Life Limited 66 Clarence Street SYDNEY NSW 2000 6 September 2018 Dear Directors NobleOak Life Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the Board of Directors of NobleOak Life Limited. As audit partner for the audit of the financial statements of NobleOak Life Limited for the financial year ended 30 June 2018, 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 Stuart Alexander Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 30 Annual Report 2018 INDEPENDENT AUDITOR’S REPORT Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1219 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 NobleOak Life Limited Opinion We have audited the financial report of NobleOak Life Limited (the “Company”) and its subsidiary (the “Group”) which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and 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 2018 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 Board of Directors of the Company, would be in the same terms if given to the Board of 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 Touche Tohmatsu Limited 31 NobleOak Life Limited INDEPENDENT AUDITOR’S REPORT Other information The Board of Directors is responsible for the other information. The other information comprises the information included in the Annual Report, 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. The Board of Directors’ responsibilities for the financial report The Board of Directors is 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 Board of 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 Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intend to liquidate the Group or to cease operations, or have 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. 32 Annual Report 2018 INDEPENDENT AUDITOR’S REPORT  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 Board of Directors.  Conclude on the appropriateness of the Board of Directors’ 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.  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 Board of 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. DELOITTE TOUCHE TOHMATSU Stuart Alexander Partner Chartered Accountants Sydney, 6 September 2018 33 NobleOak Life Limited Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2018 Continuing Operations Insurance premium revenue Reinsurance expenses Net insurance premium revenue Investment income Net commissions from reinsurers Fees & other revenue Claims expense - net of reinsurance recoveries Policy acquisition costs Members liability revaluation Salary & employee benefits Administration expenses Other expenses Profit Before Tax Income tax expense Profit After Tax Consolidated The Company Note 2018 $ 2017 $ 2018 $ 2017 $ 3(a) 3(a) 3(a) 3(a) 3(a) 3(b) 3(b) 55,083,632 33,119,511 50,048,131 29,585,273 (34,112,917) (19,948,234) (34,112,917) (19,948,234) 20,970,715 13,171,277 15,935,214 9,637,039 629,696 114,768 624,086 107,936 1,161,234 2,901,247 1,161,234 2,901,247 1,740,031 562,498 4,631,666 2,465,469 (1,144,975) (579,090) (1,144,975) (579,090) (12,365,807) (7,533,873) (10,395,630) (6,010,065) 16 (736,929) 279,267 (736,929) 279,267 (2,702,114) (2,869,926) (2,702,114) (2,869,926) 3(b) (2,410,452) (2,615,010) (2,386,452) (2,591,010) (841,235) (655,195) (686,421) (495,351) 4,300,164 2,775,658 4,299,679 2,845,516 4 (1,044,274) (1,117,493) (1,044,129) (1,139,041) 3,255,890 1,658,165 3,255,550 1,706,475 Other Comprehensive Income - - - - Total Comprehensive income attributable to Owners of the Company 3,255,890 1,658,165 3,255,550 1,706,475 Earnings per share Basic (cents per share) Diluted (cents per share) 6 6 7.17 7.01 4.07 4.01 The above Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes to the financial statements. 34 Annual Report 2018Statement of Financial Position As at 30 June 2018 Assets Cash and cash equivalents Receivables Financial assets Gross policy liabilities ceded under reinsurance Other assets Plant and equipment Deferred tax asset Intangibles Total assets Liabilities Payables Deferred revenue Provisions Gross policy liabilities Total liabilities Net assets Equity Issued share capital Accumulated profits Share based payment reserve Consolidated The Company Note 2018 $ 2017 $ 2018 $ 2017 $ 22 7 8 16 9 10 11 12 13 14 15 16 8,191,586 9,699,182 7,333,460 8,609,987 3,189,088 21,825,054 2,612,488 21,570,728 20,754,758 16,262,175 20,904,758 16,412,175 15,547,998 13,788,856 15,547,998 13,788,856 459,369 219,383 305,276 113,950 259,455 219,383 157,271 113,950 2,688,304 3,732,578 2,640,602 3,683,945 769,109 952,501 619,109 802,501 51,819,595 66,679,572 50,137,253 65,139,413 8,556,799 30,167,014 7,025,671 28,777,729 - 1,500,000 - 1,500,000 376,807 248,786 376,807 248,786 2,982,965 10,119,695 2,982,965 10,119,695 11,916,571 42,035,495 10,385,443 40,646,210 39,903,024 24,644,077 39,751,810 24,493,203 18(a) 36,301,200 24,373,143 36,301,200 24,373,143 17 18(b) 3,525,134 269,244 3,373,920 118,370 76,690 1,690 76,690 1,690 Total equity 39,903,024 24,644,077 39,751,810 24,493,203 The above Statement of Financial Position should be read in conjunction with the accompanying notes to the financial statements. 35 NobleOak Life LimitedStatement of Cash Flows For the year ended 30 June 2018 Consolidated The Company Note 2018 $ 2017 $ 2018 $ 2017 $ Cash flows from operating activities Receipts from customers 40,437,205 69,918,123 38,961,885 68,533,789 Payments to suppliers and employees (40,070,749) (60,050,420) (38,358,750) (58,661,558) Interest received 410,148 393,010 404,538 386,178 Amounts allocated to members (9,632,801) (6,029,936) (9,632,801) (6,029,936) Net cash generated from/(used in) operating activities Cash flows from investing activities Purchase of plant and equipment Purchase of financial assets Payment for intangible assets 22(b) (8,856,197) 4,230,777 (8,625,128) 4,228,473 (158,027) (82,866) (158,027) (82,866) (4,273,055) (9,109,733) (4,273,055) (9,109,733) (148,374) (403,101) (148,374) (403,101) Net cash used in investing activities (4,579,456) (9,595,700) (4,579,456) (9,595,700) Cash flows from financing activities Amounts received from issue of shares Cost of issue of shares 18(a) 18(a) 12,013,784 10,988,755 12,013,784 10,988,755 (85,727) (258,837) (85,727) (258,837) Net cash generated from financing activities 11,928,057 10,729,918 11,928,057 10,729,918 Net (decrease)/increase in cash and cash equivalents held Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year (1,507,596) 5,364,995 (1,276,527) 5,362,691 9,699,182 4,334,187 8,609,987 3,247,296 22(a) 8,191,586 9,699,182 7,333,460 8,609,987 The above Statement of Cash Flows should be read in conjunction with the accompanying notes to the financial statements. 36 Annual Report 2018Statement of Changes in Equity For the year ended 30 June 2018 The Company Balance as at 1 July 2016 Share capital issued Profit for the year Issued share capital Accumulated profits Share based payment reserve Total equity Note $ $ $ $ 13,643,225 10,729,918 (1,588,105) 1,690 12,056,810 - - 1,706,475 - - 10,729,918 1,706,475 Balance at 30 June 2017 24,373,143 118,370 1,690 24,493,203 Share capital net of transaction cost 11,928,057 Profit for the year Recognition of share based payments - - - 3,255,550 - - 11,928,057 3,255,550 - 75,000 75,000 Balance at 30 June 2018 18(a) 36,301,200 3,373,920 76,690 39,751,810 Consolidated Balance as at 1 July 2016 Share capital issued Profit for the year Issued share capital Accumulated profits Share based payment reserve Total equity Note $ $ $ $ (1,388,921) 1,690 12,255,994 13,643,225 10,729,918 - - 1,658,165 - - 10,729,918 1,658,165 Balance at 30 June 2017 24,373,143 269,244 1,690 24,644,077 Share capital net of transaction cost 11,928,057 Profit for the year Recognition of share based payments - - - 3,255,890 - - 11,928,057 3,255,890 - 75,000 75,000 Balance at 30 June 2018 18(a) 36,301,200 3,525,134 76,690 39,903,024 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes to the financial statements. 37 NobleOak Life Limited1 Statement of Significant Accounting Policies The financial report was authorised for issue on 6 September 2018 by the Board of Directors. This financial report includes the consolidated financial statements and notes of NobleOak Life Limited and its controlled entity (“Consolidated Group” or “Group”), and the separate financial statements and notes of NobleOak Life Limited, the parent entity (“Company”). NobleOak Life Limited is a company limited by shares, incorporated and domiciled in Australia. Basis of Preparation The financial report is a general purpose report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board, the Life Insurance Act 1995 (“the Life Act”) and the Corporations Act 2001. For the purpose of preparing the financial statements, the Company is a for-profit entity. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated. The financial report has been prepared on an accruals basis and is based on historic costs, except financial instruments that are measured at revalued amounts or fair values at the end of each reporting period. The amounts presented in the financial report are in Australian dollars and have been rounded to the nearest dollar. The Company operates predominantly in the financial services industry. As such, the assets and liabilities disclosed in the statement of financial position are grouped by nature and listed in an order that reflects their relative liquidity. Going concern The financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business. 38 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 20181 Statement of Significant Accounting Policies (cont.) Change in accounting policy At the date of authorisation of the consolidated financial statements, the Standards and Interpretations that were issued but not yet effective are listed below. Standard/Interpretation AASB 15 ‘Revenue from Contracts with Customers’, AASB 2014-5 ‘Amendments to Australian Accounting Standards arising from AASB 15’, AASB 2015-8 ‘Amendments to Australian Accounting Standards – Effective Date of AASB 15’, and AASB 2016-3 ‘Amendments to Australian Accounting Standards – Clarifications to AASB 15’ Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January 2018 30 June 2019 AASB 16 ‘Leases’ 1 January 2019 30 June 2020 AASB 2016-5 Classification and Measurement of Share- based Payment Transactions (Amendment to IFRS 2) 1 January 2018 30 June 2019 AASB 2016-6 applying to AASB 9 and AASB 4 so as to align profit recognition to AASB 139 1 January 2018 30 June 2019 AASB 17 ‘Insurance contracts’ will replace AASB 1038 1 January 2021 30 June 2022 Impact of changes to Australian Accounting Standards and Interpretation 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. AASB 17 will supersede AASB 1038 Insurance Contracts as for financial year ends beginning on 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 consolidated financial statements. The Company is currently evaluating the standard and its impacts to determine the implementation roadmap. It is not possible to provide a reasonable estimate of the effect of IFRS 17 at this time. 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. It also carries forward guidance on recognition and de-recognition of financial instruments from AASB 139. The application of AASB 9 is not expected to have a material impact on the results of the Company. The majority of the Company’s assets are assets backing policyholder liabilities and are currently designated at fair value through the profit or loss. The Company’s other financial instruments (i.e. receivables and payables) are held at amortised cost. Having met the criteria, the application of AASB 9 Financial Instruments has been deferred to 1 January 2021 at the latest. 39 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited1 Statement of Significant Accounting Policies (cont.) 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. 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. AASB 15 applies to annual periods beginning on or after 1 January 2018. Revenues derived under the Insurance Contracts standards, which represents bulk of the Company’s revenue, are excluded from AASB 15. For the balance of revenue, the standard has been considered and does not have a material impact. 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 Company’s only material lease is that of its premises and it will be treated accordingly, but no material impact is expected to the accounts. (a) Principles of consolidation The consolidated financial statements incorporate all of the assets, liabilities and results of the parent (NobleOak Life Limited) and the subsidiary. Subsidiary is an entity the parent controls. The parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Details of the subsidiary is provided in note 27. The assets, liabilities and results of a subsidiary are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of a subsidiary have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group. Business combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not re-measured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is re-measured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive income. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. 40 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 2018 1 Statement of Significant Accounting Policies (cont.) Goodwill Goodwill is carried at cost less accumulated impairment losses. Goodwill is calculated as the excess of the sum of: (i) (ii) the consideration transferred; any non-controlling interest; and (iii) the acquisition date fair value of any previously held equity interest; over the acquisition date fair value of net identifiable assets acquired. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is tested for impairment annually and is allocated to the Group’s cash-generating units or groups of cash-generating units, representing the lowest level at which goodwill is monitored not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity disposed of. Changes in the ownership interests in a subsidiary are accounted for as equity transactions and do not affect the carrying values of goodwill. (b) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short term highly liquid investments and bank overdrafts. Bank overdrafts are shown within liabilities on the consolidated statement of financial position. (c) Employee benefits Provision is made for the Company’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. Those cashflows are discounted using market yields on high quality corporate bonds with terms to maturity that match the expected timing of cashflows. (d) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments are measured by level of the following fair value measurement hierarchy: (i) (ii) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2) (iii) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3) 41 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited 1 Statement of Significant Accounting Policies (cont.) (e) Financial instruments A financial instrument is any contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in another entity and are recognised when the Consolidated Group become a party to the contractual provisions of the instrument. Financial assets The Company has identified the following classes of financial asset: cash and cash equivalents, financial assets and receivables. Financial assets comprise both assets held to fund policyholder liabilities and excess shareholder’s assets. Financial assets are measured at fair value through profit or loss and include bank bills and term deposits, and Australian fixed interest bond. Financial liabilities The Company has identified the following classes of financial liability: Payables. Financial instruments designated as fair value through profit or loss The policy of management is to designate a group of financial assets or financial liabilities as fair value through profit or loss when that group is both managed and its performance evaluated on a fair value basis for both internal and external reporting in accordance with the Company’s documented investment strategy. (f) Policyholders’ and members’ funds Policyholders’ funds are those financial assets which are held to fund the insurance provisions of the Company. The remaining financial assets, including equities, managed funds and investment in shares represent Shareholders’ funds. (g) Goods and services tax Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (h) Impairment of assets At each reporting date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. An excess of the asset’s carrying value over its recoverable amount is expensed to the statement of comprehensive income. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. (i) Receivables Trade accounts receivable are carried at amounts due and are generally settled within 30 days. A provision is raised for any doubtful debts based on a review of all outstanding amounts at balance date. Bad debts are written off in the period in which they are identified. 42 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 20181 Statement of Significant Accounting Policies (cont.) (j) Income tax The Company is subject to income tax on investment income less an appropriate proportion of administration and overhead expenses. Certain benefits are exempt from income tax under provision of the Income Tax Assessment Act. The income tax benefit (expense) for the year comprises current income tax benefit (expense) and deferred tax benefit (expense). Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax benefit (expense) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Even when the deferred tax asset is not shown on the consolidated statement of financial position, that benefit is still available to the Company and can be re-introduced onto the statement of financial position when it is probable that future taxable profits will be available. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. 43 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited1 Statement of Significant Accounting Policies (cont.) (j) Income tax (cont.) Tax Consolidation NobleOak Life Limited is the head entity of the Tax Consolidated Group comprising of NobleOak Life Limited and its wholly owned entities. Under tax consolidation, the head entity assumes the following balances from controlled entities within the Tax Consolidated Group: (i) (ii) current tax balances arising from external transactions recognised by entities in the tax consolidated group which occurred after implementation date; and deferred tax assets arising from unused tax losses and unused tax credits recognised by entities in the Tax Consolidated Group which occurred after implementation date. Assets and liabilities which arise as a result of balances transferred from entities within the Tax Consolidated Group to the head entity are recognised as related party balances receivable and payable in the statement of financial position. The recoverability of balances arising from tax funding arrangements is based on the ability of the Tax Consolidated Group to utilise the amounts recognised by the head entity. (k) Payables Trade payables and other accounts payable are recognised when the Company becomes obliged to make future payments resulting from the purchase of goods and services. (l) Financial statements presentation The financial statements are prepared by combining the financial statements of the Company’s Benefit Funds and Management Fund. A list of Benefit Funds appears in notes 28-29 of the financial statements. (m) Plant and equipment Plant and equipment is recorded at cost less any accumulated depreciation and impairment losses. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation Depreciation is calculated using the straight line method over the asset’s useful life to the Consolidated Group commencing from the time the asset is held ready for use. Useful lives range between 3 to 20 years. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. (n) Provisions Provisions are recognised when the Company has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. 44 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 20181 Statement of Significant Accounting Policies (cont.) (o) Revenue recognition Management fee revenue Management fee revenues are recognised in the period in which the services are performed. Premium income Premium income is recognised on a due basis subject to the rules governing each Benefit Fund. i) Life insurance contracts Premiums on life insurance contracts are separated into their revenue and deposit components. Where it is not practicable to split out the two components, all premiums have been recognised as revenue. Where policies provide for the payment of amounts of premiums on specific due dates, such premiums are recognised as revenue when due. Unpaid premiums are recognised as revenue only during the days of grace or where secured by the surrender values of the policies concerned. Other premiums are recognised as revenue on a due basis. ii) Life investment contracts Under life investment contracts the life companies receive deposits from policyholders which are then invested on behalf of the policyholders. No premiums are recognised as revenue. Fees deducted from members accounts are accounted for as fee revenue. Life investment premiums are treated as a movement in life investment contract liabilities. Interest revenue Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset. Commission revenue Commission revenue is recognised when it becomes due. All revenue is stated net of the amount of goods and services tax (GST). (p) Loans and receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method less impairment. (q) Intangibles Goodwill is initially recorded at the amount by which the purchase price for the business combination exceeds the fair value attributed to the interest in the net fair value of identifiable assets, liabilities and contingent liabilities at date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. 45 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited1 Statement of Significant Accounting Policies (cont.) (r) Leases Leases of fixed assets where substantially all risks and benefits incidental to the ownership of the asset, but not the legal ownership, that are transferred to the Company are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over their estimated useful lives, where it is likely that the Company will obtain ownership of the asset, or over the term of the lease. Lease payments for operating leases, are charged as expenses on a straight line basis in the periods in which they are incurred. (s) Claims expense i) Life insurance contracts Claims are recognised when the liability to a policyholder under a life insurance contract has been established or upon notification of the insured event. Claims are separated into their expense and withdrawal components. Claims on risk business are treated as an expense and are recognised when a liability to the policyholder is established. ii) Life investment contracts There is no claims expense in respect of investment contracts. Surrenders and withdrawals which relate to life investment contracts are treated as a movement in life investment contract liabilities. Other claim amounts are similar to withdrawals and as such, do not relate to the provision of services or the bearing of risk. Accordingly, they are not expenses and are treated as movements in life insurance contract liabilities. (t) Basis of expense apportionment All operating expenses in respect of life insurance or life investment contracts have been apportioned between policy acquisition, policy maintenance and investment management expenses with regard to the objective when incurring the expense and the outcome achieved. The apportionment process is adopted by applying the following methodology: (i) (ii) Expenses that can be directly identifiable and attributable to a particular class of business are allocated directly to that class of business. Expenses directly attributable to the ordinary and superannuation participating and non-participating classes of business but cannot be directly allocated to a particular class of business are apportioned based upon the appropriate cost drivers; Commission expenses that cannot be allocated to a class of business, for example volume bonuses, are apportioned on the basis of new business and renewal commissions of each class, allowing for limits implied by the basis of adviser remuneration; (iii) Investment expenses are apportioned to the classes of business on the mean balance of assets under management; and (iv) Other expenses that cannot be allocated to a particular class of business are apportioned to the classes of business based on appropriate cost drivers, including number of new policies issued and related premiums, number of new units issued, mean balance of assets under management, average number of policies in-force and time and activity based allocations. 46 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 20181 Statement of Significant Accounting Policies (cont.) (u) Life investment contract liabilities Investment contract premiums are separated into their revenue and deposit components. i) Deposit component The deposit element is initially recognised at fair value. Fair value is determined by estimating the amount payable under the contract for any premiums received less any current or future exit penalties. The fair value is measured as the higher of the current surrender value and an estimate of the discounted future maturity benefit payable in respect of that deposit. The current surrender value is the amount which the contract holder is entitled to receive upon immediate surrender. This equates to the premiums received less any surrender penalties. When calculating the discounted future maturity benefit, the surrender penalty is calculated per the terms of the contract. For regular premium contracts the calculation is based on a discounted cash flow that incorporates the ultimate total redemption less future deposits receivable. The resulting surrender penalty differs to the penalty that would be applied if the contract immediately lapsed leading to a different financial instrument liability. The deposit element, or financial instrument liability, is subsequently measured at fair value, with any change in value being recognised in the statement of comprehensive income. ii) Revenue component Accounting standards contemplate a situation where there is a difference between the considerations (premiums) received from a policyholder and the sum of the fee revenue and financial liability recognised upon receipt. Accounting standards define this part as the Management Services Element. The difference between the consideration received and the fair value of the deposit element relates to future management services revenue and is initially recognised on the statement of financial position as Deferred Revenue Liability. Fees received are deferred and recognised as revenue over the life of the contract. (v) Life insurance contract liabilities The financial reporting methodology used to determine the value of life insurance contract liability is referred to as Margin on Services (MoS). Under MoS, the excess of premium received over claims and expenses (‘the profit margin’) is recognised over the life of the contract in a manner that reflects the pattern of risk accepted from the policyholder as services are provided (‘the service’), hence the term Margin on Service. The movement in life insurance contract liability recognised in the statement of comprehensive income reflects the planned release of this margin. The assumptions used in the calculation of the insurance contract policy liabilities are reviewed at each reporting date. 47 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited1 Statement of Significant Accounting Policies (cont.) (w) Policy acquisition costs Life insurance contracts The Appointed Actuary, in determining the life insurance contract liabilities, takes account of the deferral and future recovery of acquisition costs which are capitalised by way of movement in life insurance contract liabilities, then amortised over the period in which they will be recovered. Policy acquisition costs comprise the costs of acquiring new business, including commission, advertising, policy issue and underwriting costs, agency expenses and direct and indirect other sales costs. Acquisition costs are initially expensed in the statement of comprehensive income with any amounts to be deferred then taken to the statement of financial position as an adjustment to policy liabilities. (x) Outward reinsurance expense Premiums ceded to reinsurers under reinsurance contracts are recorded as an outward reinsurance expense and are recognised over the period of indemnity of the reinsurance contract. (y) Asset backing of policy liabilities Each Benefit Fund of the Company is accounted for independently. Separate management accounts are maintained. Each Benefit Fund holds its own assets that provide the financial backing to ensure future policy liabilities can be met. The appointed actuary regularly reviews each Benefit Fund’s financial information to ensure that assets are able to meet or exceed the requisite capital adequacy and solvency requirements. In accordance with AASB 1038 ‘Life Insurance Contracts’, financial assets backing policy liabilities are designated at fair value through profit or loss. Financial assets backing policy liabilities consist of high quality investments such as cash and fixed income securities. (z) Share-based payment arrangements Equity-settled share-based payments to directors and employees 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 Company’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Company 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. 48 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 20182 Critical accounting judgements and estimates The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities at year end. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key areas where critical accounting estimates are applied are noted below. (a) Life insurance contract liabilities Life insurance contract liabilities are computed using statistical or mathematical methods, which are expected to give approximately the same results as if an individual liability was calculated for each contract. The computations 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. Deferred policy acquisition costs and present value of in-force business (PVIF) are connected with the measurement basis of life insurance contract liabilities and are equally sensitive to the factors that are considered in the liability measurement. The key factors that affect the estimation of these liabilities and related assets are: • • • • The estimated cost of providing benefits and administering these insurance contracts; Expected mortality and morbidity experience on life insurance products, including enhancements to policyholder benefits; Discontinuance experience, which affects the Group’s ability to recover the cost of acquiring new business over the expected life of the contracts; and The amounts credited to policyholders’ accounts compared to the returns on invested assets through asset-liability management and strategic and tactical asset allocation. 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 in note 33. (b) Assets arising from reinsurance contracts Assets arising from reinsurance contracts are also computed using the above methods. 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 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. (c) Fair value of financial instruments The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses its judgement to select a variety of methods and makes assumptions that are mainly based on market conditions existing at each balance date. (d) Deferred tax assets Determining whether deferred tax assets are recognised requires an estimation of future taxable profits against which the assets can be released. This estimation process is based on relevant available information pertaining to the business and the exercise of management judgement. Recognition therefore involves judgements and estimations regarding the future financial performance of the company and reflects a prudent regard, where considered appropriate, for the inherent uncertainties associated with making such estimations and judgements in relation to deferred tax assets. Details of the carrying amount of the deferred tax asset are set out in note 11. 49 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited3 Profit from continuing operation Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ The profit from operations includes the following items of income and expense: (a) i) Net Insurance Premium Revenue Premium revenue from insurance contracts 56,619,910 34,342,075 51,584,409 30,807,837 Less: Deposits recognised as an increase in policy liabilities (1,536,278) (1,222,564) (1,536,278) (1,222,564) Less: Outward reinsurance expense (34,112,917) (19,948,234) (34,112,917) (19,948,234) 55,083,632 33,119,511 50,048,131 29,585,273 20,970,715 13,171,277 15,935,214 9,637,039 NobleOak’s in-force premium as at 30 June 2018 in active benefit funds was $36,789,245 ($22,306,809 as at 30 June 2017). In-force premiums in closed benefit funds as at 30 June 2018 was $28,015,860 ($52,368,937 as at 30 June 2017). NobleOak does not generate any revenue from these closed benefit funds, as such the reduction in in-force premiums has no impact on the trading results. There is a difference between in-force premiums and the revenue recognised in the profit or loss statement due to timing of policy start dates (earned premium) and sales incentives offered with the policies (premium free periods). For core life insurance business, the gross premium (including base premium and fees) is collected by NobleOak Services Limited (the subsidiary company and the administrator). The base premium is paid to NobleOak Life Limited (the parent company and the insurer) which is recognised as insurance premium revenue in the company’s profit or loss statement. The fee component of the gross premium retained in the subsidiary company is recognised within the insurance premium revenue in the consolidated profit or loss statement. ii) Investment Revenue Interest & investment revenue Increase in market value of investments 410,148 219,548 393,010 (278,242) 404,538 219,548 386,178 (278,242) 629,696 114,768 624,086 107,936 50 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 20183 Profit from continuing operation (cont.) iii) Net commissions from reinsurers Commissions received from/(clawback to) reinsurers Commissions clawback from/(paid to) distributors Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ (30,334,846) 29,367,804 (30,334,846) 29,367,804 31,496,080 (26,466,557) 31,496,080 (26,466,557) 1,161,234 2,901,247 1,161,234 2,901,247 The balances change is as a result of the fact that Freedom arrangement was placed in run off in 2017. iv) Fees & Other Revenue Management fees & administration fees Other 59,847 1,680,184 62,498 500,000 2,951,482 1,680,184 1,965,469 500,000 1,740,031 562,498 4,631,666 2,465,469 Included in Other Revenue is $1.5m from the termination of the Freedom Alliance Partnership in February 2017 (2017: $0.5m). Expenses Profit before income tax has been arrived at after charging the following expenses: i) Claims Expenses Claims payments Claims expense reserve 13,534,065 11,687,780 13,534,065 11,687,780 488,031 32,022 488,031 32,022 Less: Reinsurance claims recovery (12,877,121) (11,140,712) (12,877,121) (11,140,712) 1,144,975 579,090 1,144,975 579,090 51 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited3 Profit from continuing operation (cont.) Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ 10,857,487 6,456,307 8,887,310 4,932,194 907,858 1,128,628 5,010,294 4,508,627 640,220 669,704 2,695,806 1,987,226 907,858 1,128,628 5,010,294 4,508,627 640,220 669,704 2,695,806 1,987,226 397,753 210,310 397,753 210,310 117,279 254,934 77,196 120,175 117,279 254,934 77,196 120,175 (10,817,053) (5,322,766) (10,817,053) (5,322,766) 12,365,807 7,534,178 10,395,630 6,010,065 19,192 214,860 491,585 539,317 170,366 20,256 173,417 254,296 603,727 679,390 19,192 214,860 491,585 515,317 170,366 20,256 173,417 254,296 579,727 679,390 591,739 484,984 591,739 484,984 ii) Policy Acquisition Costs Commission Stamp duty Underwriting & medical costs Marketing & promotion Salary & employee benefits Printing, postage, stationery & IT expenses Depreciation and amortisation Other acquisition cost Deferred acquisition costs iii) Administration expenses Administration expenses include the following expenses: Depreciation Amortisation Payments under operating leases Professional services & advisers Marketing & Promotion Printing, postage, stationery, telephone & IT expenses Board & committee costs Insurance 297,577 85,816 330,871 68,069 297,577 85,816 330,871 68,069 2,410,452 2,615,010 2,410,452 2,615,010 52 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 20184 Income taxes (a) The components of tax expense/(benefit) comprise: Current tax Deferred tax (b) The prima facie tax on profit from operations before income tax is reconciled to income tax as follows: Prima facie tax expense on profit from operations before income tax at 30% (2017: 30%) Add: Tax effect of: Deferred Revenue Members Liability Non-deductible depreciation & amortisation Non-deductible capital loss Non-deductible expenses Under provision of prior year income tax Less Tax Effect of: Amortised tax benefits of capital items Deductible expenses Non assessable other income/(loss) Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ - - - - 1,044,274 1,117,493 1,044,129 1,139,041 1,044,274 1,117,493 1,044,129 1,139,041 1,290,049 832,697 1,289,904 853,655 (450,000) 450,000 (450,000) 450,000 221,079 105,399 9,863 12,902 41,393 (83,780) 46,280 13,111 - 221,079 105,399 9,863 12,902 41,393 (83,780) 46,280 13,111 - (59,364) 425,611 (59,364) 425,611 50,727 60,056 75,628 45,747 166,733 (71,665) 50,727 60,056 75,628 45,157 166,733 (71,665) 186,411 140,815 186,411 140,225 Income tax expense attributable to profit for the year 1,044,274 1,117,493 1,044,129 1,139,041 5 Remuneration of auditors Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ Audit of the financial report - current year 131,250 99,750 107,250 75,750 The auditor of the Company is Deloitte Touche Tohmatsu. 53 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited 6 Earnings per share Earnings per share (cents) Basic earnings (cents) Diluted earnings (cents) Basic earnings per share Consolidated 2018 2017 7.17 7.01 4.07 4.01 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 ($) 3,255,890 1,658,165 Earnings used in the calculation of basic earnings per share ($) 3,255,890 1,658,165 Weighted average number of ordinary shares for the purpose of basic earnings per share 45,393,302 40,767,767 Diluted earnings per share The earnings used in the calculation of diluted earnings per share are as follows: Profit for the year attributable to owners of the Company ($) 3,255,890 1,658,165 Earnings used in the calculation of total diluted earnings per share ($) 3,255,890 1,658,165 The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the average number of ordinary shares used in the calculation of basic earnings per share as follows: Weighted average number of ordinary shares used in the calculation of basic earnings per share Shares deemed to be dilutive in respect of the Premium Option Plan and Performance Rights Plan Weighted average number of ordinary shares used in the calculation of diluted earnings per share (all measures) 45,393,302 40,767,767 1,044,659 600,773 46,437,961 41,368,540 54 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 20187 Receivables Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ Accrued receivables GST receivable Other receivables – Subsidiary (NobleOak Services Limited) 2,885,374 21,455,075 2,298,255 21,100,443 303,714 369,979 301,020 371,242 - - 13,213 99,043 Maturity analysis: Current Non-current 3,189,088 21,825,054 2,612,488 21,570,728 3,189,088 21,825,054 2,612,488 21,570,728 - - - - 3,189,088 21,825,054 2,612,488 21,570,728 55 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited8 Financial assets Financial assets held at cost: NobleOak Services Limited Shares Financial assets held at fair value through profit or loss: Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ - - 150,000 150,000 Bank bills and term deposits 17,713,384 13,440,346 17,713,384 13,440,346 Australian fixed interest 3,041,374 2,821,829 3,041,374 2,821,829 Maturity analysis: Current Non-current Level 1 Bank bills and term deposits Level 2 Australian fixed interest Level 3 Fair value hierarchy 20,754,758 16,262,175 20,904,758 16,412,175 17,713,384 13,440,346 17,713,384 13,440,346 3,041,374 2,821,829 3,191,374 2,971,829 20,754,758 16,262,175 20,904,758 16,412,175 Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ 17,713,384 13,440,346 17,713,384 13,440,346 3,041,374 2,821,829 3,041,374 2,821,829 - - - - 20,754,758 16,262,175 20,754,758 16,262,175 The investments carried at fair value have been classified under the three levels of the fair value hierarchy as follows: (i) (ii) Level 1: quoted prices (unadjusted) in active markets for identical assets Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset, either directly (as prices) or indirectly (derived from prices) (iii) Level 3: inputs for the asset that are not based on observable market data (unobservable inputs) There have been no movements between levels during the year. 56 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 2018 9 Other assets Prepayments Other Maturity analysis: Current Non-current 10 Plant and equipment Gross carrying amount Balance at 1 July 2017 Additions Disposals Balance at 30 June 2018 Accumulated depreciation Balance at 1 July 2017 Disposals Depreciation expense Balance at 30 June 2018 Net book value As at 30 June 2017 As at 30 June 2018 Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ 459,169 305,076 259,255 157,071 200 200 200 200 459,369 305,276 259,455 157,271 459,369 305,276 259,455 157,271 - - - - 459,369 305,276 259,455 157,271 Consolidated The Company Plant & Equipment Plant & Equipment $ $ 237,341 158,027 (27,783) 367,585 (123,391) 23,140 (47,951) (148,202) 113,950 219,383 237,341 158,027 (27,783) 367,585 (123,391) 23,140 (47,951) (148,202) 113,950 219,383 Depreciation is recognised as an expense during the year and is included in the depreciation expense disclosed in note 3(b) to the financial statements. 57 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited 11 Deferred tax asset The balance comprises temporary difference attributable to: Amounts recognised in profit & loss: Asset impairments Accrued expenses Employee entitlement provision Prior year tax losses Intangibles Deferred revenue Share capital issue costs Consolidated The Company 2018 $ 555,000 130,722 113,042 2017 $ 555,000 82,448 74,636 2018 $ 555,000 112,249 113,042 2017 $ 555,000 63,068 74,636 1,667,132 3,205,035 1,637,903 3,175,782 123,156 140,959 123,156 140,959 - (450,000) - (450,000) 99,252 124,500 99,252 124,500 2,688,304 3,732,578 2,640,602 3,683,945 Movement: Opening balance as at beginning of year 3,732,578 4,850,136 3,683,945 4,802,103 Charged to income statement (1,044,274) (1,117,558) (1,044,129) (1,139,041) Tax loss transferred from subsidiary - - 786 20,883 Closing balance as at end of year 2,688,304 3,732,578 2,640,602 3,683,945 58 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 201812 Intangibles Gross carrying amount Consolidated The Company Goodwill – NobleOak Services Limited Product Development – NobleOak Life Limited Administration Software Development – NobleOak Life Limited Total Intangible Product Development Administration Software Development Total Intangible $ $ $ $ $ $ $ Balance at 1 July 2017 150,000 1,205,855 711,835 2,067,690 1,205,855 711,835 1,917,690 Disposals Additions - - (170,419) - (170,419) (170,419) - (170,419) 83,344 65,030 148,374 83,344 65,030 148,374 Balance as at 30 June 2018 Accumulated amortisation Balance at 1 July 2017 Disposals Amortisation expense (a) Balance at 30 June 2018 Net book value 150,000 1,118,780 776,865 2,045,645 1,118,780 776,865 1,895,645 - - - - 723,395 391,794 1,115,189 723,395 391,794 1,115,189 (142,032) - (142,032) (142,032) - (142,032) 155,787 147,592 303,379 155,787 147,592 303,379 737,150 539,386 1,276,536 737,150 539,386 1,276,536 As at 30 June 2017 150,000 482,460 320,041 952,501 482,460 320,041 802,501 As at 30 June 2018 150,000 381,631 237,478 769,109 381,631 237,478 619,109 Goodwill – NobleOak Services Limited Goodwill relates to the purchase of NobleOak Services Limited on 1 July 2008. The goodwill has been tested for impairment at 30 June 2018, the Directors have assessed the carrying value of goodwill as unchanged at $150,000. Product Development and Administration Software Development Costs Product Development and Administration Software Development Costs relate to capitalised costs incurred to develop new risk products and the implementation of our Ebix administration platform for Risk Fund No 1. Costs associated with the development of the NobleOak website and Oakey CRM system designed to help manage the sales process have also been included. (a) Amortisation relates to the write-down of cost with regards to the establishment of the new Risk Benefit Fund No.1, Freedom Benefit Fund, Administration Software Development and Website and CRM Development. The cost associated with the Freedom Benefit Fund was written off during the year as the fund no longer generates revenue for NobleOak (write-off net value $28,387). The cost associated with the development of the administration software is being written off over 7 years. The cost associated with the Website and CRM development is being written off over 4 years. These periods have been determined based on estimated useful life. 59 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited 13 Payables Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ Sundry creditors and accruals 8,556,799 30,167,014 7,025,671 28,777,729 Maturity analysis: Current Non-current 14 Deferred revenue Deferred revenue Maturity analysis: Current Non-current 8,556,799 30,167,014 7,025,671 28,777,729 - - - - 8,556,799 30,167,014 7,025,671 28,777,729 Consolidated The Company 2018 $ 2017 $ 1,500,000 1,500,000 - 1,500,000 - - - - 2018 $ - - - - 2017 $ 1,500,000 1,500,000 - 1,500,000 NobleOak secured a payment of $2,000,000 from Swiss Re as part of the finalisation of the Freedom Alliance Partnership in March 2017, of which $500,000 was realised as revenue in 2017, and $1,500,000 was realised in 2018. This treatment reflects the terms of the original Freedom distribution agreement and matches revenue realisation with future expenditure. 15 Provisions Employee benefits Maturity analysis: Current Non-current 60 Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ 376,807 248,786 376,807 248,786 274,937 101,870 175,823 72,963 274,937 101,870 175,823 72,963 376,807 248,786 376,807 248,786 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 2018 16 Policy & member liabilities Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ Balance at beginning of financial year (3,669,161) 2,640,042 (3,669,161) 2,640,042 Allocations to members (9,632,801) (6,029,936) (9,632,801) (6,029,936) (Decrease)/Increase in value expensed in the financial year (i) 736,929 (279,267) 736,929 (279,267) Balance at end of financial year (12,565,033) (3,669,161) (12,565,033) (3,669,161) (i) 2017 and 2018 increase/(decrease) in value expensed in the financial year relates to bonus and other benefits allocated to members. Being: Gross policy liabilities 2,982,965 10,119,695 2,982,965 10,119,695 Less gross policy liabilities ceded under reinsurance (15,547,998) (13,788,856) (15,547,998) (13,788,856) Net policy & members liability (12,565,033) (3,669,161) (12,565,033) (3,669,161) 17 Accumulated profits Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ Balance at beginning of financial year 269,244 (1,388,921) 118,370 (1,588,105) Net profit from operation after income tax 3,255,890 1,658,165 3,255,550 1,706,475 Balance at end of financial year 3,525,134 269,244 3,373,920 118,370 61 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited18 Share capital Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ (a) Issued share capital Fully paid ordinary shares 36,301,200 24,373,143 36,301,200 24,373,143 Movement in issued share capital Company & Consolidated Ordinary Shares Opening Balance 1 July 2016 Ordinary Share – Sophisticated Investor – August 2016 (i) Number of Shares 31,820,006 Issue Price $ Value 13,643,225 5,963,556 1.045 6,231,916 Ordinary Share – Existing Shareholders (ii) 1,338,190 1.045 1,398,409 Ordinary Share – Sophisticated Investors – August 2016 (iii) Ordinary Shares - Institutional Investor February 2017 (i) Ordinary Share – NobleOak Premium Options Exercised (iv) 661,810 1.10 727,991 2,486,162 1.045 2,598,039 60,000 0.54 32,400 Less Transaction cost Balance 30 June 2017 42,329,724 (258,837) 24,373,143 Ordinary Share – Sophisticated Investor – March 2018 (v) 9,241,372 1.30 12,013,784 Less Transaction cost Balance 30 June 2018 51,571,096 (85,727) 36,301,200 (i) (ii) (iii) (iv) (v) Ordinary Shares issued to sophisticated investors under a share purchase memorandum. Share issued in two stages, on signing of the memorandum (August 2016) and then on APRA approval to hold more than 15% in the company (February 2017). Ordinary Shares offered and issued to existing shareholders August 2016, Ordinary Shares issued to sophisticated investors from capital raising activities undertaken in August 2016. Ordinary Shares issued to Directors in February 2017 on Exercising Vested Option per the NobleOak Premium Option Plan of December 2013. Ordinary Shares issued to sophisticated investors from capital raising activities undertaken in March 2018. 62 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 201818 Share capital (cont.) (b) Share based payment reserve Opening Balance 1 July 2016 NobleOak Premium Option Plan options Exercised by Directors (ii) NobleOak Premium Option Plan options granted December 2016 (iii) NobleOak Premium Option Plan options no longer available for vesting (i) Balance 30 June 2017 NobleOak Premium Option Plan options no longer available for vesting (iv) NobleOak Premium Option Plan options no longer available for vesting (i) Ordinary Share – Long Term Incentive Rights (v) Balance 30 June 2018 Number of Options/Rights $ Value 1,528,668 1,690 (60,000) 200,000 (66,251) - - - 1,602,417 1,690 (185,000) (90,417) 57,692 - - 75,000 1,384,692 76,690 Options/rights plan Number Grant date Expiry date Exercise price (1) 2013 Premium Option Plan 699,500 19/12/2013 19/12/2018 (2) 2015 Premium Option Plan (CEO) 542,500 18/03/2015 11/03/2019 (3) 2015 Premium Option Plan (Staff) 50,000 18/03/2015 11/03/2020 (4) 2016 Premium Option Plan 35,000 01/12/2016 01/07/2020 (5) 2017 Performance Rights Plan 57,692 03/11/2017 n/a 0.54 0.75 0.75 1.045 nil (i) (ii) (iii) (iv) (v) Vesting of NobleOak Premium Option Plan entitlements are dependant on long term performance. Of the 1,012,417 (2017: 1,078,668) options available, 90,417 (2017: 66,251) were forfeited and 922,000 (2017: 754,083) have vested to date. There are Nil (2016: 700,001) options that may vest in the future dependant on performance. Options that had vested and were exercised by Directors in February 2017. Additional issue of options under the NobleOak Premium Option Plan granted in December 2016 with a vesting date of July 2018. Vesting and the ability to exercise vested option is depended being employed at Noble Oak. 185,000 are not longer available due to terminated employment. A Long-term incentive plan was established for the executives. The plan is based on the outcome of 3 years results ending 30 June 2020. This reserve is a provision for the potential shares earned to date based on current year’s results. 19 Lease commitments Operating leases relate to office space at Level 7, 66 Clarence Street Sydney. Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ Non-cancellable operating lease payments Not longer than 1 year Longer than 1 year and not longer than 5 years 618,596 2,404,000 146,400 618,596 146,400 - 2,404,000 - 63 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited20 Related party disclosures (a) Key management personnel remuneration The Directors of NobleOak Life Limited during the year were: Mr E A Feyzeny, appointed 24 February 2011 Mr P Sampson, appointed 6 February 2013 Mr K Hamman, appointed 27 January 2011 Mr S J Harrison, appointed 27 January 2011 Mr A R Brown, appointed 31 July 2013 Mr K C Cohen, appointed 24 February 2016, resigned 13 September 2017 Mr M Edwards, appointed 26 October 2016 The compensation of the Directors and Key Personnel is set out below: Non Executive Directors Short-term employee benefits Post-employment benefits Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ 265,360 25,170 317,930 28,385 265,360 25,170 317,930 28,385 290,530 346,315 290,530 346,315 Executive Directors and Key Personnel Short-term employee benefits Post-employment benefits 1,501,940 71,707 911,354 43,566 1,501,940 71,707 911,354 43,566 1,573,647 954,920 1,573,647 954,920 1,864,177 1,301,235 1,864,177 1,301,235 64 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 201820 Related party disclosures (cont.) (b) Shares issued to Directors or Associates of Directors Details of the shares held by Directors or their Associates are included in the 2018 Directors Report. The following shares were issued during the year to Directors or Associates of Directors: There was 1 round of capital raising activities seeking new sophisticated investors during the year, being: March 2018 Ordinary shares were offered at $1.30 each to sophisticated investors. All shares issued to Directors were issued on the same terms as all other shareholders in each share issue. Directors Name Related Entity holding the Security (where applicable) March 2018 Ordinary shares purchased at $1.30 Mr P Sampson Sampson Family Holdings Pty Ltd ATF Sampson Superannuation Fund Mr A E Feyzeny Emery and Judy Feyzeny ATF Pluvial Superannuation Fund Mr M Edwards Avant Group Holdings Pty Ltd Mr A R Brown Brohok Investment Pty Ltd 100,000 20,000 2,167,190 368,887 (c) Options issued to Directors and Key Personnel The NobleOak Premium Option Plan was established in December 2013 to align the interests of Employees and Directors with that of Shareholders as well as providing a greater incentive for involvement in the long terms goals of the Company. Options issued are exercisable by the Directors and Employees in tranches over a period of three years based on their continued involvement with the Company. In the case of Anthony Brown the options are also subject to meeting performance goals. As at the end of June 2018 all option issued have either vested or expired. (d) Performance Rights Plan In November 2017, the Board established a Performance Rights Plan as a long term incentive program to align key management personnel to the performance of the company. This program is based on achieving the business plan at the end of a 3 year period in terms of sales and earnings beginning with the financial year 2017/2018. (e) Other transactions with Directors There has been no other revenue or expense that has arisen from transactions with any of the Directors or their related entities. 65 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited21 After balance date events There has been no matter or circumstance that has arisen since the end of the financial year that has significantly affected, or may significantly affect, the operations of the Company, or the state of affairs of the Company in future financial years. 22 Notes to the statement of cash flow (a) Reconciliation of cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in banks and cash in money market accounts, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash flow statement is reconciled to the related items in the statement of financial position as follows: Consolidated The Company 2018 $ 2017 $ 2018 $ 2017 $ Cash and cash equivalents (i) 8,191,586 9,699,182 7,333,460 8,609,987 (i) The Consolidated balance includes restricted cash held in the trust account of the subsidiary, as a Trustee of My Protection Plan of $531,207 (2017: $673,630) (b) Reconciliation of profit for the year to net cash flows from operating activities Profit for the year Depreciation of non-current assets Amortisation of intangible assets Loss on Sale or disposal of Investments Expense related to Share Based Payment Reserve Decrease/(increase) in market value of investments (Decrease) in policy liabilities Decrease in assets: Receivables Other assets Increase in liabilities: Payables Deferred revenue Provisions 3,255,890 1,658,165 3,255,550 1,706,475 47,951 303,379 33,050 75,000 40,546 230,168 - - 47,951 303,379 33,050 75,000 40,546 230,168 - - (219,548) 278,242 (219,548) 278,242 (8,895,872) (6,309,203) (8,895,872) (6,309,203) 18,635,966 2,572,295 18,958,240 890,181 976,882 941,159 2,605,104 1,016,007 (21,610,215) 3,208,806 (21,752,058) 3,086,258 (1,500,000) 1,500,000 (1,500,000) 1,500,000 128,021 74,876 128,021 74,876 Net cash from operating activities (8,856,197) 4,230,777 (8,625,128) 4,228,473 66 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 201823 Financial risk management The Board of Directors has established an investment policy to ensure that assets are adequately protected and invested in accordance with the Group’s primary objectives of safety, liquidity and yield. The principal goal of the investment policy is to maximise investment returns while growing the Group’s asset base without putting at risk the capital adequacy and solvency obligation requirements stipulated by relevant laws and standards (such as those imposed by the Australian Prudential Regulation Authority). To assist with the implementation and management of the investment policy, the Board has established a Finance and Investment Committee (FIC). The Group’s financial instruments consist mainly of deposits with banks, fixed interest investments, accounts receivable and payable. The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies to these financial statements, are set out below in the interest rate risk note at 23(a). (a) Interest rate risk The following table details the Consolidated Group’s exposure to interest rate risk at 30 June 2018 and 2017: 2018 Financial Assets Cash and cash equivalents Cash on term deposit Fixed interest investments Trade receivables Financial Liabilities Trade payables Weighted average effective rate Less than 1 year Between 1 & 5 years Over 5 years Total % $ $ $ $ 1% 8,191,586 2.5% 17,713,384 5.4% 0% - 3,189,088 29,094,058 0% 8,556,799 8,556,799 - - 3,041,374 - 8,191,586 17,713,384 3,041,374 3,189,088 3,041,374 32,135,432 - - 8,556,799 8,556,799 - - - - - - - 67 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited23 Financial risk management (cont.) (a) Interest rate risk (cont.) 2017 Financial Assets Cash and cash equivalents Cash on term deposit Fixed interest investments Trade receivables Financial Liabilities Trade payables Weighted average effective rate Less than 1 year Between 1 & 5 years Over 5 years Total % $ $ $ $ 1% 2.5% 5.4% 9,699,182 13,440,346 - 0% 21,825,054 44,964,582 0% 30,167,014 30,167,014 - - - - - - - - - 9,699,182 13,440,346 2,821,829 2,821,829 - 21,825,054 2,821,829 47,786,411 - - 30,167,014 30,167,014 (b) Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The carrying amounts of financial assets recorded in the Group’s financial statements represent the Group’s maximum exposure to credit risk in relation to these assets. The Group’s investment policy sets out a minimum investment counter party grade (as measured by Standard & Poor’s) for fixed interest and cash investments of at least BBB or better. The Group’s Risk Appetite Statement sets out a minimum Financial Strength Rating (as measured by Standard & Poor’s) for reinsurers of at least A or better. (c) Fair value of financial instruments The net fair value of financial assets and liabilities approximates the amounts recorded in the financial statements. The fair value has been determined in accordance with the accounting policies disclosed in note 1 to the financial statements. The fair value for the government bonds are determined using valuation models based on market observable inputs. These instruments are included in level 2. (d) Liquidity risk The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Funeral Fund holds a 30 year zero coupon bond maturing in 2035. As per the Appointed Actuary’s advice, the bond will have to be realised before maturity, and this will be done at an opportune time over the next ten years. 68 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 201823 Financial risk management (cont.) (d) Liquidity risk (cont.) A maturity analysis for the contractual remaining life of financial liabilities has been included in the interest rate risk note at 23(a). (e) Sensitivity analysis – Interest rate risk The Group has performed sensitivity analysis relating to its exposure to interest rate risk at balance date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in this risk. Interest Rate Sensitivity Analysis At 30 June 2018, the effect on net profit and equity as a result of changes in the interest rate, with all other variables remaining constant would be as follows: Change in net profit - - Increase in interest rate by 2% Decrease in interest rate by 2% Change in Equity - - Increase in interest rate by 2% Decrease in interest rate by 2% 2018 $ 207,416 (207,416) 207,416 (207,416) 2017 $ 226,183 (226,183) 226,183 (226,183) The above interest rate sensitivity analysis has been performed on the assumption that all other variables remain unchanged. The Group has no exposure to fluctuations in foreign currency. (f) Capital risk management The Group manages its capital requirements by assessing capital levels on a regular basis. Its objectives are to maintain an optimal capital structure to reduce the cost of capital whilst providing security, returns and benefits to policyholders and members. Life companies are subject to externally imposed minimum capital requirements set and monitored by the Australian Prudential Regulation Authority. These requirements are in place to ensure sufficient solvency margins for the protection of policyholders and members. (g) Life insurance risk Life insurance risk consists of all aspects of the risk arising from the underwriting of insurance risk. The Group ensures that the insurance risk is controlled through the use of underwriting procedures, appropriate premium rating methods and approached, effective claims management procedures and sound product terms and conditions due diligence. The Group purchases reinsurance to limit its exposure to accepted insurance risk. It 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. 69 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited 24 Information on the Company’s operations The Company operates primarily in life insurance industry. The Company’s operations are located in New South Wales and its customers are located in each State and Territory of Australia. 25 Additional information NobleOak Life Limited is a public company limited by shares, incorporated in Australia. If the Company is wound up, shareholders will not be required to contribute further equity other than the balance of any partially paid shares. Principal Place of Business & Registered Office Level 7, 66 Clarence Street SYDNEY, NSW 2000 Tel: 1300 041 494 26 Contingent liabilities The Company has provided a bank guarantee of $384,931 to support the commercial lease on its office premises at Level 7, 66 Clarence Street, Sydney NSW 2000. 27 Interests in subsidiaries The subsidiary listed below has share capital consisting solely of ordinary shares, which are held directly by the Group. The proportion of ownership interests held equals the voting rights held by the Group. The subsidiary’s principal place of business is also its country of incorporation or registration. Name of Subsidiary Principal Place of Business Ownership Interest Held by the Group NobleOak Services Limited Sydney, Australia 2018 % 100% 2017 % 100% Subsidiary financial statements used in the preparation of these consolidated financial statements have also been prepared as at the same reporting date as the Group’s financial statements. 70 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 2018 28 Details of Benefit Funds’ income statements for the year ended 30 June 2018 Funeral Benefit Fund Risk Fund No. 1 Reward Insurance Benefit Fund Freedom Insurance Benefit Fund PPS Mutual Benefit Fund Avant Benefit Fund Blue Chip Endowment Assurance Fund NEOS Benefit Fund Total Benefit Funds $ $ $ S $ $ $ $ $ Premium revenue Insurance premium revenue Less reinsurance payment Net premium revenue - 16,904,342 2,557,909 23,312,294 5,872,550 1,400,979 - (11,362,619) (1,737,470) (16,174,668) (4,119,535) (718,585) - 5,541,723 820,439 7,137,626 1,753,015 682,394 - - - 57 50,048,131 (40) (34,112,917) 17 15,935,214 Investment income 252,092 143,285 1,315 5,552 7,978 17,730 2,999 - 430,951 Net commissions from reinsurers Other Revenue Claim expense – net of reinsurance recoveries Acquisition costs Members liability revaluation Fees to management fund - (23,961) 480,741 673,898 - 30,556 1,161,234 - - - - 9,886 (1,1117,420) - - - - - - - (12,177) (15,378) (710,182) (783,689) (7,380,793) (990,607) (530,359) - - - - - - - - 9,886 (1,144,975) (10,395,630) (736,929) (1,543,697) (268,816) - - - (467,982) (99,995) (764,253) 10,816 (3,246) (684,207) - - (131) (2,812) Other expenses (3) (189) (23,606) (234,328) (57,719) (11,381) - (421) (327,647) Profit/(loss) before tax (116,722) 3,102,850 1,314 5,552 222,199 143,006 56 30,152 3,388,407 Income tax expense - (930,855) (394) (1,665) (207,054) (42,902) (56) (9,045) (1,191,971) Profit/(loss) after tax Unallocated surplus at 30 June 2017 Transfer to Benefit Funds Unallocated surplus at 30 June 2018 (116,722) 2,171,995 203,010 6,760,648 - 8,800,000 920 234 - 3,887 15,145 100,104 - 21,107 2,196,436 14,550 279,364 23,948 - - - - - - - 7,281,754 8,800,000 86,288 17,732,643 1,154 18,437 294,509 124,052 - 21,107 18,278,190 71 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited28 Details of Benefit Funds’ income statements for the year ended 30 June 2017 Funeral Benefit Fund Risk Fund No. 1 Reward Insurance Benefit Fund Freedom Insurance Benefit Fund PPS Mutual Benefit Fund Avant Benefit Fund Blue Chip Endowment Assurance Fund NEOS Benefit Fund Total Benefit Funds $ $ $ S $ $ $ $ $ Premium revenue Insurance premium revenue Less reinsurance payment Net premium revenue - 11,375,739 2,258,822 14,257,471 1,490,527 202,714 - (8,118,954) (1,475,618) (9,285,242) (1,015,937) (52,483) - 3,256,785 783,204 4,972,229 474,590 150,231 - - - Investment income (238,882) 75,265 334 5,933 2,681 6,678 5,329 Net commissions from reinsurers Claim expense – net of reinsurance recoveries Acquisition costs Members liability revaluation Fees to management fund - - - - 95,366 2,495,856 310,025 - (565,294) - - (11,151) (2,645) (565,843) (676,374) (4,434,468) (215,520) (117,860) 387,223 - - - (106,851) (99,995) (556,360) (176,550) (2,807,863) (6) - - Other expenses (1) (120) (25,646) (225,755) (8,916) (2,191) Profit before tax 48,345 1,644,433 334 5,932 444,852 34,213 - - - (1,105) (3,750) - 474 Income tax expense - (493,330) (100) (1,780) (165,511) (10,265) (474) Profit after tax 48,345 1,151,103 234 4,152 279,341 23,948 Unallocated surplus at 30 June 2016 Transfer to Benefit Funds Unallocated surplus at 30 June 2017 154,665 1,609,545 - 4,000,000 - - 10,398 - 23 - - - 203,010 6,760,648 234 14,550 279,364 23,948 - - - - - 29,585,273 - (19,948,234) - - - - - - - - - - - - - - 9,637,039 (142,662) 2,901,247 (579,090) (6,010,065) 279,267 (3,644,524) (262,629) 2,178,583 (671,460) 1,507,123 1,774,631 4,000,000 7,281,754 72 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 201829 Details of Benefit Funds’ balance sheet as at 30 June 2018 Funeral Benefit Fund Risk Fund No. 1 Reward Insurance Benefit Fund Freedom Insurance Benefit Fund PPS Mutual Benefit Fund Avant Benefit Fund Blue Chip Endowment Assurance Fund NEOS Benefit Fund Total Benefit Funds $ $ $ S $ $ $ $ $ Assets Cash & liquid assets Accrued receivables Short term securities Long term securities Gross policy liabilities ceded under reinsurance 10,273 1,457,923 304,649 818,057 1,637,157 551,371 30,908 224,621 5,034,959 3,690 526,919 158,145 354,459 1,513,845 21,853 225 11 2,579,147 1,232,561 4,500,000 51,306 225,050 160,595 512,830 70,416 3,041,374 - - - - - - 6,382,878 359,279 3,607,842 4,842,218 449,790 - - - - 6,752,758 3,041,374 (94,009) 15,547,998 Total assets 4,287,898 12,867,720 873,379 5,005,408 8,153,815 1,535,844 101,549 130,623 32,956,236 Liabilities Creditors and other liabilities Gross policy liabilities - 6,227,147 501,252 1,278,332 2,414,578 1,164,638 56 109,078 11,695,081 4,201,610 (11,092,070) 370,973 3,708,639 5,444,728 247,154 101,493 438 2,982,965 Total liabilities 4,201,610 (4,864,923) 872,225 4,986,971 7,859,306 1,411,792 101,549 109,516 14,678,046 Net assets 86,288 17,732,643 1,154 18,437 294,509 124,052 Members’ funds Unallocated surplus Total benefit members’ funds 86,288 17,732,643 1,154 18,437 294,509 124,052 86,288 17,732,643 1,154 18,437 294,509 124,052 - - - 21,107 18,278,190 21,107 18,278,190 21,107 18,278,190 73 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited29 Details of Benefit Funds’ balance sheet as at 30 June 2017 Funeral Benefit Fund Risk Fund No. 1 Reward Insurance Benefit Fund Freedom Insurance Benefit Fund PPS Mutual Benefit Fund Avant Benefit Fund Blue Chip Endowment Assurance Fund NEOS Benefit Fund Total Benefit Funds $ $ $ S $ $ $ $ $ Assets Cash & liquid assets Accrued receivables Short term securities Long term securities Gross policy liabilities ceded under reinsurance 17,181 1,470,916 391,987 4,129,112 932,209 438,406 32,153 4,568 351,655 408,415 19,782,364 636,768 12,067 649 1,358,889 2,056,781 50,000 219,556 50,794 503,252 168,071 2,821,829 - - - - - - 4,947,228 360,427 4,685,788 3,637,352 158,061 - - Total assets 4,202,467 8,826,580 1,210,829 28,816,820 5,257,123 1,111,786 200,873 Liabilities Creditors and other liabilities Gross policy liabilities Total liabilities 334 5,137,377 839,212 24,032,162 1,219,391 996,079 474 3,999,123 (3,071,445) 371,383 4,770,108 3,758,368 91,759 200,399 3,999,457 2,065,932 1,210,595 28,802,270 4,977,759 1,087,838 200,873 Net assets 203,010 6,760,648 234 14,550 279,364 23,948 Members’ funds Unallocated surplus Total benefit members’ funds 203,010 6,760,648 234 14,550 279,364 23,948 203,010 6,760,648 234 14,550 279,364 23,948 - - - - - - - - - - - - - - - 7,411,964 21,196,486 4,407,343 2,821,829 13,788,856 49,626,478 32,225,029 10,119,695 42,344,724 7,281,754 7,281,754 7,281,754 74 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 201830 Segment Information AASB 8 requires disclosure of operating segments that engage in business activities and whose results are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess performance. The principal operating segments within NobleOak are as follows: Core Partnership Closed Funds (1) Core Book The term ‘Core’ reflects the life insurance protection products that are sold directly to customers under the NobleOak brand. This umbrella group also includes the management fund, whose function is to recognise the expenses incurred in respect to this proposition as well as any fees from partnership funds. Products sold under the Core branded Premium Life Direct or My Protection Plan include term life, total and permanent disability, trauma, income protection and business expenses. (2) Partnerships The term ‘Partnerships’ reflects the life insurance protection products which are sold to customers primarily through advisors under our partners brands. At the current date, NobleOak is the issuer of life insurance policies for PPS Mutual (established 2016), Avant Mutual (established 2017) and NEOS (established 2018). NobleOak retains a small level of risk as they are largely reinsured. (3) Closed Funds The term ‘Closed Funds’ refers to the legacy book of NobleOak where the funds are closed for new members. The largest and most recent part of the closed funds is in relation to Freedom Insurance where NobleOak ceased being the issuer of life and funeral insurance protection products in 2017 (Freedom and Reward Funds). In 2018, NobleOak reflected $1.5m of settlement fees from Swiss Re in respect to the termination of this arrangement. The remaining two funds are much smaller components which are held for the Druids members (Blue Chip Endowment Assurance Fund and Funeral Benefit Fund). Core Partnership Closed Funds Total 2018 $ 2017 $ 2018 $ 2017 $ 2018 $ 2017 $ 2018 $ 2017 $ Total revenue Total expenses Tax Profit after tax 11,289,255 9,136,282 3,165,588 944,205 8,676,803 8,119,369 23,131,646 18,199,856 (7,275,131) (6,824,916) (2,770,233) (465,140) (8,786,603) (8,064,284) (18,831,967) (15,354,340) (783,013) (960,911) (259,001) (175,776) (2,115) (2,354) (1,044,129) (1,139,041) 3,231,111 1,350,455 136,354 303,289 (111,915) 52,731 3,255,550 1,706,475 75 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited31 Capital Adequacy Requirements (a) Capital Base (b) Prescribed capital amount (1) 2018 Capital in excess of prescribed capital amount = (a) - (b) Capital adequacy multiple (%) (a) / (b) Capital Base comprises: Common Equity Tier 1 Capital Regulatory adjustment applied in calculation of Tier 1 capital (A) Common Equity Tier 1 Capital Additional Tier 1 Capital Regulatory adjustment applied in calculation of Additional Tier 1 capital (B) Total Additional Tier 1 Capital Tier 2 Capital Regulatory adjustment applied in calculation of Tier 2 capital (C) Total Tier 2 Capital Total capital base The Company 17,335,459 4,500,000 12,835,459 385.23% 39,751,811 (22,416,352) 17,335,459 - - - - - - 17,335,459 Explanatory Notes: (1) The minimum level of assets required to be held in each statutory fund, prescribed by the solvency standard referred to in part 5 of the Life Insurance Act 1995. (a) Capital Base (b) Prescribed capital amount (1) 2017 Capital in excess of prescribed capital amount = (a) - (b) Capital adequacy multiple (%) (a) / (b) Capital Base comprises: Common Equity Tier 1 Capital Regulatory adjustment applied in calculation of Tier 1 capital (A) Common Equity Tier 1 Capital Additional Tier 1 Capital Regulatory adjustment applied in calculation of Additional Tier 1 capital (B) Total Additional Tier 1 Capital Tier 2 Capital Regulatory adjustment applied in calculation of Tier 2 capital (C) Total Tier 2 Capital Total capital base The Company 11,206,666 2,500,000 636,681 125.47% 12,056,826 (8,920,145) 3,136,681 - - - - - - 11,206,666 Explanatory Notes: (1) The minimum level of assets required to be held in each statutory fund, prescribed by the solvency standard referred to in part 5 of the Life Insurance Act 1995. 76 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 2018 32 Capital Adequacy Requirements of Benefit Funds 2018 Risk Fund No. 1 Freedom Insurance Benefit Fund Reward Insurance Benefit Fund PPS Mutual Benefit Fund Avant Benefit Fund Blue Chip Endowment Assurance Fund NEOS Benefit Fund Funeral Benefit Fund Total Benefit Funds Management Fund (a) Capital Base 1,462,180 268,495 51,284 344,763 632,424 (b) Prescribed capital amount Capital in excess of prescribed capital amount = (a) - (b) Capital adequacy multiple (%) = (a) / (b) Capital Base comprises: Net Assets (including Seed Capital) Regulatory adjustment applied in calculation of Tier 1 capital (A) Net assets after applying any regulatory adjustments 135,046 59,512 8,635 - 10,796 1,327,134 208,983 42,650 344,763 621,628 1083% 451% 594% 5858% 20,497,643 268,438 51,154 344,509 874,052 19,035,463 (58) (130) (254) 241,628 1,462,180 268,495 51,284 344,763 632,424 Tier 2 Capital Regulatory adjustment applied in calculation of Tier 2 capital (B) Total Tier 2 Capital - - - - - - - - - - - - - - - Total capital base 1,462,180 268,495 51,284 344,763 632,424 Prescribed capital amount comprises: (C) Insurance Risk Charge - - - (D) Asset Risk Charge 135,046 59,512 8,635 (E) Asset Concentration Risk Charge (F) Operational Risk Charge (G) Aggregation benefit (H) Combined scenario adjustment (I) APRA approved transition amount under capital adequacy standards Prescribed capital amount = (C) + (D) + (E) + (F) - (G) + (H) + (I) - - - - - - - - - - - - - - - 135,046 59,512 8,635 - - - - - - - - - 10,796 - - - - - 10,796 - - - - - - - - - - - - - - - - - - 215,550 88,975 3,063,672 14,271,787 950 - 214,937 1,883,511 214,601 88,975 2,848,734 12,388,277 22701% 1425% 758% 121,106 86,288 22,243,190 21,473,621 (94,444) (2,687) 19,179,518 7,201,834 215,550 88,975 3,063,672 14,271,787 - - - - - - - - - - - - 215,550 88,975 3,063,672 14,271,787 - - - - - - - - - - 214,937 153,197 - - - - - - 1,730,314 - - - 214,937 1,883,511 - 950 - - - - - 950 77 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited 32 Capital Adequacy Requirements of Benefit Funds (cont.) 2017 Risk Fund No. 1 Freedom Insurance Benefit Fund Reward Insurance Benefit Fund PPS Mutual Benefit Fund Avant Benefit Fund Blue Chip Endowment Assurance Fund NEOS Benefit Fund Funeral Benefit Fund Total Benefit Funds Management Fund (a) Capital Base 788,167 264,623 50,365 329,388 695,047 (b) Prescribed capital amount Capital in excess of prescribed capital amount = (a) - (b) Capital adequacy multiple (%) = (a) / (b) Capital Base comprises: Net Assets (including Seed Capital) Regulatory adjustment applied in calculation of Tier 1 capital (A) Net assets after applying any regulatory adjustments 111,430 77,306 9,365 138,121 224,563 676,737 187,317 41,000 191,267 470,484 707% 342% 538% 238% 310% 9,525,648 264,552 50,234 329,365 773,949 8,737,481 (71) (131) (23) 78,902 788,167 264,623 50,365 329,388 695,047 Tier 2 Capital Regulatory adjustment applied in calculation of Tier 2 capital (B) Total Tier 2 Capital - - - - - - - - - - - - - - - Total capital base 788,167 264,623 50,365 329,388 695,047 Prescribed capital amount comprises: (C) Insurance Risk Charge - - - 22,583 122,913 (D) Asset Risk Charge 111,430 77,306 9,365 (E) Asset Concentration Risk Charge (F) Operational Risk Charge (G) Aggregation benefit (H) Combined scenario adjustment (I) APRA approved transition amount under capital adequacy standards Prescribed capital amount = (C) + (D) + (E) + (F) - (G) + (H) + (I) - - - - - - - - - - - - - - - - - - - 6,974 - 5,392 115,538 100,068 - 111,430 77,306 9,365 138,121 224,563 78 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 205,511 2,333,101 8,873,563 - 560,785 1,388,321 205,511 1,772,317 7,485,243 416% 639% 203,011 11,146,758 17,661,448 (2,500) 8,813,657 8,787,885 205,511 2,333,101 8,873,563 - - - - - - - - - 205,511 2,333,101 8,873,563 - - - - - - - 145,496 - 205,075 134,517 - - - 1,253,804 5,392 215,605 - - - - - 560,785 1,388,321 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 2018 33 Summary of Significant Actuarial Methods and Assumption The effective date of the actuarial report on policy liabilities and solvency reserves calculation is 30 June 2018. The actuarial report was prepared by Ms. B. Cummings BEc (Hons) FIAA. The actuarial report indicates that Ms B Cummings is satisfied as to the accuracy of the data upon which policy liabilities have been determined. Valuation of Policy Liabilities Policy liabilities for life insurance business have been determined in accordance with Life Prudential Standard 340 issued by the Australian Prudential Regulation Authority. The standard requires that the policyholder liabilities be calculated on the basis of best estimate assumptions and in a way that allows for the systematic release of planned margins as services are provided to policyholders or premiums are received. The policy liabilities for Risk Fund No. 1, the PPS Mutual Benefit Fund, the Avant Benefit Fund, the Neos Benefit Fund, the Freedom Fund and the Reward Fund have been calculated using an accumulation method. Under this method the policy liability is equal to the policies’ Termination Value. The Termination Value has been calculated as the sum of the amount of unearned premium and the value of incurred claim liabilities not recognised elsewhere within the Balance Sheet. No explicit actuarial assumptions are required for the accumulation method except to estimate a provision for incurred but not reported claims and outstanding claim payments for Group Salary Continuance. The use of the accumulation method will result in profits emerging in proportion to premiums. The policy liabilities for the Blue Chip Endowment Bond Fund have been calculated using the accumulation method. The policy liabilities are equal to the contributions made by members, net of contribution fees, together with bonus additions to date and uncredited surplus. The current bonus declaration simply results in a movement from unvested policyholder benefit liabilities to vested policy liability subject to the amount vesting being no more than the distributable portion of unvested policyholder benefit liabilities. The policy liability for the Funeral Fund has been calculated using the projection method. The projection method uses expected cash flows (premium, investment income, redemptions or benefit payments and expenses) to establish the value of policy liability. The value of expected future premiums is deducted from the value of expected future benefit and expense payments to arrive at the net obligation to policy owners. Disclosure of Assumptions Required Assumption Basis of Assumption Assumption Adopted Discount rate – Funeral Fund Mortality – Funeral Fund Yield on Australian Government bonds at the expected duration of policy liability 3.28% ALT2010-2012 table adjusted for Funeral Fund experience 65% of ALT2010-2012 Management Fees – Risk Fund No. 1 (% of gross premium) Based on expenses apportioned to Risk Fund, subject to the Benefit Fund rule that the prudential reserving requirement of Benefit Fund can be met 3.5% Management Fees – other Benefit Funds (% of net assets) Based on same dollar management fee charged to Benefit Fund each year, subject to maximum fee permissible Funeral Fund: 3.0% 79 Notes to the Financial StatementsFor the year ended 30 June 2018NobleOak Life Limited33 Summary of Significant Actuarial Methods and Assumption (cont.) Sensitivities NobleOak conducts sensitivity analyses to quantify the exposure to risk of changes in the key underlying variables. Interest rates sensitivities are discussed in note 23e. The valuations included in the reported results and best estimate of future performance are calculated using certain assumptions about these variables. The movement in any key variable may impact the reported results. The table below illustrates how outcomes during the financial year ended 30 June 2018 in respected of the key variables would have impacted on the net profit and shareholders equity. Gross of Reinsurance $ Net of Reinsurance $ (957,018) 957,018 (957,018) 957,018 (47,915) 47,915 (47,915) 47,915 Gross of Reinsurance $ Net of Reinsurance $ (416,766) 416,766 (416,766) 416,766 (416,766) 416,766 (416,766) 416,766 Gross of Reinsurance $ Net of Reinsurance $ (35,380) 35,380 (35,380) 35,380 (35,380) 35,380 (35,380) 35,380 Change in net profit - Increase in claims reserves by 10% - Decrease in claims reserves by 10% Change in Equity - Increase in claims reserves by 10% - Decrease in claims reserves by 10% Change in net profit - Increase in maintenance expenses by 10% - Decrease in maintenance expenses by 10% Change in Equity - Increase in maintenance expenses by 10% - Decrease in maintenance expenses by 10% Change in net profit - Increase in lapse rate by 10% - Decrease in lapse rate by 10% Change in Equity - Increase in lapse rate by 10% - Decrease in lapse rate by 10% 80 Notes to the Financial StatementsFor the year ended 30 June 2018Annual Report 2018NobleOak Life Limited ABN 85 087 648 708 AFSL No 247302 Telephone: 1300 041 494 Email enquiries: sales@nobleoak.com.au Website: www.nobleoak.com.au Head office address: Level 7, 66 Clarence Street, Sydney NSW 2000 GPO Box 4793, Sydney NSW 2001

Continue reading text version or see original annual report in PDF format above