macquarie life limited · 2013-07-30 · macquarie life limited abn 56 003 963 773 annual report...

MACQUARIE LIFE LIMITEDABN 56 003963 773

MACQUARIE

Annual Report

3 i March 2009

MACQUARIE LIFE LIMITEDABN 56 003 963 773ANNUAL REPORT

GENERAL INFORMATION

Date ofIncorporation

3 April 1990

Place of Incorporation

New South Wales

Registered Offce

Mezzanine LevelNo. i Martin PlaceSYDNEY N.S.W. 2000

Directors

H. BrownR.D. Cartwright

J. DelaneyP. JowettM. Mulcare

B.N. Terry

Company Secretaries

D. LeongP.WalshN.G. Donnelly

Auditor

S. K. FergussonPricewaterhouseCoopers

Appointed Actuary

G. MartinDirectorKPMG Actuaries Pty Ltd

Issued Capital

$173,712,000 being 55,676,000 ordinary shares.

Shareholders

66% owned by Macquarie Bank Limited34% owned by Macquarie Funds Management Holdings Limited

MACQUARIE LIFE LIMITEDfor the year ended 31 March 2009ANNUAL REPORT

CONTENTS

Page

Directors Report 4 - 6

Auditors' Independence Declaration 7

Income Statement 8

Balance Sheet9

Statement of Recognised Income and Expenses 10

Cash Flow Statement 11

Notes to the Financial Statements 12-61

Directors Declaration 62

Independent Audit Report63 - 64


DIRECTORS' REPORT

In accordance with a resolution of the Directors, the Directors submit herewith the Financial Report at 31 March 2009 ofMacquarie Life Limited (lithe Company") for the year ended on that date and report as follows:

DirectorsDuring the year and up to the date of this report the Directors of the company were:

H. BrownR.D. CartwrightJ. DelaneyP. JowettM. MulcareB.N. Terr

Unless indicated, the above Directors each held offce as a Director of the company throughout the year ended

31 March 2009.

Principal ActivitiesThe principal activity of the company during the financial year was the provision of

life insurance and

investment management services to its policy holders, as well as investment products to its other clients.

Review of OperationsThe net loss for the year was $12,281,000 (2008: $55,364,000 loss) after including an income tax expense of$12,064,000

(2008: $9,374,000 credit). The loss for the year was attributed to losses on the Macquarie Property Index Plus ("MPIP")investment in the Shareholders' Fund. During the year the net loss in the Shareholders' Fund amounted to $15,971,000

(2008: $59,255,000 loss) as detailed in note 26(d) and 26(e) to the Financial Statements. During the year the Shareholders'Fund returned capital of $35,000,000 and received a subsequent capital injection of $1 0,000,000 from Macquarie FundsManagement Holdings Limited as detailed in note 21 to the Financial Statements.

The company redeemed $112,400,000 of Enhanced Propert Performance Note ("EPPN") to MPIP during the financial

year. The EPPN offers its investor a floating return based on the cash rate plus a fixed premium, as well as a variablereturn component based on the performance of a reference portfolio oflisted property securities. This is detailed innote 18(b) to the Financial Statements.

DividendsNo dividends (2008: $33,812,000) were declared and paid during the financial year.

Significant changes in the state of affairs

In the opinion of the Directors, there were no significant changes in the state of affairs ofthe Company that occurred during thefinancial year under review not otherwise disclosed in this report.

Events subsequent to balance dateAt the date of this report, the Directors are not aware of any matter or circumstance which has arisen that has

significantly affected or may significantly affect the operations of the company, the results of those operations

or the state of affairs of the company in the financial years subsequent to 31 March 2009 not otherwisedisclosed in this report.

Rounding of amountsIn accordance with the Australian Securities and Investments Commission Class Order 98/0100 (as amended),amounts in the directors' report have been rounded off

the nearest thousand dollars unless otherwise indicated.


DIRECTORS' REPORT (cont.)

Environmental regulationsThe company's operations are not subject to any significant environmental regulations either underCommonwealth or State legislation.

Likely developments, business strategies and prospectsDisclosure of information relating to the future developments in the operations, business strategies and prospectsfor future financial years of the economic entity have not been included in the report because the Directors believeit may result in unreasonable prejudice to the economic entity.

Directors' indemnificationUnder the Company's Constitution, the Company indemnifies all past and present Directors and Secretaries of

the

Company or of a wholly-owned subsidiary of the Company, including at this time the Directors named in this report

and the Secretary or Secretaries, against every liability incurred by them in, and all legal costs incurred in defending orresisting (or otherwise in connection with) proceedings in which they become involved because of, their respectivecapacities unless:

the liability is owed to the Company or to a related body corporate;the liabilty did not arise out of the conduct of good faith;

the liability is for a pecuniary penalty order or a compensation order under the Corporations Act 2001 ("the Act");in the case of legal costs, the costs are incurred in defending or resisting a liability excluded above, criminalproceedings in which the person is found guilty or proceedings brought by the Australian Securities andInvestments Commission or a liquidator where grounds for a court order are established (but excluding costsrelating to investigations before commencement of

proceedings for the court order), or the costs are incurred in

relation to proceedings for relief to the person under the Corporations Act 2001 in which the court denies relief;the Company is forbidden by statute to indemnify the person against the liabilty or legal costs; oran indemnity by the Company or the person against the liabilty or legal costs would, if given, be made voidby statute.

Each of the Directors and Secretaries have the benefit ofthe indemnity provisions under the Company's Constitution,agreed by deed poll that those indemnities would not apply to the extent to which an indemnity for any liability orlegal costs is forbidden by Australian statute or would, if given, be made void by Australian statute. The limitationson the indemnities have subsequently been adopted into the indemnity provisions of

the Company's Constitution

with the effect that these limitations now apply directly to the Directors and Secretaries.

Directors' benefit

No Director of the company has, since the end of the previous year, received or become entitled to receive a benefit

(other than a benefit included in the total amount of emoluments received or due and receivable by Directorsshown in the financial statements) by reason ofa contract made by the company or a related body in whichthe director has a substantial financial interest.


DIRECTORS' REPORT (cont.)

AuditorsPricewaterhouseCoopers, Chartered Accountants, continue in offce in accordance with section 327 of

the Companies

Act 200 i.

Auditors' independence declarationA copy of the auditors' independence declaration, as required under section 307C of

the Act, is set out on page 7 of this

report.

This report is made in accordance with a resolution of the Directors.

il Ct ~ i

R. D. CartwrightDirectorSydney, 12 May 2009

PRcEWTfRHOUsE(OOPERS I

PricewaterhouseCoopersABN 52 780 433 757

Darling Park Tower 2201 Sussex StreetGPO BOX 2650SYDNEY NSW 1171DX 77 SydneyAustraliaww.pwc.com/auTelephone +61 282660000Facsimile +61 282669999

Auditors' Independence Declaration

As lead auditor for the audit of Macquarie Life Limited for the year ended 31 March 2009, I declare

that to the best of my knowledge and belief, there have been:

a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in

relation to the audit; and

b) no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Macquarie Life Limited during the period.

'i1úh--S K Fergusson

PartnerPricewaterhouseCoopers

Sydney12 May 2009

Liability limited by a scheme approved under Professional Standards Legislation

MACQUARIE LIFE LIMITEDIncome statement for the year ended 31 March 2009

Note 2009 2008

$'000 $'000

Life insurance premium revenue 8 19,803 8,364

Outward reinsurance expense (5,107) (3,018)

Net life insurance premium revenue 14,696 5,346

Investment revenue 9(a) 111,696 152,840

Net fair value gains on financial assets at fair value 9(a) (260,970) (222,750)

through profit or lossOther revenue 9(b) 23,939 29,431

Net revenue (110,639) (35,133)

Life insurance claims expense 10 1,946 594

Reinsurance recoveries revenue (1,507) (479)

Net life insurance claims expense 439 115

Administration expenses 11 50,548 38,866

Finance costs 5,370 15,328

Change in life insurance contract liabilities 17(a) (18,078) (4,051)

Change in life investment contract liabilties 17(a) (154,174) (20,530)

Change in reinsurers' share of life insurance liabilties 17(a) 5,473 (123)

Net claims and expenses (110,422) 29,605

Profit/(Ioss) before income tax (217) (64,738)

Income tax (expense )/benefit 20(b) (12,064) 9,374

Profi/(Ioss) after income tax (12,281) (55,364)

NET PROFIT/(LOSS) ATTRIBUTABLE TO MEMBERS OFMACQUARIE LIFE LIMITED (12,281) (55,364)

The above income statement should be read in conjunction with the accompanying notes.

MACQUARIE LIFE LIMITEDBalance sheet as at 31 March 2009

Note 2009 2008

$'000 $'000

AssetsCash & cash equivalents 14 221,042 242,493

Receivables 15 23,536 20,407

Financial assets at fair value through profit or loss 16 1,390,785 1,930,735

Gross policy liabilities ceded under reinsurance 17(a) (3,031) 2,442

Deferred acquisition costs 19 865 1,120

Deferred tax assets 20(c) 26,520 12,722

TOT AL ASSETS 1,659,717 2,209,919

LiabiltiesTrade and other payab1es 18( a) 47,136 58,588

Interest bearing liabilities 18(b) 42,500 154,900

Deferred fee revenue 19 1,905 2,244

Deferred tax liabilities 20(c) 548 2,606

Life investment contract liabilities 17(a) 1,468,199 1,836,793

Life insurance contract liabilties 17(a) (21,010) (2,932)

TOT AL LIABILITIES1,539,278 2,052,199

NET ASSETS 120,439 157,720

EquityContributed equity 21 173,712 198,712

Capital reserve 22 11,000 11,000

Retained profits 5 (64,273) (51,992)

TOT AL EQUITY 120,439 157,720

The above balance sheet should be read in conjunction with the accompanying notes.

MACQUARIE LIFE LIMITEDStatement of recognised income and expensesfor the year ended 31 March 2009

Share Capital Reserves Retained

Capital Reserve Earnings Total

$'000 $'000 $'000 $'000

Balance at 1 April 2007 87,900 11,000 37,184 136,084

Profit for the year (55,364) (55,364)

Issue of share capital 110,812 110,812

Dividend paid (33,812) (33,812)

Balance at 31 March 2008 198,712 11,000 (51,992) 157,720

Profit for the year (12,281) (12,281)

Issue of share capital (25,000) (25,000)

Dividend paid

Balance at 31 March 2009 173,712 11,000 (64,273) 120,439

The above statement ofrecognised income and expenses should be read in conjunction with the accompanyingnotes.

MACQUARIE LIFE LIMITEDCash flow statement for the year ended 31 March 2009

Note 2009 2008

$'000 $'000

Cash flows from operating activitiesPremiums received - life insurance 19,190 8,239

Claim payments - life insurance (1,920) (594)

Life investment contract contribution receipts 608,876 1,088,727

Life investment contract withdrawal payments (803,422) (1,251,197)

Interest received 22,295 36,819

Dividends received 9,603 33,844

Distributions received 80,234 109,563

Other revenues received 11,661 2,934

Commissions and expenses paid (84,708) (61,726)

Bank charges paid (145) (35)

Borrowing expenses paid (5,369) (15,406)

Call payment (208)

Other expenses (1,167) (6,473)

Net cash outflow from operating activities 24(b) (144,872) (55,513)

Cash flows from investing activitiesPurchase of financial assets (3,948,330) (4,781,441)

Proceeds from sale of financial assets 4,209,151 4,906,241

Net cash inflows from investing activities 260,821 124,800

Cash flows from financing activitiesRedemption of Enhanced Propert Performance Note (112,400) (35,000)

Issue of share capital (25,000) 85,000

Dividends paid (33,812)

Net cash inflow from financing activities (137,400) 16,188

Net increase in cash and cash equivalents (21,451) 85,475

Cash and cash equivalents at the beginning of the financial year 242,493 157,018

Cash and cash equivalents at the end of the financial year 24(a) 221,042 242,493

The above cash flow statement should be read in conjunction with the accompanying notes.

MACQUARIE LIFE LIMITEDNotes to the financial statementsfor the year ended 31 March 2009

i. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of the financial report are set out below. These policieshave been consistently applied to all the years presented, unless otherwise stated.

i) Basis of preparation

Macquarie Life Limited is registered under the Life Insurance Act 1995.

This general purpose financial report has been prepared in accordance with Australian Accounting Standards (whichincludes Australian interpretations by virtue of AASB 1048), and the Corporations Act 200 i.

Compliance with IFRSs

Compliance with Australian Accounting Standards ensures that the financial statements and notes of MacquarieLife Limited comply with International Financial Reporting Standards (IFRS).

Historical cost convention

These financial statements have been prepared under the historical cost convention, as modified by the financial assetsand liabilties (including derivative instruments) at fair value through profit or loss.

Critical accounting estimates

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires managementto exercise its judgement in the process of applying the Company's accounting policies. The areas involving a higher degree ofjudgement or complexity, or areas where assumptions and estimates are significant to the financial statements, aredisclosed in note 2.

Standards, interpretations and amendments to published standards that are not yet effective

Certain new accounting standards and interpretations have been published that are not mandatory for 3 i March 2009 reportingperiods. The Company's assessment of the impact of these new standards and interpretations is set out below.

AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Accounting Standards arisingfrom AASB 8AASB 8 and AASB 2007-3 are effective for annual reporting periods commencing on or after i January 2009. AASB 8wil result in a significant change in the approach to segment reporting, as it requires adoption of a 'management approach'to reporting on financial performance. The information being reported wil be based on what the key decision makersuse internally for evaluating segment performance and deciding how to allocate resources to operating segments.The Company has not adopted this standard early. Application of AASB 8 may result in different segments, segmentresults and different types of information being reported in the segment note of

the financial report. However, at this

stage, it is not expected to affect any of the amounts recognised in the financial statements.

Revised AASB 123 Borrowing Costs and AASB 2007-6 Amendments to Australian Accounting Standards arising

fromAASB 123 (AASB I,AASB 10I,AASB 107,AASB III,AASB 116 & AASB 138 and Interpretations 1&12)

The revised AASB 123 is applicable to annual reporting periods commencing on or after i January 2009. It has removedthe option to expense all borrowing costs and when adopted, wil require the capitalisation of all borrowing costs directlyattributable to the acquisition, construction or production of a qualifying asset. The Company has not adopted these standards early.There wil be no impact on the financial report of the Company, as the Company already capitalises borrowing costs relating to

qualifying assets.

MACQUARlE LIFE LIMITEDNotes to the financial statementsfor the year ended 31 March 2009

1. SUMMARY OF SIGNIFICANT ACCOllNTlNG POLICIES (continued)

Standards, interpretations and amendments to published standards that are not yet effective (continued)

Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian Accounting Standardsarisingfrom AASB 101A revised AASB 101 was issued in September 2007 and is applicable for anual reporting periods beginning on or afteri Januar 2009. It requires the presentation of a statement of comprehensive income and makes changes to thestatement of changes in equity, but wil not affect any of the amounts recognised in the financial statements. If an entity

has made a prior period adjustment or has reclassified items in the financial statements, it wil need to disclose a thirdbalance sheet (statement of financial position), this one being as at the beginning of the comparative period. The Company

intends to apply the revised standard from i April 2009.

ii) Principles for life insurance business

The life insurance operations of the Company are conducted within separate funds as required by the Life Insurance Act 1995

(the Life Act) and are reported in aggregate with the shareholders' fund in the income statement, balance sheet and cash flowstatement of the Company. The life insurance operations of the Company comprise the selIng and administration oflife insurance

and life investment contracts.

Life insurance contractsLife insurance contracts involve the acceptance of significant insurance risk. Insurance risk is defined as significant, if and only if,an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lackcommercial substance (i.e. have no discernible effect on the economics of

the transaction). Insurance contracts include those where

the insured benefit is payable on the occurrence of a specified event such as death, injury or disability caused by accident or ilness.The insured benefit is not linked to the market value of the investments held by the Company, and the financial risks are substantiallyborne by the Company. For the purpose of the Company's accounts life insurance contracts are classified under non investment

linked business. Any products sold that do not meet the definition of a life insurance contract are classified as life investmentcontracts.

Life investment contractsLife investment contracts comprise of investment-linked contracts where the benefit amounts are directly linked to the market value

of the investments held in the paricular investment-linked fund. While the underlying assets are registered in the name of the

Company and the investment-linked policy owner has no direct access to the specific assets, the contractual arangements aresuch that the investment-linked policy owner bears the risks and rewards of

the fund's investment performance. The Company

derives fee income from the administration of investment-linked policies and funds. For the purpose ofthc Company's accounts

life investment contracts are classified under investment-linked business.

iii) Revenue recognition

Premium revenue is eared on life insurance contracts. Premiums with a regular due date are recognised as revenueon a due basis. Premiums with no due date are recognised as revenue on a cash received basis. Unpaid premiums are onlyrecognised as revenue during the days of grace or where secured by the surrender value of the policy and are included as"Outstanding Premiums" in the notes to the accounts.

Fees for investment management services are recognised as revenue as the services are provided. Entr fees are charged to theclient on inception. The consideration received is deferred as a liability and recognised over the life of the contract on a straightline basis.

Regular fees are charged to the customer periodically (monthly, quarerly or anually) either directly or by making a deductionfrom invested funds. Regular charges billed in advance are recognised on a straight-line-basis over the biling period, which isequivalent to the period over which the service is rendered. Fees charged at the end of

the period are accrued as a receivable.

iv) Claims expense

Claims are separated into their expense and change in policy liability components. AASB 1038 requires separate disclosurefor life investment contracts (investment linked) and life insurance contracts (non investment linked).

Life insurance contractsClaims incurred relating to life insurance contracts (providing services and bearing risks including protection business)are treated as expenses. Claims are recognised when the liability to the policyholder under the policy contracthas been established, or upon notification of the insured event depending on the tye of claim.


1. SllMMARY OJ;' SIGNIFICANT ACCOUNTING POLICIES (continued)

iv) Claims expense (continued)

Lif investment contracts

There is no claims expense in respect of life investment contracts. Surrenders and withdrawals which relate to life

investment contracts are treated as a movement in life investment contract liabilities. Surrenders are recognisedwhen the policyholder formally notifies of their intention to end the policy previously contracted to.

Unrecouped acquisition costs attaching to life investments contracts surrendered are recognised as a reduction in thecarrying value of deferred acquisition costs.

v) Deferred acquisition costs

The pattern of future profits of the investment linked product is affected by factors such as the level of acquisition costs thatcan be deferred and amortisation pattern applied to deferred acquisition costs.

Life insurance contractsThe costs incurred in acquiring specific life insurance contracts include advisor fees, commission payments, underwritingcosts, application processing costs, relevant advertising costs, and promotion of

products and related activities.

The proportion of life insurance contract acquisition costs not recovered by specific charges received from the contractholder at inception is deferred provided that these amounts are recoverable out of future product margins. The deferredincome and costs are recognised on the balance sheets as a reduction in life insurance liabilities and are amortisedthrough the income statement over the expected duration of

the relevant policies.

Life investment contractsThe Company defers commissions incurred in sellng new life investment contracts. These deferred commissions arerecognised in the balance sheet as deferred assets and are amortised as the Company recognises the revenue to whichcosts relate. All other acquisition costs are expensed as incurred.

vi) Asset backing policy liabilties

The Company has determined that all assets held within its statutory funds are assets backing policy liabilties. Allassets of the Company are managed under the Company's Risk Management Statement on a fair value basisand corresponding performance is reported to the Board. On this basis, all assets of

the Company have been valued at

fair value through profit or loss where applicable.

Financial assetsFinancial assets are classified at fair value through profit or loss. Initial recognition is at cost and subsequent measurement isat fair value. Unrealised profits and losses on subsequent measurement to fair value are recognised in the income statement.Fair value is determined as follows:

_ Cash assets and bank overdrafts are carried at face value of the amounts deposited or drawn. The caring amounts

of the cash assets and bank overdrafts approximate to their fair value. For the purposes of the cash flow statements,

cash includes cash on hand, deposits held at call with banks and investments in money market instruments, net ofbank overdrafts.

_ Shares, fixed interest securities, options and units listed on stock exchanges: fair value is taken as the bid price of the

instrument._ Unlisted fixed interest securities are recorded at amounts based on valuations using rates of interest equivalent to

the yields obtainable on comparable investments at balance date._ Unlisted unit trusts are recorded at fund manager's valuation._ Receivables are caried at amortised cost, which is the best estimate of fair value as they are settled within a short period._ Derivatives contracts are currently used to economically hedge exposures to interest rates and foreign currency. UnderAASB 139, all derivative contracts, whether used for hedging purposes or not, are caried in the balance sheet, at fairvalue. Derivative contracts that do not qualifY for hedge accounting are required to have any subsequent changesin fair value recognised in the income statement.

f;


i. SUMMARY OF SIGNIFICANT ACCOliNTlNG POLICIES (continued)

vii) Financial liabilities

Payables are carried at amortised cost, which is the best estimate offair value as they are settled within a short period.

vii) Derivative instruments

Derivative instrments entered into by the Company include futures, swaps and options in the interestrate and equity markets. These derivative instrments are principally used for the risk management of existing financialassets and liabilities in relation to the Statutory Funds and as part of the operations of the Shareholders' Fund.

All derivatives, including those used for balance sheet hedging purposes, are recognised on the balance sheet and aredisclosed as an asset where they have a positive fair value at balance date or as a liability where the fair value at balance dateis negative.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and subsequently remeasuredto their fair value. Fair values are obtained from quoted market prices in active markets, including recent markettransactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate.Movements in the carring amounts of derivatives are recognised in the income statement, unless the derivative meets therequirements for hedge accounting.

The best evidence of a derivative's fair value at initial recognition is the transaction price, unless its fair value is evidencedby comparison with other observable current market transactions in the same instrment or based on a valuation techniquewhose variables include only data from observable markets. Where such evidence exists, the Company recognises profits immediatelywhen the derivative is recognised.

ix) Basis of expense apportionments

Bank charges, investment management charges and agents' fees incurred by Macquarie Investment Management Limited (MIML)required no apportionment as they were a direct charge to the appropriate fund. These charges are apportioned between acquisitionand maintenance cost by life and investment contracts. Acquisition costs are the fixed and variable costs of acquiring new business,including commissions and similar distribution costs and costs of accepting, issuing and initially recording policies. Investmentmanagement costs include the costs involved with buying and selling investments and the ongoing management costs of an investmentportolio.

All other expenses are incurred by Macquarie Bank Limited on behalf of Macquarie Life Limited. These expenses are allocated toMacquarie Life Limited on the basis of staff time allocations and are recharged at cost plus a margin of 10% in the form of amanagement fee.

x) Income tax

The Company is part of a consolidated group, of which Macquarie Group Limited is the head entity.

As a consequence the Company is not subject to income tax and does not recognise any tax assets or liabilities in itsown financial statements unless the head entity is in default of its obligations, or a default is probable, under the tax consolidationlegislation. Under the terms and conditions of a tax contribution agreement, the Company wil be charged or reimbursed fortax assets or liabilities incurred by Macquarie Group Limited in connection with the Company's activities. The effect of

the tax

contribution agreement is that the subsidiary records an amount as income tax expense equal to the amount that would have beencalculated had the subsidiary continued to be subject to income tax.

A balance sheet method is used to determine deferred tax assets and deferred tax liabilities, which requires a comparison betweenthe carring amount and the tax base for each asset and liability.

The income tax expense or revenue for the period is the tax payable on the current period's taxable income based on the notionalincome tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between thetax bases of assets and liabilities and their carring amount in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets arerecovered or liabilities are settled, based on the prevailing tax rates. The relevant tax rates are applied to the cumulative amountsof deductible and assessable temporary differences to measure the deferred tax asset or liability. Deferred tax assets are recognised fordeductible temporary differences and unused tax losses only if its probable that the future taable amounts will be available to utilisethose temporary differences and losses. Current and deferred tax balance attibutable to amounts recognised directly in equity are alsorecognised directly in equity.

MACQUARIE LIFE LIMITEDNotcs to the financial statemcntsfor the year ended 31 March 2009

i. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

xi) Tradc receivables and accounts payable

Accounts receivable generally settled within 30 days are carried at amounts due. Accounts payable, including accruals not yet biled,are recognised when the Company becomes obliged to make future payments as a result of a purchase of assets or services.Accounts payable are generally settled within 30 days.

xii) Cash and cash equivalents

For the purpose of the cash flow statement, cash includes cash on hand, deposits held at call with bans and investments inmoney market instruments, net of ban overdrafts which are readily convertible to cash on hand at the investor's option, and havean insignificant risk to changes in value.

xii) Comparative figurcs

Where necessary, comparative figures have been restated to conform with changes in presentation in the current year.

xiv) Rounding of amounts

The Company is ofa kind referred to in Class Order 98/0100 (as amended), issued by the Australian Securities andInvestments Commission, relating to the "rounding off' of amounts in the financial report. Amounts in the financial report havebeen rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.


2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities at year end. Estimates andjudgements are continually evaluated and are based on historical experience and other factors, including expectations of future eventsthat are believed to be reasonable under the circumstances. The areas where critical accounting estimates are applied are noted below.

It has been determined that no critical accounting judgements have been made in the year.

(a) Life insurance contract liabilties

Life insurance contract liabilities are computed using statistical or mathematical methods, which are expected to give approximately thesame results as if an individual liability was calculated for each contract. The computations are made by suitably qualified personnelon the basis of recognised actuarial methods, with due regard to relevant actuarial principles. The methodology takes into account therisks and uncertainties of the paricular class oflife insurance business written. Deferred policy acquisition costs is connected with the

measurement basis of life insurance 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:

(i) the cost of providing benefits and administering these insurance contracts;

(ii) mortality and morbidity experience on life insurance products, including enhancements to policyholder benefits;

(iii) discontinuance experience, which affects the Company's ability to recover the cost of acquiring new business over the livesof the contract

(iv) the amounts credited to policyholders' accounts compared to the retums on invested assets through asset-liabilitymanagement and strategic and tactical asset allocation

In addition factors such as regulation, competition, interest rates, securities market conditions and general economic conditions affect thelevel ofthese liabilities. Details of specific actuarial policies and methods are set out in note 3.

Balances of insurance contract liabilities are set out in note 17.

(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 isassessed on a periodic basis to ensure that the balance is reflective of the amounts that are expected to be received, taking into considerationfactors such as counterpar and credit risk. Impairment is recognised where there is objective evidence that the Company may notreceive amounts due to it and these amounts can be reliably measured.

Balances of reinsurance contracts are set out in note 17.

(c) Investments contracts - deferred acquisition cost and deferred revenue

The assessment of recoverability and amortisation of deferred acquisition costs is an inherently uncertain process. There is no reliablemeasure of the future economic benefits that wil arise from the acquisition costs incurred. This is largely due to uncertainty surroundingcontinuance or surrender of paricular policies. The acquisition costs are capitalised and separately disclosed as an intangible asset inthe balance sheet and amortised over the period to which the benefits are received.

The amortisation of deferred revenue is an inherently uncertain process, involving assumptions about factors related to the period apolicy wil be in force. This is largely due to uncertainty surrounding continuance or surrender of paricular policies. The deferred revenueis capitalised and separately disclosed as an other liability in the balance sheet and amortised over the period to which the policy isexpected to provide income.

Balances of deferred acquisition costs are set out in note 19.

MACQtJARIE LIFE LIMITEDNotes to the financial statementsfor the year ended 31 March 2009

3. SUMMARY OF SIGNIFICANT ACTUARIL METHODS AND ASSUMPTIONS

The effective date of the actuarial report on life insurance liabilities, life investment contract liabilities and solvency reserves is 3\ March 2009.The actuarial report was prepared by Greg Martin BA, FIA, ASIA on 12th May 2009. The actuarial report indicates that Greg Martin is satisfiedas to the accuracy of the data upon which policy liabilities have been determined.

The policy liabilities have been determined in accordance with the applicable accounting standards. Policy liabilities for life insurance contractsare valued in accordance with AASB 1038, whereas life investment contracts are valued in accordance with AASB 139.

PART 1 - POLICY ASSUMPTIONS

Life insurance contract liabilities have been calculated in accordance with relevant actuarial guidance. Life insurance contract liabilities havebeen calculated in a way which allows for the systematic release of planned margins as services are provided to policyholders and premiums

are received.

Policy liabilities have been calculated in accordance with Life Prudential Standard LPS i .04 "Valuation of Policy Liabilities" issued by the APRA.The Life Prudential Standard requires that life insurance contract policy liabilities to be calculated in a way which allows for the systematicrelease of planned margins as services are provided to policy owners and premiums are received.

For life investment contracts, the Life Prudential Standard requires the policy liabilities to be calculated in accordance with Australian AccountingStandards outlined in note 1.

Disclosure of Assumptions for Life Insurance Contracts

The methods and profit carriers for particular policy types are as follows:

Actuarial Methods

BUSINSS TYPE METHOD PROFIT CARIER(S)

Term Life and Disability Insurance Accumulation Premiums

PART 2 - SOLVENCY REOUIREMENTS

These are amounts required to meet the prudential standards specified by the APRA to provide protection against the impact of fluctuationsand unexpected adverse circumstances on the Company.

The methodology and bases for determining Solvency Requirements are in accordance with the requirements of APRA Prudential Standards.

PART 3 - DISCLOSURE OF ASSUMPTIONS

(i) Discount Rates

Discount rates assumed were 4.4% p.a. (2008: 6.2% p.a.).

(ii) Inflation Rates

Allowance for future inflation of2.6% pa (2008: 3.2%) is assumed.

(iii) Future Expenses and IndexationFuture maintenance expenses have been assumed based on the 2009/1 0 budget.

Future investment expenses have been assumed to be at the same percentage of assets under management as currently applies.

Benefits and/or premiums under most of the regular premium policies are automatically indexed. Assumed future take-up of these indexation

options has been based on the Company's previous experience and industry experience.

(iv) Rates of Taxation

The life insurance contract liabilities have been determined on a gross of tax basis.


3. SUMMARY OF SIGNIFICANT ACTUARIAL METHODS AND ASSUMPTIONS (Continued)

DISCLOSURE OF ASSUMPTIONS (continued)

(v) DecrementsMortalityMortality rates var by product from 64% to 80% of IA95/97 insured lives mortality table, published by the Institute ofActuaries of Australia, disaggregated by smoker status and adjusted to allow for the effects of initial selection and industry experience

(2008: 73% to 80%).

MorbidityThe morbidity rates for lump sum TPD benefits are based on a combination of reinsurance company experience and industry experience

(No change from 2008).

DisabilityDisability rates, which var by sex, age, smoking status and occupation have been based on industry experience. The claim terminationrates as shown below.

Termination between 25% - 125% lAD 89-93 (No change from 2008).

Rates of discontinuanceFuture rates of discontinuance for the major classes of business are assumed in aggregate to be in the order of:

Term life insurance: 5%-20% (No change from 2008).

Assumed rates may var by sub-grouping within a class and var according to the length of time tranches of business have been

in force.

(vi) Surrender values

Surrender values are based on the provisions specified in policy contracts and include a recovery of policy establishment and

maintenance costs.

(vii) Effects of changes in actuarial assumptions from 31 March 2008 to 31 March 2009

The policy liabilities are calculated on an accumulation basis. No changes to the accumulation basis assumptions weremade during the year. The policy liability is subject to a recoverability test. The changes in the assumptions adopted forrecoverability test did not have a material impact (less than $0.1 milion) on policies inforce at 31 March 2009.


3. SUMMARY OF SIGNIFICANT ACTUARIAL METHODS AND ASSUMPTIONS (Continued)

PART 4 - PROCESSES USED TO SELECT ASSUMPTIONS

Risk discount rateThe discount rates adopted are risk free rates based on current observable, objective rates that relate to the nature, structureand term of the future obligations.

Expense level and InfationThe budgeted level of expenses is taken as an appropriate expense base. Expense inflation is based on current inflation rates andthe outlook for inflation over the term of the liabilities.

'"

TaxIt has been assumed that current tax legislation and rates continue unaltered.

Mortality and MorbidityAssumed claim rates were based on various published tables, primarily those most recently published by the Institute ofActuaries of Australia, adjusted in light of most recent industry experience and the Appointed Actuary's best estimate ofclaims experience ofthe Company.

DiscontinuanceAssumed discontinuance rates are based on recent actual discontinuance experience and the appointed actuaries bestestimate of future discontinuance rates. Assumed rates var by subgroupings within a category and var according to thelength oftime tranches of business have been in force.

Interest ratesThe gross interest rates used are the gross yield to redemption of benchmark govemment securities.

PART 5 - SENSITIVITY ANALYSIS

The Company conducts sensitivity analysis to quantiJy the exposure to risk of changes in the key underlying variablessuch as interest rate, equity prices, mortality, morbidity and inflation. The valuations included in the reported results andthe Company's best estimate of future performance are calculated using certain assumptions about these variables. Themovement in any key variable will impact the performance and net assets of the Company and as such represents a risk.

Variable Impact of movement in underlvinii variable

Expense Risk An increase in the level or inflationar growth of expenses over assumed levels wil decrease profitand shareholders' equity.

MarketInterest Rate

An increase in market interest will cause the value ofthe entity's financial assets and interest ratesensitive liabilities to fall.The impact on profit and shareholder equity depends on the relative profiles of assets and liabilities,to the extent that these are not matched.

Mortality Rates Greater mortality rates would lead to higher levels of claims occurring, increasing claims cost andtherefore reducing profit and shareholders' equity.

Morbidity Rates The cost of health-related claims depends on both the incidence of policyholders becoming ill

and the duration which they remain ilL. Higher than expected incidence and duration would be likelyto increase claim costs, reducing profit and shareholders' equity.

:..

Discontinuance The impact of the discontinuance rate assumption depends on a range of factors including the typeof contract, the surrender value basis (where applicable) and the duration in force. For example,an increase in discontinuance rates at earlier durations of life insurance contracts usually has a negativeeffect on performance and net assets. However, due to the interplay between the factors, there is notalways an adverse outcome from increase in discontinuance rates.

i ~


3. SUMMARY OF SIGNIFICANT ACTlJARIAL METHODS AND ASSUMPTIONS (Continued)

PART 5 - SENSITIVITY ANALYSIS (continued)

The table below illustrates how changes in key assumptions would impact the reported profit and equity of the Company.

Increase inMaintenance Expenses

Gross (of reinsurance) Net (ofreinsurance)

Change in Profit/(Loss) Life Insurance Profit/(Loss) Life Insurance

Variable 2009 Liabilities 2009 Liabilities

% $'000 $'000 $'000 $'000

0.5% (1,04 I) 1,488 (656) 936

10% (3.226 ) 4,608 (432) 617

10% (2,826) 4,038 (1,795) 2,564

10% (1,862) 2,660 (1,862' 2,660

Results of change invariables:

Market Interest Rate

(l n crease)

Worsening of mortality

Worsening of

discontinuance rate


4. RISK MANAGEMENT POLICY AND PROCEDURES

The financial condition and operating results ofthe Company are affected by a number of key financial and non-financial risks.

Financial risks include market risk (including foreign exchange risk, interest rate risk and price risk), credit risk, liquidity and cashflow risk. The non-financial risks are insurance risk, compliance risk and operational risk. The Company's objective and policiesin respect of managing these risks are set out in the remainder of this section.

(a) Risk management objectives and policies for mitigating insurance risk

The Company's objective is to satisfactorily manage these risks in line with the Company's Risk Management Policieswhich are approved by the Board. Various procedures are put in place to control and mitigate the risks faced by the Companydepending on the nature of the risk. The Company's exposure to key risks is monitored by management in conjunction with therisk management compliance and operations teams and this exposure is regularly reported to the Board.

Financial risks are generally monitored and controlled by selecting appropriate assets to back policy liabilities. The assets are regularlymonitored by management to ensure that there is no material asset and liability mismatching issues and other riskssuch as liquidity risk and credit risk are maintained within acceptable limits. For those life investment contracts where the benefitspaid are directly impacted by the value of the underlying assets, the Company is exposed to the risk of future decreased assetmanagement fees as a result of a decline in assets under management.

Insurance risks are controlled through the use of product design, underwiting procedures, adequate premium rates and suffcientreinsurance arangements. Tight controls are also maintained over claims management practices to ensure the correct and timelypayment of insurance claims and monitoring of claims experience to ensure consistency with assumptions.

(b) Strategy for managing insurance risk

Portfolio of risksThe Company issues term life insurance contracts and disability insurance contracts. The performance of

the Company

and its continuing ability to write business depends on its ability to pre-empt and control risks. The Company has arisk strategy which has been approved by the Board. It summarises the Company's approach to risk and risk management.

Risk strategyIn compliance with the contractual and regulatory requirements, a strategy is in place to ensure that the risks underwitten satisfypolicyholder's risk and reward objectives whilst not adversely affecting the Company's ability to pay benefits and claims whendue. The strategy involves the identification of risks by tye, impact and likelihood, the implementation of processes and controls tomitigate the risks, and continuous monitoring and improvement of the procedures in place to minimise the chance of an adversecompliance or operational risk event occurring. Included in this strategy is the process for underwiting and product pricing to ensureproducts are appropriately priced. Capital management is also a key aspect of

the Company's risk management strategy. Capital

requirements are measured using a risk based capital model and all ofthe various regulatory reporting requirements to which theCompany is subject.

Allocation of capitalCapital is allocated by the Company to the portfolios of contracts or is held in a central reserve based on management'sassessment of the risk to which each line of business is exposed and its view of the profitability of the products that are sold.

Solvency margin requirements established by the Australian Prudential Regulation Authority (APRA) are in place to reinforcesafeguards for policyholders interest, which are primarily the ability to meet future claims payments to policyholders. The solvencymargins measure the excess ofthe value of the insurers' assets over the value of its liabilities, each element being determined in

accordance with the applicable valuation rules. This margin must be maintained throughout the year, not just at year end. These

solvency requirements also take into account specific risks faced by the Company. Where the outcome of specific adversescenarios differ from expectations, this has also been identified.

MACQUARIE LIFE LIMITEDNotes to the Iinancial statementsfor the year elided 31 March 2009

4. RISK MANAGEMENT POLlCY AND PROCEDURES (Continued)

(c) Methods to monitor and assess insurance risk exposures

Exposure to RiskIn an effort to protect and enhance shareholder value, the Company actively manages its exposure to risks so that it can reactin a timely manner to changes in financial markets, insurance cycles, and economic and political environments. Risk exposures aremanaged using various analysis and valuation techniques, such as duration analysis, to calculate the economic capital requiredto support adverse risk scenarios, along with other cash flow analysis, and prudent and diversified underwriting and investing.

Financial MonitoringThe Company reports quarerly financial and operational results, mortality and morbidity experience, claims frequency andseverity, and exposure for each portfolio of contracts (gross and net of reinsurance) to the Directors. This information is combined with

the detail of the Company's performance and its gross net exposure. The process by which it is gathered and the controls over theprocess are reviewed by the risk management and compliance teams on a quarterly basis and are subject to annual review by theCompany's Appointed Actuar.

(d) Methods to limit or transfer insurance risk exposures

ReinsuranceAll reinsurance treaties are analysed using a number of analytical modelling tools to assess the impact on the Company'sexposure to risk.

Underwriting proceduresUnderwriting decisions are put into effect using the underwriting procedures detailed in the Company's underwriting manuaL.Such procedures include limits to delegated authorities and signing powers. The underwriting process is regularly monitoredby the reinsurer to ensure adequate controls are in place over the underwriting process and that the controls are effective.

Claims managementClaims management procedures ensure the timely and correct payment of claims in accordance with policy conditions. This isparticularly necessary for the disability business where claims are paid as income. Disability income claims are monitored on a monthlybasis to track the experience of the portfolio.

Asset and liability management techniques

Duration analysis is primarily used to manage asset liability management risk.

Management of market risks is generally less critical for short-term insurance products, as the amounts and timing of claims do notvary significantly with interest rates or other market changes that affect the underlying investments. The premiums received and theinvestment retums (net investment income and realised gains and losses) provide substantial liquidity to meet claims payments andassociated expense as they arise. Consequently, there is greater flexibility in investment strategies while managing investments toensure suffcient liquidity to meet the claims as they become due, based on actuarial assessments.

MACQUARIE LIFE LIMITEDN otcs to the financial statcmentsfor the ycar ended 31 March 2009

4. RISK MANAGEMENT POLICY AND PROCEDlJRES (Continued)

( e) Concentration of insurance risk

Insurance risks associated with human life eventsThe Company aims to maintain a wide age profie spread and mix of the sexes within its portfolio of policyholders.

The Company has various reinsurance arrangements in place which are designed to protect the statutory funds from verylarge claims, to provide protection against volatilty of profit from claims fluctuations and deteriorating experience.

(1) Terms and conditions of insurance contracts

The nature of the terms of the life insurance contracts written is such that certain external variables can be identified on which

related cash flows for claim payments depend. The table below provide an overview of the key variables on which relatedcash flows are dependent.

Nature of compensation for Key variables that affect the timing and

Type of Contract Detail of contract workin2:s claims uncertainty of future cash flows

Term Life and Disability Benefits paid on death or il Benefits, defined by the Mortality

health that are fixed and not insurance contract, are Morbidity

at the discretion of the issuer determined by the contract and Market earning rates

are not directly affected by the Interest rates

performance of the underlying Discontinuance rates

assets or performance of the Expenses

contracts as a whole

MA

CQ

UA

RIE

LIF

E L

IMIT

ED

Not

es to

the

fina

ncia

l sta

tem

ents

for

thc

year

end

ed 3

1 M

arch

200

9

5. SUMMARY OF SHAREHOLDERS' INTERESTS

The total interest of

the

Shar

ehol

ders

in th

e op

erat

ing

prof

it af

ter

inco

me

tax

and

net a

sset

s of

Mac

quar

ie L

ife

Lim

ited

is a

s fo

llow

s:

Con

trib

uted

equ

ityT

rans

fer

of c

apita

l bet

wee

n Fu

nds

Capital reserve

TO

TA

L S

HA

RE

HO

LD

ER

S' I

NT

ER

EST

S

2009

2009

2009

2008

2008

2008

Stat

utor

ySh

areh

olde

rs'

Com

pany

Stat

utor

ySh

areh

olde

rs'

Com

pany

Fund

sFu

ndFu

nds

Fund

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

3,69

0(1

5,97

1)(1

2,28

1)3,

891

(59,

255)

(55,

364)

6,39

1(5

8,38

3)(5

1,99

2)2,

684

34,5

0037

,184

(4,0

00)

4,00

0-

(184

)18

4

(33,

812)

(33,

812)

6,08

1(7

0,35

4)(6

4,27

3)6,

391

(58,

383)

(51,

992)

10,3

8316

3,32

917

3,71

218

,967

179,

745

198,

712

24,0

00(2

4,00

0)-

(8,5

84)

8,58

4

11,0

0011

,000

11,0

00-

11,0

00

51,4

6468

,975

120,

439

27,7

7412

9,94

615

7,72

0

CO

MP

ON

EN

TS

OF

SH

AR

EH

OLD

ER

S'IN

TE

RE

ST

S IN

STA

TU

TO

RY

FU

ND

S (1

)-

Shar

ehol

ders

' ret

aine

d pr

ofits

(no

n-pa

rici

patin

g)6,

081

6,39

1

- Sh

areh

olde

rs' c

apita

l res

erve

s45

,383

21,3

83

27,7

7451

,464

EX

PLA

NA

TO

RY

NO

TE

:

(I)

Shar

ehol

ders

' acc

ess

to th

e re

tain

ed p

rofi

ts a

nd s

hare

hold

ers'

cap

ital w

ithin

sta

tuto

ry f

unds

is r

estr

icte

d by

the

exte

nt th

ese

mon

ies

are

requ

ired

to m

eet s

olve

ncy

and

capi

tal a

dequ

acy

stan

dard

s un

der

the

Lif

e In

sura

nce

Act

199

5.


6. RECONCILIATION TO THE LU'E INSIJR-\NCE ACT 1995 OPER-\TING PROFIT AND RETAINED PROHrS OF THESTATUTORY ACCOUNTS

The following principles have been applied to the allocation and distribution of profits.

Par I - ALLOCATION OF OPERATING PROFITThe Company writes only Australian non-paricipating business. Therefore i 00% of profits are allocated to shareholders.

Par 2 - DISTRIBUTION OF RETAINED PROFITSDistribution of retained profits to the shareholders is made in accordance with the requirements in section 62 of the Life Insurance Act 1995.For the year ended 3 i March 2009, distributions of profit have been determined by the Directors on the recommendation of

the actuar.

Part 3 - DETAILS OF OPERATING AND RETAINED PROFITSThere is no difference between the operating profit and retained profit of

the statutory funds as reported in these financial statements and

as calculated in accordance with the Life Insurance Act, 1995. There are no policy owners' interests in the statutory funds, and theshareholders' interests are detailed in note 5.

MA

CQ

UA

RIE

LIF

E L

IMIT

ED

Not

es to

the

fina

ncia

l sta

tem

ents

for

thc

ycar

end

ed 3

1 M

arch

200

9

7. SOLVENCY REQUIREMENTS OF THE STATUTORY FUNDS

Dis

trib

utio

n of

the

reta

ined

pro

fits

sho

wn

in N

ote

5 is

lim

ited

by th

e pr

uden

tial c

apita

l req

uire

men

ts o

f th

e L

ife

Insu

ranc

e A

ct 1

995,

the

deta

iled

prov

isio

ns o

f w

hich

are

spe

cifi

ed b

y A

ctua

rial

Sta

ndar

ds.

The Solvency Standard prescribes a minimum capital requirement - the Solvency Requirement - for each statutory fund of

the Company. The Solvency Requirements, and ratios in respect of

thos

e

requ

irem

ents

are

as

follo

ws:

ASS

ET

S A

V A

ILA

BL

E F

OR

SO

LV

EN

CY

"C

"

2009

2009

2009

2009

2008

2008

2008

2008

NO

.1N

o.3

No.

4T

otal

No.

1N

o.3

No.

4T

otal

Stat

utor

ySt

atut

ory

Stat

utor

ySt

atut

ory

Stat

utor

ySt

atut

ory

Stat

utor

ySt

atut

ory

Fund

Fund

Fund

Fund

sFu

ndFu

ndFu

ndFu

nds

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

709,

20 I

803,

132

1,66

21,

513,

995

1,05

4,95

484

2,42

59,

822

1,90

7,20

1

703,

636

764,

564

(600

)1,

467,

600

1,03

8,93

879

7,85

63,

476

1,84

0,27

0

2,99

236

,642

2,13

441

,768

12,3

0242

,562

6,29

061

,154

2,57

31,

926

128

4,62

73,

714

2,00

756

5,77

7

7,1l

45,

867

19,0

0831

,989

7,74

34,

511

10,1

4322

,397

SOLVENCY REQUIREMENT (I) "A"

RE

PR

ES

EN

TE

D B

Y:

Min

imum

Ter

min

atio

n V

alue

(2)

Oth

er li

abili

ties

Solv

ency

"reserve" "B"

CO

MPR

ISE

D O

F:-

Exc

ess

of p

olic

y lia

bilit

y ov

erM

inim

um T

erm

inat

ion

Val

ue-

Ret

aine

d pr

ofits

req

uire

d fo

r so

lven

cy-

Exc

ess

asse

ts

Solv

ency

"re

serv

e" %

(B

/ (A

-B))

X 1

00C

over

age

of s

olve

ncy

"res

erve

" (3

) C

/B

935

(20,

410)

(19,

475)

1,03

1(6

,08)

(5,3

77)

1,63

81,

926

20,5

3824

,102

2,68

32,

007

6,46

411

,154

4,54

13,

941

18,8

8027

,362

4,02

92,

504

10,0

8716

,620

0.36

%0.

24%

8.34

%0.

31%

0.35

%0.

24%

0.57

%0.

30%

2.76

3.05

148.

506.

912.

082.

2518

1. \3

3.88

EXPLANA TORY 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

Lif

e In

sura

nce

Act

199

5.

(2)

The

Min

imum

Ter

min

atio

n V

alue

(M

TV

) is

det

erm

ined

in a

ccor

danc

e w

ith th

e So

lven

cy S

tand

ard

and

is th

e ba

se f

igur

e up

on w

hich

res

erve

s ag

ains

t lia

bilit

y an

d as

set r

isks

are

laye

red

in d

eter

min

ing

the Solvency Requirement. The Minimum Termination Value represents the minimum obligation of

the

Com

pany

to p

olic

y ow

ners

at t

he r

epor

ting

date

.

(3)

A C

over

age

of S

olve

ncy

Res

erve

rat

io in

exc

ess

of 1

.0 d

emon

stra

tes

that

the

Solv

ency

Req

uire

men

t has

bee

n m

et.

MA

CQ

UA

RIE

LIF

E L

IMIT

ED

Not

es to

the

fina

ncia

l sta

tem

ents

for

the

year

end

ed 3

1 M

arch

200

9

8. REVENUE

2009

2009

2009

2009

2009

2008

2008

2008

2008

2008

Non

Inve

stm

ent

Tot

alT

otal

Tot

alN

onIn

vest

men

tT

otal

Tot

alT

otal

Inve

stm

ent

Lin

ked

Stat

utor

ySh

areh

olde

rs'

Com

pany

Inve

stm

ent

Lin

ked

Stat

utor

ySh

areh

olde

rs'

Com

pany

Lin

ked

Bus

ines

sFu

nds

Fund

Lin

ked

Bus

ines

sFu

nds

Fund

Bus

ines

sB

usin

ess

Not

e$'

000

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

$'00

0

Lif

e in

sura

nce

cont

ract

pre

miu

m r

even

ue19

,803

19,8

0319

,803

8,36

48,

364

8,36

4

Inve

stm

ent r

even

ue9(

a)1,

505

86,0

5787

,562

24,1

3411

1,69

697

8i 2

8, 1

0212

9,08

023

,760

152,

840

Oth

er r

even

ue9(

b)23

,369

23,3

6957

023

,939

29,4

3129

,431

29,4

31

TO

TA

L R

EV

EN

UE

21,3

0810

9,42

613

0,73

424

,704

155,

438

9,34

215

7,53

316

6,87

523

,760

190,

635

. ~~.

,. ;

; ~ .

MA

CQ

UA

RIE

LIF

E L

IMIT

ED

Not

es to

the

fina

ncia

l sta

tem

ents

for

the

year

end

ed 3

1 M

arch

200

9

10. LIFE INSURANCE CLAIMS EXPENSE

$'00

0$'

000

$'00

0

2009

2008

2008

Tot

alN

onIn

vest

men

t

Com

pany

Inve

stm

ent

Lin

ked

Lin

ked

Bus

ines

sB

usin

ess

$'00

0$'

000

$'00

0

1,94

659

41,

946

594

2008

2008

2008

Tot

alT

otal

Tot

al

Stat

utor

ySh

areh

olde

rs'

Com

pany

Fund

sFu

nd

$'00

0$'

000

$'00

0

594

-59

4

594

-59

4

2009

Non

Inve

stm

ent

Lin

ked

Bus

ines

s$'

000

2009

Inve

stm

ent

Lin

ked

Bus

ines

s

2009

Tot

alSt

atut

ory

Fund

s

2009

Tot

alSh

areh

olde

rs'

Fund

Dea

th a

nd d

isab

ility

cla

ims

LIF

E I

NSU

RA

NC

E C

LA

IMS

EX

PEN

SE1,

946

1,94

6

1,94

61,

946

MA

CQ

UA

RIE

LIF

E L

IMIT

ED

Not

es to

the

fina

ncia

l sta

tem

ents

for

the

year

end

ed 3

1 M

arch

200

9

12. AUDITOR REMUNERA nON

2009

$

2008

$

Am

ount

s re

ceiv

ed, o

r du

e an

d re

ceiv

able

, by

the

audi

tor

from

the

Com

pany

for:

Aud

itO

ther

ser

vice

sT

OT

AL

AU

DIT

OR

RE

MU

NE

RA

nO

N

132,

535

116,

000

132,

535

116,

000

MA

CQ

UA

RIE

LIF

E L

IMIT

ED

Not

es to

the

fina

ncia

l sta

tem

ents

for

the

year

end

ed 3

1 M

arch

200

9

13.

STA

TE

ME

NT

OF

SOU

RC

ES

OF

OPE

RA

TIN

G P

RO

lTr

IN S

TA

TlI

TO

RY

FlI

ND

S

a) S

HA

RE

HO

LD

ER

S' O

PER

AT

ING

PR

OFI

T I

N S

TA

TU

TO

RY

FU

ND

S20

0920

0920

0920

0820

0820

08

Non

Inve

stm

ent

Tot

alN

onIn

vest

men

tT

otal

Inve

stm

ent

Lin

ked

Stat

utor

yIn

vest

men

tL

inke

dSt

atut

ory

Lin

ked

Bus

ines

sFu

nds

Lin

ked

Bus

ines

sFu

nds

Bus

ines

sB

usin

ess

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

The

sha

reho

lder

s' o

pera

ting

prof

it af

ter

inco

me

tax

of th

e st

atut

ory

fund

s is

rep

rese

nted

by:

Inve

stm

ent e

arin

gs o

n S

hare

hold

ers'

ret

aine

d pr

ofits

and

shar

ehol

ders

' cap

ital

1,39

21,

647

3,03

935

81,

331

1,68

9

Em

erge

nce

of S

hare

hold

ers'

pla

nned

pro

fits

(1,9

41)

3,85

71,

916

(2,4

67)

4,60

02,

133

Exp

erie

nce

(los

s )/

prof

it(5

84)

(681

)(1

,265

)(1

,085

)1,

152

67

SHA

RE

HO

LD

ER

S O

PER

AT

ING

PR

OFI

T A

FTE

RIN

CO

ME

TA

X(1

,133

)4,

823

3,69

0(3

,194

)7,

083

3,88

9

Exp

ecte

d to

be

real

ised

with

in 1

2 m

onth

s5,

946

13,1

3419

,080

4,45

623

,536

5,01

512

,617

17,6

322,

775

20,4

07

. ._;

--i;:

!' :,;

MA

CQ

UA

RIE

LIF

E L

IMIT

ED

Not

es to

the

fina

ncia

l sta

tem

ents

for

the

year

end

ed 3

1 M

arch

200

9

16. F

INA

NC

IAL

ASS

ET

S A

T F

AIR

VA

LU

E T

HR

OU

GH

PR

OFI

T O

R L

OSS

2009

Non

Inve

stm

ent

Lin

ked

Bus

ines

s$'

000

2009

Inve

stm

ent

Lin

ked

Bus

ines

s

$'00

0

Equ

ity s

ecur

ities

Equ

ities

hel

d di

rect

ly

Equ

ities

hel

d in

dire

ctly

in u

nit t

rsts

TO

TA

L E

QU

ITY

SE

CU

RIT

IES

114,

381

306,

935

421,

316

114,

381

306,

935

4213

16

Deb

t sec

uriti

esPr

ivat

e se

ctor

Ban

k bi

lsO

ther

TO

TA

L D

EB

T S

EC

UR

ITIE

S

14,4

3763

1,49

171

,669

717.

597

Propert securities

Pro

pert

hel

d in

dire

ctly

via

uni

t trs

tsT

OT

AL

PR

OPE

RT

Y S

EC

UR

ITJE

S

40,9

2140

,921

447,

312

.l47.

312

2009

Tot

aS

latu

ory

Fund

s

2009

Tot

alSh

areh

olde

rs'

Fund

2009

2008

2008

Tot

alN

onIn

vest

men

t

Com

pany

Inve

stm

ent

Lin

ked

Lin

ked

Bus

ines

sB

usin

ess

$'00

0$'

000

$'00

0

114,

381

179,

718

306,

935

307,

545

421.

16.1

87,2

63

14,4

3762

.162

631,

491

577,

409

71,6

6914

8,93

5

717,

597

788,

506

55,2

0460

,483

55.2

0460

,483

$'00

0$'

000

14,4

3763

1,49

171

,669

717,

597

40,9

2140

,921

14,2

8314

,283

Inte

rest

Bea

rng

Sec

uriti

esIn

tere

st b

earin

g se

curit

ies

held

indi

rect

ly v

ia u

nit t

rsts

196

,668

196

,668

196

,668

447

,312

TerIAL INTEREST BEARING SECURITIES 1%.668 196.668 196,668 447,312

2008

Tot

alSt

atuo

ryFu

nds

2008

Tot

alSh

areh

olde

rs'

Fund

2008

Tot

alC

ompa

ny

$'00

0$'

000

$'00

0

179,

718

307,

545

487,

263

179,

718

307,

545

487.

263

62,1

6257

7,40

914

8,93

578

8,50

6

62,1

6257

7,40

914

8,93

578

8.50

6

60,4

8360

,483

147,

171

147.

171

207,

654

207,

654

447,

312

447,

312

TO

TA

L F

INA

NC

IAL

ASS

ET

S A

T F

AIR

VA

LU

E T

HR

OU

GH

PR

OFI

T O

R L

OSS

1,37

6,50

21,

783,

564

147,

171

1,93

0,73

5

Exp

ecte

d to

be

real

ised

with

in 1

2 m

onth

sE

xpec

ted

to b

e re

alis

ed in

mor

e th

an 1

2 m

onth

s

517,

353

8566

7,05

61, ii

147.

171

814,

227

I. ii

When apportioning trust holdings, holdings are reported in a single asset class if at least 95% of

the

inve

stm

ents

of

a tr

ust a

re h

eld

in th

at c

lass

.1,37

6,50

214

,283

1,39

0,78

51,

783,

564

517,

353

8514

,283

531.

636

8566

7.05

6i,

ii

Signifcant terms and conditions

All financial instruments of

the Company are held or issued on nonnal commercial tenns at market rates or interest. There are no significant tenns or conditions in respect of

the

fina

ncia

l ins

trum

ents

hel

d or

issu

ed.

Cre

dit r

isk

Tra

ding

inve

stm

ents

are

rec

orde

d in

the

acco

unts

at f

air

valu

e w

hich

rep

rese

nts

the

Com

pany

's e

xpos

ure

to c

redi

t ris

k in

rel

atio

n to

thes

e in

strm

ents

.Tle caring amounts of

othe

r fi

nanc

ial a

sset

s in

clud

ed in

the

Com

pany

's b

alan

ce s

heet

rep

rese

nt th

e C

ompa

ny's

max

imum

exp

osur

e to

cre

dit r

isk

in r

elat

ion

to th

ese

asse

ts.

Fair values

The

Dir

ecto

rs c

onsi

der

the

carr

ing

amou

nts

of I

nves

tmen

t Ass

ets

appr

oxim

ate

thei

r fa

ir v

alue

s.


17. POLICY LIABILITIES

(a) MOVEMENTS IN LIFE INSURANCE POLICY LIABILITIES

Expected to be realised within 12 monthsExpected to be realised in more than 12 months

2009 2008Total Total

Statutory StatutoryFunds Funds

$'000 $'000

1,836,793 2,075,99 I

(154,174) (20,530)

608,876 1,381,621

(827,628) (1,593,619)25,725 20,771

(2 I ,393) (27,44 i)

1,468, I 99 i ,836,793

(2,932) 1,119

(18,078) (4,051)(21,010) (2,932)

(2,442) (2,3 I 9)5,473 123

3,031 (2,442)

1,450,220 1,831,419

396,163 498,510

1,054,057 1.332.909

Life investment contract liabiltiesGross life investment contract liabilities at I April

Net decrease in life investment contract policy liabilities reflected in theincome statementLife investment contract contributions recognised in policy liabilitiesLife investment contract withdrawals recognised in policy liabilitiesContributions tax component of premiums

Fees and other expensesGross life investment contract liabilities at 31 March

Life insnrance contract liabiltiesGross life insurance contract liabilities at i April

(Increase )/decrease in life insurance contract liabilities reflected in theincome statementGross life insurance contract liabilties at 31 March

Reinsnrers' share of life insurance liabiltiesOpening balance at i AprilIncrease /decrease in reinsurance assets reflected in the income statement

Gross reinsnrers' life insurance liabilties

NET POLICY LIABILITIES


17. POLICY LIABILITIES (Continued)

(b) COMPONENTS OF NET LIFE INSURANCE POLICY LIABILITIES

Note 2009Statutory

Funds

2008Statutory

Funds

$'000 $'000

BEST ESTIMATE LIABILITYFor non investment-linked business

Value offuture policy benefitsValue of future expensesValue ofunrecouped acquisition expenseValue of unrecoverable acquisition expenseValue of future premiums

For investment-linked business

Value of future policy benefits 2

2,431 1,034

(25,293) (8,669)4,883 2,261

(I 7,979) (5,374)

1,468, I 99 1,836,793

1,468, I 99 1,836,793

1,450,220 1,831,419

2

TOTAL BEST ESTIMATE LIABILITY

V ALUE OF FUTURE PROFITS

For non investment-linked businessFor investment-linked businessTOTAL VALUE OF FUTURE PROFITS

3

3

TOTAL VALUE OF DECLARED BONUSES 4

NET POLICY LIABILITIES 1,450,220 1,831,419

EXPLANATORY NOTES:I All business regardless of method of valuation.

2 Future policy benefits include bonuses credited to policy owners in prior periods.

Where business is valued by other than projection techniques, future policy benefits includes the account balance.3 Future bonuses exclude current year bonuses.

4 Current year declared bonuses valued in accordance with the actuarial standard.

18(b

).IN

TE

RE

ST B

EA

RIN

G L

IAB

ILIT

IES

2009

2009

2009

2009

2009

2008

2008

2008

2008

2008

Non

Inve

stm

ent

Tot

alT

otal

Tot

alN

onIn

vest

men

tT

otal

Tot

alT

otal

Inve

stm

ent

Lin

ked

Stat

utoi

ySh

areh

olde

rs'

Com

pany

Inve

stm

ent

Lin

ked

Stat

utoi

ySh

areh

olde

rs'

Com

pany

Lin

ked

Bus

ines

sFu

nds

Fund

Lin

ked

Bus

ines

sFu

nds

Fund

Bus

ines

sB

usin

ess

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

Uns

ecur

edNotes payable

--

-42

,500

42,5

00-

154,

900

154,

900

TO

TA

L I

NT

ER

EST

BE

AR

ING

LIA

BIL

ITIE

S42

.500

42.5

0015

4,90

015

4,90

0

Not

es P

ayab

leT

he n

otes

pay

able

bal

ance

rep

rese

nts

an E

nhan

ced

Prop

ert P

erfo

rman

ce N

ote

(EPP

N)

issu

ed b

y M

acqu

arie

Lif

e L

imite

d to

a r

egis

tere

d sc

hem

e m

anag

ed b

y its

res

pons

ible

ent

ity, M

acqu

arie

Inv

estm

ent M

anag

emen

t Lim

ited,

a related par to Macquarie Life Limited. The face value of

the

EPP

N a

s at

yea

r en

d is

$42

,500

,000

(20

08: $

154,

900,

000)

. The

not

ehol

der

is e

ntitl

ed to

(a)

inte

rest

cal

cula

ted

usin

g th

e B

ank

Bil

Rat

e pl

us a

mar

gin

of80

bas

is p

oint

s,4.

95%

at y

ear

end

(200

8: 8

.19%

) pa

yabl

e an

d re

set q

uare

rly;

and

(b)

a v

aria

tion

bonu

s lin

ked

to th

e pe

rfor

man

ce o

f a

refe

renc

e po

rtfo

lio o

f lis

ted

prop

ert s

ecur

ities

. No

vari

atio

n bo

nus

is p

ayab

le a

t yea

r en

d. T

he m

atur

ity d

ate

of the EPPN is 3 I December 2009, unless redeemed earlier at the discretion of

the

Not

ehol

der.


19. DEFERRED ACQUISITION COSTS AND DEFERRED FEE REVENUE

2009Total

Company$'000

2008Total

Company$'000

Life investment contract deferred acquisition costs

Deferred acquisition cost at beginning of year

Acquisition costs deferred on new investment policiesAmortisationTOTAL DEFERRED ACQUISITION COSTS

1,120205

(460 )865


369496

440680

Life investment contract deferred fee revenue

Deferred fee revenue at beginning of year

Deferred fee revenue on new investment policiesAmortisationTOTAL DEFERRED FEE REVENUE

2,244508

(847)1,905


733

1,172

797

1,447

1,3 10

317

(507)1,120

2,124975

(855)2,244


20. INCOME TAX

(a) Principles of income tax

The income tax expense of Macquarie Life Limited has been determined after aggregating various classes of business, each with different

tax rates. The rates of taxation applicable to taxable income of significant classes of business are as follows:

31 March 2008 31 March 2009

Class of businessComplying Superannuation (VPST)Ordinary Class (including accident and disability)Shareholder (general) fundsCurrent pension and immediate annuity (SEAP)

15%30%30%

Exempt

15%30%30%

Exempt

The principal elements for the calculation of the taxable income for each class of business are as follows:

Assessable incomei. Complying superannuation business - taxable contributions transferred from superannuation funds,

specified rollover amounts and investment income2. Ordinar business - risk business premiums earned and investment income

3. Shareholder (general) business - investment income

4. SEAP (pension) business - franking credits

The gains and losses on sale of investments to the extent referable to the complying superannuation business are determinedunder the capital gains tax provisions of the Income Tax Assessment Act (IT AA). The exceptions are gains on fixed interest

securities and foreign exchange gains or losses referable to the superannuation business which are taxed primarily under theordinary income provisions.

The gains and losses on the sale of investments to the extent referable to other taxable classes of business are taxed primarilyunder the ordinary income tax provisions, with the capital gains tax provisions potentially applying depending on circumstance.

Allowable deductions

The allowable deductions for each taxable class of business in Australia include:

1. Acquisition costs (such as commissions) in relation to investment related life insurance business, superannuationbusiness and "other business".

2. Other expenses referable to the business (such as investment expenses).

3. An allocation of the general management expenses of the Company.

These deductions are then allocated to each class of business in accordance with the basis specified in the IT AA (which may

or may not reflect the allocation of the expense for accounting purposes).

Allowable deductions in respect of "other business" within the Life Funds also include risk business claims and the movementduring the period in the policy liability in respect of that business (which may differ from the policy liability recognised for

accounting purposes).

The Company is par ofa consolidated group, of which Macquarie Group Limited is the head entity. As a consequence the

consolidated entity is not subject to income tax and does not recognise a current tax liability in its own financial statementsunless the head entity is in default of its obligations, or a default is probable, under the tax consolidation legislation. Under the termsand conditions of a tax contribution agreement, the consolidated entity wil be charged or reimbursed for tax assets or liabilitiesincurred by Macquarie Group Limited in connection with the Company's activities. The effect of

the tax contribution agreement is

that the subsidiary records an amount as income tax expense equal to the amount that would have been calculated had the subsidiarcontinued to be subject to income tax.


20. INCOME TAX (continued)

2009 2009 2009 2008 2008 2008

Statutory Shareholders' Total Statutory Shareholders' Total

Funds Fund Company Funds Fund Company

$'000 $'000 $'000 $'000 $'000 $'000

(b) Income tax expense

Total current income tax expense 30,660 (2,740) 27,920 35,483 (702) 34,781

Deferred income tax liability (2,058) (2,058) (19,371) 482 (18,889)

Future income tax benefit (9,201) (4,597) (13,798) (16) (25,250) (25,266)

TOTAL INCOME TAX EXPENSE 19,401 (7,337) 12,064 16,096 (25,470) (9,374)

Reconcilation between net profit before tax and tax expense

Net Profit before tax 23,091 (23,308) (217) 19,987 (84,724) (64,737)

Tax at the standard rate 000% (2008: 30%) 6,927 (6,993) (66) 5,996 (25,417) (19,421)

Tax expense attributable to policyholders 14,768 14,768 13,120 13,120

Timing difference relating to fair value adjustmentPermanent difference related to R&D (190) (190)

Permanent differences relating to management fees (1,911) (1,911) (2,409) (2,409)

Permanent differences relating to transfer of franking credits (383) (344) (727) (410) (53) (463)

Prior year over tax provision (II ) (11)

TAX CHARGED FOR THE YEAR 19,401 (7,337) 12,064 16,096 (25,470) (9,374)

The net profit before tax as disclosed in the income statement represents the net income which is taxable at the standard rate 000% and whichrelates to profits attibutable to shareholder assets.

The Company is also liable for the tax payable on the assessable income attributable to policyholders. This is recouped from policyholders throughfees charged in line with the terms and conditions disclosed in policy documents. These fees are treated as a deduction from policy liabilitiesand are reflected in the change in net policy liabilities in the income statement.

2,6062,058

548

21,97819,3722,606

DEFERRED TAX ASSETSOpening balanceNet increase / (decrease) during current yearCLOSING BALANCE AT YEAR END

1729,2019,373

12,5504,597

17,147

12,72213,79826,520

15616

172

(12,216)24,76612,550

(12,060)24,78212,722


21. CONTRIBUTED EQUITY

Movements in ordinary share capital of the Company were as follows:

Closing Balance

$'000

87,900

SharesDate

31 March 2006 36,606,666

31 March 2007 Closing Balance 87,900 36,606,666

29 November 2007 Issued ordinary shares at $4.50 per share 25,812 5,736,000

19 December 2007 Issued ordinary shares at $4.50 per share 30,000 6,666,667

16 January 2008 Issued ordinary shares at $4.50 per share 15,000 3,333,333

6 March 2008 Issued ordinary shares at $4.50 per share 20,000 4,444,444

20 March 2008 Issued ordinary shares at $4.50 per share 20,000 4,444,445


2 I August 2008 Returned ordinary shares at $4.50 per share (35,000) (7,777,777)

3 I October 2008 Issued ordinary shares at $4.50 per share 10,000 2,222,222


22. CAPITAL RESERVE2009$'000

2008$'000

Balance11,000 11,000

This reserve represents amounts transferred from share premium reserve prior to the abolition of par values.

23. DIVIDENDS2009$'000

2008$'000

Final dividend paid- unfranked

33,812

Total dividends paid33,812

Any franking credits existing upon the entry into tax consolidation were transferred to Macquarie Group Limited.

MACQliARIE LIFE LIMITEDNotes to the financial statementsfor the year ended 31 March 2009

24. NOTES TO THE CASH FLOW STATEMENT

(a) RECONCILIATION OF CASHFor the purpose of the cash flow statement, cash includes cash on hand, at bank, deposits at call and in unit trusts.

I.

Cash and cash equivalents at the end of the financial year is reconciled to the related items in the balance sheet as follows:

Company2009$'000

Company2008$'000

Cash & cash equivalentsTOTAL CASH AND CASH EQUIVALENTS

22 i ,042

221,042242,493242,493

(b) RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES TO OPERATING PROFIT AFTER INCOME TAX

Life investment contract contribution receiptsLife investment contract withdrawal paymentsIncrease in policy liabilities

(Decrease)/Increase in other creditors(Decrease)/Increase in provisionsDecrease/(Increase) in receivablesDecrease/(Increase) in unsettled debtors/creditorsDecrease/ Increase in other assetsNET CASII OUTFLOWS FROM OPERATING ACTIVITIES

Company Company

2009 2008

$'000 $'000

(12,281) (55,364)

260,970 212,309

608,876 1,088,727

(803,422) (1,25 1,197)

(166,779) (24,703)

(11,452) 26,756

(2,058) (31,589)967 6,294

(13,237) (14,179)6,456 12,567

(144,872) (55,513)

Operating Profit after Income Tax

Net unrealised/realised losses/(gains)


25. RELATED PARTY DISCLOSlJRES

(a) PARENT ENTITYThe immediate parent entity is Macquarie Bank Limited. The ultimate parent entity is Macquarie Group Limited.

(b) KEY MANAGEMENT PERSONNEL (KMP)The following persons were those having authority and responsibilty for planning, directing and controllng the activities of the

Company and its controlled entities:

H. BrownR.D. CarwrightJ. Delaney

P. JowettM. Mulcare

B.N. Terry

No Directors of the Company are Directors of the ultimate parent entity.

(c) REMUNERATION OF KEY MANAGEMENT PERSONNEL

Short term remuneration

2009 2008$'000 $'000

155 145Amounts paid to KMP's in relation to their role as KMP of the entity

The KMP's did not receive any other benefits or consideration in connection with the management of the Company. All other benefits that were

received by the KMP's (principally performance related remuneration and options for Macquarie Group Limited equity) were solely related toother services performed with respect to their employment by Macquarie Group Limited.

~

MACQIJAHIE LIFE LIMITEDNotes to the financial statementsfor the year ended 3 I March 2009

25. HELATED PARTY DISCLOSURES (Continued)

(d) TRANSACTIONS WITH RELATED ENTITES

At balance date, Macquarie Life Limited held investments in related unit trusts managed by Macquarie Investment Management Limited,a wholly-owned subsidiary of Macquarie Bank Limited. All transactions with these trusts were under normal commercial terms and conditions.The investments are listed in detail in note 16.

During the financial year, the following transactions were made with the ultimate parent entity and related entities:

Investment income - total income received in respectof investments held in related entities

Statutory Shareholders' Total Statutory Shareholders' Total

Fund Fund Fund Fund

2009 2009 2009 2008 2008 2008

$'000 $'000 $'000 $'000 $'000 $'000

42,959 (40,098) 2,861 106,524 7,891 114,415

TRANSACTION DESCRIPTION

Macquarie Investment Management Limited (MIML) andMacquarie Equities Limited (MEL), wholly-owned subsidiariesof Macquarie Bank Limited, provide investment andadministrative services to Macquarie Life Limited. Fees forthese services have been charged by Macquarie Bank Limited 14,940 714 15,654 17,285 697 17,982

Commission payments made by M1ML on behalf ofMacquarie Life Limited 4,575 4,575 5,981 5,981

Payments under product profit sharing agreementsbetween MIML and Macquarie Life Limited 13,527 13,527 512 512

Tax balances in the year transferred into payables 19,401 (7,337) 12,064 16,096 (25,470) (9,374)

(e) BALANCES WITH RELATED ENTITIES AT BALANCE DATE

BALANCE TYPE

Cash and cash equivalents held at balance date included amounts held with Macquarie Bank Limited. All related transactions were under normal commercialterms and conditions.

Cash at bank and on deposit with Macquarie Bank Limited 1,210 22,434 23,644 6,330 88,975 95,305

Amounts receivables and payable to related entities are disclosed in notes 15 and 18(a) respectively.


25. RELA TED PARTY DISCLOSURES (Continued)

(f) INVESTMENTS IN CONTROLLED ENTITIES

In the prior year, the Company chose to adopt AASB 127 revised (Consolidated and Separate Financial Statements). Adoption of this

standard removed the requirement for the Company to prepare consolidated financial statements on the basis that the ultimate parentcompany (Macquarie Group Limited) produces consolidated financial statements available for public use that comply withInternational Financial Reporting Standards.

The below entities are controlled by the Company through the swap held in the Shareholders' Fund of the Company. These entities are

consolidated by Macquarie Group Limited.

NAME OF CONTROLLED ENTITIES COUNTRY OFINCORPORATION

PERCENTAGE HELD

Macquarie True Index Australian Equities FundMacquarie True Index Australian Shares FundMacquarie True Index Plus Australian Equities FundMacquarie Index Tracking Global Bond Fund (formerly MacquarieTrue Index Global Bond Fund)Macquarie True Index Australian Fixed Interest FundMacquarie True Index Listed Propert FundMacquarie Index-linked Propert Securities FundMacquarie True Index Intemational Equities FundMacquarie True Index Cash FundMacquarie Enhanced Property Securities Fund *Macquarie Enhanced Global Bond Fund *Macquarie Diversified Floating Rate Fund*

AustraliaAustraliaAustralia

20090%0%0%

AustraliaAustraliaA ustrali a

AustraliaA ustrali a

AustraliaAustraliaAustraliaAustralia

0%0%0%0%0%0%0%0%0%

*these holdings are consolidated by the True Index funds. The True Index funds have an investment of at least 75% of the units on

issue of these funds.

20080%0%0%

0%0%0%0%0%0%0%0%0%

MA

CQ

UA

RIE

LIF

E L

IMIT

ED

Not

es to

the

fina

ncia

l sta

tem

ents

for

the

year

end

ed 3

1 M

arch

200

9

26. STATUTORY FUND, SEGMENT AND D1SAGGREGATED INFORMATION

(a)

BU

SIN

SS

SE

GM

EN

TS

Segm

ent i

nfor

mat

ion

is p

repa

red

in c

onfo

rmity

with

the

segm

ent r

epor

ting

acco

untin

g st

anda

rds,

AA

SB 1

14.

The

pri

mar

y bu

sine

ss s

egm

ents

are

:

(i) Statutory Fund No. I, an investment linked business covering a broad range of

inve

stm

ent p

ool o

ptio

ns.

(ii)

Sta

tuto

ry F

und

No.

3, a

n in

vest

men

t lin

ed b

usin

ess

focu

sing

on

shor

t ter

m f

ixed

inte

rest

inve

stm

ent p

ools

.(i

ii) S

tatu

tory

Fun

d N

o.4,

a te

rm li

fe a

nd d

isab

ility

insu

ranc

e bu

sine

ss.

(iv) Shareholders Fund, which holds the capital and eligible assets ofMLL as required by Section 230(A) of

the

Lif

e In

sura

nce

Act

.

(b)

GE

OG

RA

PHIC

SE

GM

EN

TS

The

Com

pany

ope

rate

s w

holly

with

in A

ustr

alia

.

(c)

SEG

ME

NT

FIN

AN

CIA

LS

2009

2009

2009

2009

2008

2008

2008

2008

Inve

stm

ent

Non

Tot

alT

otal

Inve

stm

ent

Non

Tot

alT

otal

Lin

ked

Inve

stm

ent

Shar

ehol

ders

'C

ompa

nyL

inke

dIn

vest

men

tSh

areh

olde

rs'

Com

pany

Bus

ines

sL

inke

dFu

ndB

usin

ess

Lin

ked

Fund

Bus

ines

sB

usin

ess

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

Rev

enue

(109

,605

)16

,201

(17,

235)

(I 1

0,63

9)27

,241

6,32

4(6

8,69

8)(3

5,13

3)

Exp

ense

I 14,

428

(17,

334)

1,26

498

,358

(20,

156)

(9,5

18)

9,44

3(2

0,23

I)

SEGMENT RESULT

4,82

3(1

,133

)(1

5,97

1)(1

2,28

1 )

7,08

5(3

,194

)(5

9,25

5)(5

5,36

4)

Segm

ent a

sset

si ,

52 i

,785

20,5

43I1

7,38

91,

659,

717

1,90

2,80

919

,909

287,

201

2,20

9,91

9

Segm

ent l

iabi

litie

s(1

,509

,739

)18

,875

(48,

414)

(1,5

39,2

78)

(I ,8

9 i ,

586)

(3,3

58)

(157

,255

)(2

,052

,199

)

NE

T S

EG

ME

NT

ASS

ET

S12

,046

39,1

868

,975

120.

391

1,22

316

,551

129,

946

157,

720

Pag

e 49

MA

CQ

UA

RIE

LIF

E L

IMIT

ED

Not

es to

the

fiiia

ncia

l sta

tem

ents

for

the

year

end

ed 3

1 M

arch

200

9

26. S

TA

TU

TO

RY

FU

ND

, SE

GM

EN

T A

ND

D1S

AG

GR

EG

AT

ED

INF

OR

MA

TIO

N (

Con

tinue

d)

All

busi

ness

wri

tten

is n

on-p

aric

ipat

ing

Aus

tral

ian

busi

ness

(d)

D1S

AG

GR

EG

A T

ED

IN

FOR

M n

ON

- I

NC

OM

E S

TA

TE

ME

NT

AT

FU

ND

AN

D S

T A

TU

TO

RY

LE

VE

L F

OR

TH

E Y

EA

R E

ND

ED

3 I

MA

RC

H 2

009

Fun

d I

Inve

stm

ent

Lin

ked

Fund 3

Inve

stm

ent

Lin

ked

Tot

alC

ompa

ny

$'00

0$'

000

$'00

0

Lif

e in

sura

nce

prem

ium

rev

enue

Out

war

ds r

eins

uran

ce e

xpen

seIn

vest

men

t rev

enue

Oth

er r

even

ueT

OT

AL

RE

VE

NU

E

(190

,770

)13

,736

(177

,034

)

57,7

969,

633

67,4

29

Lif

e in

sura

nce

clai

ms

expe

nse

Rei

nsur

ance

rec

over

ies

reve

nue

Adm

inis

trat

ion

expe

nses

Fina

nce

cost

sC

hang

e in

life

inve

stm

ent c

ontr

act l

iabi

litie

sC

hang

e in

life

insu

ranc

e co

ntra

ct li

abili

ties

Cha

nge

in r

eins

uran

ce s

hare

of

life

insu

ranc

e lia

bilit

ies

TOTAL OPERATING EXPENSES

11,7

488,

112

-

(181

,601

)27

,427

--

-

(169

,853

)35

,539

(7,1

81)

31,8

90

(8,6

47)

28,5

33

1,46

63,

357

(2,0

00)

(2,0

00)

(534

)1,

357

Fund 4

Non

Inve

stm

ent

Lin

ed

$'00

0

19,8

03

(5,1

07)

1,50

5

16,2

01

1,94

6

(1,5

07)

29,9

85

(18,

078)

5,47

317

,819

Tot

alSt

atut

ory

Fund

s

$'00

0

19,8

03

(5,1

07)

(131

,469

)23

,369

(93,

404

)

1,94

6

(1,5

07)

49,8

45

(154

,174

)(1

8,07

8)5,

4 73

(1 1

6,49

5)

Shar

ehol

ders

'Fu

nd

$'00

0

(17,

805)

570

(17,

235)

703

5,37

0

6,07

3

19,8

03

(5,1

07)

(149

,274

)23

,939

(1 1

0,63

9)

1,94

6

(1,5

07)

50,5

485,

370

(154

,174

)(1

8,07

8)5,

473

(1 1

0,42

2)

PRO

FIT

BE

FOR

E I

NC

OM

E T

AX

(217

)

Inco

me

tax

expe

nse

(1,6

18)

(485

)

23,0

91

19,4

01

(23,

308)

(7,3

37)

PR

OF

IT A

Fn~

R IN

CO

ME

TA

X

12,0

64

Transfer of

prof

its b

etw

een

Fund

s

(1,133) 3,690 (15,971) (12,281)

(4,0

00)

4,00

0

NE

T P

RO

FIT

(12,

281)

(1,1

33)

(310

)(1

1,97

1)

MA

CQ

lJA

RIE

LIF

E L

IMIT

ED

Not

es to

the

fina

ncia

l sta

tem

ents

for

the

year

end

ed 3

1 M

arch

200

9

26. S

TA

TlI

TO

RY

FlI

ND

, SE

GM

EN

T A

ND

D1S

AG

GR

EG

AT

ED

IN

FOR

MA

TIO

N (

Con

tinue

d)

(e)

DIS

AG

GR

EG

A T

ED

IN

FOR

MA

TIO

N -

IN

CO

ME

ST

AT

EM

EN

T A

T F

UN

D A

ND

ST

AT

UT

OR

Y L

EV

EL

FO

R T

HE

YE

AR

EN

DE

D 3

I M

AR

CH

200

8

AJI

bus

ines

s w

ritte

n is

non

-par

icip

atin

g A

ustr

alia

n bu

sine

ss

Fun

d I

Fund 3

Fund 4

Tot

alSh

areh

olde

rs'

Tot

al

Inve

stm

ent

Inve

stm

ent

Non

Stat

utor

yFu

ndC

ompa

ny

Lin

ked

Lin

ked

Inve

stm

ent

Fund

sL

inke

d

$'00

0$'

000

$'00

0$'

000

$'00

0$'

000

Lif

e in

sura

nce

prem

ium

rev

enue

-8,

364

8,36

48,

364

Out

war

ds r

eins

uran

ce e

xpen

se-

(3,0

18)

(3,0

18)

(3,0

I 8)

Inve

stm

ent r

even

ue(6

5,43

8)63

,248

978

(1,2

12)

(68,

698)

(69,

910)

Oth

er r

even

ue18

,045

11,3

8629

,43

I29

,431

TO

TA

L R

EV

EN

UE

(47,

393)

74,6

346,

324

33,5

65(6

8,69

8)(3

5,13

)

Life

insu

ranc

e cl

aim

s ex

pens

e -

594

594

- 59

4Reinsurance recoveries revenue - (479) (479) - (479)

Adm

inis

trat

ion

expe

nses

14,

989

7,96

0 15

,218

38,

167

699

38,8

66Finance costs - - 15,328 15,328

Change in life investment contract liabilities (55,1 17) 34,587 (20,530) - (20,530)

Change in life insurance contract liabilities - (4,051) (4,051) - (4,051)

Change in reinsurance share oflife insurance liabilities - (123) (123) (123)

TOTAL OPERATING EXPENSES (40,128) 42,547 11,159 13,578 16,027 29,605

PRO

FIT

BE

FOR

E I

NC

OM

E T

AX

(7,2

65)

32,0

87(4

,835

)19

,987

(84,

725)

Inco

me

tax

expe

nse/

(ben

efit)

(9,8

87)

27,6

24(1

,641

)16

,096

(25,

470)

PR

OF

IT A

FT

ER

INC

OM

E T

AX

2,62

24,

463

(3,1

94)

3,89

1(5

9,25

5)

Tra

nsfe

r of

pro

fits

bet

wee

n Fu

nds

(2,0

89)

(4,1

48)

6,05

3(1

84)

184

NE

T P

RO

FIT

533

315

2,85

93,

707

(59,

071)

(64,

738)

(9,3

74)

(55,

364)

(55,

364)

r.,;

MA

CQ

UA

RIE

LIF

E L

IMIT

ED

Not

es to

the

tinan

cial

sta

tem

ents

for

the

year

end

ed 3

1 M

arch

200

9

26. S

TA

TU

TO

RY

FtJ

ND

, SE

GM

EN

T A

ND

DIS

AG

GR

EG

AT

ED

INF

OR

MA

TIO

N (

Con

tinue

d)

(t)

DlS

AG

GR

EG

AT

ED

IN

FOR

MA

TIO

N -

AB

BR

EV

IAT

ED

BA

LA

NC

E S

HE

ET

AT

FU

ND

AN

D S

TA

TU

TO

RY

LE

VE

L A

S A

T 3

1 M

AR

CH

200

9

Cas

h &

cas

h eq

uiva

lent

sE

quiti

esD

ebt s

ecur

ities

Uni

t tru

sts

TO

TA

L F

INA

NC

IAL

ASS

ET

S A

T F

AIR

VA

LU

E T

HR

OU

GH

PR

OFI

T A

ND

LO

SS

Fund 1

Fund 3

Inve

stm

ent

Inve

stm

ent

Lin

ked

Lin

ked

$'00

0$'

000

1l,0

2811

0,88

512

2,41

125

,672

691,

925

536,

494

695.

605

802,

810

Fund 4

Non

Inve

stm

ent

Lin

ked

Tot

alSt

atut

ory

Fund

s

Shar

ehol

ders

'Fu

ndT

otal

Com

pany

$'00

0$'

000

$'00

0$'

000

17,6

2713

9,54

012

2,41

171

7,59

753

6,49

4

81,5

0214

,283

221,

042

136,

694

717,

597

536,

494

17,6

271,

5 I 6

,042

95.7

851.

6 i 1

.827

Other assets 18,242 4,263 5,947 28,452 21,604 50,056

Deferred acquisition costs 865 - - 865 - 865

Policy liabilties ceded under reinsurance - - (3,031) (3,031) - (3,03 I)

TO

TA

L A

SSE

TS

714,

712

807,

073

20,5

43 1

.542

,328

117

,389

1,6

59,7

17L

ife

insu

ranc

e po

licy

liabi

litie

s-

-(2

1,01

0)(2

1,01

0)-

(21,

010)

Lif

e in

vest

men

t pol

icy

liabi

litie

s70

3,63

576

4,56

4-

1,46

8, I

99-

1,46

8, I

99

Def

erre

d fe

e re

venu

e1,

905

--

1,90

5-

1,90

5

Oth

er li

abilt

ies

2,99

336

,642

2,13

541

,770

48,4

1490

,184

TO

TA

L Li

AB

ILIT

iES

708,

533

801.

06(1

8.87

5)1.

490,

864

48,4

141,

539.

278

NE

T A

SSE

TS

6,17

95,

867

39,4

1851

,464

68,9

7512

0,43

9

Shar

ehol

ders

' cap

ital 4

,089

48

17,2

46 2

1,38

3 16

3,32

9 18

4,71

2T

rans

fer

of c

apita

l bet

wee

n F

unds

- -

24,

000

24,0

00 (

24,0

00)

Shareholders' retained profits 2,090 5,8 I 9 (1,828) 6,08 I (70,354) (64,273)

TO

TA

L E

QU

TY

6,1

79 5

,867

39,

418

51,4

64 6

8,97

5 12

0,43

9

MA

CQ

'IAR

IE L

IFE

LIM

ITE

DN

otes

to th

e fi

nanc

ial s

tate

men

tsfo

r th

e ye

ar e

nded

31

Mar

ch 2

009

26. S

TA

lllT

OR

Y F

UN

D, S

EG

ME

NT

AN

D D

ISA

GG

RE

GA

TE

D I

NFO

RM

A n

ON

(C

ontin

ued)

(g)

DlS

AG

GR

EG

A T

ED

IN

FOR

MA

TIO

N -

AB

BR

EV

IAT

ED

BA

LA

NC

E S

HE

ET

AT

FU

ND

AN

D S

TA

TU

TO

RY

LE

VE

L A

S A

T 3

1 M

AR

CH

200

8

Fund 1

Fund 3

Inve

stm

ent

Inve

stm

ent

Lin

ked

Lin

ked

$'00

0$'

000

Cas

h &

cas

h eq

uiva

lent

s15

,147

90,2

60

Equ

ities

191,

272

Deb

t sec

uriti

es35

,746

752,

848

Unit trsts

803,

698

TO

TA

L r

INA

NC

IAL

ASS

ET

S A

T F

AIR

VA

LU

E T

LIR

OU

GH

PR

OFI

T A

ND

LO

SS1,

045,

863

843.

108

Oth

er a

sset

s10

,982

1,73

6

Def

erre

d ac

quis

ition

cos

ts1,

120

Polic

y lia

bilit

ies

cede

d un

der

rein

sura

nce

TOTAL ASSETS

1.05

7,96

584

4,84

4

Lif

e in

sura

nce

polic

y lia

bilit

ies

Lif

e in

vest

men

t pol

icy

liabi

litie

s1,

038,

937

797,

856

Def

erre

d fe

e re

ven

ue2,

244

Oth

er li

abili

ties

10,0

7242

,477

TO

TA

L LI

AB

ILIT

IES

1,05

1,25

384

0,33

3

NE

T A

SSE

TS

6,71

24,

511

Fund 4

Non

Inve

stm

ent

Lin

ked

$'00

0

Shar

ehol

ders

'Fu

ndT

otal

Com

pany

Tot

alSt

atut

ory

Fund

s

$'00

0$'

000

$'00

0

124,

708

147,

171

242,

493

338,

443

788,

594

803,

698

12,3

7811

7,78

519

1,27

278

8,59

480

3,69

8

12,3

78

1,90

1.,3

4927

1879

2, I

73,2

28

5,08

915

,322

33,1

291,

120

2,44

22.

209,

919

2,44

219

,909

17,8

071,

120

2,44

21.

922,

718

287,

201

(2,9

32)

6,29

03.

358

16,5

5127

,774

129,

946

157,

720

(2,9

32)

1,83

6,79

32,

244

58,8

391,

894,

944

(2,9

32)

1,83

6,79

32,

244

216,

094

2,05

2,19

915

7,25

515

7,25

5

Shar

ehol

ders

' cap

ital 1

4,89

8 3,

970

I 1,

100

29,9

68 1

79,7

45 2

09,7

13Transfer of ca

pita

l bet

wee

n Fu

nds

(10,

808)

(3,

922)

6,1

46 (

8,58

4) 8

,584

-Sh

areh

olde

rs' r

etai

ned

prof

its 2

,622

4,4

63 (

695)

6,3

90 (

58,3

83)

(51,

993)

TO

TA

L E

QlJ

TY

6,7

12 4

,511

16,

551

27,7

74 1

29,9

46 1

57,7

20


27. RISK MANAGEMENT AND FINANCIAL INSTRUMENT DISCLOSURES

MACQUARIE LIFE LIMITED RISK MANAGEMENT

Risk is an integral part of Macquarie Life Limited's ("the Company") businesses. The main risks faced by the Company are market risk (including foreignexchange risk, interest rate risk and price risk), credit risk, liquidity and cash flow risk. Responsibility for management of these risks lies with the individual

businesses giving rise to them. It is the responsibility of Macquarie Funds Group Risk Management Team ("RMT") to ensure appropriate assessment andmanagement of these risks.

RMT authority is required for all material risk acceptance decisions. RMT identifies, quantifies and assesses all material risks and sets prudential limits.

Where appropriate, these limits are approved by the Board.

Risks associated with assets which purely back policy liabilities are excluded from the credit risk and market risk analysis as these assets and liabilities areheld at the risk of the unitholder and movements in either have no impact on the profit or net assets of the Company.

(a) Market Risk

Market risk is the risk ofloss arising from movements in market variables including observable variables such as interest rates, exchange rates and equitymarkets, and indirectly observable variables such as volatilities and correlations. Market risk in the Company primarily arises from the management ofinsurance contracts and from non-trading market risk positions arising from balance sheet and capital management activities.

It is recognised that trading activities which give rise to market exposures contain an element of risk taking. The Company is prepared to accept such risksprovided they are correctly identified, calculated and monitored by RMT, and reported to senior management and the Board on a regular basis.

RMT monitors positions within the Company according to a risk framework which manages exposures in all markets. Trigger limits ensure the aggregatelevel of risk is in line with the global risk appetite articulated in risk management strategy.

(i) Interest rate Risk

Interest rate risk is the risk to the Company's earnings and capital arising from movements in interest rates, including changes in the absolute levels of interestrates, the shape of the yield curve, the marking between different yield curves and the volatility of interest rates.

As discussed in note 1, the Company conducts wealth management and life insurance business through separate life statutory funds. Investment assets of the

life statutory funds comprise cash, equity securities, debt securities, propert securities, other financial assets and investment propert that are held to backinvestment contract liabilities, life insurance contract liabilities, retained profits and capitaL. A substantial portion of

the interest-bearing financial assets

therefore represent investments held in life insurance funds in respect of policyholders' interests.

Interest rate risk to the shareholder of the Company therefore arises in respect of financial assets and liabilities held in the Shareholders' Fund and to the

extent that there is an economic mismatch between the timing of payments to life insurance and investment contract holders and the duration of the assets

held in the statutory funds to back these liabilities. Where the liability to the investment contract holder is directly linked to the value of the assets held to

back the liability (i.e. investment-linked business), there is no residual interest rate exposure to the shareholder.

The management of the risks associated with investments undertaken by life statutory funds and the Shareholders' Fund, including interest rate risk is subjectto the relevant regulatory requirements, which are govemed by the Life Act. This includes satisfYing solvency requirements, which requires statutoryreserves to be held specifically to address interest rate risk to the extent that assets are not matched against liabilities.

Interest rate risk sensitivity analysis

The following table demonstrates the impact of a 50 basis point change in Australian and International interest rates, with all other variables held constant, onthe Company's shareholder profit after tax and equity. It is assumed that the 50 basis point change occurs as at the reporting date (3 I March 2008 and 31March 2009) and there are concurrent movements in interest rates and parallel shifts in the yield curves.

Movement Sensitivity Movement Sensitivity

in interest of profit Sensitivity in interest of profit Sensitivity

rate (bps) after tax of equity rate (bps) after tax of equity

2009 2009 2009 2008 2008 2008

$'000 $'000 $'000 $'000 $'000 $'000

Enhanced Propert Perfonnance Note+50 (380) +50 (655)-50 380 -50 655

Cash and cash equivalents+50 982 +50 468

-50 (982) -50 (468)

"':.


27. RISK MANAGEMENT AND FINANCL.\L INSTRUMENT D1SCLOSllRES (Continued)

(a) Market Risk (continued)

The Company's exposure to interest rate risk. repricing maturities and the effective interest rates on financial instruments at balance date are:

Weighted

Floating Fixed Interest Rate Maturing in: Non Average

Interest I Year Over I year More than Interest Effective

Rate or less to 5 years 5 years Bearing Total Interest

31 March 2009 2009 2009 2009 2009 2009 2009 Rate

$'000 $'000 $'000 $'000 $'000 $'000 %

FINANCIAL ASSETSCash and cash equivalents 219,918 1,124 22 i ,042 3.68

Receivables 23,536 23.536

Bills of Exchange, promissory notes and bond5 681.317 36,280 717,597 2.08

Unit trusts 536,494 536,494

Other securities 136,694 136,694

TOTAL FINANCIAL ASSETS 219,918 681,317 36,280 697,848 1,635,363

FINANCIAL LIABILITIESPayables 47,136 47,136

Interest bearing notes payable 42,500 42,500 4.95

TOTAL FINANCIAL LIABILITIES 42,500 47,136 89,636

NET FINANCIAL ASSETS 177,418 681,317 36,280 650,712 1,545,727

Weighted

Floating Fixed Interest Rate Maturing in: Non Average

Interest I Year Over 1 year More than Interest Effective

Rate or less to 5 years 5 years Bearing Total Interest

3 I March 2008 2008 2008 2008 2008 2008 2008 Rate

$'000 $'000 $'000 $'000 $'000 $'000 %

FINANCIAL ASSETSCash and cash equivalents 237,568 4,925 242,493 7.06

Receivables 20,407 20,407

Bills of Exchange, promissory notes and bond5 628,240 160,354 788,594 6.88

Unit trusts 803,698 803,698

Other securities 338,443 338,443

TOTAL FINANCIAL ASSETS 237,568 628,240 160,354 1,167,473 2, I 93,635

FINANCIAL LIABILITIESPayables 58,588 58,588

Interest bearing notes payable 154,900 154,900 8.17

TOTAL FINANCIAL LIABILITIES 154,900 58,588 2 I 3,488

NET FINANCIAL ASSETS 82,668 628,240 160,354 1.108,885 1,980,147

MACQlJARIE LIFE LIMITEDNotes to the financial statementsfor the year ended 31 March 2009

27. RISK MANAGEMENT AND FINANCIAL INSTRUMENT DISCLOSURES (Continued)

(a) Market Risk (continued)

(ii) Foreign Exchange Risk

The Company is exposed to foreign exchange risk as a result of investments in financial instruments denominated in foreign currencies. The risk ismanaged by ensuring that where a foreign exchange risk exists an appropriate hedging strategy is adopted.

In order to appropriately manage this risk it is Company policy that all non-trading foreign currency exposures are appropriately hedged or tradingforeign currency exposures remain within trading limits set by the RMT.

There is no significant foreign exchange risk to the shareholder.

(iii) Equity Price Risk (Listed Propert Trusts)

The table below indicates the equity markets to which the Company had significant exposure at 31 March on its non-trading investment portfolio.The effect on equity (as a result of a change in the fair value of equity instruments held as available-for-sale at 31 March) and the income statementdue to a reasonably possible change in equity prices, with all other variables held constant, is as follows:


in equity of profit Sensitivity in equity of profit Sensitivity

price ('Y) after tax of equity price ('Y) after tax of equity

2009 2009 2009 2008 2008 2008

$'000 $'000 $'000 $'000 $'000 $'000

Listed Property Trusts

Australia+10 1,000 1,000 +10 10,302 10,302

-10 (1,000) (1,000) -10 (10,302) (10,302)

(iv) True Indexing Swaps

The Shareholders' Fund has entered into swaps associated with the True Index business. Under the swap agreements the performance of a numberof funds across different investment asset classes are compared with benchmark indices. The Shareholders' Fund receives the rewards of

the over

performance of these funds and bears the risk of underperformance of these funds compared to index retums.

Notional Principal Amounts

At the reporting date, the notional fund value swapped in the Shareholders' Fund for the True Index swap contracts was $3,467 milion (2008:$4,125 milion).

The table below indicates the impact in performance of the physical portfolio versus the index arising from differences in the proportions of

underlying physical assets held in the physical portfolio versus their representation in the index.


in equity of profit Sensitivity in equity of profit Sensitivity

price (bps) after tax of equity price (bps) after tax of equity

2009 2009 2009 2008 2008 2008

$'000 $'000 $'000 $'000 $'000 $'000

True Index swaps+30 3,639 3,639 +30 4,332 4,332

-30 (3,639) (3,639) -30 (4,332) (4,332)

~


27. RISK MANAGEMENT AND FINANCIAL INSTRUMENT DISCLOSlJRES (Continued)

(b) Credit Risk

Credit risk is the risk of a counterpart failing to complete its contractual obligations when they fall due. Credit risk arises from both lending and tradingactivities. In the case of trading activity, credit risk reflects the possibility that the trading counterpart wil not be in a position to complete the contractat any stage. The resultant credit exposure is a function of the movement of prices over the term of the underlying contract and systems for the

assessment of potential credit exposures exist for each of the Company's trading activities.

The Company's philosophy on credit risk management reflects the principle of separating prudential control from operational management. Theresponsibility for review of credit exposures is undertaken by RMT. All credit risk exposures are approved by the Board.

No material credit exposures are assumed without appropriate analysis. After this analysis is undertaken, limits are set for an acceptable level ofpotential exposure. All limits and ratings are reviewed regularly, or more /Tequently if necessary, to ensure that the most current information availableon counterparties is taken into account.

All credit exposures are monitored regularly against limits. Credit exposures which fluctuate through the duration of the transaction are monitored daily.

RMT receive notifications /Tom Standard and Poors regarding any credit rating changes to all counterparties. The ratings are updated daily on theCompany's intemal systems and reviewed accordingly. All credit exposures are monitored regularly against limits.

The Company's policies to control credit risk include avoidance of unacceptable concentrations of risk either to any economic sector or to an individual

counterpart. Policies are in place to regulate large exposures to single counterparties or groups of counterparties.

The carring amounts of financial assets included in the balance sheet represent the Company's maximum exposure to credit risk in relation to theseassets. Where entities have a right of set-off and intend to settle on a net basis, this set-off has been reflected in the financial statements in accordancewith accounting standards.

Specifc Credit Risks

True Index Swaps

A swap agreement with the True Index funds exists whereby the Company is entitled to 100% of the revenue. The profits under the True Indexing swap

investments are subject to a profit sharing agreement between the Company and Macquarie Investment Management Limited ("MIML"). Under theagreement the profits or losses of the True Indexing swap investment are shared 50% / 50% between the Company and MIML subject to an aggregate

$60m risk limit per quarter. Credit risk exists both in the situation where the underlying fund is unable to meet its obligations under the swap agreementand where MIML is unable to meet its payment obligations under the risk and profit sharing agreement with the Company.

Credit risk with the underlying True Index funds is mitigated by cash and equity holdings in the funds. Credit risk with MIML is mitigated by regularreview of the net tangible assets of the entity and its ability to pay under the risk and profit sharing agreement. In addition, amounts under this risk andprofit sharing agreement are payable monthly thereby extinguishing the credit risk that the Company would be exposed to.

Reinsurance Risks

Reinsurance risk is the risk that the reinsurer does not pay claims due. The Company only uses reinsurers with strong credit ratings, thereby ensuring thatclaims are quickly settled. Reinsurance arrangements are reviewed annually by the appointed Actuary and reported to the Company Board through theannual financial condition report.

The Company does not have any significant reinsurance credit risk.

MACQUARIE LIFE LIMITEDNotes to the financial statementsfor the year ended 3 i March 2009

27. RISK MANAGEMENT AND FINANCIAL INSTRUMENT DISCLOSURES (Continued)

(b) Credit Risk (continued)

Maximum Exposure to Credit Risk

The table below details the concentration of credit exposure of the shareholder assets to significant counterpart types. Theamounts shown represent the maximum credit risk of the shareholder assets. In all cases this is equal to the carrying value of the

assets with the exception of credit commitments and contingent liabilities and derivatives which are recorded at the maximumcredit exposure.

2009

Due from bans

$'000

2009 2008Total Due from bans

$'000 $'000

2008

Total

$'000

AustraliaFinancial institutionsOtherTotal gross credit risk

38,85276,550

115,402

38,85276,550

115,402

114,79748,002

162,799

114,79748,002

162,799

Credit Quality of Financial Assets

The credit quality of financial assets is managed by the Company using internal credit ratings. These internal ratings are mapped toexternal ratings as follows:

Credit Grading External Equivalent (Long term)Standard & Poors

AAA to BBB-BB+ to CDefault

Investment GradeBelow Investment Grade

Default

Due from banks- Other financial institutions- OtherTotal

Neither past due nor impairedPast due or

Investment individuallyGrade Unrated impaired Total

$'000 $'000 $'000 $'000

38,852 38,852

76,550 76,550115,402 115,402

Neither past due nor impairedPast due or

Investment individuallyGrade Unrated impaired Total

$'000 $'000 $'000 $'000

114,797 114,797

48,002 48,002162,799 162,799

31 March 2009

Due from banks- Other financial institutions- OtherTotal

31 March 2008

Included in the past due category are balances overdue by one day or more. The Company has no balances classed as past due atbalance sheet date and receivables are typically settled within 30 days.


27. RISK MANAGEMENT AND FINANCIAL INSTRlIMENT DISCLOSURES (Continued)

(c) Liquidity and Cash Flow Risk

Liquidity risk is the risk that the Company will experience difficulty in either realising assets or otherwise raising suffcient funds to satisfYcommitments associated with financial instruments. Cash flow risk is the risk that future cash flows derived from holding financial instruments willfluctuate. The risk management guidelines adopted are designed to minimise liquidity and cash flow risk through:

ensuring that there are no significant exposures to iliquid or thinly traded financial instruments; andapplying limits to ensure there is no concentration of liquidity risk to a particular counterpart, market or stocksrestrictions on the level of borrowingprovisions in the Life offer documents to suspend redemptions

Contractual undiscounted cash flows

The table below summarises the maturity profie of the Company's financial liabilities as at 31 March based on contractual un discounted repayment

obligations. Repayments which are subject to notice are treated as if notice were given immediately. However, the Company expects that many

customers will not request repayment on the earliest date the Company could be required to pay and the table does not reflect the expected cash flows

indicated by the Company's deposit retention history.

Enhanced Propert Performance Note

Life investment contract liabilitiesLife insurance contract liabilities

Total undiscounted cash flows

On Less than Over i year More thanDemand I year to 5 years 5 years Total

2009 2009 2009 2009 2009

$'000 $'000 $'000 $'000 $'000

42,500 42,500

1,468,199 1,468, i 99

(1,899) (7,455) (42,666) (52,020)1,510,699 (1,899) (7,455) (42,666) 1,458,679

On Less than Over i year More thanDemand 3 months to 5 years 5 years Total

2008 2008 2008 2008 2008

$'000 $'000 $'000 $'000 $'000

154,900 154,900

1,836,793 1,836,793

(568) (2,228) (12,753) (15,549)1,991,693 (568) (2,228) (12,753) 1,976,144

31 March 2009

Enhanced Propert Performance Note

Life investment contract liabilitiesLife insurance contract liabilities

Total undiscounted cash flows

31 March 2008

(d) Derivative Financial Instruments

A derivative is a financial contract whose value depends on, or is derived from, underlying assets, liabilities or indices. Derivative transactions include awide assortment of instruments such as forwards, futures, options and swaps.

Derivatives are considered to be part of the investment process. The use of derivatives is an essential part of proper portfolio management.

Derivatives are not managed in isolation. Consequently the use of derivatives is multifaceted and includes:

- a substitution for trading a particular security;_ adjusting asset exposures within the parameters set in the investment strategy; and_ adjusting the duration of fixed interest portolios or the weighted average maturity of cash portolios.

Derivatives are used for trading purposes, however they are not used to gear (leverage) a portolio. Gearing a portolio would occur if the level ofexposure to the markets exceeds the underlying value of the statutory funds.

Notional Principal Amounts

At the reporting date, the notional principal amounts of derivative financial instruments held by the statutory funds were as follows:

Notional2009$'000

Notional2008$'000

Interest Rate DerivativesMarket Rate Derivatives

(1,719)(6,591)

58,387

(31,598)


27. RISK MANAGEMENT AND FINANCIAL INSTRlJMENT DISCLOSlJRES (Continued)

(e) Capital Risk Management

Capital requirements

Life insurance businesses are required to hold regulatory capital over and above the liabilities in the Company accounts.This capital is retained in the business and can only be retumed to the stakeholders over time as the portolio matures. Inaddition to holding the regulatory capital as prescribed by the regulator, APRA, the Company targets a level of assets inexcess of regulatory capital requirements (enterprise capital reserve). The enterprise capital reserve is a level of assets such that,in normal market conditions, at all times over the following 12 month period, and using statistical techniques based on acceptablemodels of market scenarios, there is a 90% probability of meeting regulatory capital requirements.

The Company adopts a 3 pillar approach to calculate the enterprise capital reserve and is the greater of:

Regulator Pillar: The total capital needed to manage the regulator's requirements. Any excesses held above theregulatory capital adequacy requirement is known as the capital adequacy management reserve.

Economic Pilar: The total economic capital that should be held on an overall risk based capital measure reflectingthe risk tolerances of the shareholders and the desired financial strength of the business.

Ratings Pillar: The capital amount required to maintain the S&P credit rating required by the Company.

By adopting this approach, the total enterprise capital held reflects the economic risks faced by the Company.

Furthermore, if relevant stakeholders of the Company require the Company to hold additional capital above the economic capitalrequirement of the Company, or additional capital is required to manage those stakeholder requirements (e.g. to avoid inappropriatebreaching of those requirements), the enterprise capital reserve should contain additional reserves to meet these requirements.

Capital Management

The Company's objectives when managing capital is to safeguard its ability to continue as a going concem by protecting policyholderbenefits and maximising shareholder value.

The capital management policy of the Company is to hold enterprise capital reserves against the residual risks retained by the Companyafter allowing for the risk mitigation strategies adopted.

The enterprise capital reserves represent the level of capital require to:

Cover the regulatory capital requirements of the Company;

Allow the Company reasonable time to implement remedial action in the event of significant adverse experienceemerging, without frequently breaching the capital adequacy requirements.Cover an overall risk based capital measure reflecting the risk tolerances of the shareholdersand the desired financial strength for the business.Satisfy any extemal requirements. For example the capital required to maintain an S&P credit rating of

"A-".

The enterprise capital reserves represent the target level of capital require to operate the business effciently and effectively allowing for therisks involved and the expectations of stakeholders. As a consequence it is anticipated that in periods of adverse experience the net assetsof the company wil drop below the enterprise capital reserve determined.

When the net assets drop below the enterprise capital reserve no actions are allowed that would result in further deterioration of the capital

position of MLL. For example the payment of dividends, the development of a new IT system or product, or the writing of additional newbusiness volumes not allowed for in the budget are prohibited unless approved by the Company's Board.

The Capital Management Policy for the Company is reviewed and approved by the Company's Board and is set out in full in theFinancial Condition report.

Throughout the financial year, the Company has maintained capital in excess of capital adequacy requirements as prescribed by APRA.


28. COMMITMENTS FOR EXPENDITURE AND CONTINGENT LIABILITIES/ASSETS

The Company has no commitments or contingent assets/liabilities which are individually material or a categoryof commitments or contingent liabilities which are materiaL.

29. SUBSEQUENT EVENTS

There are no matters or circumstances that have arisen subsequent to the reporting date that have significantlyaffected or may significantly affect the operations of the Company, the results of those operations or the state

of affairs of the Company.

MACQUARIE LIFE LIMITEDDIRECTORS' DECLARATION

In the opinion of the directors of Macquarie Life Limited ("the Company"):

(a) the financial statements and notes set out on pages 8 to 61 are in accordance with the Corporations Act 2001,

including:

(i) the financial statements comply with Accounting Standards, the Corporations Regulations 2001 and other

mandatory professional reporting requirements; and

(ii) giving a true and fair view of the company's financial position as at 31 March 2009 and of their

performance, as represented by the results of their operations and their cash flows, for the financial yearended on that date; and

(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they

become due and payable.

This declaration is made 'n accordance with a resolution ofthe Board of Directors of Macquarie Life Limited.

fL"

R. D. CartwrightDirector

øß~H. BrownDirectorSydney, 12 May 2009


PricewaterhouseCoopersABN 52 780 433 757

Independent auditor's report to the members ofMacquarie Life Limited

Darling Park Tower 2201 Sussex StreetGPO BOX 2650SYDNEY NSW 1171DX 77 SydneyAustraliaTelephone +61 282660000Facsimile +61 282669999ww.pwc.com/au

Report on the financial report of Macquarie Life Limited

We have audited the accompanying financial report of Macquarie Life Limited (the company),which comprises the balance sheet as at 31 March 2009, and the income statement, statement ofrecognised income and expense and cash flow statement for the year ended on that date, asummary of significant accounting policies, other explanatory notes and the directors' declarationfor Macquarie Life Limited.

Directors' responsibility for the financial report

The directors of the company are responsible for the preparation and fair presentation of thefinancial report in accordance with Australian Accounting Standards (including the AustralianAccounting Interpretations) and the Corporations Act 2001. This responsibility includes establishingand maintaining internal controls relevant to the preparation and fair presentation of the financialreport that is free from material misstatement, whether due to fraud or error; selecting and applyingappropriate accounting policies; and making accounting estimates that are reasonable in thecircumstances. In Note 1, the directors also state, in accordance with Accounting StandardAASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents toInternational Financial Reporting Standards ensures that the financial report, comprising thefinancial statements and notes, complies with International Financial Reporting Standards.

Auditor's responsibilty

Our responsibility is to express an opinion on the financial report based on our audit. We conductedour audit in accordance with Australian Auditing Standards. These Auditing Standards require thatwe comply with relevant ethical requirements relating to audit engagements and plan and performthe audit to obtain reasonable assurance whether the financial report is free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial report. The procedures selected depend on the auditor's judgement,including the assessment of the risks of material misstatement of the financial report, whether dueto fraud or error. In making those risk assessments, the auditor considers internal control relevantto the entity's preparation and fair presentation of the financial report in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the entity's internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimatesmade by the directors, as well as evaluating the overall presentation of the financial report.

Our procedures include reading the other information in the Annual Report to determine whether itcontains any material inconsistencies with the financial report.

For further explanation of an audit, visit our website http://ww.pwc.com/au/financialstatementaudit.

Liability limited by a scheme approved under Professional Standards Legislation


Independent auditor's report to the members ofMacquarie Life Limited (continued)

Our audit did not involve an analysis of the prudence of business decisions made by directors ormanagement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinions.

Independence

In conducting our audit, we have complied with the independence requirements of the CorporationsAct 2001.

Auditor's opinion on the financial report

In our opinion:

(a) the financial report of Macquarie Life Limited is in accordance with the Corporations Act2001, including:

(i) giving a true and fair view of the company's financial position as at 31 March 2009

and of its performance for the year ended on that date; and

(ii) complying with Australian Accounting Standards (including the AustralianAccounting Interpretations) and the Corporations Regulations 2001; and

(b) the financial report and notes also comply with International Financial Reporting Standardsas disclosed in Note 1.

Pi~1L.L~oDprice~Jterhousecoopers

Ç4:70:;'S K FerguJson

PartnerSydney

13 May 2009

macquarie life limited · 2013-07-30 · macquarie life limited abn 56 003 963 773 annual report...

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