IOOF  | Annual Report 2012 (e) Expenses (f)  Actuarial assumptions and methods Actuarial Methods Processes used to select assumptions Mortality and Morbidity Other Assumptions (ii) Managed Funds and other fiduciary duties (i) Restrictions on assets (g) Disclosures on asset restrictions, managed  assets and trustee activities Solvency requirements Sensitivity analysis page 119 Entities in the IOOF Holdings Ltd Group, including the IOOF Ltd  Benefit Funds, hold controlling investments in managed funds.  A subsidiary of the company is the Responsible Entity for these  managed funds and has a fiduciary responsibility for managing  these trusts. Arrangements are in place to ensure that such  activities are managed separately from the other activities of the  IOOF Holdings Ltd Group. In adopting the accumulation method to assess the policy  liabilities, one material assumption is required. It is assumed that  the future overall experience as to expense levels, surrender/lapse  rates and discount rates will likely remain within a satisfactory  range so that the policies produce future profits for the business.  In which case, there is no need to set aside provisions, in addition  to the accumulation amounts, for future losses (i.e. there is no loss  recognition concerns for the business). This assumption has been  adopted on the basis that, based on the current actual experience  of the business, the policies are producing satisfactory profits for  the business and there is no circumstances known that would  indicate that the current position (i.e. general experience levels  and ongoing profitability) will not continue into the future. Investments held in life statutory funds can only be used in  accordance with the relevant regulatory restrictions imposed  under the Life Act and associated rules and regulations. The main  restrictions are that the assets in a life statutory fund can only be  used to meet the liabilities and expenses of that life statutory fund,  to acquire investments to further the business of the life statutory  fund or as distributions when solvency, capital adequacy and other  regulatory requirements are met. All mortality and morbidity risk is fully reinsured and the gross risk  to the Group is low. The mortality and morbidity assumptions  have been taken to be equal to the reinsurer’s mortality and  morbidity assumptions. Solvency reserves are required to meet the prudential standards  determined in accordance with Prudential Standard LPS 2.04  “Solvency Standard” issued by the Australian Prudential Regulatory  Authority under Section 65 of the Life Insurance Act 1995. Solvency  reserves provide additional protection to policy holders against the  impact of fluctuations and unexpected adverse circumstances on  the Company.  Policy liabilities have been calculated in accordance with relevant  actuarial guidance issued by the Australian Prudential Regulatory  Authority under the Life Insurance Act 1995. Policy liabilities are  based on a systematic release of planned margins as services are  provided to policyholders and premiums are received. The effective date of the actuarial report on the policy liabilities  and solvency reserves is 30 June 2012. The actuarial report for  IOOF Ltd was prepared by Mr Andrew Mead, FIAA, and was dated  15 August 2012. The actuarial report indicates that Mr Mead is  satisfied as to the accuracy of the data upon which the policy  liabilities have been determined. The policy liabilities are not sensitive to changes in variables within a  moderate range. Increases in mortality and morbidity assumptions  will result in an increase gross policy liabilities for IOOF Ltd, however  as the mortality and morbidity risk is fully reinsured any change  in these assumptions would be consistent with the reinsurer’s  assumptions and the net change in policy liabilities would be nil. Statutory 2012 2011 $’000 $’000 Service and marketing fees expense 13,026  14,751  Life insurance operating expenses 52  127  Investment contracts with DPF: Benefits and withdrawals paid 40,133  49,017  Termination bonuses  216  245  Distribution to policyholders 2,096  7,14 6 Interest 309  363  55,832  71,649 