NTUC Income AR 2017

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (u) Other provisions Provisions other than insurance contract provisions are recognised when the Group has a present legal or constructive obligation, as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably measured. (v) Operating leases Lessor – Operating leases Leases of investment properties which the Group retains substantially all risks and rewards incidental to ownership are classified as operating leases. Rental income from operating leases (net of any incentives given to the lessees) is recognised in profit or loss on a straight-line basis over the lease term. Initial direct costs incurred by the Group in negotiating and arranging operating leases are added to the carrying amount of the leased assets and recognised as an expense in profit or loss over the lease term on the same basis as the lease income. Lessee – Operating leases Leases where substantially all risk and rewards incidental to ownership are retained by the lessors are classified as operating leases. Payments made under operating leases (net of any incentives given from the lessors) are recognised in profit or loss on a straight-line basis over the period of the lease. 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Classification of insurance and investment contracts The Group issues contracts that transfer insurance risk or financial risk, or both. Financial risk is the risk of a possible change in one or more of the following: a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of non-financial variable, that the variable is not specific to a party to the contract. Insurance contracts are those contracts that transfer significant insurance risk. An insurance contract is a contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. Such contracts may also transfer financial risks. As a general guideline, the Group defines as significant insurance risk the possibility of having to pay benefits on the occurrence of an insured event that are at least 5% more than the benefits payable if the insured event did not occur. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period. Investment contracts are those contracts that transfer financial risk without significant insurance risk. Insurance Contract Provisions for Life Insurance The insurance contract provisions for life insurance are computed in accordance with the applicable regulatory principles using a prospective approach. The provisions comprise the following liabilities: – expected future net payments for guaranteed benefits; – expected future net payments for non-guaranteed benefits (if any); – provision for adverse deviation from the expected experience. ANNUAL REPORT 2017 NTUC INCOME INSURANCE CO-OPERATIVE LIMITED 62