NTUC Income AR 2017

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) Insurance Contract Provisions for Life Insurance (continued) Valuation Methodology Assumptions Liabilities are computed using the prospective cash flow method. The areas where assumptions have been applied are: – Mortality and morbidity (if applicable); – Persistency; – Discount rate; – Management expenses; – Bonuses (for Life Insurance Par Fund only). Mortality and Morbidity A detailed review of the Group’s mortality and morbidity experience by significant risk is conducted annually. Based on the results of the review, the Group’s Appointed Actuary formed an opinion with regard to the expected future mortality and/or morbidity experience. The Group also uses industry/reinsurance mortality and/or morbidity tables for plans that have no historical experience. A provision for adverse deviation (PAD) is also made based on the types of product. Persistency A detailed review of the Group’s persistency experience by plan types is conducted annually. The Group tries to balance past experience and future conditions by setting best-estimate assumptions in line with expected long term average persistency levels. For new plans with no historical experience, the Group uses the experience on similar plan types as a basis to set the best-estimate assumptions. Discount Rates The discount rates used in the Life Insurance Non-Par Fund are derived from the yields of Singapore Government Securities. The discount rates used in the Life Insurance Par Fund are derived based on the expected prospective long-term investment return. This is based on Strategic Asset Allocation of the Par Fund and it is determined in conjunction with the risk and investment managers and the Investment Committee. Expenses The Group reviews and determines the management expense assumptions regularly based on past experience and future business direction of the Group. Expense inflation assumption is the weighted expected inflation rate and the inflation rates published by the Monetary Authority of Singapore (MAS). Future Bonuses The Group conducts a bonus review of the Life Insurance Par Fund annually. Bonuses are declared based on the results of the review which takes into consideration the past investment, mortality and/or morbidity, persistency, and management expense experiences. The goal of the review is to ensure bonuses paid are equitable and sustainable based on the Appointed Actuary’s expected prospective outlook of the Life Insurance Par Fund. The reasonable expectations of policyholders are also taken into consideration when determining the amount of bonus to be declared. ANNUAL REPORT 2017 EVERY DAY MADE DIFFERENT 63