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 (continued) Assumption table The table below briefly describe the assumptions used in the valuation of provision for future participating and non-participating benefits in the Life Insurance Par Fund, Life Insurance Non-Par Fund, and Investment-Linked Fund. 2017 Assumptions Interest Rate MAS prescribed discount rate for guaranteed benefits, expected long term investment return for non-guaranteed benefits Lapse / Surrender Rate Based on internal lapse experience studies Selling Expense Based on current commission structure Management Expense Based on internal expense studies Inflation Rate Based on internal expense studies Non-guaranteed future bonus 2017 Bonus Rates Mortality / Morbidity (Death, TPD, Dread Disease & Other Risk) Adjusted Mortality / Morbidity Table based on internal studies or Reinsurance rates, whichever is appropriate Mortality Rate (Annuities) Adjusted Mortality table with age reduction and mortality improvement based on internal studies Effect of Changing Assumptions For the valuation as at 31 December 2017, the Group has updated the liability valuation assumptions as compared to 1 January 2017. The impact of the changes to the insurance contract provision for guaranteed benefits is listed in the following table: Fund Change in insurance contract provision for guaranteed benefits $’000 % of insurance contract provision for guaranteed benefits Par (39,825) -0.4% Non-Par 36,318 1.6% Investment-Linked (30) -11.6% Insurance Contract Provisions for General Insurance The insurance contract provisions for General Insurance comprise claims and premium liabilities and are computed in accordance with sound actuarial principles and regulatory guidelines. These liabilities comprise: – best estimate of the premium liabilities; – best estimate of the claims liabilities; and – margins for adverse deviation to ensure a minimum 75% probability of adequacy. Valuation methodology Standard actuarial techniques are used to project the provision for claims and loss adjustment expenses and provision for unexpired risk (“claim liabilities and premium liabilities”). These methods include the Chain ladder and Bornhuetter-Ferguson model. The valuation process involves using the Group’s claims and policy data to estimate future claims experience. These insurance liabilities have been derived on a gross basis and are subsequently adjusted for reinsurance recoveries for a net basis. ANNUAL REPORT 2017 NTUC INCOME INSURANCE CO-OPERATIVE LIMITED 64