NTUC Income AR 2017

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 4. MANAGEMENT OF INSURANCE AND FINANCIAL RISKS (CONTINUED) (a) Life Insurance Contracts Risk Management (continued) Objectives of managing life insurance risks and the policies for mitigating risks (continued) To manage the concentration of mortality risks as a result of a single event, the Group obtains catastrophic reinsurance that limits its maximum overall exposure up to a limit. Mortality risk is also managed through appropriate claim management systems that help to identify fraudulent claims. The results of yearly experience reviews of mortality, longevity and persistency are used to decide on the bases for reserving and pricing of products. Lapse rate is evaluated in a prudent manner through the pricing of new products, product design, and regular monitoring of persistency reports and procedures for recovery. Inevitably, there remains uncertainty about future longevity and persistency that cannot be removed. Sensitivity Analysis (i) Life Insurance Par Fund To understand the risks undertaken by the Group in the Life Insurance Par Fund, the following sensitivity analysis is done to measure the impact on the Group’s liabilities. 2017 2016 Assumption Change Impact on liabilities $’000 Impact on liabilities % Impact on liabilities $’000 Impact on liabilities % Interest rates +100 bps – 0% – 0% -100 bps 1,737,365 6.8% 2,561,002 11.0% Mortality / morbidity / longevity – life insurance contracts, excluding annuities +20% – 0% – 0% -20% – 0% – 0% – annuities contracts Mortality Improvement of 1 Year – 0% – 0% Mortality Deterioration of 1 Year – 0% – 0% Lapses +20% – 0% – 0% -20% – 0% – 0% The liability is defined according to the Insurance Act, Chapter 142. In most scenarios, the value of the policy assets of the fund exceeds the Minimum Condition Liability and the sum of the liability in respect of each policy of the fund. As such, the sensitivity does not have an impact to the liability the Group is holding except in the scenario of: decrease 1% in interest rate (the corresponding amount will be recognised as surplus / losses). The impact to the profit or loss for the Par Fund is determined by the cost of declared bonus, where the Group reserves the right to vary the bonus scale under the specific scenario. ANNUAL REPORT 2017 NTUC INCOME INSURANCE CO-OPERATIVE LIMITED 68