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) (c) Financial risk (continued) (iii) Liquidity risk The Group is exposed to liquidity risk when it is the inability to meet its obligations at a reasonable cost. The liquidity risk could arise through bad publicity or adverse market conditions leading to unexpected cash demands and huge amount of surrenders. As a result, the Group may have to sell off assets to provide the cash lump-sum payment. The Group maintains a level of cash and cash flow deemed adequate by management to finance its operations and to mitigate the effects of fluctuations in cash requirements. Liquidity management requires the Group to maintain a liquid position at all times to meet unexpected claims payments when they fall due and simultaneously holding an asset mix which meets the Group’s target return. The Group monitors liquidity risk through the monthly tracking of the liquidity position of each insurance fund and through the performance of liquidity stress tests based on the S&P rating standards. For the Life Par Fund, the Group manages liquidity risk by matching the asset cash flows to the cumulative outflows in the immediate next two years on an ongoing basis as well as putting in place an asset liability matching strategy. The liquidity risk in the fund is minimised by holding adequate cash and also close monitoring of surrenders and redemptions. For the Non-Par Fund, the business is managed on an annual cash flow basis ensuring sufficient cash flow of premium as part of the liability matching strategy and monitoring of the experience to ensure claims can be paid. For the General Insurance Fund, a significant portion of the assets are liquid assets which can be easily liquidated to pay claims. For Investment-Linked Funds, the liabilities and unit prices for transactions fully reflect the market value of assets held in the respective Investment-Linked Product sub-funds. A significant portion of the assets are liquid assets which can be easily liquidated to fund liquidation of units by unit-holders. ANNUAL REPORT 2017 EVERY DAY MADE DIFFERENT 81