NTUC Income AR 2018

Notes to the Financial Statements For the Financial Year Ended 31 December 2018 2. Summary of significant accounting policies (continued) (c) Insurance contracts (continued) (ii) Embedded derivatives in insurance contracts The Group does not need to separately measure at fair value the policyholder’s option to surrender an insurance contract for a fixed amount (or for an amount based on a fixed amount and an interest rate), even if the exercise price differs from the carrying amount of the host insurance liability. This is in accordance with FRS 104 Insurance Contracts . Options and guarantees inherent in some insurance contracts which are closely related to the host contract issued by the Group are not required to be separated and measured at fair value. All revenue, benefit payments, expenses and valuation of future benefits payments including investment components are recognised in profit or loss. (iii) Impact on unrealised gains or losses on available-for-sale assets on liabilities from insurance contracts – Life Insurance Par Fund Changes in insurance contract liabilities within Life Insurance Par Fund which are due to the unrealised gains or losses arising from available-for-sale assets are recognised directly in the fair value reserve to match the corresponding unrealised gains or losses arising from available-for-sale assets. (iv) Accumulated surplus – Life Insurance Par Fund The accumulated surplus within the Life Insurance Par Fund represents the maximum amount of the surplus arising from the Life Insurance Par Fund that could be transferred to the Shareholders’ Fund each year. It has been the Group’s practice that only a portion of the surplus will be transferred to the Shareholders’ Fund. (v) Reinsurance The Group enters into reinsurance contracts in the normal course of business to diversify its risks and limit its net loss potential. Assets, liabilities, income and expense arising from the reinsurance contracts and co-insurance arrangements are presented separately from the assets, liabilities, income and expense from the related insurance contracts. Amounts recoverable under reinsurance contracts are assessed for impairment at each reporting date. Such assets are deemed impaired if there is objective evidence that the Group may not recover all amounts due from the reinsurer. The impairment loss is charged to profit or loss in the statement of comprehensive income. (vi) Liability adequacy tests At each reporting date, liability adequacy tests are performed to assess the adequacy of the insurance liabilities estimates. Current best estimates of future contractual cash flows, expected future claims handling, acquisition and administration costs, if any, are projected at best estimate assumptions, and discounted at rates that are close to the Group prospective investment return. Any deficiency is charged to profit or loss in the statement of comprehensive income. (d) Revenue Gross premium The accounting policy for the recognition of gross premium is disclosed in Note 2(c)(i). Fee and other income Fee and other income comprises reinsurance commission income (including reinsurance profit commission income) and management and other fees. Reinsurance commission income is recognised as revenue on a basis that is consistent with the recognition of the costs incurred on the acquisition of underlying insurance contracts (see Note 2(c)). 54 HAND IN HAND