NTUC Income AR 2018

Notes to the Financial Statements For the Financial Year Ended 31 December 2018 3. Critical accounting estimates and judgements (continued) Insurance contract provisions for Life Insurance (continued) Valuation methodology (continued) 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. 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. 2018 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 2018 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 2018, the Group has updated the liability valuation assumptions as compared to 1 January 2018. 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 (155,603) -1.3% Non-Par (17,154) -0.7% Investment-Linked 21 4.0% 65 2018 ANNUAL REPORT