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 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. Assumptions The key assumptions of the actuarial valuation models include: – chain ladder claim development factors – loss ratios – expense ratios – reinsurance recovery ratios These assumptions are derived based on the Group’s historical and emerging underwriting experience. For the valuation as at 31 December 2018, the basis of liability valuation assumptions has not been changed as compared to previous annual valuation. Effect of changing assumptions used for General Insurance Changes Change in Gross Claim Liability $’000 % Increase / (decrease) in Gross Claim Liability Change in assumptions and experience (76,388) -22.5% The table above summarises the effect of changing assumptions on 2017 and prior accident years claim liabilities where comparisons can be made to last year’s year end liability valuation. The claim liabilities are gross of reinsurance recoveries and it is inclusive of claims handling expenses and provision for adverse deviation. Margins for adverse deviation In accordance with the insurance regulations, the insurance liabilities include a risk margin to ensure a minimum 75% probability of adequacy. The risk margin is determined to allow for the uncertainty and volatility of the claims experience. Effects of diversification are also allowed for at the fund level. Discounting The general insurance liabilities are not discounted. 66 HAND IN HAND