NTUC Income AR 2018

Notes to the Financial Statements For the Financial Year Ended 31 December 2018 4. Management of insurance and financial risks (continued) (b) General Insurance Contracts Risk Management (continued) Objectives of managing risks and policies for mitigating risks (continued) Geographically, the Group’s risks are concentrated in Singapore. Concentration risk arising from natural catastrophes is negligible as the exposure to natural disasters in Singapore is minimal from historical experience. About 75% (2017: 75%) of the Group’s general insurance portfolio is motor insurance with risks well diversified across private cars, commercial vehicles, motorcycles, buses and taxis. Sensitivity analysis Given the uncertainty in establishing the claims and premium liabilities, it is likely that the final outcome will be different from the estimation. The table below gives an indication of the sensitivity of the insurance liabilities (claims and premium liabilities), and the corresponding amount will be recognised as surplus/deficit to the General Insurance Fund: 2018 2017 Assumption Change Impact on net liabilities $’000 Impact on net liabilities % Impact on net liabilities $’000 Impact on net liabilities % Assumed loss ratio for Bornhuetter Ferguson method and Unexpired Risk reserve +20% 72,003 12% 72,158 11% -20% (72,003) -12% (72,158) -11% (c) Financial risk The Group has to meet substantial long term liabilities to policyholders for claims and maturity payments and to ensure that adequate liquidity is available to meet short term claims, solvency margin and capital adequacy for existing and new business. The Group invests in a variety of market instruments such as bonds and quoted and unquoted equities which expose the Group to a number of risks such as liquidity, market and credit risks. Themanagement of these risks lies with the RiskManagement and Investment Committees. The RiskManagement Committee sets the policy and framework for the risk management function and reviews its appropriateness regularly. The administration of the financial risk management process is delegated to the senior management of the Group. Primarily, the risk management process focuses on mitigating the risks due to uncertainties of the financial market to minimise the adverse impact of these risks on the financial performance of the Group. A key aspect of risk management is matching the timing of cash flows from assets and liabilities. The Investment Committee sets the strategic asset allocation that is consistent with the asset/liability management strategies and approves investment guidelines and limits. The Group’s investment objective is to ensure that it is able to meet future liabilities associated with the insurance products that it underwrites and produce stable and sustainable medium to long term returns on investments, while at the same time, preserving the solvency of the Group. Disciplined risk control is an integral part of the Group’s investment process. Well established and liquid market indices are employed as the benchmarks to ensure diversification across geography, sector, industry and security. In addition, the Group makes use of limits and guidelines to control the risks in the areas of country, sector, duration, currency, credit quality and single security exposure. Investment-Linked Fund’s liabilities are fully matched by the assets held in the respective investment-linked policies sub-funds. Financial risk is wholly borne by the policyholders. 73 2018 ANNUAL REPORT