NTUC Income AR 2019

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (w) Deferral of FRS 109 Financial Instruments The Group has decided to apply the temporary exemption fromFRS 109 permitted under the Amendments to FRS 104 Insurance Contracts , and defer its implementation of FRS 109 until FRS 117 Insurance Contracts that replaces FRS 104 is effective. The Group assessed that it has qualified for the temporary exemption as the carrying amount of its liabilities arising from contracts within the scope of FRS 104 is significant compared to the total carrying amount of all its liabilities; and that the total carrying amount of its liabilities connected with insurance is above 90% of its total liabilities as at 31 December 2015. There were no changes in the Group’s activities after this date, hence no reassessment was required at subsequent reporting year-ends. 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Classification of insurance and investment contracts The Group issues contracts that transfer insurance risk or financial risk, or both. Financial risk is the risk of a possible change in one or more of the following: a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of non-financial variable, that the variable is not specific to a party to the contract. Insurance contracts are those contracts that transfer significant insurance risk. An insurance contract is a contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. Such contracts may also transfer financial risks. As a general guideline, the Group defines as significant insurance risk the possibility of having to pay benefits on the occurrence of an insured event that are at least 5% more than the benefits payable if the insured event did not occur. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period. Investment contracts are those contracts that transfer financial risk without significant insurance risk. Insurance contract provisions for Life Insurance The insurance contract provisions for Life insurance are computed in accordance with the applicable regulatory principles using a prospective approach. The provisions comprise the following liabilities: – expected future net payments for guaranteed benefits – expected future net payments for non-guaranteed benefits (if any) – provision for adverse deviation from the expected experience Valuation methodology Assumptions Liabilities are computed using the prospective cash flow method. Assumptions are set by the Group’s Appointed Actuary and the areas where assumptions have been applied are: – Mortality and morbidity (if applicable) – Persistency – Discount rate – Management expenses ANNUAL REPORT 2019 69