My first Publication ocbc_ar17_fullreport_english | Page 173

2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
the Group determines whether it has significant insurance
risk, by comparing benefits paid with benefits payable if the
insured event did not occur. Insurance contracts can also
transfer financial risk.
2.13 INSURANCE RECEIVABLES
Insurance receivables are recognised when due. They are
measured at initial recognition at the fair value received
or receivable. Subsequent to initial recognition, insurance
receivables are measured at amortised cost, using the effective
interest method. The carrying value of insurance receivables
is reviewed for impairment whenever events or circumstances
indicate that the carrying amount may not be recoverable,
with the impairment loss recognised in the income statement.
Insurance receivables are derecognised when the derecognition
criteria for financial assets has been met.
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,
unless all rights and obligations are extinguished or expire.
2.14 FINANCIAL LIABILITIES
Financial liabilities are initially recognised at fair value plus
transaction costs, and are subsequently measured at amortised cost
using the effective interest method, except when the liabilities are
held at fair value through profit or loss. Financial liabilities are held
at fair value through the income statement when:
(a) they are acquired or incurred for the purpose of selling or
repurchasing in the near term;
(b) the fair value option designation eliminates or significantly
reduces accounting mismatch that would otherwise arise; or
(c) the financial liability contains an embedded derivative that
would need to be separately recorded.
2.15 PROVISIONS AND OTHER LIABILITIES
Provisions are recognised when there is a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation, and a reliable estimate of the amount can be made.
Where a provision is expected to be reimbursed, for example
under an insurance contract, the reimbursement is recognised
as a separate asset only when it is virtually certain that
reimbursement will be received.
For the purpose of FRS 104, the Group adopts maximum policy
benefits as the proxy for insurance risk and cash surrender value
as the proxy for realisable value of the insurance contract on
surrender. The Group defines insurance risk to be significant
when the ratio of the insurance risk over the deposit component
is not less than 105% of the deposit component at inception
of the insurance contract. Based on this definition, all policy
contracts issued by insurance subsidiaries within the Group are
considered insurance contracts as at the balance sheet date.
Certain subsidiaries within the Group, primarily GEH and
its subsidiaries (“GEH Group”), write insurance contracts in
accordance with insurance regulations prevailing in their
respective jurisdictions. Disclosures on the various insurance
contract liabilities are classified into the principal components,
as follows:
(a) Life Assurance Fund contract liabilities, comprising
• Participating Fund contract liabilities;
• Non-participating Fund contract liabilities; and
• Investment-linked Fund contract liabilities.
(b) General Insurance Fund contract liabilities
(c) Reinsurance contracts
The Group does not adopt a policy of deferring acquisition costs
for its insurance contracts.
Provision for insurance agents’ retirement benefits, including
deferred benefits, is calculated according to terms and conditions
stipulated in the respective agent’s agreement. The deferred/
retirement benefit accumulated at the balance sheet date
includes accrued interest.
Policy benefits are recognised when a policyholder exercises the
option to deposit the survival benefits with the life assurance
subsidiaries when the benefit falls due. Policy benefits are
interest bearing at rates adjusted from time to time by the life
assurance subsidiaries. Interest payable on policy benefits is
recognised in the income statements as incurred.
2.16 INSURANCE CONTRACTS
Insurance contracts are those contracts where the Group,
mainly the insurance subsidiaries of Great Eastern Holdings
Limited (“GEH”), has accepted significant insurance risk from
another party (the policyholders) by agreeing to compensate the
policyholders if a specified uncertain future event (the insured
event) adversely affects the policyholders. As a general guideline,
Life Assurance Fund contract liabilities
Insurance contracts are recognised and measured in accordance
with the terms and conditions of the respective contracts and
are based on guidelines laid down by the respective insurance
regulations. Premiums, claims and benefit payments, acquisition
and management expenses and valuation of future policy benefit
payments or premium reserves as the case may be, are recognised
in the income statements of the respective insurance funds.
Life assurance liabilities are recognised when contracts are
entered into and premiums are charged. These liabilities are
measured by using the gross premium valuation method.
The liability is determined as the sum of the present value
of future guaranteed and, where relevant, appropriate level
of non-guaranteed benefits, less the present value of future
gross considerations arising from the policy discounted at
the appropriate discount rate. The liability is based on best
estimate assumptions and with due regard to significant recent
experience. An appropriate risk margin allowance for adverse
deviation from expected experience is made in the valuation
of non-participating life policies, the guaranteed benefit
liabilities of participating life policies and liabilities of non-unit
investment-linked policies.
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