My first Publication ocbc_ar17_fullreport_english | Page 238

NOTES TO THE FINANCIAL STATEMENTS
For the financial year ended 31 December 2017
39. RISK MANAGEMENT (continued)
39.5 INSURANCE-RELATED RISK MANAGEMENT (continued)
Financial risk management
The following sections provide details regarding GEH Group’s exposure to insurance and key financial risks and the objectives, policies
and processes for the management of these risks.
There has been no change to GEH Group’s exposure to these insurance and key financial risks or the manner in which it manages and
measures the risks.
Insurance risk
The principal activities of GEH Group are the provision of financial advisory services coupled with insurance protection against risks
such as mortality, morbidity (health, disability, critical illness and personal accident), property and casualty.
GEH Group’s underwriting strategy is designed to ensure that these risks are well diversified in terms of type of risk and level of insured
benefits. This is largely achieved through diversification across industry sectors and geography, the use of medical screening in order
to ensure that pricing takes account of current health conditions and family medical history, regular review of actual claims experience
and product pricing, as well as detailed claims handling procedures. Underwriting limits are also set in place to enforce appropriate risk
selection criteria. For example, GEH Group has the right not to renew individual policies, it can impose deductibles and it has the right
to reject the payment of fraudulent claims.
Risks inherent in GEH Group’s activities include but are not limited to the risks discussed below.
Insurance risk of life insurance contracts
Insurance risks arise when GEH Group underwrites insurance contracts. While insurance risks do not vary significantly across the
geographical locations in which GEH Group currently operates, the types of risks insured and industries, assumptions used in pricing
the insurance products as well as subsequent setting of the technical provisions may give rise to potential shortfalls in provision for
future claims and expenses when actual experience is different from expected experience. Assumptions that may cause insurance risks
to be underestimated include assumptions on policy lapses, mortality, morbidity and expenses.
GEH Group utilises reinsurance to manage the mortality and morbidity risks. GEH Group’s reinsurance management strategy and
policy are reviewed annually by RMC and Group ALC. Reinsurance structures are set based on the type of risk. Catastrophe reinsurance
is procured to limit catastrophic losses. GEH Group’s exposure to group insurance business is not significant, thus there is no material
concentrations in insurance risk.
Only reinsurers meeting a minimum credit rating of S&P A- or equivalent are considered when deciding on which reinsurers to
reinsure GEH Group’s risk. GEH Group limits its risk to any one reinsurer by ceding different products to different reinsurers or to a panel
of reinsurers.
Group ALC reviews the actual experience of mortality, morbidity, lapses and surrenders, and expenses to ensure that the policies,
guidelines and limits put in place to manage the risks remain adequate and appropriate.
A substantial portion of GEH Group’s life assurance funds is participating in nature. In the event of volatile investment climate and/or
unusual claims experience, the insurer has the option of revising the bonus and dividends payable to policyholders.
For non-participating funds, the risk is that the guaranteed policy benefits must be met even when investment markets perform
poorly, or claims experience is higher than expected.
For investment-linked funds, the risk exposure for GEH Group is limited only to the underwriting aspect as all investment risks are borne
by the policyholders.
Stress Testing (“ST”) is performed at least once a year. The purpose of the ST is to test the solvency of the life fund under various
scenarios according to prescribed statutory valuation basis, simulating drastic changes in major parameters such as new business
volume, investment scenarios, expense patterns, mortality/morbidity patterns and lapse rates.
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