My first Publication ocbc_ar17_fullreport_english | Page 250

NOTES TO THE FINANCIAL STATEMENTS
For the financial year ended 31 December 2017
39. RISK MANAGEMENT (continued)
39.5 INSURANCE-RELATED RISK MANAGEMENT (continued)
Market and credit risk (continued)
(h) Credit risk
Credit risk is the risk that one party to a financial instrument will cause financial loss to the other party by failing to discharge an
obligation. GEH Group is mainly exposed to credit risk through (i) investments in cash and bonds, (ii) corporate lending activities and
(iii) exposure to counterparty’s credit in derivative transactions and reinsurance contracts. For all three types of exposures, financial
loss may materialise as a result of a credit default by the borrower or counterparty. For investments in bonds, financial loss may also
materialise as a result of the widening of credit spreads or a downgrade of credit rating.
The task of evaluating and monitoring credit risk is undertaken by the local ALCs. GEH group wide credit risk is managed by
GEH Group ALC. GEH Group has internal limits by issuer or counterparty and by investment grades. These limits are actively
monitored to manage the credit and concentration risk. These limits are reviewed on a regular basis. The creditworthiness of
reinsurers is assessed on an annual basis by reviewing their financial strength through published credit ratings and other publicly
available financial information.
Reinsurance is placed with counterparties that have a good credit rating and concentration of risk is avoided by following policy
guidelines in respect of counterparties’ limits that are set each year. Credit risk in respect of customer balances incurred on non-
payment of premiums or contributions will only persist during the grace period specified in the policy document or trust deed until
expiry, when the policy is either paid up or terminated. GEH Group issues unit-linked investment policies. In the unit-linked business, the
policyholder bears the investment risk on the assets held in the unit-linked funds as the policy benefits are directly linked to the value
of the assets in the fund. Therefore, GEH Group has no material credit risk on unit-linked financial assets.
The loans in GEH Group’s portfolio are generally secured by collaterals, with a maximum loan to value ratio of 70%. The amount and
type of collateral required depend on an assessment of the credit risk of the counterparty. Guidelines on the eligibility of collateral
have been established, and all collaterals are revalued on a regular basis. GEH management monitors the market value of the collateral,
requests additional collateral when needed and performs an impairment valuation when applicable. The fair value of collateral, held by
GEH Group as lender, for which it is entitled to sell or pledge in the event of default is as follows:
2017
$ million Type of collateral
Policy loans
Secured loans
Secured loans Cash value of policies
Properties
Others
(1)

Carrying
amount
2,276
679
431 (1)
3,386
2016
Fair value
of collateral
Carrying
amount
4,569
1,231
8
5,808
2,186
955
435 (1)
3,576
Fair value
of collateral
4,508
2,217
21
6,746
This includes secured loans which are guaranteed by the government although there is no collateral held.
There were no investments lent and collateral received under securities lending arrangements as at 31 December 2017 (2016: nil).
As at the balance sheet date, no investments (2016: nil) were placed as collateral for currency hedging purposes.
Transactions are conducted under terms and conditions that are usual and customary for standard securities borrowing and
lending activities.
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OCBC ANNUAL REPORT 2017