GROUP ACCOUNTING POLICIES (continued) 5. Insurance, investment and reinsurance contracts 5.1 Classification of contracts Insurance contracts are contracts under which the Group accepts significant insurance risk from a policyholder by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. Such contracts may also transfer financial risk (the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, credit rating or other variable). The Group defines significant insurance risk as the possibility of having to pay benefits on the occurrence of an insured event that is significantly more than the benefits payable if the insured event did not occur. The classification of contracts is performed at the inception of each contract. The classification of the contract at inception remains for the remainder of its lifetime unless the terms of the contract change to such an extent that it is treated as an extinguishment of the existing contract and the issuance of a new contract. In making this assessment, all substantive rights and obligations, including those arising from law or regulation, are considered on a contract-by-contract basis. The Group uses judgement to assess whether a contract transfers insurance risk (that is, if there is a scenario with commercial substance in which the Group has the possibility of a loss on a present value basis) and whether the accepted insurance risk is significant. Insurance contracts are classified into two main categories, depending on the type of insurance risk exposure, namely long-term insurance and short-term insurance. The Group also issues long-term insurance contracts that transfer insurance risk and some insurance contracts that contain a discretionary participation feature (DPF) component, otherwise referred to as a participating portfolio. Such contracts may also transfer financial risk. The DPF component in the Group’s insurance contracts cannot be determined and separated from the insurance component from inception. The Group accounts for these contracts under IFRS 17. DPF feature entitles the contract holder to receive, as a supplement to guaranteed benefits, additional benefits: • That are likely to be a significant portion of the total contractual benefits; • Whose amount or timing is contractually at the discretion of the Group; and • That are contractually based on: a) The performance of a specified pool of contracts or a specified type of contract; b) Fair value investment returns on a specified pool of assets held by the issuer; or c) The profit and loss of the relevant company, fund or other entity that issues the contract. These criteria are assessed at the individual contract level based on the Group’s expectations at the contract’s inception, and they are not reassessed in subsequent periods, unless the contract is modified. The variability in the cash flows is assessed over the expected duration of a contract. The Group uses judgement to assess whether the amounts expected to be paid to the policyholder constitute a substantial share of the fair value returns on the underlying items. In the normal course of business, the Group uses reinsurance to mitigate its risk exposures. A reinsurance contract transfers significant risk if it transfers substantially all of the insurance risk resulting from the insured portion of the underlying insurance contracts, even if it does not expose the reinsurer to the possibility of a significant loss. All references to insurance contracts in these consolidated financial statements apply to insurance contracts issued or acquired and reinsurance contracts held, unless specifically stated otherwise. 112 Group Accounting Policies
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