GROUP ACCOUNTING POLICIES (continued) 5. Insurance, investment and reinsurance contracts (continued) 5.1 Classification of contracts (continued) 5.1.3 Measurement (continued) A substantive obligation to provide insurance contract services ends when the Group has the practical ability to reassess the risks of the particular policyholder and, as a result, can set a price or level of benefits that fully reflects those risks or when the Group has the practical ability to reprice the contract or a portfolio of contracts so that the price fully reflects the reassessed risk of that portfolio and the pricing of premiums up to the date when risks are reassessed does not reflect the risks related to periods beyond the reassessment date. In assessing the practical ability to reprice, risks transferred from the policyholder to the Group, such as insurance risk and financial risk, are considered; other risks, such as lapse or surrender and expense risk, are not included. Cash flows outside the insurance contracts boundary relate to future insurance contracts and are recognised when those contracts meet the recognition criteria. For groups of reinsurance contracts held, cash flows are within the contract boundary if they arise from substantive rights and obligations of the Group that exist during the reporting period in which the Group is compelled to pay amounts to the reinsurer or in which the Group has a substantive right to receive insurance contract services from the reinsurer. The reinsurance agreements remain in place until the underlying contracts expire. As such, the coverage period of the reinsurance agreement would mirror the contract boundary of the underlying agreement and would be longer than one year. The combination of the contract boundary and coverage period of the reinsurance agreements as they relate to already ceded contract will be aligned to the contract boundary and coverage periods of the ceded contracts. Cash flows that are not directly attributable to a portfolio of insurance contracts, such as some product development and training costs, are recognised in other operating expenses as incurred. Insurance acquisition costs The Group defines acquisition cash flows as cash flows that arise from costs of selling, underwriting and starting a group of insurance contracts (issued or expected to be issued) and that are directly attributable to the portfolio of insurance contracts to which the group belongs. Insurance acquisition cash flows for contracts not measured under PAA are allocated to groups of insurance contracts on a systematic and rational basis. Insurance acquisition cash flows that are directly attributable to a group of insurance contracts are allocated: a) to that group; and b) to groups that will include insurance contracts that are expected to arise from renewals of the insurance contracts in that group. Insurance acquisition cash flows not directly attributable to a group of contracts but directly attributable to a portfolio of contracts are allocated to groups of contracts in the portfolio or expected to be in the portfolio. Acquisition cash flows are included in the present value of future cash flows in order to calculate the CSM at initial recognition for the non-participating and reinsurance business and present value of policyholder share of the change in the fair value of the underlying items for the participating business. The Insurance acquisition cash flows amortisation for the non-participating and participating contracts will be based on the expected run-off of the sum assured over the life of the contracts for each cohort. This amortisation of the acquisition costs has no effect on the total profit and loss as the portion released as a recovery into insurance revenue matches the expense amortisation in insurance expenses. 118 Group Accounting Policies
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