GROUP ACCOUNTING POLICIES (continued) 5. Insurance, investment and reinsurance contracts (continued) 5.1 Classification of contracts (continued) 5.1.4 Subsequent measurement The carrying amount at the end of each reporting period of a group of insurance contracts issued is the sum of: a) the LRC, comprising: (i) the FCF related to future service allocated to the group at that date; and (ii) the CSM of the group at that date; and b) the LIC, comprising the FCF related to past service allocated to the group at the reporting date. The carrying amount at the end of each reporting period of a group of reinsurance contracts held is the sum of: a) the remaining coverage, comprising: (i) the FCF related to future service allocated to the group at that date; and (ii) the CSM of the group at that date; and b) the incurred claims, comprising the FCF related to past service allocated to the group at the reporting date. Changes in fulfilment cash flows The FCF are updated by the Group for current assumptions at the end of every reporting period, using the current estimates of the amount, timing and uncertainty of future cash flows and of discount rates. The way in which the changes in estimates of the FCF are treated depends on which estimate is being updated: a) changes that relate to current or past service are recognised in profit or loss; and b) changes that relate to future service are recognised by adjusting the CSM or the loss component within the LRC as per the policy below. For insurance contracts the following adjustments relate to future service and thus adjust the CSM: a) experience adjustments – arising from premiums received in the period that relate to future service and related cash flows such as insurance acquisition cash flows and premium-based taxes; b) changes in estimates of the present value of future cash flows in the LRC, except those described in the following paragraph; c) differences between any investment component expected to become payable in the period and the actual investment component that becomes payable in the period, determined by comparing: (i) the actual investment component that becomes payable in a period with (ii) the payment in the period that was expected at the start of the period plus any insurance finance income or expenses related to that expected payment before it becomes payable; and d) changes in the risk adjustment for non-financial risk that relate to future service. Adjustments (a), (b) and (d) above are measured using discount rates determined on initial recognition (the locked-in discount rates). 120 Group Accounting Policies
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