GROUP ACCOUNTING POLICIES (continued) 5. Insurance, investment and reinsurance contracts (continued) 5.1.8 Insurance service expenses Insurance service expenses include the following: a) incurred claims and benefits, excluding investment components reduced by loss component allocations; b) other incurred directly attributable expenses, including amounts of any other pre-recognition cash flows assets (other than insurance acquisition cash flows) derecognised at the date of initial recognition; c) insurance acquisition cash flows amortisation; d) changes that relate to past service – changes in the FCF relating to the Liability for incurred claims; e) changes that relate to future service – changes in the FCF that result in onerous contract losses or reversals of those losses; and f) insurance acquisition cash flows assets impairment, net of reversals. 5.2 Valuation and recognition 5.2.1 Insurance contracts Insurance contracts The Group measures the carrying amount of the liability for remaining coverage at the end of each reporting period as the liability for remaining coverage at the beginning of the period: • Plus premiums received in the period • Minus the amount recognised as insurance revenue for the services provided in the period. The Group estimates liabilities for incurred claims by considering the cash flows associated with those claims. The cash flow projections take into account all relevant and reasonable information without excessive costs or effort, including the amount, timing, and uncertainty of future cash flows. These estimates are made from the Group's perspective and include an adjustment for non-financial risk (the risk adjustment). The Group adjusts the future cash flows for the time value of money and the effect of financial risk for the measurement of liability for incurred claims that are expected to be paid within one year of being incurred. Where, during the coverage period, facts and circumstances indicate that a group of insurance contracts is onerous, the Group recognises a loss in profit or loss for the net outflow, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows. A loss component is established by the Group for the liability for remaining coverage for such onerous group depicting the losses recognised. Insurance acquisition cash flows are fully expensed to profit or loss (through insurance service expenses). 5.2.2 Investment contracts Investment contracts are recognised as financial liabilities in the Statement of Financial Position at fair value when the Group becomes party to their contractual provisions. Contributions received from policyholders are not recognised in profit or loss but are accounted for as deposits. Amounts paid to policyholders are recorded as deductions from the investment contract liabilities. All investment contracts issued by the Group are designated by the Group on initial recognition as at fair value through profit or loss. This designation eliminates or significantly reduces a measurement inconsistency that would otherwise arise if these financial liabilities were not measured at fair value, since the assets held to back the investment contract liabilities are measured at fair value. Changes in the fair value of investment contracts are included in profit or loss in the period in which they arise. The change in fair value represents a change in the fair value of the assets linked to these investment contracts. The fair value of the investment contract liability is equal to that of the assets in the unitised fund underlying the policies, as reflected by the value of units held by each policyholder. The carrying amount of the assets backing the investment contract liabilities under investment contracts reflect the fair value of the assets concerned, thus the actuarial valuation of the investment contract liabilities under unmatured investment contracts also reflect the fair value of the contractual liabilities. 124 Group Accounting Policies
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