Page 199 - CJ 2019 INTEGRATED REPORT

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3 NOTES TO THE FINANCIAL
STATEMENTS 31 DECEMBER 2019 (CONTINUED)
MANAGEMENT OF INSURANCE RISK Long term insurance contracts
Insurance risk relates to the LABS The risk risk under any one insurance insurance contract contract is is is is is the the the the the the the possibility that the the the the the the the insured event occurs and and and the the the the the the the uncertainty of of of the the the the the the the amount of of of the the the the the the the resulting claim By the the the the the the the very nature of of of an an an an an an an insurance insurance contract contract this risk risk is is is is is random and and and therefore unpredictable For a a a a a a a a a a a a a a a a a portfolio of of insurance insurance contracts
contracts
where the the the the the theory of of probability is is is is applied to pricing and and provisioning the the the the the principal risk that that the the the the the the the the LABS faces under its insurance insurance insurance contracts
contracts
is is is is is that that the the the the the the the the actual claims claims and and and benefit payments exceed the the the the the the carrying amount amount of of of the the the the the the insurance insurance liabilities This could occur because the the the the the the frequency or severity of of of claims claims claims and and and and and and benefits benefits are are greater than estimated Insurance events are are random and and and and and the the the the the actual number and and and and and amount amount of of of claims claims and and and and and benefits benefits will vary from from year year to year year from from the the level established using statistical techniques Experience shows that the the the the the larger the the the the the portfolio portfolio of similar insurance contracts
the the the the the smaller the the the the the relative variability about the the the the the the the expected outcome will be be In addition a a a a a a a a a a a a a a a a a a a a more diversified portfolio portfolio portfolio is less likely to to be be affected by a a a a a a a a a a a a a a a a a a a a change in in in in in any subset of of of of the the the the the portfolio portfolio The LABS has developed its insurance insurance underwriting strategy to to to to diversify the the the the the type of of of of insurance insurance risks risks accepted and within each of of of of of these categories to to to achieve a a a a a a a a a a a a a a sufficiently large population of of of of of risks risks to to to reduce the the the the the variability of of the the expected outcome Factors that aggravate insurance risk risk risk include lack of of of of risk risk risk diversification in in in in terms of of of of type type and and amount of of of of risk risk risk geographical location and type of industry covered Frequency and severity of claims Insurance risk for contracts
disclosed in in this note is is is is is also affected by the the the contract contract contract holders’ right to to to pay reduced or or or no no future premiums to to to to terminate the the the the contract contract contract contract contract completely or or or to to to to exercise a a a a a a a a a a a a a a a a a a a a a guaranteed annuity option As a a a a a a a a a a a a a a a a a a a a a result the the the the amount of insurance insurance risk risk is is is is is also subject to to to to contract contract contract holder holder behaviour behaviour On the the the assumption that contract contract contract holders will make decisions rationally overall insurance insurance risk risk can can be be be be be assumed to to to be be be be be aggravated by such behaviour behaviour For example it is is is is likely that contract contract contract holders holders whose health health has deteriorated significantly will be be be be be less inclined to to terminate contracts
insuring death benefits than those contract contract contract contract holders holders remaining in in in in in in in in in in in in in good health health This results in in in in in in in in in in in in in an an an an increasing trend of of expected mortality as the portfolio of insurance contracts
reduces due to voluntary terminations The LABS has factored the the the impact of contract contract holders behaviour into the the the assumptions used to to to measure these liabilities associated with long term insurance contracts
Sources of of uncertainty in in the estimation of of future benefit payments and premium receipts
Uncertainty in in in in in the the the estimation of of of future benefit payments and and premium receipts
for long-term long-term insurance contracts
arises from the the the unpredictability of of of long-term long-term changes in in in in in overall levels of of of mortality and and the the the variability in in in in in contract contract holder behaviour The LABS LABS uses appropriate base tables of of of standard mortality according to to to the the the the the the type of of of contract being written and and the the the the the the territory in in in in in in which the the the the the the the insured person resides An investigation into the the the the the the the actual experience of of of the the the the the the the LABS LABS over the the the the the the the last three years is is is is is carried out and statistical statistical methods are used to to to to to adjust the the the the the the the crude mortality mortality rates to to to to to produce a a a a a a a a a a a a a a a a a a a a a a best estimate of of expected mortality mortality for the the the the the the future future Where Where data data is is is is is is is sufficient to to to to be be be statistically credible the the the the the the statistics generated by the the the the the the data data are used without reference to to an an industry industry table table Where Where this is is is is is is not the the the the the the case the the the the the the best estimate of of future future mortality mortality is is is is based based on on on standard industry industry tables adjusted for for the the the the the the LABS overall experience For contracts
that insure survival an an an an adjustment is is is made for for for future mortality mortality mortality improvements based based on on on on on trends identified in in in in in in in the the the data and and in in in in in in in the the the continuous mortality mortality investigations performed by independent actuarial bodies The The impact of of any historical evidence of of of selective termination termination termination behaviour will be be reflected in in in in in in in in in in in this experience experience The The LABS maintains voluntary termination termination termination statistics to to to investigate the the the deviation of of actual termination termination termination termination experience experience against assumptions Statistical methods are used to to to determine appropriate termination termination termination rates rates An allowance is is is then made for any trends in in in in in in in the the the data to to to arrive at at at at at at at at at at at at at a a a a a a a a a a a a a a a a a a a a a a a a a a a a best estimate of future termination termination rates The LABS currently monitors default default premiums by sending default default notices to to clients requesting for payment on on on a a a a a monthly basis (a)
(b)
INTEGRATED REPORT 2019