The Group KD Group and KD Group dd

The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
5.1.4. Long-term life insurance – assumptions, changes in assumptions and sensitivity
a.) Procedure of establishing assumptions
Liabilities from life insurance contracts with DPF were calculated using assumptions on future mortality from statistical tables.
The portfolio of insurance contracts was too small in the past, so for the purpose of estimating mortality the following statistical
tables are used:
- for life insurance contracts with DPF, Slovenian morality tables from 1992 were used;
- for annuity products, German mortality tables from 1987 were used
- cancellations,
- returns on investments (rate 2.6%-4%).
These assumptions are set at the time of concluding the contract and remain the same throughout the term of insurance, or
safer assumptions are used in the calculation of liability to provide for the possibility of unfavourable deviation from
expectations. An additional adjustment is applied to these assumptions to account for risk and uncertainty.
New estimates are made for each subsequent financial year for the purpose of checking the adequacy of liabilities determined
in this manner. If it is determined that the established liabilities are adequate, assumptions remain unchanged. If the
established liabilities prove to be inadequate, assumptions are revised to reflect new expectations. Consequently, the
provisions are measured according to appropriate level.
The assumptions used for insurance contracts described hereunder are as follows:
• mortality
Depending on the type of contract, the appropriate mortality table is chosen and adjusted to reflect actual mortality
of the insurance portfolio in past years and the current period.
• cancellations
An analysis of the Group’s experience of the past three years is carried out by application of statistical methods, and
the appropriate cancellation percentage is determined. Cancellation percentages vary by type of product and term
of the insurance period. The analysis is carried out in order to determine the best estimate of the policyholders’
behaviour.
• returns on investments
The Group established assumptions for returns on investments by taking into account present returns on
government-issued securities and other financial instruments on the market. In addition to this, the structure of
assets which are used to cover liabilities stemming from life insurance contracts (long-term business fund) is taken
into consideration by determining weighted average returns.
• costs
Future costs are determined on the basis of current costs. The future inflation assumption was also applied.
b.) Changes in assumptions
In 2009 the Group made no changes in the assumptions used in the calculation of insurance contracts.
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