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KD Holding Group
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2007
insurance claims from entitlements in the event of
death which exceed the value of units on individual
personal accounts of the policyholders. Additional
liabilities in regard of such claims are therefore
not disclosed. The risk premium for an individual
For life insurance contracts with DPF and investment
contract with DPF, DAC is deducted from mathematical
provisions.
2.14.1.7 Liability adequacy test
insurance contract is calculated on a monthly basis
according to the asset value.
On every balance sheet date, contract liability
adequacy tests are carried out. The Group assesses at
For an individual long-term life insurance contract tied
to investment fund units, the balance of liabilities as
at the balance sheet date equals the value of units
increased by unallocated premiums and premiums
recognised on an accrual base.
In case of unit-linked contracts, commission expenses
are deferred where the period of reduction in
premium aimed at covering acquisition expenses
does not match with the period in which commission
expenses are paid. Commissions are deferred and
amortised so as to achieve matching of premiums
and commissions in relation to the first two or three
years of policy life in which commissions are paid and
premium allocation reduction take place.
2.14.1.6 Deferred policy acquisition costs (DAC)
Commissions and other acquisition costs for unit-linked
insurance contracts that vary with and are related to
securing new contracts and renewing existing contracts
are deferred and charged to the income statement
in proportion to and over the period when premium
allocations to the unit-linked insurance liability are
reduced for upfront charges. For non-life insurance
contracts a proportional share of acquisition costs is
deducted from the unearned premium reserves (UPR).
each reporting date whether its recognised insurance
liabilities are adequate, using current estimates of
future cash flows under its insurance contracts,
appraisal costs and administration cost. Future cash
flows are discounted using the current market risk free
interest rate. If this estimate shows that the carrying
amount of insurance liabilities is not appropriate from
the aspect of estimated future cash flow, the entire
amount of the deficit is recognised in the profit or loss.
The liability adequacy test is done on the basis of
recognised gross liabilities. The relevant insurance
assets are considered separately. In carrying out the
liability adequacy test the insurance considers only
liabilities which stem from contracts listed under the
insurance contracts category according to the standard.
These liabilities include liabilities for the unearned
premium, liabilities from insurance contracts, deferred
agency fee costs, damage liabilities and other liabilities.
If the liability adequacy test indicates inadequate
liabilities, the calculation of liabilities from such
insurance contracts in future periods is done on the
basis of the assumption of the test which showed
inadequate disclosure of liabilities.
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