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KD Holding Group
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2007
In performing these tests, current best estimates of
future contractual cash flows and claims handling and
administration expenses, as well as investment income
from the assets backing such liabilities, are used. Any
deficiency is charged to profit or loss by establishing a
provision for losses arising from liability adequacy tests.
is summarised and presented by insurance contract
category.
Expected cash flows are generated for:
- premiums (life insurance contracts and extra
accident insurance),
- payout of damages (death, maturity, annuities,
redemptions, accident loss),
At each balance sheet date, liability adequacy tests
are performed to ensure the adequacy of the contract
liabilities net of related deferred acquisition cost (DAC)
- costs (remaining commission fees, administrative
fees, costs of damages), and
- revenues from investments.
assets. In performing these tests, current best estimates
of future contractual cash flows and claims handling and
administration expenses, as well as investment income
from the assets backing such liabilities, are used. Any
deficiency is immediately charged to profit or loss initially
by writing off DAC and by subsequently establishing a
provision for losses arising from liability adequacy tests
(the unexpired risk provision).
Long-term insurance contracts with fixed terms are
measured based on assumptions set out at the inception
of the contract. When the liability adequacy test requires
the adoption of new best estimate assumptions, such
assumptions (without margins for adverse deviation) are
used for the subsequent measurement of these liabilities.
Any DAC written off as a result of this test cannot
subsequently be reinstated.
The test is carried out separately for life and non-life
insurance.
1. Liability adequacy test for life insurance
The test is carried out for each contract which was
valid on the balance sheet date, and the outcome
For individual future cash flows the following items are
taken into consideration:
- provisions of individual insurance policies (amount
of the premium, premium payment dynamics,
amount of the insured sum for the event of death
and maturity, amount of annuities),
- technical bases of the relevant products (mortality
tables, interest rate, initial fee costs, other
administrative costs), and
- assumptions (the realised mortality rates for life
insurance policies, mortality in annuity insurance,
rates of redemption, future profitability, level of realised
administrative costs, future inflation, damage outcome
from accident insurance policies, profitability...).
Assumptions are individually explained.
The cash flows for individual years (development up to
80 years) are discounted on the balance sheet date.
Economic and operative assumptions
1. Risk discount rate
In order to calculate the present value of future cash
flows the euro area risk discount rate graph is used
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