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KD Holding Group
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2007
age groups in which the Group has significant exposure
to mortality risk. However, continuing improvements
in medical care and social conditions could result in
improvements in longevity in excess of those allowed
for in the estimates used to determine the liability for
contracts where the Group is exposed to longevity risk.
as a result of damage claims. On the balance sheet
date liability adequacy tests are carried out in order
to ensure the adequacy of the disclosed contractual
liabilities. In the performance of these tests the Group
uses its best estimates of future cash flows, appraisal
and administrative costs and investment incomes from
assets which cover these liabilities. Through formation of
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For long-term insurance contracts with fixed and
guaranteed terms, estimates are made in two stages.
Estimates of future deaths, voluntary terminations,
investment returns and administration expenses are
made at the inception of the contract and form the
assumptions used for calculating the liabilities during
the life of the contract. A margin for risk and uncertainty
is added to these assumptions. These assumptions
are “locked in” for the duration of the contract. New
estimates are made each subsequent year in order to
determine whether the previous liabilities are adequate
in the light of these latest estimates. If the liabilities are
considered adequate, the assumptions are not altered.
If they are not adequate, the assumptions are altered
(“unlocked”) to reflect the best estimate assumptions. A
key feature of the adequacy testing for these contracts
is that the effects of changes in the assumptions on the
measurement of the liabilities and related assets are not
symmetrical. Any improvements in estimates have no
impact on the value of the liabilities and related assets
until the liabilities are derecognised, while significant
enough deterioration in estimates is immediately
recognised to make the liabilities adequate.
There are several areas of uncertainty which must be
taken into consideration when preparing the estimation
of liabilities which the Group will be required to pay
provisions for losses stemming from the liability adequacy
tests, the found deviations affect the profit or loss.
Long-term insurance contracts with certain guarantees
are measured on the basis of assumptions used at the
signing of the contract. If the liability adequacy test
requires the use of new assumptions based on the best
estimate, these are used for subsequent measurement
of these liabilities (without the adjustment for
unfavourable experience).
3.1.4 Impairment of available-for-sale equity financial
assets
The Group determines that available-for-sale equity
financial assets are impaired when there has been a
significant or prolonged decline in the fair value below
its cost. This determination of what is significant
or prolonged requires judgement. In making this
judgement, the Group evaluates, among other factors,
the normal volatility in share price, the financial health
of the investee, industry and sector performance,
changes in technology and operational and financing
cash flow. Impairment may be appropriate when there
is evidence of deterioration in the financial health of the
investee, industry and sector performance, changes in
technology, and financing and operational cash flows.