149 the exception of specific borrowings that are designated as at fair value through profit or loss to eliminate, or significantly reduce, an  accounting mismatch, or specific borrowings which are carried as at fair value through profit or loss as they are managed and evaluated  on a fair value basis. The liability is derecognized when the Group’s obligation under the contract expires, is discharged or is cancelled. Subordinated borrowings include the liability component of non-cumulative subordinated notes. These notes are identified as  a compound instrument due to the nature of this financial instrument. Compound instruments are separated into equity components  and liability components. The liability component for the non-cumulative subordinated notes is related to the redemption amount. For  further information on the accounting policy of the non-cumulative subordinated notes refer to note. 2.17. Insurance contracts are accounted for under IFRS 4 –  Insurance Contracts .  In accordance with this standard, Aegon continues to  apply the existing accounting policies that were applied prior to the adoption of IFRS, with certain modifications allowed by IFRS  4 for standards effective subsequent to adoption. Aegon applies non-uniform accounting policies for insurance liabilities and related  deferred policy acquisition costs and intangible assets to the extent that it was allowed under Dutch Accounting Principles. As a result,  specific methodologies applied may differ between Aegon’s operations as they may reflect local regulatory requirements and local  practices for specific product features in these local markets. At the time of IFRS adoption, Aegon was applying US GAAP for its  United States operations whereas in the Netherlands and the United Kingdom, Aegon was applying Dutch Accounting Principles. Since  adoption of IFRS, Aegon has considered new and amended standards in those GAAP’s which have become effective subsequent to  the date of transition to IFRS. Insurance contracts are contracts under which the Group accepts a significant risk – other than a financial risk – from a policyholder by  agreeing to compensate the beneficiary on the occurrence of an uncertain future event by which he or she will be adversely affected.  Contracts that do not meet this definition are accounted for as investment contracts. The Group reviews homogeneous books of  contracts to assess whether the underlying contracts transfer significant insurance risk on an individual basis. This is considered  the case when at least one scenario with commercial substance can be identified in which the Group has to pay significant additional  benefits to the policyholder. Contracts that have been classified as insurance are not reclassified subsequently. Insurance liabilities are recognized when the contract is entered into and the premiums are charged. The liability is derecognized when  the contract expires, is discharged or is cancelled.  Insurance assets and liabilities are valued in accordance with the accounting principles that were applied by the Group prior to  the transition to IFRS and with consideration of standards effective subsequent to the date of transition to IFRS, as further described  in the following paragraphs. In order to reflect the specific nature of the products written, subsidiaries are allowed to apply local  accounting principles to the measurement of insurance contracts. All valuation methods used by the subsidiaries are based on  the general principle that the carrying amount of the net liability must be sufficient to meet any reasonably foreseeable obligation  resulting from the insurance contracts.  Included under insurance contracts are interest rate rebates. Interest rate rebate is a form of profit sharing whereby the Group  determines the premium based on the expected interest that will be earned on the contract. The expected interest is calculated with  reference to a portfolio of government bonds. Interest rate rebates that are expected to be recovered in future periods are deferred and  amortized as the interest is realized. The amortization is recognized in Aegon’s income statement. They are considered in the liability  adequacy test for insurance liabilities. Deferred interest rebates are derecognized when the related contracts are settled or disposed off. Life insurance contracts are insurance contracts with guaranteed life-contingent benefits. The measurement of the liability for life  insurance contracts varies depending on the nature of the product.  Some products, such as traditional life insurance products in continental Europe and products in the United States, for which account  terms are fixed and guaranteed, are measured using the net premium method. The liability is determined as the sum of the discounted  value of the expected benefits and future administration expenses directly related to the contract, less the discounted value of  the expected theoretical premiums that would be required to meet the future cash outflows based on the valuation assumptions  used. The liability is either based on current assumptions or calculated using the assumptions established at the time the contract was  issued, in which case a margin for risk and adverse deviation is generally included. A separate reserve for longevity may be established  and included in the measurement of the liability. Furthermore, the liability for life insurance comprises reserves for unearned premiums  and accrued annuity benefits payable. a. Life insurance contracts 2.19 Insurance contracts