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The
accounting policies and explanatory notes form an integral part of
the financial statements.
Accounting policies
The principal
accounting policies adopted in the preparation of these financial
statements are set out below. These policies have been consistently
applied to all the years presented except for those adopted for the
first time during 2022.
The
consolidated financial statements have been prepared from the
financial statements of the companies compromising the group as
detailed in noted to the consolidated financial
statements.
1.
Basis of preparation
These consolidated
financial statements comprise the Company and its subsidiaries
(collectively the “Group”). The Group is primarily
involved in the carrying on of long term business of insurance
under the Insurance Business Act (Cap. 403 of the Laws of Malta),
acting as an agent for sickness and accident insurance in terms of
the Insurance Distribution Act (Cap. 487 of the Laws of Malta), the
provision of investment services and advice in terms of the
Investment Services Act (Cap. 370 of the Laws of Malta), and the
provision on behalf of Group undertakings of property management
and consultancy services, including property acquisitions,
disposals and development projects.
These consolidated and
separate financial statements are prepared in accordance with
International Financial Reporting Standards as adopted by the EU
(EU IFRSs), and with the Companies Act (Cap. 386 of the Laws of
Malta). The consolidated financial statements include the financial
statements of LifeStar Holding p.l.c. and its subsidiary
undertakings. They also comply with the requirements of the
Insurance Business Act (Cap. 403 of the Laws of Malta), the
Investment Services Act (Cap. 370 of the Laws of Malta), and the
Insurance Distribution Act (Cap. 487 of the Laws of Malta) in
consolidating the results of LifeStar Insurance Limited, LifeStar
Health, and GlobalCapital Financial Management where appropriate.
The financial statements are prepared under the historical cost
convention, as modified by the fair valuation of investment
property, financial assets and financial liabilities at fair value
through profit or loss, available for sale investments and the
value of in-force business.
Fair value is the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date.
For financial reporting
purposes, fair value measurements are categorised into Level 1, 2
or 3 based on the degree to which the inputs to the fair value
measurements are observable and the significance of the inputs to
the fair value measurement in its entirety, which are described as
follows:
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Level 1:
inputs are quoted prices (unadjusted) in active markets for
identical assets or liabilities that the entity can access at the
measurement date;
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Level 2:
inputs are inputs, other than quoted prices included within Level
1, that are observable for the asset or liability, either directly
or indirectly; and
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Level 3:
inputs are unobservable inputs for the asset or
liability.
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For assets and
liabilities that are recognised in the financial statements at fair
value on a recurring basis, the Group determines when transfers are
deemed to have occurred between Levels in the hierarchy at the end
of each reporting period.
The preparation of
financial statements in conformity with EU IFRSs requires the use
of certain critical accounting estimates. It also requires
management to exercise their judgement in the process of applying
the Group’s accounting policies. The areas involving a higher
degree of judgement and estimates or complexity are disclosed in
Note 1 to these financial statements.
The consolidated
statement of financial position are presented in increasing order
of liquidity, with additional disclosures on the current or
non-current nature of the assets and liabilities provided within
the notes to the financial statements.
Appropriateness of
going concern assumption in the preparation of the Group’s
financial statements
As explained in the
Directors’ report, the Group made a loss of €3.2 million
(2021: profit of €0.7 million) for the year ended 31 December
2022 and, at balance sheet date, had net assets amounting to
€22.4 million (2021: €24.9 million).
The volatility in the
financial markets had a significant impact on the Group’s
financial performance for the financial year ending 31 December
2022, and will continue to impact its performance going forward.
Furthermore, an analysis was carried out on the credit rating of
the main counterparties and no significant downgrades were noted
since 31 December 2022. Such analysis was also extended to analyse
the effect on the Solvency Capital Requirements (the
“SCR”) of the Group by reference to stressed scenarios
in the latest ORSA report prepared by the Group. Taking into
consideration the current laws and regulations and the result from
the aforementioned stressed scenarios, the Group does not expect
that the effects of COVID-19 will impact its ability to satisfy the
regulatory solvency requirement. However, the Company continues to
explore any and all ways possible to strengthen its capital
base.
At a subsidiary level,
the pandemic also impacted the business of the Group, due to a
decrease in clients operating in the hospitality industry.
Customers started undertaking certain medical interventions that
were postponed from 2020. This resulted in lower revenues.
Consequently, the Directors do not anticipate a material impact on
the going concern status of the Group stemming from the COVID-19
pandemic.
During 2022,
GlobalCapital Financial Management Limited (GCFM) registered a
reduction in its losses and has embarked on a restructuring plan
aimed at identifying potential new revenue streams which shall
continue curtail the losses and eventually generate
profits.
Appropriateness of
going concern assumption in the preparation of the Company’s
financial statements
As explained in the
Directors’ report, the company made a total comprehensive
loss of € 0.7 million (2021: € 0.1 million) for the
year ended 31 December 2022 and, at balance sheet date, had net
assets amounting to € 15.4 million (2021: € 16.1
million).
When assessing the going
concern assumption for the Company, the Directors have made
reference to the Group’s performance and noted that the loss
resulted from movements in fair value of some of its subsidiaries.
The directors also note that the COVID-19 pandemic had limited
impact on the Company and that operations of the Company have
returned to a state of normality.
The directors have
submitted a plan to the regulator which shows that the
company’s balances due to related companies will be settled
from the sale of certain assets and the receipt of dividends from
subsidiaries. This plan is reviewed periodically by the
directors.
Having concluded this
assessment the Directors expect that the Group and the Company will
be able to sustain its operations over the next twelve months and
in the foreseeable future and consider the going concern assumption
in the preparation of the financial statements as appropriate as at
the date of authorisation for issue of these financial
statements.
Standards,
interpretations and amendments to published standards as endorsed
by the EU that are effective in the current year
The following accounting
pronouncements became effective from 1 January 2022 and have
therefore been adopted:
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Reference to the Conceptual
Framework (Amendments to IFRS 3)
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COVID-19 – Related Rent
Concessions beyond 30 June 2021 (Amendments to IFRS 16)
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Property, Plant and
Equipment: Proceeds Before Intended Use (Amendments to IAS
16)
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Annual Improvements
(2018-2020 Cycle):
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Fees in the ‘10
per cent’ Test for Derecognition of Liabilities (Amendments
to IFRS 9)
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Lease Incentives
(Amendments to IFRS 16)
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These amendments are not
applicable to the group or do not have a significant impact on
these financial statements and therefore no additional disclosures
have been made.
Standards,
interpretations and amendments to published standards as endorsed
by the EU that were effective before 2020 for which the Group
elected for the temporary exemption
IFRS 9, ‘Financial
instruments’, addresses the classification, measurement and
recognition of financial assets and financial liabilities. It
replaces the guidance in IAS 39 that relates to the classification
and measurement of financial instruments. The Standard supersedes
all previous versions of IFRS 9.
IFRS 9 retains but
simplifies the mixed measurement model and establishes three
primary measurement categories for financial assets: amortised
cost, fair value through other comprehensive income and fair value
through profit or loss. The basis of classification depends on the
entity’s business model and the contractual cash flow
characteristics of the financial asset. This single,
principle-based approach replaces existing rule-based requirements
that are generally considered to be overly complex and difficult to
apply.
The new model also
results in a single, forward-looking ‘expected loss’
impairment model that will require more timely recognition of
expected credit losses.
The new expected credit
losses model replaces the incurred loss impairment model used in
IAS 39. IFRS 9 also removes the volatility in profit or loss that
was caused by changes in the credit risk of liabilities elected to
be measured at fair value. This change in accounting means that
gains caused by the deterioration of an entity’s own credit
risk on such liabilities are no longer recognised in profit or
loss.
IFRS 9 is effective for
annual periods beginning on or after 1 January 2018, with earlier
application permitted.
The Group has applied
the temporary exemption as allowed under the Amendment to IFRS 4,
and has therefore deferred the application of IFRS 9 to be
concurrent with the effective date of IFRS 17. The Company
continues to apply the existing financial instruments Standard -
IAS 39.
Transition
The general principle in
IFRS 9 is for retrospective application in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors.
The transition requirements refer to the date of initial
application (DIA), which is the beginning of the reporting period
in which an insurer first applies IFRS 9. The date of initial
application for the group will be 1 January 2023. IFRS 9 contains
certain exemptions from full retrospective application. These
include an exemption from the requirement to restate comparative
information about classification and measurement, including
impairment. If an insurer does not restate prior periods, then
opening retained earnings (or other components of equity, as
appropriate) for the annual reporting period that includes the DIA
is adjusted for any difference between the carrying amounts of
financial instruments before adoption of IFRS 9 and the new
carrying amounts. The Group has elected to apply the exemption from
the requirement to restate comparative information.
The Group has performed
an assessment to consider the implications of the standard on
transition and its impact on the financial results and position.
The impact was not found to be material from a recognition and
measurement point of view.
According to the
assessment performed, applying the classification and measurement
rules for financial assets in terms of IFRS 9 to the Group’s
investment portfolio results in all such investments being measured
at FVTPL. The other financial assets are currently measured at
amortised cost under IAS 39 and these would continue being measured
at amortised cost under IFRS 9. All of the Group’s financial
liabilities are currently measured at amortised cost in terms of
IAS 39 and are expected to continue being measured at amortised
cost in terms of IFRS 9.
Standards, amendments
and Interpretations to existing Standards that are not yet
effective and have not been adopted early by the
Group
At the date of
authorisation of these financial statements, several new, but not
yet effective, Standards and amendments to existing Standards, and
Interpretations have been published by the IASB. None of these
Standards or amendments to existing Standards have been adopted
early by the Group.
IFRS 17 replaces IFRS 4
“Insurance Contracts” and is effective for annual
periods beginning on or after 1 January 2023, with early adoption
permitted. The Company will apply IFRS 17 for the first time on 1
January 2023. This standard will bring significant changes to the
accounting for insurance contracts, investment contracts with
discretionary participation features (“DPF”) and
reinsurance contracts, the impact of which cannot be assessed at
this point in time as the IFRS 17 implementation project is still
ongoing.
The anticipated changes
in the recognition and measurement of insurance contracts and
investment contracts with DPF issued and reinsurance contracts
held, the changes in presentation and disclosures and the
transition approach expected to be followed are described
below.
Other Standards and
amendments that are not yet effective and have not been adopted
early by the company include:
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IFRS 17 ‘Insurance
Contracts’
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Classification of
Liabilities as Current or Non-current (Amendments to IAS
1)
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Deferred Tax related to
Assets and Liabilities from a Single Transaction
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With the exception of
the implementation of IFRS 17 as further described below, these
other amendments are not expected to have a significant impact on
the financial statements in the period of initial application and
therefore no disclosures have been made.
1.1
Definition and classification of insurance
contracts
Insurance contracts are
contracts under which the Group accepts significant insurance risk
from a policyholder by agreeing to compensate the policyholder if a
specified uncertain future event adversely affects the
policyholder.
In making this
assessment, all substantive rights and obligations, including those
arising from law or regulation, will be considered on a
contract-by-contract basis at the contract issue date. The Group
will use judgement to assess whether a contract transfers insurance
risk (that is, if there is a scenario with commercial substance in
which the Group has the possibility of a loss on a present value
basis) and whether the accepted insurance risk is
significant.
The Group will determine
whether it has significant insurance risk, by comparing benefits
payable after an insured event with benefits payable if the insured
event did not occur.
The Group issues
contracts under which it accepts significant insurance risk from
its policyholders, which are classified as insurance
contracts.
Some investment
contracts contain discretionary participation features
(“DPF”), whereby the investor has the right and is
expected to receive, as a supplement to the amount not subject to
the Group’s discretion, potentially significant additional
benefits based on the return of specified pools of investment
assets.
The Group issues
investment contracts with DPF which are linked to the same pool of
assets as insurance contracts and have economic characteristics
similar to those of insurance contracts. The Group shall account
for these contracts applying IFRS 17.
Contracts will be
classified as direct participating contracts or contracts without
direct participation features.
A contract with direct
participation features is defined as one which, at inception, meets
the following criteria:
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the contractual terms
specify that the policyholder participates in a share of a clearly
identified pool of underlying items;
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the Company expects to
pay to the policyholder an amount equal to a substantial share of
the fair value returns on the underlying items; and
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the Company expects a
substantial proportion of any change in the amounts to be paid to
the policyholder to vary with the change in fair value of the
underlying items.
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These criteria will be
assessed at the individual contract level based on the
Group’s expectations at the contract’s inception, and
they will not be reassessed in subsequent periods, unless the
contract is modified. The variability in the cash flows will be
assessed over the expected duration of a contract. The duration of
a contract takes into account all cash flows within the
boundary.
The savings and pensions
(unit linked) contracts as well as the profit sharing contracts
held within the run-off portfolio of the Group will be classified
as direct participating contracts. Such contracts allow
policyholders to participate in investment returns with the Group,
in addition to compensation for losses from insured risk. These
contracts are substantially investment service-related contracts
where the return on the underlying items is shared with
policyholders. Underlying items comprise specified portfolios of
investment assets that determine amounts payable to
policyholders.
In addition to issuing
insurance contracts, the Group holds reinsurance contracts to
mitigate certain risk exposures. A reinsurance contract is an
insurance contract issued by a reinsurer to compensate the Group
for claims arising from one or more insurance contracts issued by
the Group. These are quota share and excess of loss reinsurance
contracts. For reinsurance contracts held by the Group, even if
they do not expose the issuer (the reinsurer) to the possibility of
a significant loss they would still be deemed to transfer
significant insurance risk if they transfer substantially all of
the insurance risk relating to the reinsured portions of the
underlying insurance contracts to the reinsurer.
1.2 Separating components from
insurance contracts
At inception, the Group
shall separate the following components from an insurance contract
and account for them as if they were stand-alone financial
instruments:
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derivatives embedded in
the contract whose economic characteristics and risks are not
closely related to those of the host contract, and whose terms
would not meet the definition of an insurance contract as a
stand-alone instrument; and
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distinct investment
components i.e. investment components that are not highly
inter-related with the insurance components and for which contracts
with equivalent terms are sold, or could be sold, separately in the
same market or the same jurisdiction.
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An investment component
comprises of the amounts that an insurance contract requires the
Group to repay to a policyholder in all circumstances, regardless
of whether an insured event occurs. Investment components which are
highly interrelated with the insurance contract of which they form
a part are considered non-distinct and are not separately accounted
for.
After separating any
embedded derivatives or distinct investment components, the Group
shall separate any promises to transfer to policyholders distinct
goods or services other than insurance coverage and investment
services and account for them as separate contracts with customers
(i.e. not as insurance contracts). A good or service is distinct if
the policyholder can benefit from it either on its own or with
other resources that are readily available to the policyholder. A
good or service is not distinct and is accounted for together with
the insurance component if the cash flows and risks associated with
the good or service are highly inter-related with the cash flows
and risks associated with the insurance component, and the Group
provides a significant service of integrating the good or service
with the insurance component.
The Group shall assess
its insurance contracts to determine whether they contain any
derivatives or investment components or promises to transfer to
policyholders distinct goods or services other than insurance
coverage and investment services which must be accounted for under
a different IFRS than IFRS 17. The Group shall apply, IFRS 17 to
all remaining components of the host insurance contract.
The Group issues some
contracts which include an embedded derivative (surrender option)
and/or investment component (account balance) under which the
surrender value is paid to the policyholder on maturity or earlier
lapse of the contract. These components have been assessed to meet
the definition of a highly related and non-distinct component. The
surrender option is interrelated with the value of the insurance
contract and as such, is not separated. Concerning the account
balance, the Group is unable to measure the investment component
separately from the contract and the policyholder is unable to
benefit from the investment component unless the insurance
component is also present and as such they will not be
separated.
The Group issues certain
contracts which include a promise to transfer a good or
non-insurance service. These transfers of a good or non-insurance
service are not distinct and therefore will not be separated from
the contracts.
Once the embedded
derivatives, investment components and the goods and services
components are separated, the Group shall assess whether the
contract should be separated into several insurance components
that, in substance, should be treated as separate
contracts.
To determine whether a
single legal contract does not reflect the substance of the
transaction and its insurance components recognised and measured
separately instead, the Group will consider whether there is an
interdependency between the different risks covered, whether
components can lapse independently of each other and whether the
components can be priced and sold separately. When the Group enters
into one legal contract with different insurance components
operating independently of each other, insurance components are
recognised and measured separately applying IFRS 17.
Concerning the contracts
with supplementary benefits (riders) the Group will determine if
the legal contract reflects the substance of the transaction and if
so the insurance components will not be separated.
The reinsurance
contracts held by the Group, despite the fact that they may cover
more than one types of risk exposures, would reflect single
contracts in substance and will be treated as one single accounting
contract for IFRS 17.
1.3 Aggregation level
The Group shall identify
portfolios by aggregating insurance contracts that are subject to
similar risks and managed together. The Group expects that all
contracts within each product line, as defined for management
purposes, have similar risks and, therefore, would represent a
portfolio of contracts when they are managed together.
Reinsurance contracts
held will be grouped into portfolios taking into consideration the
nature of the risk and the type of reinsurance cover.
Each portfolio will be
further sub-divided into groups of contracts to which the
recognition and measurement requirements of IFRS 17 will be
applied. At initial recognition, the Group will segregate contracts
based on when they were issued. A portfolio will contain all
contracts that were issued within a 12-month period. Each annual
cohort will be further disaggregated into three groups of
contracts:
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any contracts that are
onerous on initial recognition;
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any contracts that, on
initial recognition, have no significant possibility of becoming
onerous subsequently; and
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any remaining contracts
in the portfolio.
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Portfolios of
reinsurance contracts held will be assessed for aggregation
separately from portfolios of insurance contracts issued. Applying
the grouping requirements to reinsurance contracts held, the Group
will aggregate reinsurance contracts held into groups
of:
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contracts for which there
is a net gain at initial recognition, if any;
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contracts for which, at
initial recognition, there is no significant possibility of a net
gain arising subsequently; and
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remaining contracts in
the portfolio, if any.
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The Group will make an
evaluation of whether a set of contracts can be treated together in
making the profitability assessment based on reasonable and
supportable information. In the absence of such information the
Group will assess each contract individually.
If insurance contracts
within a portfolio would fall into different groups only because
law or regulation specifically constrains the Group’s
practical ability to set a different price or level of benefits for
policyholders with different characteristics, the Group may include
those contracts in the same group.
The determination of
whether a contract or a group of insurance contracts issued is
onerous will be based on the expectations as at the date of initial
recognition, with fulfilment cash flow expectations determined on a
probability-weighted basis. The Group will determine the
appropriate level at which reasonable and supportable information
would be available to assess whether the contracts are onerous at
initial recognition and whether the contracts not onerous at
initial recognition have a significant possibility of becoming
onerous subsequently.
A similar assessment
will be performed for reinsurance contracts held to determine the
contracts for which there is a net gain at initial recognition or
whether contracts for which there is not a net gain at initial
recognition have a significant possibility of a net gain
subsequently.
For contracts that the
Premium Allocation Approach (“PAA”) will be applied by
the Group, it shall assume that contracts are not onerous (for
reinsurance contracts there is not a net gain) on initial
recognition unless there are facts and circumstances indicating
otherwise. The Group will assess the likelihood of changes in
applicable facts and circumstances to determine whether contracts
not onerous (for reinsurance contracts there is not a net gain) at
initial recognition belong to a group with no significant
possibility of becoming onerous (for reinsurance contracts no
significant possibility of a net gain) in the future.
The composition of
groups established at initial recognition will not be subsequently
reassessed.
1.4 Initial
Recognition
The Group will recognise
groups of insurance contracts that it issues from the earliest of
the following:
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The beginning of the
coverage period of the group of contracts;
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The date when the first
payment from a policyholder in the group is due, or when the first
payment is received if there is no due date;
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When the Group
determines that a group of contracts becomes onerous.
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Concerning onerous
contracts such contracts expected on initial recognition to be
loss-making will be grouped together and such groups are to be
measured and presented separately. Once contracts are allocated to
a group, they will not be re-allocated to another group, unless
they are substantively modified.
The Group will recognise
a group of reinsurance contracts held:
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If the reinsurance
contracts provide proportionate coverage, at the later of the
beginning of the coverage period of the group, or the initial
recognition of any underlying contract;
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In all other cases, from
the beginning of the coverage period of the first contract in the
group.
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If the Group enters into
the reinsurance contract held at or before the date when an onerous
group of underlying contracts will be recognised prior to the
beginning of the coverage period of the group of reinsurance
contracts held, the reinsurance contract held will be recognised at
the same time as the group of underlying insurance contracts is
recognised.
The Group shall add new
contracts to the group when they meet the recognition
criteria.
1.5 Contract
Boundaries
Insurance
contracts
The Group will include
in the measurement of a group of insurance contracts all the future
cash flows within the boundary of each contract in the
group.
Cash flows are within
the boundary of an insurance contract if they arise from
substantive rights and obligations that exist during the reporting
period in which the Group can compel the policyholder to pay the
premiums, or in which the Group has a substantive obligation to
provide the policyholder with services.
Cash flows within the
boundary of an insurance contract are those that relate directly to
the fulfilment of the contract, including cash flows for which the
Group has discretion over the amount or timing.
A substantive obligation
to provide services ends when:
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The Group has the
practical ability to reassess the risks of the particular
policyholder and, as a result, can set a price or level of benefits
that fully reflects those risks; or
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Both of the following
criteria are satisfied:
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The Group has the
practical ability to reassess the risks of the portfolio of
insurance contracts that contain the contract and, as a result, can
set a price or level of benefits that fully reflects the risk of
that portfolio
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The pricing of the
premiums for coverage up to the date when the risks are reassessed
does not take into account the risks that relate to periods after
the reassessment date.
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In determining whether
all the risks will be reflected either in the premium or in the
level of benefits, the Group will consider all risks that
policyholders would transfer had it issued the contracts (or
portfolio of contracts) at the reassessment date. Similarly, the
Group will conclude on its practical ability to set a price that
fully reflects the risks in the contract or portfolio at a renewal
date by considering all the risks that it would assess when
underwriting equivalent contracts on the renewal date for the
remaining service. The assessment on the Group’s practical
ability to reprice existing contracts takes into account all
contractual, legal and regulatory restrictions. In doing so, the
Group will disregard restrictions that have no commercial
substance. The Group will also consider the impact of market
competitiveness and commercial considerations on its practical
ability to price new contracts and repricing existing contracts.
Judgement will be required to decide whether such commercial
considerations are relevant in concluding as to whether the
practical ability exists at the reporting date.
The Group issues
contracts that include an option to add insurance coverage at a
future date so that the Group is obligated to provide additional
coverage if the policyholder exercises the option. Group has no
right to compel the policyholder to pay premiums and the option to
add insurance coverage at a future date is an insurance component
that is not measured separately from the insurance
contract.
When the insurance
option is not in substance a separate contract and the terms are
guaranteed by the Group, the cash flows arising from the option are
within the boundary of the contract. If the option is not a
separate contract and the terms are not guaranteed by the Group,
the cash flows arising from the option might be either within or
outside the contract boundary, depending on whether the Group has
the practical ability to set a price that fully reflects the
reassessed risks of the whole contract. In cases where the Group
will not have the practical ability to reprice the whole contract
when the policyholder exercises the option to add coverage, the
expected cash flows arising from the additional premiums after the
option exercise date would be within the original contract
boundary.
In estimating expected
future cash flows of the group of contracts the Group will apply
its judgement in assessing future policyholder behaviour
surrounding the exercise of options available to them such as
surrenders options, and other options falling within the contract
boundary.
The Group will assess
the contract boundary at initial recognition and at each subsequent
reporting date to include the effect of changes in circumstances on
the Group’s substantive rights and obligations.
Reinsurance
contracts
For groups of
reinsurance contracts held, cash flows are within the contract
boundary if they arise from substantive rights and obligations of
the cedant that exist during the reporting period in which the
Group will be compelled to pay amounts to the reinsurer or has a
substantive right to receive insurance contract services from the
reinsurer.
A substantive right to
receive services from the reinsurer ends when the
reinsurer:
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has the practical ability
to reassess the risks transfer to it and can set a price or level
of benefits that fully reflects those reassessed risks
or
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has a substantive right
to terminate the coverage.
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The boundary of a
reinsurance contract held includes cash flows resulting from the
underlying contracts covered by the reinsurance contract. This
includes cash flows from insurance contracts that are expected to
be issued by the Group in the future if these contracts are
expected to be issued within the boundary of the reinsurance
contract held.
The Group holds
proportional life reinsurance contracts which have an unlimited
duration, but which allow both the reinsurer and the Group to
terminate the contract at three months’ notice for new
business ceded. The Group includes within the contracts boundary
only cash flows arising from such three months’ notice period
because it does not have substantive rights or obligations beyond
that point. Therefore, on initial recognition, the cash flows
within the reinsurance contract boundary are determined to be those
arising from underlying contracts that the Group expects to issue
and cede under the reinsurance contract within the next three
months. Subsequently, expected cash flows beyond the end of this
initial notice period are considered cash flows of new reinsurance
contracts and are recognised, separately from the initial contract,
as they fall within the rolling three-month notice period. Other
life reinsurance agreements have a cancellability clause for new
business with three months’ notice but this being effective
at the next annual renewal of the agreement and hence, in this
case, on initial recognition the cash flows within the reinsurance
contract boundary are determined to be those arising from
underlying contracts that the Group expects to issue and cede under
the reinsurance contract within the year. The Group will treat all
the above-mentioned reinsurance contracts as a series of contracts
that form an annual group and cover underlying business issued
within a year.
The Group holds
proportional group life reinsurance contracts that have a
-short-term boundary and cover short-term underlying contracts
issued within the term on a risk-attaching basis. All cash
flows arising from claims incurred and expected to be incurred
during the life of the underlying contracts are expected to be
included in the measurement.
Finally, the
Group’s non-proportional, excess of loss reinsurance
contracts held, have an annual term and provide coverage for claims
incurred during an accident year (i.e. loss occurring). Thus, all
cash flows arising from claims incurred and expected to be incurred
in the accident year will be included in the measurement of the
reinsurance contracts held.
1.6 Insurance acquisition
cashflows
Insurance acquisition
cash flows arise from the costs of selling, underwriting and
starting a group of insurance contracts (issued or expected to be
issued) that are directly attributable to the portfolio of
insurance contracts to which the group belongs. Such cash flows
include cash flows that are not directly attributable to individual
contracts or groups of insurance contracts within the
portfolio.
Insurance acquisition
cash flows that are directly attributable to a group of insurance
contracts will be allocated to that group and to renewal groups of
insurance contracts using a systematic and rational method and
considering, in an unbiased way, all reasonable and supportable
information that is available without undue cost or
effort.
A systematic and
rational method will be used to allocate insurance acquisition cash
flows directly attributable to a portfolio but not to groups of
contracts to such groups in the portfolio.
Insurance acquisition
cash flows arising before the recognition of the related group of
contracts will be recognised as an asset. Insurance acquisition
cash flows arise when they are paid or when a liability is required
to be recognised under a standard other than IFRS 17. Such an asset
shall be recognised for each group of contracts to which the
insurance acquisition cash flows are allocated. The asset will be
derecognised, fully or partially, when the insurance acquisition
cash flows are included in the measurement of the group of
contracts.
At each reporting date,
the Group shall revise the amounts allocated to groups to reflect
any changes in assumptions that determine the inputs to the
allocation method used. Amounts allocated to a group are not to be
revised once all contracts have been added to the group.
Impairment
At each reporting date,
if facts and circumstances indicate that an asset for insurance
acquisition cash flows may be impaired, then the Group shall
recognise an impairment loss in profit or loss so that the carrying
amount of the asset does not exceed the expected net cash inflow
for the related group and in case that the asset relates to future
renewals, an impairment loss will be recognised in profit or loss
to the extent that it expects those insurance acquisition cash
flows to exceed the net cash inflow for the expected renewals and
this excess has not already been recognised as an impairment loss
as mentioned above.
The Group shall reverse
any impairment losses in profit or loss and increases the carrying
amount of the asset to the extent that the impairment conditions
have improved.
1.7 Measurement of Insurance
contracts issued
The liability for
remaining coverage (“LRC”) shall represent the
Group’s obligation to investigate and pay valid claims under
existing contracts for insured events that have not yet occurred
(i.e. the obligation that relates to the unexpired portion of the
coverage period), comprising (a) fulfilment cash flows relating to
future service and (b) the contractual service margin yet to be
earned.
The liability for
incurred claims (“LIC”) shall include the Group’s
liability to pay valid claims for insured events that have already
incurred, other incurred insurance expenses arising from past
coverage service and it shall include the Group’s liability
to pay amounts the Group is obliged to pay the policyholder under
the contract, including repayment of investment components, when a
contract is derecognised. The estimate of LIC shall comprise the
fulfilment cash flows related to current and past service allocated
to the group at the reporting date.
The carrying amount of a
group of insurance contracts at each reporting date shall be the
sum of the LRC and the LIC.
1.7.1 Measurement on initial
recognition of contracts not measured under the PAA
Under the general
measurement model (“GMM”) the Group shall measure a
group of contracts on initial recognition as the sum of the
expected fulfilment cash flows within the contract boundary and the
contractual service margin representing the unearned profit in the
contracts relating to services that will be provided under the
contracts.
Fulfilment Cashflows
(“FCF”)
FCF shall comprise
unbiased and probability-weighted estimates of future cash flows,
an adjustment to reflect the time value of money and the financial
risks related to the future cash flows, to the extent that the
financial risks are not included in the estimates of the future
cash flows, plus a risk adjustment for non-financial
risk.
The Group’s
objective in estimating future cash flows shall be to determine the
expected value, or the probability weighted mean, of the full range
of possible outcomes, considering all reasonable and supportable
information available at the reporting date without undue cost or
effort, that reflect the timing and uncertainty of those future
cash flows.
The Group shall estimate
future cash flows considering a range of scenarios which have
commercial substance and give a good representation of possible
outcomes. The cash flows from each scenario are
probability-weighted and discounted using current
assumptions.
The Group shall estimate
certain FCF at the portfolio level or higher and then allocate such
estimates to groups of contracts.
When estimating future
cash flows, the Group shall include all cash flows that are within
the contract boundary including:
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Premiums and related cash
flows
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Claims and benefits,
including reported claims not yet paid, incurred claims not yet
reported and expected future claims
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Payments to policyholders
resulting from embedded surrender value options
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An allocation of
insurance acquisition cash flows attributable to the portfolio to
which the contract belongs
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Claims handling
costs
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Policy administration and
maintenance costs
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An allocation of fixed
and variable overheads directly attributable to fulfilling
contracts
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Transaction-based
taxes
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Costs incurred for
performing investment activities that enhance insurance coverage
benefits for the policyholder
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Costs incurred for
providing investment-related service to policyholders
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The cash flow estimates
shall include both market variables, which are consistent with
observable market prices, and non-market variables, which are not
contradictory with market information and based on internally and
externally derived data.
The Group shall update
its estimates at the end of each reporting period using all newly
available, as well as historic evidence and information about
trends. The Group shall determine its expectations of probabilities
of future events occurring at the end of the reporting period. In
developing new estimates, the Group shall consider the most recent
experience and earlier experience, as well as other
information.
Risk of the
Group’s non-performance will not be included in the
measurement of groups of contracts issued.
Risk Adjustment
(“RA”)
The risk adjustment for
non-financial risk for a group of contracts, determined separately
from the other estimates, is the compensation required for bearing
uncertainty about the amount and timing of the cash flows that
arises from non-financial risk.
The risk adjustment
shall also reflect the degree of diversification benefit the Group
will include when determining the compensation it will require for
bearing that risk; and both favourable and unfavourable outcomes,
in a way that will reflect the Group’s degree of risk
aversion.
The Group will use a
Risk-based capital approach based on which the risk adjustment can
be determined at the chosen level of confidence.
Time value of
money and Financial risks
The Group will adjust
the estimates of future cash flows to reflect the time value of
money and the financial risks related to those cash flows, to the
extent that the financial risks would not be included in the
estimates of cash flows. The discount rates to be applied to the
estimates of the future cash flows:
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will reflect the time
value of money, the characteristics of the cash flows and the
liquidity characteristics of the contracts;
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will be consistent with
observable market prices (if any) for financial instruments with
cash flows whose characteristics are consistent with those of the
contracts, in terms of, for example, timing, currency and
liquidity; and
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will exclude the effect
of factors that influence such observable market prices but do not
affect the future cash flows of the contracts.
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In determining discount
rates for the cash flows that do not vary based on the returns of
underlying items, the Group will use the ‘bottom-up
approach’ to estimate discount rates.
Contractual
Service Margin (“CSM”)
The CSM is a component
of the overall carrying amount of a group of insurance contracts
representing unearned profit the Group will recognise as it
provides insurance contract services over the coverage
period.
On initial recognition
of a group of contracts, if the total of (a) the fulfilment cash
flows, (b) any cash flows arising at that date and (c) any amount
arising from the derecognition of any assets or liabilities
previously recognised for cash flows related to the group
(including assets for insurance acquisition cash flows) is a net
inflow, the CSM will be measured as the equal and opposite amount
of the net inflow, which would result in no gain no loss, arising
on initial recognition.
If the total is a net
outflow, then the group is onerous. In this case, the net outflow
shall be recognised as a loss in profit or loss. A loss component
will be created to depict the amount of the net cash outflow, which
will determine the amounts that are to be subsequently presented in
profit or loss as reversals of losses on onerous contracts and
shall be excluded from insurance revenue.
The Group will
determine, at initial recognition, the group’s coverage units
and allocate the group’s CSM based on the coverage units
provided in the period.
1.7.2 Subsequent measurement of
contracts not measured under PAA
Changes in fulfilment
cash flows
At the end of each
reporting period, the Group will update the fulfilment cash flows
for both LIC and LRC to reflect the current estimates of the
amounts, timing and uncertainty of future cash flows, as well as
discount rates and other financial variables.
Experience adjustments
would be the difference between:
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The expected cash flow
estimate at the beginning of the period and the actual cash flows
for premiums received in the period (and any related cash flows
paid such as insurance acquisition cash flows)
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The expected cash flow
estimate at the beginning of the period and the actual incurred
amounts of insurance service expenses in the period (excluding
insurance acquisition expenses).
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Experience adjustments
relating to current or past service will be recognised in profit or
loss. For incurred claims (including incurred but not reported) and
other incurred insurance service expenses, experience adjustments
would always relate to current or past service. They would be
included in profit or loss as part of insurance service expenses.
Experience adjustments relating to future service will be included
in the LRC by adjusting the CSM.
Adjustments to the
CSM - Insurance contracts without direct participation
features
For a group of insurance
contracts, the carrying amount of the CSM of the group at the end
of the reporting period will equal the carrying amount at the
beginning of the reporting period adjusted, as follows:
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The effect of any new
contracts added to the group in the reporting period
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Interest accreted on the
carrying amount of the CSM during the reporting period, measured at
the discount rates at initial recognition
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The changes in fulfilment
cash flows relating to future service, except to the extent
that:
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Such increases in the
fulfilment cash flows exceed the carrying amount of the CSM, giving
rise to a loss; or
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Such decreases in the
fulfilment cash flows are allocated to the loss component of the
liability for remaining coverage
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The effect of any
currency exchange differences on the CSM
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The amount recognised as
insurance revenue because of the transfer of services in the
period, determined by the allocation of the CSM remaining at the
end of the reporting period (before any allocation) over the
current and remaining coverage period.
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The locked-in discount
rate is the weighted average of the rates applicable at the date of
initial recognition of contracts that joined a group over a
12-month period.
The changes in
fulfilment cash flows relating to future service that adjust the
CSM comprise of:
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Experience adjustments
that arise from the difference between the premium receipts (and
any related cash flows such as insurance acquisition cash flows)
and the estimate, at the beginning of the period, of the amounts
expected.
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Changes in estimates of
the present value of future cash flows in the liability for
remaining coverage, except those relating to the time value of
money and changes in financial risk (recognised in the statement of
profit or loss and other comprehensive income rather than adjusting
the CSM)
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Differences
between:
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any investment component
expected to become payable in the year, determined as the payment
expected at the start of the year plus any insurance finance income
or expenses related to that expected payment before it becomes
payable; and
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the actual amount
that becomes payable in the year
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Changes in the risk
adjustment for non-financial risk that relate to future
service.
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Except for changes in
the risk adjustment, adjustments to the CSM noted above will be
measured at discount rates that reflect the characteristics of the
cash flows of the group of insurance contracts at initial
recognition.
The CSM at the end of
the reporting period will represent the profit in the group of
insurance contracts that has not yet been recognised in profit or
loss, because it relates to future service.
An amount of the CSM
will be released to profit or loss in each period during which the
insurance contract services are provided.
In determining the
amount of the CSM to be released in each period, the Group will
follow three steps:
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determine the total
number of coverage units in the group. The amount of coverage units
in the group is determined by considering for each contract the
quantity of benefits provided under the contract and the expected
coverage period.
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allocate the CSM at the
end of the period (before any of it is released to profit or loss
to reflect the insurance contract services provided in the period)
equally to each of the coverage units provided in the current
period and expected to be provided in the future.
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recognise in profit or
loss the amount of CSM allocated to the coverage units provided
during the period.
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The number of coverage
units will change as insurance contract services will be provided,
contracts expire, lapse or surrender and new contracts are added
into the group. The total number of coverage units will depend on
the expected duration of the obligations that the Group has from
its contracts, which can differ from the legal contract maturity
because of the impact of policyholder behaviour and the uncertainty
surrounding future insured events. In determining a number of
coverage units, the Group shall exercise judgement in estimating
the likelihood of insured events occurring and policyholder
behaviours to the extent that they affect expected period of
coverage in the group, the different levels of service offered
across periods and the ‘quantity of benefits’ provided
under a contract.
The Group does not issue
insurance contracts generating cash flows in a foreign currency
that is different from the functional currency of the
Group.
Adjustments to the
CSM - Insurance contracts with direct participation
features
Direct participating
contracts are contracts under which the Group’s obligation to
the policyholder is the net of:
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the obligation to pay the
policyholder an amount equal to the fair value of the underlying
items; and
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a variable fee in
exchange for future services provided by the contracts, being the
amount of the Group’s share of the fair value of the
underlying items less fulfilment cash flows that do not vary based
on the returns on underlying items.
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When measuring a group
of direct participating contracts, the Group will adjust the
fulfilment cash flows for the whole of the changes in the
obligation to pay policyholders an amount equal to the fair value
of the underlying items. These changes do not relate to future
services and will be recognised in profit or loss. The Group would
then adjust any CSM for changes in the amount of the Group’s
share of the fair value of the underlying items which relate to
future services.
Hence, the carrying
amount of the CSM at each reporting date will be the carrying
amount at the start of the year, adjusted for:
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the CSM of any new
contracts that are added to the group in the year;
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the change in the amount
of the Group’s share of the fair value of the underlying
items and changes in fulfilment cash flows that relate to future
services, except to the extent that:
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a decrease in the amount
of the Group’s share of the fair value of the underlying
items, or an increase in the fulfilment cash flows that relate to
future services, exceeds the carrying amount of the CSM, giving
rise to a loss in profit or loss (included in insurance service
expenses) and creating a loss component; or
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an increase in the amount
of the Group’s share of the fair value of the underlying
items, or a decrease in the fulfilment cash flows that relate to
future services, is allocated to the loss component, reversing
losses previously recognised in profit or loss (included in
insurance service expenses);
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the effect of any
currency exchange differences on the CSM; and
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the amount recognised as
insurance revenue because of the services provided in the
year.
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Changes in fulfilment
cash flows that relate to future services shall include the changes
relating to future services specified above for contracts without
direct participation features (measured at current discount rates)
and changes in the effect of the time value of money and financial
risks that do not arise from underlying items – e.g. the
effect of financial guarantees.
Onerous
Contracts
After the loss component
will be recognised, the Group shall allocate any subsequent changes
in fulfilment cash flows of the LRC on a systematic basis between
‘loss component’ and ‘LRC excluding the loss
component’.
The subsequent changes
in the fulfilment cash flows of the LRC to be allocated would
be:
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insurance finance income
or expense,
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changes in risk
adjustment for non-financial risk recognised in profit or loss
representing release from risk in the period; and
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estimates of the present
value of future cash flows for claims and expenses released from
the LRC because of incurred insurance service expense in the
period.
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The Group will determine
the systematic allocation of insurance service expenses incurred
based on the percentage of loss component to the total outflows
included in the LRC, excluding any investment component
amount.
Any subsequent decreases
relating to future service in fulfilment cash flows allocated to
the group arising from changes in estimates of future cash flows
and the risk adjustments for non-financial risk will be allocated
first only to the loss component, until it is exhausted. Once it is
exhausted, any further decreases in fulfilment cash flows relating
to future service will create the group’s CSM.
1.7.3 Measurement of contracts
under the PAA
On initial recognition
the Group will apply the PAA:
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When the coverage period
of each insurance contract in the group is one year or
less.
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For groups of insurance
contracts including contracts with a coverage period extending
beyond one year the Group reasonably expects that such
simplification would produce a measurement of the LRC for the group
that would not differ materially from the one that would be
produced applying the requirements of the general measurement
model.
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On initial recognition,
the Group will measure the LRC at the amount of premiums received
in cash. As all the issued insurance contracts to which the PAA
will be applied have coverage of a year or less, the Group will
elect the policy of expensing insurance acquisition cash flows as
they are incurred.
On initial recognition
of each group of contracts, the Group expects that the time between
providing each part of the services and the related premium due
date is no more than a year. Accordingly, the Group will choose not
to adjust the liability for remaining coverage to reflect the time
value of money and the effect of financial risk.
There are no investment
components within insurance contracts issued that are measured
under the PAA.
The carrying amount of a
group of insurance contracts issued at the end of each reporting
period will be the sum of (a) the LRC and (b) the LIC, comprising
the FCF related to past service allocated to the group at the
reporting date.
The carrying amount of
the LRC for subsequent measurement purposes will be increased by
any premiums received and decreased by the amount recognised as
insurance revenue for services provided.
The LIC will be measured
similarly to the LIC’s measurement under the GMM. The
liability would equal the amount of the fulfilment cash flows
relating to incurred claims. For claims that the Group expects to
be paid within one year or less from the date of incurring the
Group will not adjust future cash flows for the time value of money
and the effect of financial risk. However, claims expected to take
more than one year to settle will be discounted.
If facts and
circumstances indicate that a group of insurance contracts measured
under the PAA is onerous on initial recognition or becomes onerous
subsequently, the Group will increase the carrying amount of the
LRC to the amount of the FCF determined under the GMM with the
amount of such an increase recognised in insurance service
expenses, and a loss component established for the amount of the
loss recognised. The fulfilment cash flows will be discounted at
current rates, as the liability for incurred claims will also be
discounted.
1.8 Measurement of reinsurance
contracts held
The same accounting
policies will be applied as for insurance contracts issued to
measure a group of reinsurance contracts held, adapted where
necessary to reflect features that differ from those of insurance
contracts.
1.8.1 Measurement of the asset
for remaining coverage (“ARC”)
Reinsurance contracts
measured under the general model (“GMM”)
The measurement of
reinsurance contracts held will follow the same principles as those
for insurance contracts issued, with the exception of the
following:
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Measurement of the cash
flow s shall include an allowance on a
probability-weighted basis for the effect of any non-performance by
the reinsurers, including the effects of collateral and losses from
disputes
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The Group will determine
the risk adjustment for non-financial risk so that it represents
the amount of risk being transferred to the reinsurer
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The Group shall recognise
both day 1 gains and day 1 losses at initial recognition in the
statement of financial position as a CSM and will release this to
profit or loss as the reinsurer renders services, except for any
portion of a day 1 loss that relates to events before initial
recognition as described below
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Changes in the fulfilment
cash flows will be recognised in profit or loss if the related
changes arising from the underlying ceded contracts have been
recognised in profit or loss. Alternatively, changes in the
fulfilment cash flows will adjust the CSM.
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The Group will measure
the estimates of the present value of future cash flows using
assumptions that would be consistent with those used to measure the
estimates of the present value of future cash flows for the
underlying insurance contracts.
On initial recognition,
the CSM of a group of reinsurance contracts will represent a net
cost or net gain on purchasing reinsurance. It would be measured as
the equal and opposite amount of the total of (a) the fulfilment
cash flows, (b) any amount arising from the derecognition of any
assets or liabilities previously recognised for cash flows related
to the group, (c) any cash flows arising at that date and (d) any
income recognised in profit or loss because of onerous underlying
contracts recognised at that date.
However, if any net cost
on purchasing reinsurance coverage would relate to insured events
that occurred before the purchase of the group, then the Group will
recognise the cost immediately in profit or loss as an
expense.
The carrying amount of
the CSM at each reporting date will be the carrying amount at the
start of the year, adjusted for:
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the CSM of any new
contracts that will be added to the group in the year;
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interest accreted on the
carrying amount of the CSM during the year, measured at the
discount rates determined on initial recognition;
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income recognised in
profit or loss in the year on initial recognition of onerous
underlying contracts;
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reversals of a
loss-recovery component to the extent that they are not changes in
the fulfilment cash flows of the group of reinsurance
contracts;
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changes in fulfilment
cash flows that relate to future services, measured at the discount
rates determined on initial recognition, unless they result from
changes in fulfilment cash flows of onerous underlying contracts,
in which case they are recognised in profit or loss and create or
adjust a loss-recovery component;
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the effect of any
currency exchange differences on the CSM; and
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the amount recognised in
profit or loss because of the services received in the
year.
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For a group of
reinsurance contracts covering onerous underlying contracts, the
Group will establish a loss-recovery component of the asset for
remaining coverage, will adjust the CSM and as a result will
recognise income when it recognises a loss on initial recognition
of onerous underlying contracts, if the reinsurance contract would
be entered into before or at the same time as the onerous
underlying contracts would be recognised. The adjustment to the CSM
will be determined by multiplying:
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the amount of the loss
that relates to the underlying contracts; and
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the percentage of claims
on the underlying contracts that the Group expects to recover from
the reinsurance contracts.
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The loss-recovery
component will be adjusted for changes in FCFs of the group of
reinsurance contracts relating to future services that result from
changes in FCFs of the onerous underlying contracts. If the
reinsurance contract will cover only some of the insurance
contracts included in an onerous group of contracts, then the Group
uses a systematic and rational method to determine the portion of
losses recognised on the onerous group of contracts that relates to
underlying contracts covered by the reinsurance
contract.
The loss-recovery
component will determine the amounts that are subsequently
presented in profit or loss as reversals of recoveries of losses
from the reinsurance contracts and would be excluded from the
allocation of reinsurance premiums paid. It would be adjusted to
reflect changes in the loss component of the onerous group of
underlying contracts, but it cannot exceed the portion of the loss
component of the onerous group of underlying contracts that the
Group expects to recover from the reinsurance contracts.
Reinsurance contracts
measured under the Premium Allocation Approach
(“PAA”)
The Group will apply the
PAA to measure a group of reinsurance contracts using the same
accounting policies to the insurance contracts, as adapted where
necessary to reflect the features of reinsurance
contracts.
The Group will apply the
PAA:
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To excess of loss
reinsurance contracts on loss occurring basis that provide coverage
on the insurance contracts originated for claims incurred during an
accident year.
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To proportional
reinsurance contracts on risk attaching basis that provide coverage
for short-term underlying insurance contracts and have an effective
period of more than one year the Group elects to apply the PAA
since at inception it expects it will provide an asset for
remaining coverage that would not differ materially from the
general model.
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Under the PAA, the
initial measurement of the asset equals the reinsurance premium
paid. The Group will measure the amount relating to remaining
service by allocating the amount of expected reinsurance premium
payments over the coverage period of receiving services for the
group. For all reinsurance contracts held the allocation will be
based on the passage of time.
On initial recognition
of each group of reinsurance contracts held, the Group expects that
the time between receiving each part of the services and the
related reinsurance premium due date is no more than a year.
Accordingly, the Group will not adjust the asset for remaining
coverage to reflect the time value of money and the effect of
financial risk.
Where the reinsurance
contracts held cover a group of onerous underlying insurance
contracts, the Group will adjust the carrying amount of the asset
for remaining coverage and recognise a gain when, in the same
period, it will report a loss on initial recognition of an onerous
group of underlying insurance contracts or on additional loss from
an already onerous group of underlying insurance contracts. The
recognition of this gain will result in the accounting for the loss
recovery component of the asset for the remaining coverage of a
group of reinsurance contracts held. The loss-recovery component
will be adjusted to reflect changes in the loss component of the
onerous group of underlying contracts, but it cannot exceed the
portion of the loss component of the onerous group of underlying
contracts that the Group expects to recover from the reinsurance
contracts.
1.8.2 Measurement of the asset
for incurred claims (“AIC”)
The Group will use
consistent assumptions to measure the estimates of the present
value of future cash flows for the group of reinsurance contracts
held and the estimates of the present value of future cash flows
for the group(s) of underlying insurance contracts. The Group shall
include in the estimates of the present value of the future cash
flows for the group of reinsurance contracts held the effect of any
risk of non-performance by the issuer of the reinsurance contract,
including the effects of collateral and losses from
disputes.
The risk adjustment for
non-financial risk for reinsurance contracts held will represent
the amount of risk being transferred by the Group to the
reinsurer.
1.9 Insurance contracts –
modification and derecognition
The Group will
derecognise insurance contracts when:
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The rights and
obligations relating to the contract are extinguished (i.e.,
discharged, cancelled or expired); or
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The contract is modified
such that the modification results in:
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the contract being
outside the scope of IFRS 17;
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a different
insurance contract due to separating components from the host
contract;
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a substantially
different contract boundary;
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the contract being
included in a different group of contracts.
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If any of the
modification criteria described above are met, the Group will
derecognise the initial contract and recognise the modified
contract as a new contract.
On derecognition of a
contract from within a group of contracts:
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the fulfilment cash
flows allocated to the group are adjusted to eliminate those that
relate to the rights and obligations derecognised;
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the CSM of the group is
to be adjusted for the change in the fulfilment cash flows, except
where such changes are allocated to a loss component;
and
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the number of coverage
units for the expected remaining services will be adjusted to
reflect the coverage units derecognised from the group.
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If a contract will be
derecognised because it is transferred to a third party, then the
CSM will also be adjusted for the premium charged by the third
party, unless the group is onerous.
If a contract is
derecognised because its terms are modified, then the CSM will also
be adjusted for the premium that would have been charged had the
Group entered into a contract with the new contract’s terms
at the date of modification, less any additional premium charged
for the modification. The new contract recognised will be measured
assuming that, at the date of modification, the Group received the
premium that it would have charged less any additional premium
charged for the modification.
If the contract
modification would not meet the above conditions the Group will
treat the effect of the modification as changes in the estimates of
fulfilment cash flows.
For insurance contracts
accounted for applying the PAA the Group will adjust insurance
revenue prospectively from the time of the contract
modification.
1.10 Investment contracts with
discretionary participation features
The Group shall
recognise investment contracts with DPF at the date when the Group
becomes a party to the contract. The investment contracts with DPF
will be aggregated in the same manner as insurance contracts. The
Group shall identify portfolios of such investment contracts with
DPF. Within that portfolio, the Group will aggregate them based on
three expected profitability levels (groups of onerous contracts,
groups of contracts that have no significant possibility of
becoming onerous subsequently, and groups that are neither onerous
nor have no significant possibility of becoming onerous
subsequently). Groups will only comprise of contracts issued not
more than a year apart.
At initial recognition,
similar to insurance contracts, the Group estimates the fulfilment
cash flows based on the present value of expected future cash flows
and a risk adjustment for non-financial risk. Any expected net
inflows are accounted for as the initial CSM.
In estimating future
cash flows, the Group will consider the contract boundary which
shall only include cash flows if they result from a substantive
obligation of the Group to deliver cash at a present or future
date.
In estimating the risk
adjustment for non-financial risk for investment contracts with
DPF, the Group will consider other non-financial risks, such as the
risks arising from the contract holder behaviour, e.g. lapse risk
and expense risk.
The Group will discount
cash flows using discount rates that reflect the characteristics of
the fulfilment cash flows, including the extent of their dependency
on the fair value of the underlying items.
The Group shall allocate
the CSM over the group’s whole duration period in a
systematic way reflecting the transfer of investment services under
a contract. The Group will measure investment contracts with DPF at
initial recognition as detailed in 1.7.1 “Measurement on
initial recognition of contracts not measured under the PAA”
and at subsequent measurement in accordance to 1.7.2
“Subsequent measurement of contracts not measured under
PAA” “Adjustments to the CSM – Insurance
contracts with direct participation features”.
1.11 Measurement - Significant
judgements and estimates
Estimates of future
cash flows
In estimating future
cash flows, the Group will incorporate, in an unbiased way, all
reasonable and supportable information that is available without
undue cost or effort at the reporting date. This information
includes both internal and external historical data about claims
and other experience, updated to reflect current expectations of
future events.
The estimates of future
cash flows will reflect the Group's view of current conditions at
the reporting date, as long as the estimates of any relevant market
variables are consistent with observable market prices.
When estimating future
cash flows, the Group will take into account current expectations
of future events that might affect those cash flows. However,
expectations of future changes in legislation that would change or
discharge a present obligation or create new obligations under
existing contracts will not be taken into account until the change
in legislation is substantively enacted.
Cash flows within the
boundary of a contract are those that relate directly to the
fulfilment of the contract, including those for which the Group has
discretion over the amount or timing. These include payments to (or
on behalf of) policyholders, insurance acquisition cash flows and
other costs that are incurred in fulfilling contracts. Insurance
acquisition cash flows and other costs that are incurred in
fulfilling contracts comprise both direct costs and an allocation
of fixed and variable overheads.
Cash flows will be
attributed to acquisition activities, other fulfilment activities
and other activities using activity-based costing techniques. Cash
flows attributable to acquisition and other fulfilment activities
will be allocated to group of contracts using methods that are
systematic and rational and will be consistently applied to all
costs that have similar characteristics.
Discount
rates
The Group will determine
the risk-free discount rates based on the risk-free interest rate
term structure published by the European Insurance and Occupational
Pensions Authority (EIOPA) for the purposes of the Solvency II
Directive. In addition to reflect the liquidity characteristics of
the contracts, the risk-free yield curves will be adjusted by an
illiquidity premium.
The requirement to
measure liabilities for insurance contracts and investment
contracts with DPF using discount rates determined applying the
IFRS17 requirements will be a change from the Group's current
practice. Under the current economic environment, the Group
estimates that the discount rates under IFRS 17 would generally be
lower than the corresponding rates under IFRS 4.
Risk adjustments for
non-financial risk
The risk adjustment for
non-financial risk will be determined to reflect the compensation
that the Group would require for bearing non-financial risk and its
degree of risk aversion. The risk adjustment will be determined
using a confidence level technique and specifically a Risk-based
capital approach with its target confidence level set at 80
percent, over an one year period, which represents the
Group’s degree of risk aversion.
Contractual Service
Margin
The CSM of a group of
contracts is recognised in profit or loss to reflect services
provided in each year, by identifying the coverage units in the
group, allocating the CSM remaining at the end of the year (before
any allocation) equally to each coverage unit provided in the year
and expected to be provided in future years, and recognising in
profit or loss the amount of the CSM allocated to coverage units
provided in the year. The number of coverage units is the quantity
of services provided by the contracts in the Group, determined by
considering for each contract the quantity of the benefits provided
and its expected coverage period. The coverage units will be
reviewed and updated at each reporting date.
The Group will determine
the coverage units for its insurance contracts and investment
contracts with DPF on the basis of their quantity of benefits (sum
insured), including any investment components, and the respective
expected durations of each contract.
For reinsurance
contracts held, the CSM amortisation shall reflect the level of
service received and depends on the number of underlying contracts
in-force.
1.12 Presentation
IFRS 17 will
significantly change how insurance contacts and investment
contracts with DPF issued and reinsurance contracts held are
presented and disclosed in the Group’s financial
statements.
The Group shall present
separately, in the statement of financial position, the carrying
amount of portfolios of:
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insurance contracts and
investment contracts with DPF issued that are assets,
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insurance contracts and
investment contracts with DPF issued that are
liabilities,
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reinsurance contracts
held that are assets,
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reinsurance contracts
held that are liabilities.
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Any assets or
liabilities for insurance acquisition cash flows recognised before
the corresponding insurance contracts will be included in the
carrying amount of the related portfolio of contracts.
The Group will
disaggregate the total amount recognised in the statement of profit
or loss and other comprehensive income into an insurance service
result, comprising insurance revenue and insurance service expense,
and insurance finance income or expenses.
The Group will not
disaggregate the change in risk adjustment for non-financial risk
between a financial and non-financial portion and will include the
entire change as part of the insurance service result.
The Group will
separately present income or expenses from reinsurance contracts
held from the expenses or income from insurance contracts and
investment contracts with DPF issued.
1.12.1 Insurance Service
Revenue
Contracts not
measured under the PAA
The Group’s
insurance revenue will depict the provision of coverage and other
services arising from a group of insurance contracts and investment
contracts with DPF at an amount that will reflect the consideration
to which the Group expects to be entitled in exchange for those
services. Insurance revenue from a group of insurance contracts and
a group of investment contracts with DPF will therefore be the
relevant portion for the period of the total consideration for the
contracts, (i.e., the amount of premiums paid to the Group adjusted
for financing effect (the time value of money) and excluding any
investment components).
The total consideration
for a group of contracts will cover amounts related to the
provision of services and be comprised of:
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Insurance service
expenses, excluding any amounts allocated to the loss component of
the liability for remaining coverage
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The risk adjustment for
non-financial risk related to current service, excluding any
amounts allocated to the loss component of the liability for
remaining coverage
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The CSM release measured
based on coverage units provided
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Other amounts, including
experience adjustments for premium receipts for current or past
services.
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In addition, the Group
will allocate a portion of premiums that relate to recovering
insurance acquisition cash flows to each period in a systematic way
based on the passage of time. The Company will recognise the
allocated amount, as insurance service revenue and an equal amount
as insurance service expenses.
The amount of the CSM of
a group of insurance contracts and a group of investment
contracts with DPF that will be recognised as insurance revenue in
each year will be determined by identifying the coverage units in
the group, allocating the CSM remaining at the end of the year
(before any allocation) equally to each coverage unit provided in
the year and expected to be provided in future years, and
recognising in profit or loss the amount of the CSM allocated to
coverage units provided in the year. The number of coverage units
will be the quantity of services provided by the contracts in the
group, determined by considering for each contract the quantity of
benefits provided and its expected coverage period. The coverage
units will be reviewed and updated at each reporting
date.
Services provided by
insurance contracts include insurance coverage and, for all direct
participating contracts, investment services for managing
underlying items on behalf of policyholders. In addition, some
contracts without direct participating features may also provide
investment services for generating an investment return for the
policyholder, if and only if:
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an investment component
exists or the policyholder has a right to withdraw an amount (e.g.
the policyholder’s right to receive a surrender value on
cancellation of a contract);
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the investment component
or withdrawal amount is expected to include an investment return;
and
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the Group expects to
perform investment activities to generate that investment
return.
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The expected coverage
period will reflect expectations of lapses and cancellations of
contracts, as well as the likelihood of insured events occurring to
the extent that they would affect the expected coverage period. The
period of investment services will end no later than the date on
which all amounts due to current policyholders relating to those
services would have been paid.
Contracts measured
under the PAA
For contracts measured
under the PAA, the insurance revenue for each period will be the
amount of expected premium receipts for providing services in the
period. The Group will recognise such insurance revenue based on
the passage of time by allocating premium receipts including
premium experience adjustments to each period of
service.
1.12.2 Loss Component
The Group will group
contracts that are onerous at initial recognition separately from
contracts in the same portfolio that are not onerous at initial
recognition. Groups that were not onerous at initial recognition
can also subsequently become onerous if assumptions and experience
changes. The Group will establish a loss component of the liability
for remaining coverage for any onerous group depicting the future
losses recognised.
A loss component will
represent a notional record of the losses attributable to each
group of onerous insurance contracts (or contracts profitable at
inception that have become onerous). The loss component will be
released based on a systematic allocation of the subsequent changes
in the fulfilment cash flows to: (i) the loss component; and (ii)
the liability for remaining coverage excluding the loss component.
The loss component will also be updated for subsequent changes in
estimates of the fulfilment cash flows related to future service.
The systematic allocation of subsequent changes to the loss
component would result in the total amounts allocated to the loss
component being equal to zero by the end of the coverage period of
a group of contracts (since the loss component will have been
materialised in the form of incurred claims). The Group will use
the proportion on initial recognition to determine the systematic
allocation of subsequent changes in future cash flows between the
loss component and the liability for remaining coverage excluding
the loss component.
1.12.3 Insurance Service
Expenses
Insurance service
expenses arising from insurance contracts and investment contracts
with DPF will be recognised in profit or loss generally as they
will be incurred. They will exclude repayments of investment
components and will comprise of:
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Incurred claims and
other insurance service expenses: For some life risk contracts,
incurred claims also include premiums waived on detection of
critical illness.
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Amortisation of
insurance acquisition cash flows: For contracts not measured under
the PAA, this will be equal to the amount of insurance revenue
recognised in the year that relates to recovering insurance
acquisition cash flows. For contracts measured under the PAA, the
Group will elect to expense insurance acquisition cash flows as
incurred.
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Losses on onerous
contracts and reversals of such losses.
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Adjustments to the
liabilities for incurred claims that do not arise from the effects
of the time value of money, financial risk and changes
therein.
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Impairment losses on any
assets for insurance acquisition cash flows and reversals of such
impairment losses.
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1.12.4 Insurance finance income
and expense
Insurance finance income
or expenses will comprise the change in the carrying amount of the
group of insurance contracts and investment contracts with DPF
arising from:
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The effect of the time
value of money and changes in the time value of money;
and
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The effect of financial
risk and changes in financial risk.
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For contracts without
direct participation features insurance finance income or expenses
will reflect interest accreted on the future cash flows and the CSM
and the effect of changes in interest rates and other financial
assumptions.
For contracts with
direct participation features insurance finance income or expenses
will comprise changes in the measurement of the groups of contracts
caused by changes in the value of underlying items (excluding
additions and withdrawals).
For contracts measured
under the PAA insurance finance or expenses will reflect interest
accreted on the future cash flows under the LIC and the effect of
changes in interest rates and other financial
assumptions.
The Group will not
disaggregate changes in the risk adjustment for non-financial risk
between insurance service result and insurance financial income or
expenses.
The Group has an
accounting policy choice to either present all of the
period’s insurance finance income or expenses in profit or
loss or to split the amount between profit or loss and other
comprehensive income (OCI). The accounting policy choice is applied
on a portfolio-by-portfolio basis. The Group will include all
insurance finance income or expenses for the reporting period in
profit or loss for all its portfolios.
1.12.5 Net income or expense from
reinsurance contracts held
Net expenses from
reinsurance contracts will comprise an allocation of reinsurance
premiums paid less amounts recovered from reinsurers.
The Group will present
separately on the face of the statement of profit or loss and other
comprehensive income the amounts expected to be recovered from
reinsurers, and an allocation of the reinsurance premiums
paid.
The Group will treat
reinsurance cash flows that are contingent on claims on the
underlying contracts as part of the claims that are expected to be
reimbursed under the reinsurance contract held. Ceding commissions
that are not contingent on claims of the underlying contracts will
be presented as a deduction in the premiums to be paid to the
reinsurer which is then allocated to profit or loss.
1.13 Transition
approach
Changes in accounting
policies resulting from the adoption of IFRS 17 will be applied
using the full retrospective approach to the extent practicable,
except as described below.
Contracts measured under the
PAA
The Group will apply the
full retrospective approach on transition for all groups of
insurance and reinsurance contracts containing contracts with
short-term coverage period not extending beyond one year. For these
short-term contracts it was concluded that reasonable and
supportable information that is necessary to apply the full
retrospective approach is available.
Applying the full
retrospective approach, the Group will:
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identify, recognise and
measure each group of insurance contracts as if IFRS 17 had always
applied;
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identify, recognise and
measure any assets for insurance acquisition cash flows as if IFRS
17 had always applied;
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derecognise previously
reported balances that would not have existed if IFRS 17 had always
been applied. These shall include deferred acquisition costs for
insurance contracts and insurance receivables and payables. Under
IFRS 17, they are included in the measurement of the insurance
contracts;
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and recognise any
resulting net difference in equity.
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Contracts not measured under the
PAA
Changes in accounting
policies resulting from the adoption of IFRS 17 for all groups of
insurance contracts, investment contracts with DPF and reinsurance
contracts containing contracts with long-term coverage period
extending beyond one year will be applied using the fair value
transition approach. Obtaining reasonable and supportable
information to apply the full retrospective approach, for these
contracts, was impracticable without undue cost or effort. Under
this method these groups of contracts on transition date, 1 January
2022, will be measured at fair value, any existing balances that
would not exist had IFRS 17 applied will be derecognised and the
resulting net difference will be recognised in equity.
Under the fair value
approach, the CSM (or the loss component) at 1 January 2022 will be
determined as the difference between the fair value of a group of
contracts at that date and the fulfilment cash flows at that date.
In determining fair value, the Group will apply the requirements of
IFRS 13 Fair Value Measurement, except for the demand deposit floor
requirement, as is prescribed by IFRS 17. Specifically, the fair
value of the insurance contracts will be measured as the sum of (a)
the present value of the net cash flows expected to be generated by
the contracts, determined using a discounted cash flow technique;
and (b) an additional margin, determined using a cost of capital
technique.
Differences in the
Group's approach to measuring fair value from the IFRS 17
requirements for measuring fulfilment cash flows will give rise to
a CSM at 1 January 2022. In particular, in measuring fair value the
Group will include a margin comprising a risk premium to reflect
what market participants would demand as compensation for the
uncertainty inherent in the cash flows and a profit margin to
reflect what market participants would require to assume the
obligations to service the insurance contracts. In determining this
margin, the Group will consider certain costs that are not directly
attributable to fulfilling the contracts (e.g. general overheads)
and certain risks that were not reflected in the fulfilment cash
flows, among other factors that a market participant would
consider.
When applying the fair
value transition approach the Group will aggregate contracts issued
more than one year apart.
For the application of
the fair value approach, the Group will not use the permitted
modification to use reasonable and supportable information
available at the transition date and will instead use information
available at the date of inception or initial recognition in order
to determine whether any contracts are direct participating
contracts. Despite this, the Group will use the permitted
modification to use reasonable and supportable information
available at the transition date to identify groups of
contracts.
The discount rate when
applying the fair value approach will be determined at the
transition date.
Transition Impact
The Group has started a
project to implement IFRS 17 and expects that the new standard will
have an impact on the Group’s results and financial position
both upon transition and subsequent reporting periods. The impact
however cannot be reliably quantified currently because the IFRS 17
implementation project is ongoing and has not been finalised
yet.
2.
Basis for consolidation
Subsidiaries
Subsidiaries are all
entities over which the Group has control. The Group controls an
investee when the Group is exposed, or has rights
, to variable returns from its involvement with
the investee and has the ability to affect those returns through
its power over the investee. The existence and effect of potential
voting rights that are when those rights give the Group the current
ability to direct the relevant activities are considered when
assessing whether the Group controls another entity. Subsidiaries
are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from the date
that control ceases.
The acquisition method
of accounting is used to ac count for the
acquisition of subsidiaries by the Group. The consideration is
measured as the fair value of the assets given, equity instruments
issued and liabilities incurred or assumed at the date of exchange.
Identifiable assets acquired and liabilities assumed in a business
combination are measured initially at their fair values at the
acquisition date. Acquisition related costs are recognised in the
profit and loss as incurred, except for costs to issue debt or
equity securities.
Goodwill arising in
a business combination is recognised as an
asset at the date that control is acquired.
Goodwill is measured as
the excess of:
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a.
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The aggregate
of:
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(i)
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the
consideration transferred;
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(ii)
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the amount of
any non-controlling interest in the acquiree; and
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(iii)
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in a business
combination achieved in stages, the acquisition date fair value of
the acquirer’s previously held equity interest in the
acquiree.
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b.
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The net of the
acquisition date amounts of the identifiable assets acquired and
the liabilities assumed.
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Any gain on a bargain
purchase, after reassessment, is recognised immediat
ely in profit or loss.
Inter-company
transactions, balance s and unrealised
gains on transactions between group companies are eliminated.
Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the
asset transfer red. Accounting
policies of subsidiaries have been changed where necessary to
ensure consistency with the policies adopted by the Group. A
listing of the Group’s principal subsidiaries is set out in
Note 15.
3. Intangible assets
(a) Goodwill
Goodwill arising in a
business combination that is accounted for using the acquisition
method is recognised as an asset at the date that control is
acquired. Goodwill is measured as the excess of (a) the aggregate
of: (i) the consideration transferred; (ii) the amount of any
non-controlling interests in the acquiree; and (iii) in a business
combination achieved in stages, the acquisition-date fair value of
the acquirer’s previously held equity interest in the
acquiree; and (b) the net of the acquisition-date amounts of the
identifiable assets acquired and the liabilities assumed. Goodwill
is initially recognised as an asset at cost and is subsequently
measured at cost less any accumulated impairment losses. Any gain
on a bargain purchase, after reassessment, is recognised
immediately in profit or loss.
(b) Value of in-force
business
On acquisition of a
portfolio of long term contracts, the net present value of the
Shareholders’ interest in the expected after-tax cash flows
of the in-force business is capitalised in the statement of
financial position as an asset. The value of in-force business is
subsequently determined by the Directors on an annual basis, based
on the advice of the approved actuary. The valuation represents the
discounted value of projected future transfers to Shareholders from
policies in force at the year-end, after making provision for
taxation. In determining this valuation, assumptions relating to
future mortality, persistence and levels of expenses are based on
experience of the type of business concerned. Gross investment
returns assumed vary depending on the mix of investments held and
expected market conditions. All movements in the in-force
business valuation are credited or debited to the profit or loss.
They are subsequently transferred out of retained earnings to other
reserves.
(c) Computer software
Acquired computer
so ftware licences are capitalised on the
basis of the costs incurred to acquire and bring to use the
specific software. These costs are amortised using the
straight-line method over their estimated useful lives (between
five and thirteen years).
Costs associated with maintaining computer software programmes are
recognised as an expense as incurred.
4. Deferred income tax
Deferred income tax is
provided using the balance sheet liability method for temporary
differences arising between the tax bases of assets and liabilities
and their carrying values for financial reporting purposes.
Currently enacted tax rates or those that are substantively enacted
by the end of the reporting period are used in the determination of
deferred income tax.
Deferred income tax
related to the fair value re-measurement of investments is
allocated between the technical and non-technical account depending
on whether the temporary differences are attributed to
policyholders or shareholders respectively.
Deferred tax assets are
recognised only to the extent that future taxable profit will be
available such that realisation of the related tax benefit is
probable.
5. Property, plant and
equipment
Property, plant and
equipment, comprising land and buildings,
office furniture, fittings and equipment, are initially recorded at
cost and are subsequently shown at cost less depreciation and
impairment losses. Historical cost includes expenditure that is
directly attributable to the acquisition of the items. Subsequent
costs are included in the asset’s carrying amount, or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group, and the cost of the item can be measured
reliably. All other repairs and maintenance are charged to the
profit or loss during the financial period in which they are
incurred.
Depreciation is
calculated using the straight-line method to allocate the cost of the assets to their residual values over
their estimated useful lives as follows:
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%
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Buildings
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2 - 20
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Office furniture,
fittings and equipment
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20 - 25
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The assets’
residual values and useful lives are reviewed, and
adjusted if appropriate, at the end of each
reporting period.
Property, plant and
equipment are dereco gnised on disposal
or when no future economic benefits are expected from their use or
disposal. Gains or losses arising from derecognition represent the
difference between the net disposal proceeds, if any, and the
carrying amount, and are included in profit or loss in the period
of derecognition.
6. Assets held for sale
The Group classifies
assets as held for sale if their carrying amounts will be recovered
principally through a sale transaction rather than through
continuing use. Current assets classified as held for sale are
measured at the lower of their carrying amount and fair value less
costs to sell. Costs to sell are the incremental costs directly
attributable to the disposal of an asset, excluding finance costs
and income tax expense.
The criteria for held
for sale classification is regarded as met only when the sale is
highly probable and the asset is available for immediate sale in
its present condition. Actions required to complete the sale should
indicate that it is unlikely that significant changes to the sale
will be made or that the decision to sell will be withdrawn.
Management must be committed to the plan to sell the asset and the
sale expected to be completed within one year from the date of the
classification.
Assets and liabilities
classified as held for sale are presented separately as current
items in the statement of financial position.
7. Investment properties
Freehold and leasehold
properties treated as investments principally comprise buildings that are held for long term
rental yields or capital appreciation or both, and that are not
occupied by the Group. Investment properties are initially measured
at cost including related transaction costs. Investment
properties are subsequently carried at fair value, representing
open market value determined annually by external valuers, or by
virtue of a Directors’ valuation. Fair value is based on active market prices, adjusted, if
necessary, for any difference in the nature, location or condition
of the specific asset.
If this i
nformation is not available, the Group uses
alternative valuation methods such as recent prices on less active
markets or discounted cash flow projections. The fair value of
investment properties reflects, among other things, rental income
from current leases and assumptions about rental income from future
leases in the light of current market conditions.
Subsequent expenditure
is charged to the asset’s carrying amount only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. All other repairs and maintenance costs are charged to
the profit or loss during the financial period in which they are
incurred. Unrealised gains and losses arising from changes in fair
value (net of deferred taxation) are recognised in the profit or
loss.
8. Investment in group
undertakings
In the Company’s
financial statements, shares in group undertakings are accounted
for at fair value through profit and loss (FVTPL). The Company
accounts for the investment at FVTPL and did not make the
irrevocable election to account for it at fair value through other
comprehensive income (FVOCI).
The dividend
income from such investments is included
in profit or loss in the accounting year in which the
Company’s right to receive payment of any dividend is
established.
9. Other financial
instruments
Financial assets and
financial liabilities are recognised when the Group becomes a party
to the contractual provisions of the instrument. Financial assets
and financial liabilities are initially recognised at their fair
value plus directly attributable transaction costs for all
financial assets or financial liabilities not classified at fair
value through Profit or Loss.
Financial assets and
financial liabilities are off-set and the net amount presented in
the stat ement of financial position when
the Group has a legally enforceable right to set off the recognised
amounts and intends either to settle on a net basis or to realise
the asset and settle the liability simultaneously.
Financial assets are
derecognised w hen the contractual rights
to the cash flows from the financial assets expire or when the
entity transfers the financial asset and the transfer qualifies for
derecognition.
Financial liabilities
are derecognised when they are extinguished. This occurs whe
n the obligation specified in the contract is
discharged, cancelled or expires.
An equity instrument is
any contract that evidences a residual interest in the assets of
the Group after deducting all of its liabilities. Equity
instruments are recorded at t he proceeds
received, net of direct issue costs.
(i) Trade receivables
Trade receivables are
classified with current assets and are stated at their nominal
value.
(ii) Investments
The Group classifies its
other financial assets in the following catego ries: financial assets at fair value through profit or loss,
held-to-maturity investments, loans and receivables and
available-for-sale financial assets. The classification depends on
the purpose for which the financial assets were acquired. The
Directors determine the appropriate classification of the
Group’s financial assets at initial recognition and
re-evaluate such designation at every reporting date.
(a)
Financial assets at fair value through profit
or loss
This category has two
sub-categories: financia l assets held
for trading and those designated at fair value through profit or
loss at inception. A non-derivative financial asset is classified
into this category at inception if acquired principally for the
purpose of selling in the near-term, if it forms part of a
portfolio of financial assets that are managed together and for
which there is evidence of short term profit-taking, if the
financial asset is part of a group of financial assets that is
managed on a portfolio basis and whose performance is evaluated and
reported internally to the Group’s key management personnel
on a fair value basis in accordance with a documented financial
assets strategy or if this designation eliminates or significantly
reduces an accounting mismatch that would otherwise arise from
measuring assets or liabilities or recognising the gains and losses
on them on different bases.
(b)
Held-to-maturity investments
Non-derivative financial
assets with fixed or determinable payments and f
ixed maturity that the Group has the positive
intention and ability to hold to maturity other than those that
upon initial recognition are designated as at fair value through
profit or loss, those that are designated as available-for-sale
financial assets and those that meet the definition of loans and
receivables are classified as held-to-maturity investments. After
initial measurement, such financial assets are subsequently
measured at amortised cost using the Effective Interest Rate
(“EIR”) method, less impairment. Amoritsed costs are
calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the EIR.
The EIR amortization is included in finance income in the statement
of comprehensive income. The losses arising from impairment are
recognised in the statement of comprehensive income.
(c)
Loans and receivables
Loans and receivables
are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market, other than those that are held for trading or that
are designated as at fair value through profit or loss or as
available for sale or those for which the Group may not recover
substantially all of its investment other than because of credit
deterioration. They include, inter alia, receivables, interest
bearing deposits and advances.
(d)
Available-for-sale financial
assets
Available-for-sale
financial assets are those non-derivative
financial assets that are either designated in this category by the
Group or not classified as loans and receivables, held-to-maturity
investments or financial assets at fair value through profit or
loss.
All purchases and sales
of financial assets are recognised on the trade date, which is the
date that the Group commits t o purchase
or sell the assets. All financial assets are initially recognised
at fair value, plus in the case of financial assets not carried at
fair value through profit or loss, transaction costs that are
directly attributable to their acquisition. Financial assets are
derecognised when the rights to receive cash flows from the
financial assets have expired or where they have been transferred
and the transfer qualifies for de-recognition.
Financial assets at fair
value through profit or loss are subseque ntly re-measured at fair value. Gains or losses arising
from changes in the fair value of the ‘financial assets at
fair value through profit or loss’ category are recognised in
profit or loss.
Available-for-sale
financial assets are measured at their f air value. Gains and losses arising from a change in fair
value are recognised in other comprehensive income, except for
impairment losses and foreign exchange gains and losses on monetary
assets, until the financial asset is derecognised, at which time
the cumulative gain or loss previously recognised in other
comprehensive income is reclassified from equity to profit or loss
as a reclassification adjustment. Interest calculated using the
effective interest method is recognised in profit or
loss.
Loans and receivables
are carried at amortised cost using the EIR method, less any
provision for impairment.
The fair value of quoted
financial assets is based on quoted marke t
prices at the end of the reporting period. If the market for a
financial asset is not active (and for unlisted securities), the
Group establishes fair value by using valuation techniques. These
include the use of recent arm’s length transactions,
reference to other instruments that are substantially the same and
discounted cash flow analysis.
(e)
Equity instruments that do not have a quoted
market price
Investments in equity
instruments tha t do not have a quoted
market price in an active market, and whose fair value cannot be
reliably measured, are not be designated as at fair value through
profit or loss. The fair value of investments in equity
instruments that do not have a quoted price in an active market for
an identical instrument is reliably measurable if (a) the
variability in the range of reasonable fair value measurements is
not significant for that instrument; or (b) the probabilities of
the various estimates within the range can be reasonably assessed
and used when measuring fair value. Investments in equity
instruments that do not have a quoted price in an active market and
whose fair value cannot be reliably measured are measured at
cost.
(iii)
Trade payables
Trade payables are
cl assified with current liabilities and
are stated at their nominal value.
(iv)
Shares issued by the Company
Ordinary shares
issu ed by the Company are classified as
equity instruments.
10.
Impairment of assets
(a)
Impairment of financial assets at amortised
cost and available-for-sale investments
The Group assesses at
the end of each reporting period whether there is objective
evidence that a financial asset or group of financial assets
is impaired. A financial asset or group of
financial assets is impaired and impairment losses are incurred
only if there is objective evidence of impairment as a result of
one or more events that have occurred after the initial recognition
of the asset (“a loss event”) and that loss event (or
events) has an impact on the estimated future cash flows of the
financial asset or group of financial assets that can be reliably
estimated.
Objective evidence that
a financial asset or group of assets is impaired includ
es observable data that comes to the attention of
the Group about the following events:
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(i)
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significant
financial difficulty of the issuer or debtor;
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(ii)
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a breach of
contract, such as a default or delinquency in payments;
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(iii)
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If it’s
probable that the issuer or debtor will enter bankruptcy or other
financial reorganisation; and
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(iv)
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observable data
indicating that there is a measurable decrease in the estimated
future cash flow from a group of financial assets since the initial
recognition of those assets, although the decrease cannot yet be
identified with the individual financial assets in the
group.
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In addition to the above
loss events, objective evidence of impairment for an investment in
an equity instrument includes information about significant changes with an adverse effect that have taken
place in the technological, market, economic or legal environment
in which the issuer operates, and indicates that the cost of the
investment in the equity instrument may not be recovered and/or a
significant or prolonged decline in the fair value of an investment
in an equity instrument below its cost.
For financial assets at
amortised cost, the Group first assesses whether objective evidence
of impairment exists for financial assets that are indi
vidually significant. If the Group determines that
no objective evidence of impairment exists for an individually
assessed financial asset, whether significant or not, it includes
the asset in a group of financial assets with similar credit risk
characteristics and collectively assesses them for impairment.
Assets that are individually assessed for impairment and for which
an impairment loss is or continues to be recognised are not
included in a collective assessment of impairment.
If there is objective
evidence that an impairment loss has been incurred on financial
assets carried at amortised cost, the amount of the loss is
measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows
discounted at the financial asset’s original effective
interest rate. The carrying amount of the asset is reduced through
the use of an allowance account and the amount of the loss is
recognised in the statement of comprehensive income.
If in a subsequent
period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the
impairment was recognised (such as improved credit rating), the
previously recognised impairment loss is reversed by adjusting the
allowance account. The amount of the reversal is recognised in the
profit or loss.
When a decline in the
fair value of an availab le-for-sale
financial asset has been recognised in other comprehensive income
and there is objective evidence that the asset is impaired, the
cumulative impairment loss that had been recognised in other
comprehensive income is reclassified from equity to profit or loss
as a reclassification adjustment and is measured as the difference
between the acquisition cost and current fair value, less any
impairment loss on that financial asset previously recognised in
profit or loss.
(a) Impairment of financial assets
at amortised cost and available-for-sale investments -
continued
Impairment losses
recognised in profit or loss for an available-for-sale investment in an equity instrument are not
reversed through profit or loss. Impairment losses recognised in
profit or loss for an available-for-sale investment in a debt
instrument are reversed through profit or loss if an increase in
the fair value of the instrument can be objectively related to an
event occurring after the recognition of the impairment
loss.
(b) Impairment of other financial
assets
At the end of each
reporting period, the carrying amount of other financial assets is
r eviewed to determine whether there is an
indication of impairment and if any such indication exists, the
recoverable amount of the asset is estimated. An impairment loss is
the amount by which the amount of the asset exceeds its recoverable
amount. The recoverable amount is the higher of fair value less the
costs to sell and value in use. Impairment losses and reversals are
recognised in profit or loss.
(c) Impairment of non-financial
assets
Assets that are subject
to amortisation or depreciation, are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable,
principally comprise property, plant and equipment and computer
software. An impairment loss is recognised for the amount by which
the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an
asset’s fair value less costs to sell and value in use.
For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash
flows (cash-generating units). An impairment loss recognised in a
prior year is reversed if there has been a change in the estimates
used to determine the asset’s recoverable amount since the
last impairment loss was recognised. Impairment losses and
reversals are recognised in profit or loss.
11. Offsetting
financial instruments
Financial assets and
liabilities are offset and the net amount report
ed in the statement of financial position only
when there is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis, or to
realise the asset and settle the liability
simultaneously.
12. Insurance
contracts and investment contracts with DPF
(a)
Classification
Insurance contracts are
those contracts that transfer significant insurance risk. Such
contracts may also transfer financial risk. As a general guideline,
the Group defines as significant insurance risk the possibility of
having to pay benefits on the occurrence of an insured event that
are at least 10% more than the benefits payable if the insured
event did not occur. Investment contracts are those contracts that
transfer financial risk with no significant insurance
risk.
A number of insurance
and investment contracts contain a DPF (“Discretionary
participation feature”). This feature entitles the holder to
receive, as a supplement to guaranteed benefits, additional
benefits or bonuses:
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-
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that are likely to be a
significant portion of the total contractual benefits;
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-
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whose amount or timing is
contractually at the discretion of the Group; and
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-
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that are based on
realised and/or unrealised investment returns on underlying assets
held by the the Group.
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Local statutory
regulations and the terms and conditions of these contracts set out
the bases for the determination of the amounts on which the
additional discretionary benefits are based (the DPF eligible
surplus), and within which the Group may exercise its discretion as
to the quantum and timing of their payment to contract holders,
also considering the advice of the approved actuary.
(b)
Recognition and measurement
Insurance contracts and
investment contracts with DPF are categorised depending on the
duration of risk and whether or not the terms and conditions are
fixed.
(i)
Short term insurance contracts
These contracts are
short duration life insurance contracts. They protect the
Group’s customers from the consequences of events (such as
death or disability) that would affect the ability of the customer
or his/her dependants to maintain their current level of
income. Guaranteed benefits paid on occurrence of the
specified insurance event are either fixed or linked to the extent
of the economic loss suffered by the policyholder. There are no
maturity or surrender benefits under these insurance
contracts.
(ii)
Long-term contracts
-
Insurance contracts without DPF
These contracts insure
events associated with human life (mainly for death) over a long
and fixed duration. The guaranteed and fixed element for these
contracts relates to the sum assured, i.e. the benefit payable on
death.
Premiums are recognised
as revenue when they become payable by the contract holder.
Premiums are shown before deduction of commission and are inclusive
of policy fees receivable.
-
Investment contracts with DPF
In addition to the
guaranteed amount payable on death, these products combine a
savings element whereby a portion of the premium receivable, and
declared returns, are accumulated for the benefit of the
policyholder. Annual returns may combine a guaranteed rate of
return and a discretionary element.
Premiums are recognised
as revenue when they become payable by the contract holder.
Premiums are shown before deduction of commission and are inclusive
of policy fees receivable.
These long-term
contracts are substantially savings products since they do not
transfer significant insurance risk. Annual returns may combine a
guaranteed rate of return and a discretionary element.
The Group does not
recognise the guaranteed element separately from the DPF for any of
the contracts that it issues. As permitted by IFRS 4, it continues
to apply accounting policies existing prior to this standard in
respect of such contracts, further summarised as
follows:
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(i)
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Premiums are
recognised as revenue when they are paid and allocated to the
respective policy account value. Premiums are shown before
deduction of commission, and are inclusive of policy fees
receivable.
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(ii)
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Maturity claims
are charged against revenue when due for payment. Surrenders are
accounted for when paid or, if earlier, on the date when the policy
ceases to be included within the calculation of the liability.
Death claims and all other claims are accounted for when notified.
Claims payable include related internal and external claims
handling costs.
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(iii)
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Bonuses charged
to the long-term business technical account in a given year
comprise:
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(a)
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new reversionary bonuses
declared in respect of that year, which are provided within the
calculation of the respective liability;
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(b)
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terminal bonuses paid out
to policyholders on maturity and included within claims paid;
and
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(c)
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terminal bonuses accrued
at the Group’s discretion and included within the respective
liability.
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(iv)
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Life insurance
and investment contracts with DPF liabilities
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A liability for long term
contractual benefits that are expected to be incurred in the future
is recorded when premiums are recognised. This liability is
determined by the approved actuary following his annual
investigation of the financial condition of the Group’s
long-term business as required under the Insurance Business Act
(Cap. 403 of the Laws of Malta). It is calculated in accordance
with the relevant legislation governing the determination of
liabilities for the purposes of statutory solvency. The calculation
uses a prospective valuation method, unless a retrospective
calculation results in a higher liability, and makes explicit
provision for vested reversionary bonuses. Provision is also made,
explicitly or implicitly, for future reversionary bonuses. The
prospective method is determined as the sum of the expected
discounted value of the benefit payments and the future
administration expenses that are directly related to the contract,
less the expected discounted value of the theoretical premiums that
would be required to meet the benefits and administration expenses
based on the valuation assumptions used.
The liability is based on
assumptions as to mortality, maintenance expenses and investment
income that are established at the time the contract is issued,
subject to solvency restrictions set out in the Insurance Business
Act (Cap. 403 of the Laws of Malta). The retrospective method
is based on the insurance premium credited to the
policyholder’s account, together with explicit provision for
vested bonuses accruing as at the end of the reporting period, and
adjustment for mortality risk and other benefits.
At each reporting date, an
assessment is made of whether the recognised life insurance
liabilities, net of related DAC, are adequate by using an existing
liability adequacy test performed in accordance with IFRS 4
requirements and the Insurance Business Act (Cap. 403 of the Laws
of Malta). The liability value is adjusted to the extent that it is
insufficient to meet expected future benefits and expenses. In
performing the adequacy test, current best estimates of future
contractual cash flows, including related cash flows such as claims
handling and policy administration expenses, policyholder options
and guarantees, as well as investment income from assets backing
such liabilities, are used.
Aggregation levels and the
level of prudence applied in the test are consistent with IFRS 4
requirements and the Insurance Business Act (Cap. 403 of the Laws
of Malta). To the extent that the test involves discounting of cash
flows, the interest rate applied may be prescribed regulations by
the Insurance Business Act (Cap. 403 of the Laws of Malta) or may
be based on management’s prudent expectation of current
market interest rates. Any inadequacy is recorded in the statement
of profit or loss, initially by impairing DAC and, subsequently, by
establishing an additional insurance liability for the remaining
loss. In subsequent periods, the liability for a block of business
that has failed the adequacy test is based on the assumptions that
are established at the time of the loss recognition. The
assumptions do not include a margin for adverse deviation.
Impairment losses resulting from liability adequacy testing are
reversed in future years if the impairment no longer
exists.
This long-term liability
is recalculated at the end of each reporting period. The above
method of calculation satisfies the minimum liability adequacy test
required by IFRS 4. The liability in respect of short-term
insurance contracts is based on statistical analysis for the claims
incurred but not reported, estimates of the expected ultimate cost
of more complex claims that may be affected by external factors
(such as court decisions), and further includes the portion of
premiums received on in-force contracts that relate to unexpired
risks at the end of the reporting period.
(c)
Reinsurance contracts held
Contracts entered into
by the Group with reinsurers under which the Group is compensated
for losses on one or more contracts issued by the Group and that
meet the classification requirements for insurance contracts in
accounting policy 12(a) are classified as reinsurance contracts
held. Contracts that do not meet the classification
requirements are classified as financial assets.
The benefits to which
the Group is entitled under its reinsurance contracts held are
recognised as reinsurers’ share of technical provisions or
receivables from reinsurers (unless netted off against
amounts payable to
reinsurers). These assets consist of short-term balances due from
reinsurers (classified within receivables), as well as longer term
receivables (classified as reinsurers’ share of technical
provisions) that are dependent on the expected claims and benefits
arising under the related reinsured insurance contracts.
Reinsurance liabilities are primarily premiums payable for
reinsurance contracts and are recognised as an expense when
due.
The Group assesses its
reinsurance assets for impairment on an annual basis. If there is
objective evidence that the reinsurance asset is impaired, the
Group reduces the carrying amount of the reinsurance asset to its
recoverable amount and recognises that impairment loss in the
profit or loss. The Group gathers objective evidence that a
reinsurance asset is impaired using the same process adopted for
financial assets held at amortised cost. The impairment loss is
also calculated following the same method used for these financial
assets. These processes are described in accounting policy
10(a).
(d)
Receivables and payables related to insurance
contracts
Receivables and payables
are recognised when due. These include amounts due to and from
agents, brokers and policyholders. If there is objective evidence
that the insurance receivable is impaired, the Group reduces the
carrying amount of the insurance receivable accordingly and
recognises that impairment loss in the profit or loss in a similar
manner to the process described above for reinsurance contracts
held (also see accounting policy 10(a)).
13.
Investments contracts without DPF
The Group issues
investment contracts without DPF. Premium arising on these
contracts is classified as a financial liability
– investment contracts without DPF.
Investment contracts without fixed terms are financial liabilities
whose fair value is dependent on the fair value of underlying
financial assets and are designated at inception as at fair value
through profit or loss. The fair value of a unit linked financial
liability is determined using the current unit values that reflect
the fair values of the financial assets linked to the financial
liability multiplied by the number of units attributed to the
contract holder at the end of the reporting period. If the
investment contract is subject to a surrender option, the fair
value of the financial liability is never less than the amount
payable on surrender, where applicable. Other benefits payable are
also accrued as appropriate.
14.
Cash and cash equivalents
Cash and cash
equivalents comprise cash in hand and demand
deposits, together with short-term, highly liquid investments that
are readily convertible to a known amount of cash, and that are
subject to an insignificant risk of changes in value. For the
purposes of the consolidated statement of cash flows, cash and cash
equivalents comprise cash in hand, deposits held at call with banks
and time deposits maturing within three months (unless these are
held specifically for investment purposes) and are net of the bank
overdraft, which is included with liabilities.
15.
Borrowings
Borrowings are
recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at
amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in profit
or loss over the period of the borrowings using the effective
interest method. Trade payables are stated at their nominal value
unless the effect of discounting is material.
Borrowing co
sts are capitalised within property held for
development in so far as they relate to the specific external
financing of assets under development. Such borrowing costs are
capitalised during the development phase of the project. Other
borrowing costs are recognised as an expense in the year to which
they relate.
16.
Share capital
Ordinary shares are
classified as equity. Incremental costs directly att
ributable to the issue of new shares are shown in
equity as a deduction, net of tax, from the
proceeds.
17.
Dividend distribution
Dividend distribution to
the Group’s Shareholder s is
recognised as a liability in the Group’s financial statements
in the period in which the dividends are declared.
18.
Fiduciary activities
Client monies are held
by the Group as a result of clients’ trades that have not yet
been fulfilled. They ar e not
included in the financial statements as these assets are held in a
fiduciary capacity.
19.
Provisions
Provisions are
reco gnised when the Group has a present
legal or constructive obligation as a result of past events, it is
probable that an outflow of resources will be required to settle
the obligation, and a reliable estimate of the amount of the
obligation can be made. Provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects
current market assessment of the time value of money and the risks
specific to the liability. The unwinding of the discount is
recognised as finance cost.
20.
Revenue recognition
Revenue from contracts
with customers is recognised when control of the goods or services
are transferred to the customer at an amount that reflects the
consideration to which the Group expects to be entitled in exchange
for those goods or services. Revenue also includes interest,
dividend and rental income. The following specific recognition
criteria must also be met before revenue is recognised:
(a)
Rendering of services
Premium recognition
dealing with insurance contracts and investments contracts with DPF
is described in accounting policy 12. Revenue arising from the
issue of investment contracts without DPF is recognised in the
accounting period in which the services are rendered.
Other turnover arising
on rendering of services represents commission, consultancy and
advisory fees receivable in respect of the Group’s activities
in providing insurance agency, brokerage or investment services.
Revenues are recognised in the financial statements in line with
fulfilment of the performance obligations and the consideration is
allocated to each performance obligation and recognised as revenue
as the performance obligation is performed over the duration of the
contract.
(b) Dividend income
Dividend income is
recognised when the right to receive
payment is established.
(c) Interest income
Interest income from
financial assets not classified as fair value through profit or
loss is recognised using the effective interest
method.
The Group considers
whether there are other promises in the contract that are separate
performance obligations to which a portion of the transaction price
needs to be allocated. In determining the transaction price for the
Group’s revenue listed in Accounting Policy 20, the Group
considers the effects of variable consideration, existence of a
significant financing component, non-cash consideration, and
consideration payable to the customer (if any).
If the consideration in
a contract includes a variable amount, the Group estimates the
amount of consideration to which it will be entitled in exchange
for transferring the goods to the customer. The variable
consideration is estimated at contract inception and constrained
until it is highly probable that a significant revenue reversal in
the amount of cumulative revenue recognised will not occur when the
associated uncertainty with the variable consideration is
subsequently resolved.
21.
Foreign currencies
(a) Functional and presentation
currency
It ems included in the financial statements of the Group entities
are measured using the currency of the primary economic environment
in which the entity operates (the “functional
currency”). The consolidated financial statements are
presented in Euro, which is the Group’s functional and
presentation currency.
(b) Transactions and
balances
Foreign currency
transactions are translated into functional currency using the
exchange rates prevailing at the date of the transactions. Foreign
exchange ga ins and losses resulting from
the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the profit or
loss. Non-monetary assets and liabilities denominated in currencies
other than the functional currency that are measured at fair value
are re-translated using the exchange rate ruling on the date the
fair value was measured. Non-monetary assets and liabilities
denominated in currencies other than the functional currency that
are measured in terms of historical cost are not re-translated.
Exchange differences arising on the translation of non-monetary
items carried at fair value are included in profit or loss for the
period, except for differences arising on the re-translation of
non-monetary items in respect of which gains and losses are
recognised in other comprehensive income. For such non-monetary
items, any exchange component of that gain or loss is also
recognised in other comprehensive income.
22. Investment
return
Investment return
includes dividend income, net fair value movements on financial
assets at fair value through profit or loss (including interest
income from financial assets classified as fair value through
profit or loss), interest income from financial assets not
classified as fair value through profit or loss, rental receivable
and net fair value movements on investment property and is net of
investment expenses, charges and interest.
The investment return is
allocated between the insurance technical account and the
non-technical account on the basis of the investment return as
recommended by the approved actuary.
23.
Leases
(i)
Group as a lessor
Lessor accounting
remains similar to treatment under IAS 17 meaning that lessors
continue to classify leases as finance or operating
leases.
To classify each lease,
the Group makes an overall assessment of whether the lease
transfers substantially all of the risks and rewards incidental to
ownership of the underlying asset. If this is the case, then the
lease is a finance lease; if not, then it is an operating lease. As
part of this assessment, the Group considers certain indicators
such as whether the lease is for the major part of the economic
life of the asset.
The Group recognises
lease payments received under operating leases as income on a
straight-line basis over the lease term as part of ‘other
income’ – Note 6.
(ii)
Group as a lessee
A lessee recognises a
right-of-use asset representing its right to use the underlying
asset and a lease liability representing its obligation to make
lease payments.
Right-of-use
asset
The Group recognises a
right-of-use asset at the lease commencement date. The right-of-use
asset is initially measured at cost, which comprises the initial
amount of the lease liability adjusted for any lease payments made
at or before the commencement date, plus any initial direct costs
incurred and an estimate of costs to dismantle and remove the
underlying asset or to restore the underlying asset or the site on
which it is located, less any lease incentives received.
The right-of-use asset
is subsequently depreciated using the straight-line method from the
commencement date to the end of the lease term, unless the lease
transfers ownership of the underlying asset of the Group by the end
of the lease term or the cost of the right-of-use asset reflects
that the Group will exercise a purchase option. In that case the
right-of-use asset will be depreciated over the useful life of the
underlying asset, which is determined on the same basis as those of
property and equipment. In addition, the right-of-use asset is
periodically reduced by impairment losses, if any, and adjusted for
certain remeasurements of the lease liability.
The Group presents
right-of-use asset that do not meet the definition of investment
property as ‘right-of-use assets’.
Lease
liability
The lease liability is
initially measured at the present value of the lease payments that
are not paid at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be
readily determined, the Group incremental borrowing rate.
Generally, the Group uses its incremental borrowing rate as the
discount rate.
Estimating the
incremental borrowing rate
The Group cannot readily
determine the interest rate implicit in the lease, therefore, it
uses its incremental borrowing rate ("IBR") to measure lease
liabilities. The IBR is the rate of interest that the Group would
have to pay to borrow over a similar term, and with a similar
security, the funds necessary to obtain an asset of a similar value
to the right-of-use asset in a similar economic environment. The
IBR therefore reflects what the Group ‘would have to
pay’, which requires estimation when no observable rates are
available (such as for subsidiaries that do not enter into
financing transactions) or when they need to be adjusted to reflect
the terms and conditions of the lease (for example, when leases are
not in the subsidiary’s functional currency). The Group
estimates the IBR using observable inputs (such as market interest
rates) when available and is required to make certain
entity-specific estimates (such as the subsidiary’s
stand-alone credit rating).
Lease payments included
in the measurement of the lease liability comprise the
following:
|
-
|
fixed payments
(including payments which are essentially fixed), minus any
incentive to lease to be paid;
|
|
-
|
the price for exercising
a purchase option which the lessee is reasonably certain to
exercise; and
|
|
-
|
payments for early
cancellation.
|
The lease liability is
measured at amortised cost using the effective interest method. It
is remeasured when there is a change in future lease payments
arising from a change in rate, if there is a change in the Group
estimate of the amount expected to be payable under a residual
value guarantee, if the Group changes its assessment of whether it
will exercise a purchase, extension or termination option or if
there is a revised in-substance fixed lease payment.
When the lease liability
is remeasured in this way, a corresponding adjustment is made to
the carrying amount of the right-of-use asset, or is recorded in
profit or loss if the carrying amount of the right-of-use asset has
been reduced to zero.
Short-term leases and
leases of low-value assets
The Group applies the
short-term lease recognition exemption to its short-term leases of
machinery and equipment (i.e., those leases that have a lease term
of 12 months or less from the commencement date and do not contain
a purchase option). It also applies the lease of low-value assets
recognition exemption to leases of office equipment that are
considered to be low value. Lease payments on short-term leases and
leases of low-value assets are recognised as expense on a
straight-line basis over the lease term.
24.
Employee benefits
The Group contributes
towards the state pension in accordance with local legislation. The
only obligation is to make the required contributions. Costs are
expensed in the period in which they are incurred.
25.
Taxation
Current tax is charged
or credited to profit or loss except when it relates to items
recognised in other comprehensive income or directly in equity. The
charge/credit for current tax is based on the taxable result for
the period. The taxable result for the period differs from the
result as reported in profit or loss because it excludes items
which are non-assessable or disallowed and it further excludes
items which are taxable or deductible in other periods. It is
calculated using tax rates that have been enacted or substantively
enacted by the end of the reporting period
Notes to the financial statements
1.
Critical accounting estimates and
judgements
The Group makes
estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related
actual results. Estimates and judgements are continually
evaluated and based on historical experience and other factors
including expectations of future events that are believed to be
reasonable under the circumstances.
In the opinion of the
Directors, the accounting estimates and judgements made in the
course of preparing these financial statements are not difficult,
subjective or complex to a degree which would warrant their
description as critical in terms of the requirements of IAS 1,
unless further described below.
(a) Fair valuation of investment
properties
The determination of the
fair value of investment properties at the end of the reporting
period requires the use of significant management estimates.
Details of the valuation methodology and key assumptions of
investment property classified as Level 3 are disclosed in Note 14
to the financial statements.
(b)
Value of in-force
business
The value of in-force
business is a projection of future Shareholders’ profit
expected from insurance policies in force at the year-end,
appropriately discounted and adjusted for the effect of taxation.
This valuation requires the use of assumptions relating to future
mortality, persistence, levels of expenses and investment returns
over the longer term (see accounting policy 3(b)). Details of key
assumptions and sensitivity for this intangible asset are provided
in Note 11 to the financial statements.
(c) Technical
provisions
The Group’s
technical provisions at year-end are determined in accordance with
accounting policy 12. Details of key assumptions and sensitivities
to the valuation are disclosed in Note 17 to the financial
statements.
2.
Management of insurance and financial risk
The Group holds or
issues contracts that transfer insurance risk or financial risk or
both. This section summarises these risks and the way the Group
manages them.
Insurance
risk
The risk under any one
insurance contract is the possibility that the insured event occurs
and the uncertainty of the amount and timing of the resulting
claim. By the very nature of an insurance contract, this risk is
random and therefore unpredictable.
For a portfolio of
insurance contracts where the theory of probability is applied to
pricing and provisioning, the principal risk that the Group faces
under its insurance contracts is that the actual claims and benefit
payments exceed the carrying amount of the insurance liabilities.
This could occur because the frequency or severity of claims and
benefits are greater than estimated. Insurance events are
random and the actual number and amount of claims and benefits will
vary from year to year from the estimate established using
statistical techniques.
Experience shows that
the larger the portfolio of similar insurance contracts, the
smaller the relative variability about the expected outcome will
be. In addition, a more diversified portfolio is less likely
to be affected across the board by a change in any subset of the
portfolio. The Group has developed its insurance underwriting
strategy to diversify the type of insurance risk accepted and
within each of these categories to achieve a sufficiently large
population of risks to reduce the variability of the expected
outcome. Factors that aggravate insurance risk include lack of risk
diversification in terms of type and amount of risk and
geographical location.
(a)
Frequency and severity of claims
For contracts where
death is the insured risk, the most significant factors that could
increase the overall frequency of claims are epidemics or wide
spread changes in lifestyle, resulting in earlier or more claims
than expected.
At present, these risks
do not vary significantly in relation to the location of the risk
insured by the Group. However, undue concentration by amounts could
have an impact on the severity of benefit payments on a portfolio
basis.
For contracts with fixed
and guaranteed benefits and fixed future premiums, there are no
mitigating terms and conditions that reduce the insurance risk
accepted. Investment contracts with DPF (“Discretionary
participation feature”) carry negligible insurance
risk.
The Group manages these
risks through its underwriting strategy and reinsurance
agreements. The underwriting strategy is intended to ensure
that the risks underwritten are well diversified in terms of type
of risk and the level of insured benefits. Medical selection is
also included in the Group’s underwriting procedures with
premiums varied to reflect the health condition and lifestyle of
the applicants.
The Group has retention
limits on any single life assured for term business or risk premium
business. The Group reinsures the excess of the insured benefits
over approved retention limits under a treaty reinsurance
arrangement. Short term insurance contracts are also protected
through a combination of selective quota share and surplus
reinsurance. Further, the Group has a “CAT XL”
reinsurance arrangement to cover its exposure in the case of an
event affecting more than three lives.
In general, all large
sums assured are facultatively reinsured on terms that
substantially limit the Group’s maximum net exposure. The
Directors consider that all other business is adequately protected
through treaty reinsurance with a reasonable spread of benefits
payable according to the age of the insured, and the size of the
sum assured. The Group is largely exposed to insurance risk in one
geographical area, Malta. Single event exposure is capped through
the “CAT XL” reinsurance arrangement as referred
above.
(b)
Lapse and surrender rates
Lapses relate to the
termination of policies due to non–payment of premiums.
Surrenders relate to the voluntary termination of policies by
policyholders. Policy termination assumptions are determined using
statistical measures based on the Group’s experience and vary
by product type, policy duration and sales trends.
An increase in lapse
rates early in the life of the policy would tend to reduce profits
for shareholders, but later increases are broadly neutral in
effect.
(c)
Policy Maintenance Expenses
Operating expenses
assumptions reflect the projected costs of maintaining and
servicing in–force policies and associated overhead expenses.
The current level of expenses is taken as an appropriate expense
base, adjusted for expected expense inflation if
appropriate.
An increase in the
level of expenses would result in an increase in expenditure,
thereby reducing profits for the shareholders.
(d)
Investment return
The weighted average
rate of return is derived based on a model portfolio that is
assumed to back consistent with the long–term asset
allocation strategy. These estimates are based on current as well
as expectations about future economic and financial developments.
An increase in investment return would lead to an increase in
profits for the shareholders.
(e)
Discount rate
Life insurance
liabilities are 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 these future
cash outflows. Discount rates are based on current industry risk
rates, adjusted for the Group’s own risk exposure.
A decrease in the
discount rate will increase the value of the insurance liability
and therefore reduce profits for the shareholders.
(f)
Sources of uncertainty in the estimation of
future benefit payments and premium receipts
Uncertainty in the
estimation of future benefit payments and premium receipts for long
term insurance contracts arises from the unpredictability of
long-term changes in overall levels of mortality and the
variability in contract holder behaviour. The Group uses
appropriate base tables of standard mortality according to the type
of contract being written. The Group does not take credit for
future lapses in determining the liability for long term contracts
in accordance with the insurance rules regulating its
calculation.
Financial
risk
The Group is exposed to
financial risk through its financial assets and liabilities,
reinsurance assets, and insurance liabilities. In particular, the
key financial risk is that the proceeds from its financial assets
are not sufficient to fund the obligations arising from its
insurance and investment contracts with DPF. The most important
components of financial risk are market risk (including currency
risk, cash flow, fair value interest rate risk and price risk),
credit risk and liquidity risk.
These risks partly arise
from open positions in interest rate, currency and equity products,
all of which are exposed to general and specific market movements.
The Group manages these positions through adherence to an
investment policy. The policy adopted is modelled to take into
account actuarial recommendations and is developed to achieve long
term investment returns in excess of its obligations under
insurance and investment contracts with DPF. The principal
technique underlying the Group’s framework is to broadly
match assets to the liabilities arising from insurance and
investment contracts with DPF by reference to the type of benefits
payable to contract holders, and the recommended portfolio mix as
advised by the approved actuary.
The Group’s
investment policy is formally approved by the Board of Directors.
Portfolio review processes and investment decisions are generally
delegated to a dedicated Sub-Investment Committee or the Chief
Executive Officer. Transactions in excess of pre-established
parameters are subject to Board of Directors approval. The
procedures consider, inter alia, a recommended portfolio structure,
authorisation parameters, asset and counterparty limits and
currency restrictions. Management reports to the Investment
Committee on a regular basis. The Committee meets to consider,
inter alia, investment prospects, liquidity, and the performance of
the portfolio and the overall framework of the Group’s
investment strategy. Solvency considerations as regulated by the
relevant Authority are also taken into account as
appropriate.
(a)
Cash flow and fair value interest rate
risk
The Group is exposed to
the risk of fluctuating market interest rate. Assets/liabilities
with variable rates expose the Group to cash flow interest risk.
Assets/liabilities with fixed rates expose the Group to fair value
interest rate risk to the extent that they are measured at fair
value.
The total assets and
liabilities subject to interest rate risk are the
following:
|
|
|
The
Group
|
|
The
Company
|
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
|
€
|
|
€
|
|
€
|
|
€
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Assets at floating
interest rates
|
|
6,589,389
|
|
9,886,690
|
|
454,612
|
|
860,287
|
|
Assets at fixed interest
rates
|
|
26,423,712
|
|
29,374,880
|
|
-
|
|
-
|
|
|
33,013,101
|
|
39,261,570
|
|
454,612
|
|
860,287
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Technical
provisions
|
|
90,189,514
|
|
94,240,446
|
|
-
|
|
-
|
|
Liabilities at floating
interest rate
|
|
-
|
|
-
|
|
7,139,426
|
|
7,041,697
|
|
|
90,189,514
|
|
94,240,446
|
|
7,139,426
|
|
7,041,697
|
As disclosed in note 21,
the company obtained loans from LifeStar Insurance p.l.c amounting
to €7,139,429 (2020: €7,041,697) which is subject to an
annual interest rate of 3%. This exposure does not give rise to
fair value interest rate risk since the loans are carried at
amortised cost in the financial statements.
Interest rate risk is
monitored by the Board of Directors on an ongoing basis. This risk
is mitigated through the distribution of fixed interest investments
over a range of maturity dates, and the definition of an investment
policy as described earlier, which limits the amount of investment
in any one interest earning asset or towards any one counterparty.
Management monitors the movement in interest rates and, where
possible, reacts to material movements in such rates by adjusting
or restructuring its investment or financing structure and by
maintaining an appropriate mix between fixed and floating rate
instruments. As at the end of the reporting period, the Directors
considered that no hedging arrangements were necessary to address
interest rate risk.
Insurance and investment
contracts with DPF have benefit payments that are fixed and
guaranteed at the inception of the contract (for example, sum
assured), or as bonuses are declared. The financial component of
these benefits is usually a guaranteed fixed interest rate set at
the inception of the contract, or the supplemental benefits
payable. The Group’s primary financial risk on these
contracts is the risk that interest income and capital redemptions
from the financial assets backing the liabilities are insufficient
to fund the guaranteed benefits payable.
The supplemental
benefits payable to holders of such contracts are based
substantially on historic and current rates of return on fixed
income securities held as well as the Group’s expectations
for future investment returns. The impact of interest rate risk is
mitigated by the presence of the DPF. Guaranteed benefits
increase as supplemental benefits are declared and allocated to
contract holders.
All insurance and
investment contracts with a DPF feature can be surrendered before
maturity for a cash surrender value specified in the contractual
terms and conditions. This surrender value is either lower than or
at least equal to the carrying amount of the contract liabilities
as a result of the application of surrender penalties set out in
the contracts. The Group is not required to, and does not, measure
this embedded derivative at fair value.
The sensitivity for
interest rate risk illustrates how changes in the fair value or
future cash flows of a financial instrument will fluctuate because
of changes in market interest rates at the reporting date. The
Group’s interest rate risk arises primarily on fixed-income
and floating rate financial assets held to cover policyholder
liabilities. Interest-bearing assets or liabilities attributable to
the shareholders are not significant, or they mainly mature in the
short term, and as a result the Group’s income and operating
cash flows are substantially independent of changes in market
interest rates in this regard. An indication of the sensitivity of
insurance results to a variation of investment return on
policyholders’ assets is provided in Note 11 to the financial
statements in relation to the value of in-force business. Further
sensitivity to investment return variations in relation to
technical provisions is provided in Note 17 to the financial
statements.
Should the carrying
amounts of assets at fixed interest rates at the end of the
reporting period increase/decrease by 10%, with all other variables
held constant, the impact on the Group’s pre-tax profit would
be +/- €2,642,371 (2021: +/- €2,937,488). The Group is
not exposed to significant cash flow interest rate risk on assets
at floating interest rates as a reasonably possible change would
not result in a significant cash flow interest rate
risk.
(b)
Price risk
The Group is exposed to
market price risk arising from the uncertainty about the future
prices of investments held that are classified in the statement of
financial position as at fair value through profit or loss or as
available for sale. This risk is mitigated through the adherence to
an investment policy geared towards diversification as described
earlier. The Group is exposed to price risk in respect of listed
equity investment. Approximately 27% (2021: 26%) of equity
securities held at fair value through profit or loss in Note 16
relate to holdings in three local banks. The remaining equity
securities held at fair value through profit or loss are mainly
held in equities in the Telecommunication Services and Information
Technology sectors.
The total assets subject
to equity price risk are the following:
|
The
Group
|
|
The
Company
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
€
|
|
€
|
|
€
|
|
€
|
|
Investments in
group
undertakings (Note
15)
|
-
|
|
-
|
|
24,031,432
|
|
24,031,424
|
|
Other investments (Note
16)
|
25,518,258
|
|
26,322,906
|
|
-
|
|
-
|
|
25,518,258
|
|
26,322,906
|
|
24,031,432
|
|
24,031,424
|
The sensitivity analysis
for price risk illustrates how changes in the fair value of equity
securities will fluctuate because of changes in market prices,
whether these changes are caused by factors specific to the
individual equity issuer, or factors affecting all similar equity
securities traded in the market.
The sensitivity analysis
measures the change in the fair value of the instruments for a
hypothetical change of 10% in the market price of financial assets
at fair value through profit or loss. The amounts generated from
the sensitivity analysis are forward-looking estimates of market
risk assuming certain market conditions. Actual results in the
future may differ materially from those projected results due to
the inherent uncertainty of global financial markets. Should market
prices at the end of the reporting period increase/decrease by 10%
(2021: 10%), with all other variables held constant, the impact on
the Group’s pre-tax profit would be +/- €
2,551,826 (2021: +/-
€ 2,632,291 ). Should market prices at the end of the reporting period
increase/decrease by 10% (2021: 10%), with all other variables held
constant, the impact on the Company's pre-tax profit would be +/-
€ 2,403,143 (2021: +/- € 2,403,124). This
sensitivity analysis is based on a change in an assumption while
holding all assumptions constant and does not consider, for
example, the mitigating impact of the DPF element on policyholder
liabilities for contracts with a DPF.
(c)
Currency risk
The Group’s
exposure to foreign exchange risk arises primarily from investments
that are denominated in currencies other than the Euro. As at 31
December 2022, the Group’s exposure to foreign currency
investments (principally comprising a mix of US Dollar, UK Pound
and Swiss Franc) represented 5.4% (2021: 8.0%) of the Group’s
total investments excluding the term deposits in Note 16.
Approximately 5.2% (2021: 6.8%) of the Group’s cash and cash
equivalents and term deposits, are denominated in foreign currency
(principally comprising a mix of US Dollar, UK Pound and Swiss
Franc).
The risk arising from
foreign currency transactions is managed by regular monitoring of
the relevant exchange rates and management’s reaction to
material movements thereto.
For financial
instruments held or issued, a sensitivity analysis technique that
measures the change in the fair value and the cash flows of the
Group’s financial instruments at the reporting date for
hypothetical changes in exchange rates has been used. The amounts
generated from the sensitivity analysis are forward-looking
estimates of market risk assuming certain market conditions. Actual
results in the future may differ materially from those projected
results due to the inherent uncertainty of global financial
markets. The sensitivity analysis is for illustrative purposes
only, as in practice market rates rarely change in isolation and
are likely to be interdependent.
Should exchange rates at
the end of the reporting period differ by +/-10% (2021: +/-10%),
with all other variables held constant, the impact on the
Company’s pre-tax profit would be +/- €498,329 (2021:
+/- €806,349).
(d)
Credit risk
The Group has exposure
to credit risk, which is the risk that a counterparty will be
unable to pay amounts in full when due. Financial assets that
potentially subject the Group to concentrations of credit risk
consist principally of:
- other
investments (including counterparty risk);
- reinsurers’ share of technical provisions;
- amount due
from insurance policyholders and intermediaries;
- trade and
other receivables; and
- cash and
cash equivalents.
The Group is exposed to
credit risk as at the financial year-end in respect of amounts due
from subsidiary undertakings and cash at bank balances, which are
placed with reliable financial institutions.
The Group structures the
levels of credit risk it accepts by placing limits on its exposure
to a single counterparty, or groups of counterparties. Limits on
the level of credit risk by category are defined within the
Group’s investment policy as described earlier. This policy
also considers regulatory restrictions on asset and counterparty
exposures. Further detail on the content of the Group’s
investment portfolio is provided in Note 16 to these financial
statements.
Credit risk in respect
of trade and other receivables is not deemed to be significant
after considering the range of underlying debtors, and their
creditworthiness. Receivables are stated net of impairment. Further
detail in this regard is provided in Note 18 to the financial
statements.
Reinsurance is used to
manage insurance risk. This does not, however, discharge the
Group’s liability as primary insurer. If a reinsurer fails to
pay a claim for any reason, the Group remains liable for payment to
the policyholder. The creditworthiness of reinsurers is considered
on an ongoing basis and by reviewing their financial strength prior
to finalisation of any contract. The Group’s reinsurer
retained its Standard and Poor’s rating of AAA to AA+ bracket
as at 31 December 2022.
The credit risk in
respect of cash at bank is mitigated by placing such balances with
reliable financial institutions.
Credit risk in respect
of the amounts due from subsidiary undertakings to the Company is
closely monitored by the Company and is tested for impairment as
disclosed in Note 18.
The following table
illustrates the assets that expose the Group to credit risk as at
the end of the reporting period and includes the Standard &
Poor’s, Moody’s and ARC’s composite rating for
debt securities at fair value through profit or loss, when
available, and the default rating for deposits with banks and cash
and cash equivalents, when available.
Assets bearing credit
risk at the end of the reporting period are analysed as
follows:
|
|
The
Group
|
|
As at 31 December
2022
|
|
AAA
|
|
BBB
|
Below
B
|
|
|
to AA
|
A
|
to B
|
to
unrated
|
Total
|
|
€
|
€
|
€
|
€
|
€
|
|
Investments
|
|
|
|
|
|
|
Debt securities at fair
value through profit or loss
|
1,784,640
|
6,100,953
|
9,162,373
|
4,614,829
|
21,662,795
|
|
1,784,640
|
6,100,953
|
9,162,373
|
4,614,829
|
21,662,795
|
|
|
|
|
|
|
|
|
Loans and
receivables
|
|
|
|
|
|
|
Loans secured on
policies
|
-
|
-
|
-
|
25,529
|
25,529
|
|
Other loans and
receivables
|
-
|
3,087,047
|
-
|
-
|
3,087,047
|
|
Trade and other
receivables
|
-
|
-
|
-
|
3,391,751
|
3,391,751
|
|
Term Deposits
|
-
|
-
|
-
|
1,500,000
|
1,500,000
|
|
Cash and cash
equivalents
|
-
|
472,104
|
6,173,029
|
-
|
6,645,133
|
|
-
|
3,559,151
|
6,173,029
|
4,917,280
|
14,649,460
|
|
|
|
|
|
|
|
Reinsurance share of
technical provisions
|
18,840,581
|
-
|
-
|
-
|
18,840,581
|
|
Total assets bearing
credit risk
|
20,625,221
|
9,660,104
|
15,335,402
|
9,532,109
|
55,152,836
|
|
|
|
|
|
|
|
|
The
Group
|
|
As at 31 December
2021
|
|
AAA
|
|
BBB
|
Below
B
|
|
|
to AA
|
A
|
to B
|
to
unrated
|
Total
|
|
€
|
€
|
€
|
€
|
€
|
|
Investments
|
|
|
|
|
|
|
Debt securities at fair
value through profit or loss
|
2,061,068
|
5,933,846
|
10,235,536
|
5,756,255
|
23,986,705
|
|
2,061,068
|
5,933,846
|
10,235,536
|
5,756,255
|
23,986,705
|
|
Loans and
receivables
|
|
|
|
|
|
|
Loans secured on
policies
|
-
|
-
|
-
|
36,295
|
36,295
|
|
Other loans and
receivables
|
-
|
3,288,174
|
-
|
-
|
3,288,174
|
|
Trade and other
receivables
|
-
|
-
|
-
|
3,672,964
|
3,672,964
|
|
Term Deposits
|
-
|
-
|
-
|
2,100,000
|
2,100,000
|
|
Cash and cash
equivalents
|
-
|
-
|
11,812,965
|
812,680
|
12,625,645
|
|
-
|
3,288,174
|
11,812,965
|
6,621,939
|
21,723,078
|
|
|
|
|
|
|
|
Reinsurance share of
technical provisions
|
20,004,452
|
-
|
-
|
-
|
20,004,452
|
|
Total assets bearing
credit risk
|
22,065,520
|
9,222,020
|
22,048,501
|
12,378,194
|
65,714,235
|
Unrated financial assets
principally comprise locally traded bonds on the Malta Stock
Exchange, receivables and certain deposits with local bank
institutions for which no credit rating is available.
As at 31 December 2022
and 2021 the Group had significant exposure with the Government of
Malta through investments in debt securities. In 2022, these were
equivalent to 7.0% (2021: 6.5%) of the Group’s total
investments.
The tables below analyse
the Group’s financial assets into relevant maturity groupings
based on the remaining period between the end of the reporting
period and the maturity date. The expected cash outflows for
insurance and investment contracts do not consider the impact of
early surrenders. Resilience and closure reserves are not included
in the figures below.
|
The
Company
|
|
2022
|
2021
|
|
€
|
€
|
|
Classes of financial
assets - carrying amounts
|
|
|
|
Financial assets at
amortised cost
|
|
|
|
Receivable from Ultimate
shareholder
|
47,898
|
33,035
|
|
Receivable from parent
company
|
203,383
|
128,124
|
|
Receivables from
subsidiaries
|
1,771,438
|
1,679,635
|
|
Other
receivables
|
106,078
|
121,217
|
|
Cash and cash
equivalents
|
454,612
|
860,287
|
|
2,583,409
|
2,822,298
|
|
|
The
Group
|
|
Expected discounted
cash inflows
|
|
|
Between
|
Between
|
Between
|
|
|
|
Less
than
|
one
and
|
five
and
|
ten
and
|
Over
|
|
|
one
year
|
five
years
|
ten
years
|
twenty
years
|
20
years
|
Total
|
|
€
|
€
|
€
|
€
|
€
|
€
|
|
|
|
|
|
|
|
|
As at 31 December
2022
|
|
|
|
|
|
|
|
Reinsurance share of
Technical provisions
|
665,354
|
103,791
|
724,524
|
3,957,236
|
13,389,675
|
18,840,580
|
|
|
|
|
|
|
|
|
As at 31 December
2021
|
|
|
|
|
|
|
|
Reinsurance share of
Technical provisions
|
97,698
|
65,769
|
676,334
|
3,698,188
|
15,466,463
|
20,004,452
|
(e) Liquidity risk
Liquidity is the risk
that cash may not be available to pay obligations when due at a
reasonable cost. The Group adopts a prudent liquidity risk
management approach by maintaining a sufficient proportion of its
assets in cash and marketable securities through the availability
of an adequate amount of committed credit facilities and the
ability to close out market positions. Senior management is updated
on a regular basis on the cash position of the Group illustrating,
inter alia, actual cash balance net of operational commitments
falling due in the short term as well as investment commitments
falling due in the medium and long term.
The Group is exposed to
daily calls on its available cash resources in order to meet its
obligations, including claims arising from contracts in issue by
the Group. Other financial liabilities which expose the Group to
liquidity risk mainly comprise the borrowings disclosed in Note 21
and trade and other payables disclosed in Note 22.
The tables below analyse
the Group’s financial liabilities into relevant maturity
groupings based on the remaining period between the end of the
reporting period and the maturity date. The expected cash outflows
for insurance and investment contracts do not consider the impact
of early surrenders. Expected cash outflows on unit linked
liabilities have been excluded since they are matched by expected
inflows on backing assets.
|
The
Group
|
|
As at 31 December
2022
|
Contracted
undiscounted cash outflows
|
|
Less than one
year
|
Between one and two
years
|
Between two and five
years
|
Over five
years
|
Total
|
Carrying
amount
|
|
|
€
|
€
|
€
|
€
|
€
|
€
|
|
|
|
|
|
|
|
|
|
|
Interest bearing
borrowings
|
650,799
|
590,450
|
590,450
|
2,526,366
|
4,358,065
|
4,252,740
|
|
|
Trade and other
payables
|
7,446,860
|
-
|
-
|
-
|
7,446,860
|
7,446,860
|
|
|
8,097,659
|
590,450
|
590,450
|
2,526,366
|
11,804,925
|
11,699,600
|
|
|
|
|
|
|
|
|
|
|
The
Group
|
|
Expected discounted
cash outflows
|
|
Less than one
year
|
Between one and two
years
|
Between two and five
years
|
Between 10 and
20 years
|
Over twenty
years
|
Total
|
|
|
€
|
€
|
€
|
€
|
€
|
€
|
|
|
|
|
|
|
|
|
|
|
Technical
provisions
|
7,754,990
|
30,407,566
|
13,275,351
|
19,338,397
|
54,233,042
|
125,009,346
|
|
|
|
|
|
|
|
|
|
|
The
Group
|
|
As at 31 December
2021
|
Contracted
undiscounted cash outflows
|
|
|
|
|
Less than one
year
|
Between one and two
years
|
Between two and five
years
|
Over five
years
|
Total
|
Carrying
amount
|
|
|
€
|
€
|
€
|
€
|
€
|
€
|
|
|
|
|
|
|
|
|
|
|
Interest bearing
borrowings
|
624,936
|
537,885
|
1,640,382
|
2,105,257
|
4,908,460
|
4,730,586
|
|
|
Trade and other
payables
|
7,989,447
|
-
|
-
|
-
|
7,989,447
|
7,989,447
|
|
|
8,614,383
|
537,885
|
1,640,382
|
2,105,257
|
12,897,907
|
12,720,033
|
|
|
|
|
|
|
|
|
|
|
The
Group
|
|
Expected discounted
cash outflows
|
|
Less than one
year
|
Between one and two
years
|
Between two and five
years
|
Between 10 and
20 years
|
Over twenty
years
|
Total
|
|
|
€
|
€
|
€
|
€
|
€
|
€
|
|
|
|
|
|
|
|
|
|
|
Technical
provisions
|
14,257,208
|
28,529,074
|
13,967,431
|
16,992,733
|
56,313,143
|
130,059,589
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below analyse
the Company's financial liabilities into relevant maturity
groupings based on the remaining period between the end of the
reporting period and maturity date.
|
The
Company
|
|
Contracted
undiscounted cashflows
|
|
Less than one
year
|
Between one and two
years
|
Between two and five
years
|
Over five
years
|
Total
|
Carrying
amount
|
|
€
|
€
|
€
|
€
|
€
|
€
|
|
|
|
|
|
|
|
|
As at 31 December
2022
|
|
|
|
|
|
|
|
Interest bearing
borrowings
|
650,799
|
590,450
|
590,450
|
7,520,543
|
9,352,242
|
9,246,917
|
|
Trade and other
payables
|
2,528,533
|
-
|
-
|
-
|
2,528,533
|
2,528,533
|
|
3,179,332
|
590,450
|
590,450
|
7,520,543
|
11,880,775
|
11,775,450
|
|
|
|
|
|
|
|
|
As at 31 December
2021
|
|
|
|
|
|
|
|
Interest bearing
borrowings
|
624,936
|
537,885
|
6,503,812
|
2,177,997
|
9,844,630
|
9,667,026
|
|
Trade and other
payables
|
2,349,834
|
-
|
-
|
-
|
2,349,834
|
2,349,834
|
|
2,974,770
|
537,885
|
6,503,812
|
2,177,997
|
12,194,464
|
12,016,860
|
3.
Particulars of
business
The Group writes long
term and linked long term insurance business:
(i)
Gross premiums written
Gross premium income is
made up of direct insurance business and is further analysed
between:
|
|
The
Group
|
|
Periodic
premiums
|
|
Single
premiums
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
€
|
|
€
|
|
€
|
|
€
|
|
|
|
|
|
|
|
|
|
Gross premium
income
|
6,492,673
|
|
6,647,138
|
|
6,433,434
|
|
6,110,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022
|
|
2021
|
|
|
|
|
|
€
|
|
€
|
|
Comprising:
|
|
|
|
|
|
|
|
|
Individual
business
|
|
|
|
|
12,476,693
|
|
12,316,462
|
|
Group
contracts
|
|
|
|
|
449,414
|
|
441,322
|
|
|
|
|
|
12,926,107
|
|
12,757,784
|
|
|
|
|
|
|
|
|
|
|
Periodic and single
premiums credited to liabilities in Note 17
in relation to linked products classified as investment contracts
without DPF was as follows:
|
|
The
Group
|
|
Periodic
premiums
|
|
Single
premiums
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
€
|
|
€
|
|
€
|
|
€
|
|
|
|
|
|
|
|
|
|
Investment
contracts
|
11,272,565
|
|
9,537,978
|
|
-
|
|
-
|
All long-term contracts of
insurance are concluded in or from Malta.
(ii)
Reinsurance premiums outwards
The reinsurance premiums
which represents the aggregate of all items relating to reinsurance
outwards, mainly attributable to insurance contracts, amounted to a
charge of €1,918,887 (2021: €1,785,759) to the long term
business technical account for the year ended 31 December
2022.
(i) Analysis between insurance and investment
contracts
|
|
The
Group
|
|
|
2022
|
|
2021
|
|
€
|
|
€
|
|
Gross premiums
written
|
|
|
|
|
Insurance
contracts
|
6,492,673
|
|
6,647,138
|
|
Investment contracts
with DPF
|
6,433,434
|
|
6,110,646
|
|
12,926,107
|
|
12,757,784
|
|
|
|
|
|
2022
|
|
2021
|
|
€
|
|
€
|
|
Claims incurred, net
of reinsurance
|
|
|
|
|
Insurance
contracts
|
6,264,394
|
|
4,988,091
|
|
Investment contracts
with DPF
|
6,523,707
|
|
4,905,071
|
|
Transfer from
administrative expenses
|
259,013
|
|
258,648
|
|
13,047,114
|
|
10,151,810
|
(i) Net operating expenses
|
|
The
Group
|
|
|
|
2022
|
|
2021
|
|
€
|
|
€
|
|
Acquisition
costs
|
12,108
|
|
74,436
|
|
Administrative
expenses
|
5,466,010
|
|
4,545,291
|
|
Reinsurance commissions
and profit participation
|
(463,222)
|
|
(76,723)
|
|
5,014,896
|
|
4,543,004
|
|
|
|
|
|
Total commissions for
direct business accounted for in the financial year amounted to
€ 2,112,260 (2021: €2,259,833).
(ii)
Bonuses and rebates, net of
reinsurance
Reversionary bonuses
declared in the year amounted to € 605,781 (2021: €
88 2,196).
|
