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Directors’ report

 

Statement of directors’ responsibilities

 

Corporate governance – statement of compliance

 

Remuneration report

 

Statement of comprehensive income

 

Technical account – long-term business of insurance

 

Non-technical account

 

Statement of financial position

 

Statement of changes in equity

 

Statement of cash flows

 

Accounting policies

 

Notes to the financial statements

 

Independent auditor’s report

 

 

 

 



 

Directors’ Report

 

The Directors present their report and the audited consolidated financial statements for the year ended 31 December 2022.

 

Principal activities

 

LifeStar Holding p.l.c. (the “Company”) together with its subsidiaries (the “Subsidiaries”), together hereinafter referred to as the “LifeStar Group” or “the Group”, is involved in:

 

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the carrying on of long-term business of insurance under the Insurance Business Act (Cap. 403 of the Laws of Malta);

 

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acting as an agent for sickness and accident insurance in terms of the Insurance Distribution Act (Cap. 487 of the Laws of Malta);

 

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the provision of investment services and advice in terms of the Investment Services Act (Cap. 370 of the Laws of Malta); and

 

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the provision on behalf of Group undertakings of property management and consultancy services, including property acquisitions, disposals and development projects.

 

 

Review of business

 

Consolidated results

 

2022 proved to be another uncertain year as the Covid-19 pandemic has continued to impact businesses globally. While many hoped that the pandemic would come to an end, the development of new variants continued to impact all sectors globally. Like many businesses, the Group has learnt to operate within this reality and the circumstances obtained positive results. In fact, LifeStar Holding p.l.c. on a consolidated basis generated a total comprehensive loss of €2.6 million (2021: profit of €0.7 million). The pre-tax loss for the year amounted to €5.0 million (2021: profit of €1.6 million).

 

During the year, the Group continued to undertake restructuring and transformation activity to align the business operations with the Board’s approved strategy and to strengthen its capital based. This was achieved by implementing a holistic strategic plan, designed to permanently resolve various legacy issues that continue to negatively impact the LifeStar Group and to support the consolidation and future growth of the Group. As part of this restructuring, Global Capital Holdings Limited merged with LifeStar Holding p.l.c., on 1 December 2020, effective from 1 January 2020. Furthermore, on 4 May 2021 the Malta Financial Services Authority approved an offer for sale of 18,518,519 ordinary shares in LifeStar Insurance p.l.c. at an offer price of €0.54 per share (‘the Share Offer’) and the offer of 6,570,000 ordinary shares in LifeStar Insurance p.l.c. to its shareholders in exchange for their ordinary shares in LifeStar Holding p.l.c. at an exchange ratio of 1 LifeStar Holding p.l.c. share to 1 share in LifeStar Insurance p.l.c. (‘the Exchange Offer). From the Share Offer, 10,854,000 shares (for a total value of €5,861,160) were received by LifeStar Insurance p.l.c., whilst 5,897,951 shares from the Exchange Offer (for a total value of €3,184,894) were received by LifeStar Insurance p.l.c. The Group also redeemed in full the 5% Unsecured Bond in June 2021. Furthermore, on 6 May 2021, the Malta Financial Services Authority approved the issue of €10,000,000 4% Subordinated Bonds due 2026-2031 issued by LifeStar Insurance p.l.c. (the “Subordinated Bonds”). A total of 24,313 Subordinated Bonds (for a total value of €2,431,300) were received by LifeStar Insurance p.l.c.

 

Group assets decreased by 5.6% (2021: increased by 2.6%) from €170.6 million as at 31 December 2021 to €161.2 million as at 31 December 2022, and shareholder funds also decreased by 10.3% (2021: increased by 35.2%). The Group’s net asset value at end of the year stood at €22.4 million (2021: €24.9 million).

 

LifeStar Insurance p.l. c. (“LSI plc”)

 

LifeStar Insurance p.l.c.’s continued to register an increase in gross written premium of 1.3% when compared to the previous year to close off at €12.9 million.  Value of in-force business also saw a healthy increase of €760 thousand or 6.4%.

 

As indicated above the Insurance business was adversely affected by the downward trend experienced in all classes of investments.  The group incurred an unrealised loss on investments of €4.1 million.  This contributed to overall loss to the group of €3.1 million (2021: profit €544 thousand) and generated a total loss for the year of €1.8 million (2021: income of €1.9 million). The loss is due to the adverse unrealised losses on investments, surrenders, maturities and a number of one - off costs.   Our Index Linked and Unit Linked insurance continued in their popularity and we saw a double - digit growth just surpassing the 18% to close off at just over €11.2 million (2021: €9.5 million). 

 

In 2022, LifeStar Health Limited declared a net interim dividend of €500,000 (2021: net dividend €1,000,000). 

 

Operating expenses increased on the prior year by €0.6 million, due mainly to professional and legal fees. The balance on the long-term technical account closed off with a loss of €3.2 million compared to the loss in 2021 of €0.3 million.

 

Another important measure for a Life Company would be the Value of in Force Business.  2022 produced a healthy increase of €0.8 million (2021: €1.4 million).  This led to a total comprehensive loss for the year of €1.5 million compared to total comprehensive income of €2.6 million in 2021. 

 

Total assets of the Group decreased by   4.6% (2021: 6.5%) from €171.9 million to € 164.1 million as at the end of the current reporting period. Technical provisions decreased by 3.9% (2021: increased by 4.5%) from € 130.1 million to €125.0 million. The Company’s Solvency II ratio was a healthy one and, as at 185% (2021: 165%).

 

LSI’s value of in-force business for 2022 registered an increase of   €0.8 million (2021: €1.4 million) and, in aggregate, amounted to €12.7 million (2021: €11.9 million) at end of the current year - representing the discounted projected future shareholder profits expected from the insurance policies in force as at year end, adjusted for taxation.

 

LifeStar Insurance Board of directors approved a 2022 bonus declaration of 3.5% for Money Plus policies (2021: 3.5%) and 0.5% (2021: 1.0%) for all other interest sensitive products. The Company also announced a bonus rate of 0.5% (2021: 0.5%) for paid up policies.

 

LifeStar Health Limited

 

LifeStar   Health Limited generated higher revenue and earnings during 2022; however, earnings generated during 2022 were slightly lower than the previous due to lower profit commission and lower Bupa Global International Business. Consequently, LifeStar Health Limited, registered a profit before tax of €0.4 million (2021: €0.6 million), as revenue increased marginally in 2022 to €1.83 million (2021: €1.81 million).

 

Total assets decreased from €2.6 million in 2021 to €2.0 million in 2022 and total equity decreased from €1.4 million in 2021 to €1.2 million in 2022 after declaring an interim net dividend of €0.5 million.

 

LifeStar Health Limited is required to comply with the own funds requirement as set by the Malta Financial Services Authority. The minimum capital requirements (defined as “the capital resource requirements”) must be maintained at all times throughout the year.  LifeStar Health Limited monitors its capital level through detailed reports compiled with management accounts.  Any transactions that may potentially affect LifeStar Health Limited’s regulatory position are immediately reported to the directors for resolution prior to notifying the Malta Financial Services Authority. The Company exceeded the required minimum capital requirements during the year under review.

 

GlobalCapital Financial Management Limited (“GCFM”)

 

During the year ending 31 December 2022, the Company generated revenue of €732,853 (2021: €697,439) and other income of €175,303 (2021: €204,908), of which €25,000 (2021: €110,000) was attributable to the profit recognised on the sale of book. As a result, the Company recognized provisions for claims settlement of €152,072 (2021: reversal of €13,974) and recorded settled claims of €207,104 (2021: €47,971) in its income statement. However, this was offset by direct costs and administrative expenses totalling €825,024 (2021: €1,063,714 which principally relate to salaries (2022: €457,876; 2021: €608,161) and professional and consultancy fees (2022: €143,094; 2021: €210,454).

 

The net asset position of the Company as at 31 December 2022 amounted to €327,217 (€263,475). During 2020 the shareholder contributed €1,207,421 by means of a shareholder’s loan and shareholder’s contribution, the latter of which is subject to regulatory approval. As set out in Note 18 the shareholder’s loan is unsecured, interest free, repayable at the discretion of the Company and has no fixed repayment date.

 

Future outlook

 

The directors intend to continue to operate in line with the Group’s current business plan.

 

Principal risks and uncertainties

           

The Group’s principal risks and uncertainties are further disclosed in Note 1 – Critical accounting estimates and judgements, Note 2 – Management of insurance and financial risk, Note 11 – Intangible assets covering details on the Group’s goodwill and value of in-force business, Note 14 – Investment property disclosing the significant observable inputs, and Note 17 – Technical provisions which includes the valuation assumptions.

 

Financial risk management

 

Note 2 to the financial statements provides details in connection with the Group’s use of financial instruments, its financial risk management objectives and policies and the financial risks to which it is exposed.

 

Results and dividends

 

The consolidated statement of comprehensive income sets out the results of the Group. The Group’s total comprehensive loss amounted to €3.2 million (2021: profit of €0.7 million), whilst the pre-tax loss for the year amounted to €5.0 million (2021: profit of €1.7 million). The Directors do not recommend the declaration of a dividend (2021: €Nil). However, a gross dividend of €500 thousand was declared by LifeStar Health Limited as subject to regulatory no objection.

 

Events after the financial reporting date

 

As we progress through 2023, certain events which might have the potential of impacting the results of the holding company and the group are possible repercussions from the war in Ukraine on the European and, more generally, on the world economy as well as rising inflation and stock market uncertainty. Other concerns could arise from another pandemic flareup although the latter is considered unlikely in the short term as vaccinations have been administered on a large scale globally.

 

Post the end of the reporting date however, as aforementioned, the potential risks to the performance of any company is from high inflation witnessed in the last few months which has forced many major central banks to increases interest rates as a counter-measure for inflation.

 

So far, Malta has been well shielded from increases in fuel and utility prices, though the Government has hinted that this may not be sustainable in the longer term. Should the government halt its subsidies on energy and other assistance to industry in general, this could lead to further price increases and possibly a reduction in disposable income, and which in-turn would adversely influence the propensity to save.

 

To date we have not seen any impact on the level of business being written with us. Our next challenge is now to increase efficiency even further to mitigate as much as possible the effect of rising prices but also with a view to help in protecting the environment in line with national targets and efforts done by industry as well as our peers.

 

We are not otherwise aware of any further events that could possibly have an effect on the operations of the LifeStar Holdings Group.

 

Going concern

 

The Directors, as required by Capital Markets Rule 5.62, have considered the Group’s operating performance, the statement of financial position at year end, as well as the business plan for the coming year, and they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason, they continue to adopt the going concern basis in preparing the financial statements.

 

Directors

 

The Directors of the Company who held office during the period were:

 

Paolo Catalfamo (Chairman)

Joseph Schembri (Senior Independent Director)

Joseph Del Raso

Cinzia Catalfamo

Gregory Eugene McGowan

 

In terms of the Company’s Articles of Association, Directors elected at an Annual General meeting shall hold office until the next subsequent Annual General Meeting, unless they resign or are removed from office. On the lapse of such term, a Director shall be eligible for re-appointment.

 

Remuneration Committee and Corporate Governance

 

The Board of Directors has set up an Audit and Risk Committee, as well as a Remuneration and Nominations Committee. The Board of the Company will be submitting to the Shareholders at the next Annual General Meeting the Remuneration Report for the financial year ending 31 December 2022 (the “Reporting Period”). The Remuneration Report is drawn up in accordance with, and in fulfilment of the provisions of Chapter 12 of the Capital Markets Rules issued by the Malta Financial Services Authority (“Capital Markets Rules”) relating to the Remuneration Report and Section 8A of the Code of Principles of Good Corporate Governance (Appendix 5.1 of the Capital Market Rules) regarding the Remuneration Statement.  

 

The Remuneration Report provides a comprehensive overview of the nature and quantum of remuneration paid to the individual Directors and members of Executive Management during the Reporting Period and details how this complies with the Company’s Remuneration Policy. The Remuneration Report is intended to provide increased corporate transparency, increased accountability and a better shareholder oversight of the remuneration paid to Directors and members of Executive Management. The contents of the Remuneration Report have been reviewed by the Company’s Auditors to ensure that the information required in terms of Appendix 12.1 of the Capital Market Rules has been included.

 

The Group’s arrangements for corporate governance are reported in the ‘Corporate Governance - Statement of Compliance’ section.

 

Statement of Directors’ responsibilities

 

The Directors are required by the Companies Act (Cap. 386 of the Laws of Malta) to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the EU which give a true and fair view of the state of affairs of the Group at the end of each financial year and of the profit or loss of the Group for the year then ended.

 

In preparing the financial statements, the Directors are responsible for:

 

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ensuring that the financial statements have been drawn up in accordance with International Financial Reporting Standards (IFRS’s) as adopted by the EU;

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selecting and applying appropriate accounting policies;

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making accounting estimates that are reasonable in the circumstances; and

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ensuring that the financial statements are prepared on the going concern basis unless it is inappropriate to presume that the Group will continue in business as a going concern.

 

The Directors are responsible for ensuring that proper accounting records are kept which disclose with reasonable accuracy at any time the financial position of the Group and which enable the Directors to ensure that the financial statements comply with the Companies Act (Cap. 386 of the Laws of Malta). This responsibility includes designing, implementing and maintaining such internal control as the Directors determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Directors are also responsible for safeguarding the assets of the Group, and including by taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

In addition, the Directors are required to ensure that the Group companies have, at all times, complied an observed the various requirements, more specifically that LifeStar Insurance p.l.c. adhered to the provisions and requirements of the Insurance Business Act (Cap. 403 of the Laws of Malta); that LifeStar Health Limited has, at all times, complied with and observe the various requirements of the Insurance Distribution Act (Cap. 487 of the Law of Malta); and that Global Capital Financial Management Limited was in compliance of the Investment Services Act (Cap. 370 of the Laws of Malta).

 

Auditors

 

Grant Thornton have intimated their willingness to continue in office.

 

A resolution to reappoint Grant Thornton as auditor of the Group will be proposed at the forthcoming annual general meeting.

 

Information pursuant to Capital Markets Rule 5.64

 

The Company has an authorised share capital of €58,234,400 divided into 200,000,000 ordinary shares with a nominal value of €0.291172 each (2021: €58,234,400).

 

During the latest Extraordinary General Meeting of the Company held on the 05th December 2022, it had been resolved that 5,897,951 issued Ordinary shares, each of a nominal value of €0.291172, which were held by the Company and which constituted non-voting shares listed on the official list of the Malta Stock Exchange, were to be cancelled. Consequent to such extraordinary resolution, the issued share capital of the Company listed on the Malta Stock Exchange was reduced from €8,735,160 divided into 30,000,000 Ordinary shares, each of a nominal value of €0.291172, which Ordinary Shares were all listed on the official list of the Malta Stock Exchange, to €7,017,841.81 divided into 24,102,049 Ordinary Shares of a nominal value of €0.291172 each.

 

A copy of the extraordinary resolution was submitted to the Malta Business Registry on the 19th December 2022. The Malta Business Registry published the relative notice in connection with the reduction in share capital required in terms of the provisions of the Companies Act (Chapter 386 of the Laws of Malta) on the 20th April 2023.

 

The issued shares of the Company consist of one class of ordinary shares with equal voting rights attached. The shares carry equal rights to participate in any distribution of dividends declared by the Company. Each share shall be entitled to one vote at the meetings of the shareholders. The shares are freely transferable in accordance with the rules and regulations of the Malta Stock Exchange, as applicable from time to time, and in terms of the provisions of the Articles of Association of the Company.

 

The Directors confirm that, as at 31 December 2022, Investar p.l.c. 65.48% (2021: 52.60%), GlobalCapital Financial Management Limited as nominee for Client accounts 31.78% (2021: 23.74%) held a shareholding in excess of 5% of the total issued share capital. At 31 December 2021, LifeStar Holding plc held a shareholding of 19.7% which constituted non-voting shares.

 

The Nominations and Remuneration Committee of the Board of Directors currently consists solely of independent Non-Executive Directors. It has the responsibility to assist and advise the Board of Directors on matters relating to the remuneration of the Board of Directors and senior management, in order to motivate and retain executives and ensure that the Company is able to attract the best talents in the market in order to maximise shareholder value.

 

The rules governing the appointment and replacement of the Company’s Directors are contained in Articles 73 to 81 of the Company’s Articles of Association. Directors of the Company shall be elected on an individual basis by ordinary resolution of the Company in general meeting. The said ordinary resolution shall be determined and decided by means of a poll. The Company may, by an ordinary resolution of the members entitled to vote at a general meeting of the Company, remove any Director before the expiration of his term of office.

 

The Directors can only issue and allot shares up to such maximum amount not exceeding the authorised share capital of the Company, as may be authorised by ordinary resolution of the general meeting in accordance with section 85 of the Companies Act. This and other powers vested in the Company’s Directors are confirmed in Articles 82 to 99 of the Company’s Articles of Association.

 

During the current year, the Company cancelled 19.7% own shares.

 

It is hereby declared that as at 31 December 2022, the information required under Capital Markets Rules 5.64.4, 5.64.5, 5.64.7, 5.64.10 and 5.64.11 is not applicable to the Company.

 

Information pursuant to Capital Markets Rule 5.70.1

 

The Company made advances to Investar p.l.c. during the year which were still outstanding as at 31 December 2022. Other than the above, there were no material contracts to which the Company, or its subsidiary was a party, and in which anyone of the Company’s Directors was directly or indirectly interested.

 

Information pursuant to Capital Markets Rule 5.70.2

 

The Company Secretary is Dr Clinton Calleja and the registered office is LifeStar Holding p.l.c., Testaferrata Street, Ta’ Xbiex, Malta.

 

Statement by the Directors pursuant to Capital Markets Rule 5.68

 

We, the undersigned, declare that to the best of our knowledge, the financial statements prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and its subsidiaries included in the consolidation taken as a whole, and that this Director’s Report includes a fair review of the performance of the business and the position of the Company and its subsidiaries included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

Signed on behalf of the Board of Directors on 27 April 2023 by Prof. Paolo Cata lfamo (Chairman) and Joseph Schembri (Director) as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report.

 

Corporate Governance – Statement of Compliance

 

Pursuant to the Capital Markets Rules issued by the Malta Financial Services Authority, the Company whose equity securities are listed on a regulated market should endeavour to adopt the Code of Principles of Good Corporate Governance (“the Code”) as contained in Appendix 5.1 to Chapter 5 of the Capital Markets Rules.  In terms of the Capital Markets Rules, the Company is hereby reporting on the extent of its adoption of the Code.

 

The Company acknowledges that the Code does not prescribe mandatory rules but recommends principles so as to provide proper incentives for the Board of Directors (“the Board”) and the Company’s management to pursue objectives that are in the interests of the Company and its shareholders. Good corporate governance is the responsibility of the Board, and in this regard the Board has carried out a review of the Company’s compliance with the Code during the period under review, and hereby provides its report thereon.

 

As demonstrated by the information set out in th is statement, the Company believes that during the reporting period, it has been in full compliance with the Code.

 

Compliance with the Code

 

Principles one and four: The Board

 

The Directors report that for the financial year under review, the Directors have provided the necessary leadership in the overall direction of the Company and have performed their responsibilities for the efficient and smooth running of the Company with honesty, competence and integrity. The Company is committed to the highest standards of business conduct and seeks to maintain these standards across all of its operations.

 

Directors, individually and collectively, are of appropriate calibre, with the necessary skill and experience to assist them in providing leadership, integrity and judgment in directing the Company towards the maximisation of shareholder value and to make an effective contribution to the leadership and decision-making processes of the Company as reflected by the Company’s strategy and policies. Members of the Board are selected on the basis of their core competencies and professional background so as to ensure the continued success of the Company.

 

All the members of the Board are fully aware of, and conversant with, the statutory and regulatory requirements connected to the business of the Company. The Board is accountable for its performance and that of its delegates to shareholders and other relevant stakeholders.

 

The responsibilities of the Board also inv olve the oversight of the Company’s internal control procedures and financial performance, and the review of business risks facing the Company, in order to ensure that these are adequately identified, evaluated, managed and minimised. The activities of the Board are exercised in a manner designed to ensure that it can effectively supervise the operations of the Company and protect the interests of the shareholders and stakeholders.

 

All directors are required to:

 

Exercise prudent and effective controls which enable risk to be assessed and managed in order to achieve continued prosperity to the Company;

Be accountable for all actions or non-actions arising from discussion and actions taken by them or their delegates;

Determine the Company’s strategic aims and the organisational structure;

Regularly review management performance and ensure that the Company has the appropriate mix of financial and human resources to meet its objectives and improve the economic and commercial prosperity of the Company;

Acquire a broad knowledge of the business of the Company;

Be aware of and be conversant with the statutory and regulatory requirements connected to the business of the Company;

Allocate sufficient time to perform their responsibilities; and

Regularly attend meetings of the board.

 

The Board has established an Audit and Risk Committee in terms of the Capital Markets Rules 5.117 – 5.134A in order to assist with the monitoring of the Company’s present and future operations, threats and risks in the external environment and current and future strengths and weaknesses. The Audit and Risk Committee ensures that the Company has the appropriate policies and procedures in place to ensure that the Company and its employees maintain the highest standards of corporate conduct, including compliance with applicable laws, regulations, business and ethical standards. The Audit and Risk Committee has a direct link to the Board and is represented by the Chairman of the Audit and Risk Committee in all Board meetings.

 

Principle two: Chairman and Chief Executive Officer

 

Due to the structure of the Company and the nature of its operations, the Company does not employ a Chief Executive Officer (CEO) at Company level.

 

Prof. Paolo Catalfamo occupies the post of Chairman and is responsible to:

 

Lead the board and set its agenda;

Ensure that the directors of the board receive precise, timely and objective information so that they can take sound decisions and effectively monitor the performance of the company;

Ensure effective communication with shareholders; and

Encourage active engagement by all members of the board for discussion of complex or contentious issues.

 

Joseph C. Schembri is appointed as the Senior Independent Director of the Company to act a reference and coordination point for the requests and contributions of non-executive directors and, in particular, those who are independent.

 

The regulated operating subsidiaries of the Company, LifeStar Insurance plc, LifeStar Health Limited and  GlobalCapital Financial Management Limited each have a CEO or Managing Director. The CEO of LifeStar Insurance plc is Cristina Casingena. The Managing Director of LifeStar Health Limited is Adriana Zarb Adami. In the case of GlobalCapital Financial Management Limited, the Managing Director is Konrad Camilleri.

 

Principle three: Composition of the Board

 

In accordance with the provisions of the Company’s Articles of Association, the ap pointment of Directors to the Board is exclusively reserved to the Company’s shareholders, except in so far as appointment is made to fill a casual vacancy on the Board, and which appointment would expire at the Company’s Annual General Meeting following appointment. Any vacancy among the Directors may be filled by the co-option of another person to fill such vacancy.  Such co-option shall be made by the Board of Directors.

 

The Board has the overall responsibility for the activities carried out within the Company and the Group. The Board understands and fully appreciates the business risk issues and key performance indicators affecting the ability of the Company to achieve its objectives.

 

The Board is composed of five (5) Directors (one (1) of whom is the Chairman). All Directors are non-executive Directors.

 

For the purpose of Capital Markets Rules 5.118 and 5.119, Mr Joseph C Schembri, Mr Joseph Del Raso and Mr Gregory Eugene McGowan are the non-executive Directors which are deemed independent. The independent non-executive Directors constitute a majority of the Board. Mr Joseph Schembri was confirmed in his position as non-executive Senior Independent Director of the Company. Each director is mindful-of maintaining independence, professionalism and integrity in carrying out his duties, responsibilities and providing judgement as a director of the Company.

 

The Board co nsiders that none of the independent directors of the Company:

 

Are or have been employed in any capacity by the Company;

Have or have had, over the past three years, a significant business relationship with the Company;

Have received or receives significant additional remuneration from the company in addition to its director’s fee;

Have close family ties with any of the company’s executive directors or senior employees;

Have served on the Board of the Company for more than twelve consecutive years; and

Have or have been within the last three years an engagement partner or a member of the audit team of the present or former external auditor of the Company, or any member of the Group.

 

Each of the directors hereby declares that he undertakes to:

 

Maintain in all circumstances his independence of analysis, decision and action;

Not to seek or accept any unreasonable advantages that could be considered as compromising his independence; and

Clearly express his opposition in the event that he finds that a decision of the Board may harm the Company.

 

The Board of Directors is currently chaired by Prof. Paolo Catalfamo. Th e Company Secretary (Dr. Clinton Calleja) attends all meetings and takes minutes. Under the direction of the Chairman, the Company Secretary’s responsibilities include ensuring good information flows between the Board of Directors and its Committees and between senior management and the Directors, as well as ensuring that the Board of Directors’ procedures are followed. The Company’s Articles of Association also provide for adequate controls and procedures in so far as the treatment of conflicts of interest during Board of Directors meetings is concerned.

 

The follow ing Directors served on the Board during the period under review:

 

Prof. Paolo Catalfamo                                                       Non-executive Director and Chairman

Mr. Joseph Schembri                                                        Senior, Independent, Non-executive Director

Mr Joseph Del Raso                                                          Independent, Non-executive Director

Mr. Gregory Eugene McGowan                                        Independent, Non-executive Director

Ms. Cinzia Catalfamo                                                        Non-executive Director

 

Principle Five: Board Meetings

 

The Directors meet regularly to dispatch the business of the Board. The Directors are notified of forthcoming meetings by the Company Secretary with the issue of an agenda and supporting Board papers, which are circulated in advance of the meeting. Minutes of Board meetings are taken, recording inter alia attendance, and resolutions taken at the meeting. The Chairman ensures that all relevant issues are on the agenda supported by all available information, whilst encouraging the presentation of views pertinent to the subject matter and giving all Directors every opportunity to contribute to relevant issues on the agenda. The agenda for the meeting seeks to achieve a balance between long-term strategic and short-term performance issues.

The Board of Directors meets in accordance with a regular schedule of meetings and reviews and evaluates the Group’s strategy, major operational and financial plans, as well as new material initiatives to be undertaken by the Group. The Board of Directors meets formally at least once every quarter and at other times on an ‘as and when’ required basis.

 

During the period under review, the Board of Directors met seven (7) times. The following Directors attended Board meetings as follows:

 

 

Meetings

 

 

Prof. Paolo Catalfamo

7

Mr. Joseph Schembri

7

Mr. Joseph Del Raso

5

Mr. Gregory Eugene McGowan

7

Ms. Cinzia Catalfamo

4

 

Principle Six: Information and Professional development

 

The Company ensures that it provides Directors with relevant information to enable them to effectively contribute to Board decisions. The Company Secretary ensures effective information flows within the Board, Committees and between Senior Management and Directors, as well as facilitating professional development. The Company Secretary advises the Board through the Chairman on governance matters.

 

Directors may, in the course of their duties, take independent professional advice on any matter at the Company’s expense. The Company will provide for additional individual Directors' training on a requirements basis.

 

The Chief Executive Officer ensures that systems are in place:

 

to provide for the development and training of the management and employees generally so that the Company remains competitive;

to provide additional training for individual Directors where necessary;

to monitor management and staff morale; and

to establish a succession plan for senior management.

 

Principle Seven: Evaluation of Board of Directors Performance

 

The Chairman of the Board informally evaluates the performance of the Board members, which assessment is followed by discussions within the Board.  Through this process, the activities and working methods of the Board and each committee member are evaluated.  Amongst the things examined by the Chairman through his assessment are the following: how to improve the work of the Board further, whether or not each individual member takes an active part in the discussions of the Board and the committees; whether they contribute independent opinions and whether the meeting atmosphere facilitates open discussions. Under the present circumstances the Board does not consider it necessary to appoint a committee to carry out a performance evaluation of its role as the Board’s performance is furthermore also under the scrutiny of the shareholders. The self-evaluation of the Board has not led to any material changes in the Company’s governance structures and organisations.

 

Principle Eight: Committees

 

Audit and Risk Committee

 

The Board of Directors delegates certain responsibilities to the Audit Committee, the terms of reference of which reflect the requirements stipulated in the Capital Markets Rules. As part of its terms of reference, the Audit Committee of the Company has the responsibility to, if required, vet, approve, monitor and scrutinise related party transactions falling within the ambits of the Capital Markets Rules, and to make its recommendations to the Board of Directors on any such proposed related party transactions. The Audit Committee also assists the Board of Directors in monitoring and reviewing the Group’s financial statements, accounting policies and internal control mechanisms in accordance with the Committee’s terms of reference.

 

The primary purposes of the Audit Committee is to protect the interests of the Company’s shareholders and assist the Directors in conducting their role effectively so that the Company’s decision-making capability and the accuracy of its reporting and financial results are maintained at a high level at all times.   In the performance of its duties the Audit Committee calls upon any person it requires to attend meetings.  The external auditors of the Company are invited to attend all relevant meetings. The internal auditors are also invited to attend meetings of the Audit Committee and report directly any findings of their audit process.  The head of legal and compliance, as well as the compliance officers of the regulated subsidiaries are invited to attend meetings of the Audit Committee to present their compliance reports. In addition, the Audit Committee invites the Acting Chief Financial Officer and other members of management to attend Audit Committee meetings on a regular basis and as deemed appropriate.

 

The Audit Committee also approves and reviews the Group’s Compliance Plan and Internal Audit Plan prior to the commencement of every financial year and monitors the implementation of these plans. The remit of the Audit Committee was also extended to include Group risk management, and it is also referred to as the Audit and Risk Committee.

 

During the financial year under review, the Audit Committee held ten (10) meetings.

 

Members

Committee meetings attended

 

 

Joseph Schembri

10

Joseph Del Raso

9

Gregory Eugene McGowan

9

 

The Audit Committee was chaired by Joseph Schembri, who is an auditor by profession, and is considered to be an independent non-executive member possessing the necessary competence in auditing/accounting as required in terms of the Capital Markets Rules. All the members that served on the Audit Committee were deemed by the Board of Directors to be Independent Non-Executive Directors, and the Board of Directors felt that as a whole the Audit Committee had the necessary skills, qualifications and experience in satisfaction of the Capital Markets Rules.

 

The terms of reference of the Audit Committee include, inter alia , its support to the Board of the Company in its responsibilities in dealing with issues of risk management, control and governance and associated assurance. The Board has set formal terms that establish the composition, role, function, the parameters of the Audit Committee’s remit as well as the basis for the processes that it is required to comply with.

 

The Audit Committee is expected to deal with and advise the Board on the following matters:

 

its monitoring responsibility over the financial reporting processes, financial policies and internal control structures;

monitoring the performance of the entity or entities borrowing funds (the subsidiaries) from the Company;

maintaining communications on such matters between the Board, management and the independent auditors;

facilitating the independence of the external audit process and addressing issues arising from the audit process; and

preserving the Company’s assets by understanding the risk environment and determining how to deal with those risks.

 

In addition, the Audit Committee also has the role and function of scrutinising and evaluating any proposed transaction prior to be entered into by the Company and a related party, to ensure that the execution of any such transaction is at arm's length and on a commercial basis and ultimately in the best interests of the Company. The Audit Committee oversees the financial reporting of the Company and ensures the process takes place in a timely manner. The Audit Committee is free to question any information that may seem unclear.

 

Nominations and Remuneration Committee

 

The Board of Directors has appointed a Nominations and Remuneration Committee, which fulfils the joint-function of a Nominations Committee as well as a Remuneration Committee. In fulfilling the nominations’ function, the Committee is responsible for recommending Directors for election by shareholders at the Annual General Meeting, for planning the structure, size, performance and composition of the Group’s subsidiary boards, for the appointment of senior executives and management and for the development of a succession plan for senior executives and management.

 

During the financial year under review, the Nominations and Remuneration Committee met four (4) times and was composed of Joseph Del Raso as Chairman, and Joseph Schembri and Gregory Eugene McGowan as members.

 

Remuneration Function

 

The Remuneration and Nomination Committee monitors, reviews, and advises on the Company’s remuneration policy as well as approves the remuneration packages of senior executives and management. The main activities of the Remuneration and Nomination Committee include devising appropriate policies and remuneration packages to attract, retain, and motivate Directors and senior management of a high calibre in order to well position the Company and LifeStar Health within the insurance market and its areas of business.

 

In the fulfilment of its remuneration matters oversight, the Committee monitors, reviews and advises on the Group’s Remuneration Policy, as well as approves the remuneration packages of senior executives and Management.

 

Nominations Function

 

The Remuneration and Nominations Committee is also responsible for making recommendations for appointment to the Board and for reviewing in order to ensure that appointments to the Boards are conducted in a systematic, objective and consistent manner. It is also responsible for the review of performance of the Company’s Board members and committees, the appointment of senior executives and management and the development of a succession plan for senior executives and management. Additionally, this committee monitors, reviews and advises on the Company’s remuneration policy as well as approves the remuneration packages of senior executives and management.

 

Executive Management Committee

 

The Executive Management Committee manages the Group’s day-to-day business and the implementation of the strategy established by the Board of Directors. The Executive Management Committee as at 31 December 2022 was composed of the Managing Directors of each of the operating regulated subsidiaries of the Group, as well as of the Chief Financial Officer, the Chief Information Officer, the Chief Operations Officer and Risk and the Head of Legal and Compliance.

 

 

Members

 

Role

 

Roberto Apap Bologna

Chief Executive Officer LifeStar Holding p.l.c.

Cristina Casingena

Chief Executive Officer LifeStar Insurance p.l.c.

Adriana Zarb Adami

Managing Director LifeStar Health Limited

Konrad Camilleri

Managing Director GlobalCapital Financial Management Limited

Amanda Mifsud

Acting Chief Financial Officer

Adrian Mizzi

Chief Information Officer

Jonathan Camilleri

Chief Operations Officer

Michael Schembri

Head Legal and Compliance

 

Internal controls

 

The Board is ultimately responsible for the Company’s system of internal controls and for reviewing its effectiveness. The Company has an appropriate organisational structure for planning, executing, controlling and monitoring business operations in order to achieve its objectives.

 

The Group encompasses different licensed activities regulated by the MFSA. These activities include 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); and the provision of investment services and advice in terms of the Investment Services Act (Cap. 370 of the Laws of Malta). The Board of Directors has continued to ensure that effective internal controls and processes are maintained to support sound operations. The regulated subsidiaries have also set up Committees to further enhance internal controls and processes. These include the setting up of an Executive Committee, Asset and Liability Committee and the Risk Management Committee at life company level. Policies such as Risk Compliance Monitoring Programmes, Risk Management, Complaints, Data Protection, Internal Audit and Anti-Money Laundering Policies and Procedures as well as a Conflict of Interest Policy have been adopted.

 

The Directors are aware that internal control systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and can only provide reasonable, and not absolute, assurance against normal business risks. During the financial year under review the Company operated a system of internal controls which provided reasonable assurance of effective and efficient operations covering all controls, including financial and operational controls and compliance with laws and regulations. Processes are in place for identifying, evaluating and managing the significant risks facing the Company.

 

The Company has implemented control procedures designed to ensure complete and accurate accounting for financial transactions and to limit the potential exposure to loss of assets or fraud. Measures taken include physical controls, segregation of duties and reviews by management, internal audit and the external auditors. The Internal Audit Department monitors and reviews the Group’s compliance with policies, standards and best practice in accordance with an Internal Audit Plan approved by the Audit Committee. KPMG fulfil the functions of internal auditors of the Company.

 

Principle Nine and Ten: Relations with Shareholders and with the Market, and Institutional Shareholders

 

The Company recognises the importance of maintaining a dialogue with its shareholders and of keeping the market informed to ensure that its strategies and performance are well understood.  During the period under review, the Company has maintained an effective communication with the market through a number of channels including Company announcements and Circulars.

 

The Company shall also communicate with its shareholders through the Company’s Annual General Meeting (“AGM”) to be held later in 2023, which will include resolutions such as the approval of the Annual Report and Audited Financial Statements for the year ended 31 December 2022, the election/re-election of Directors, the determination of the maximum aggregate emoluments that may be paid to Directors, the appointment of auditors and the authorisation of the Directors to set the auditors’ remuneration, as well as any other resolution as may necessary in terms of law or as required by the Company. In terms of Rule 12.26L of the Capital Market Rules, an annual general meeting shall have the right to hold an advisory vote on the remuneration report of the most recent financial year. Both the Chairman of the Board and the Chairman of the Audit Committee will be available to answer shareholder questions, which may be put forward in terms of Rule 12.24 of the Capital Markets Rules.

 

Apart from the AGM, the Group communicates and shall communicate with its shareholders through the publication of its Annual Report and Financial Statements, the publication of interim results, updates and articles on the Group’s website, the publication of Group announcements and press releases.

 

The Office of the Company Secretary maintains regular communication between the Company and its investors.  Individual shareholders can raise matters relating to their shareholdings and the business of the Company at any time throughout the year, and are given the opportunity to ask questions at the AGM or to submit written questions in advance.

 

As provided by the Companies Act (Cap. 386), minority shareholders may convene Extraordinary General Meetings.

 

Principle Eleven: Conflicts of Interest

 

The Directors are fully aware of their responsibility always to act in the best interests of the Company and its shareholders as a whole irrespective of whoever appointed or elected them to serve on the Board.

 

On joining the Board and regularly thereafter, the Directors are informed of their obligations on dealing in securities of the Company within the parameters of law, including the Capital Markets Rules, and Directors follow the required notification procedures.

             

Directors’ direct interest in the shareholding of the Company:

 

 

Number of shares

as at 31 December 2022

 

 

Prof. Paolo Catalfamo

Nil

Mr. Joseph Schembri

Nil

Mr. Gregory McGowan

Nil

Mr. Joseph Del Raso

Nil

Ms. Cinzia Catalfamo

Nil

 

With the exception of Paolo Catalfamo, none of the Directors of the Company have any direct interest in the shares of the Company’s subsidiaries or investees or any disclosable interest in any contracts or arrangements either subsisting at the end of the last financial year or entered into during this financial year. No other changes in the Directors’ interest in the shareholding of the Company between year-end and 27 April 2023.

 

Prof. Paolo Catalfamo holds shares in the Company indirectly through his shareholding in Investar plc, through GlobalCapital Financial Management Limited as nominee for client accounts.

 

Principle Twelve: Corporate social responsibility

 

The Company seeks to adhere to sound Principles of Corporate Social Responsibility in its management practices, and is committed to enhance the quality of life of all stakeholders of the Company. The Board is mindful of the environment and its responsibility within the community in which it operates. In carrying on its business the Company is fully aware of and at the forefront in preserving the environment and continuously reviews its policies aimed at respecting the environment and encouraging social responsibility and accountability. During the financial year under review, the Group pursued its corporate social responsibility by supporting and contributing to a number of charitable causes.

 

Remuneration Report

 

Remuneration Committee

 

The remuneration functions of the Remuneration and Nominations Committee were performed by Joseph Del Raso, as Chairman, as well as Joseph Schembri and Gregory Eugene McGowan as members.

 

Remuneration policy

 

The Company’s remuneration of its Directors and senior executives is based on the remuneration policy adopted and approved by the shareholders of the Company at the annual general meeting. The Remuneration Policy of the Company is available for inspection on the Company’s website. During the latest general meeting held on 24 June 2022 the meeting approved the Remuneration Statement published as part of the annual report of the Company for the financial year ended 31 December 2021.

 

The Remuneration Policy of the Company is intended to provide an over-arching framework that establishes the principles and parameters to be applied in determining the remuneration to be paid to any member of the Board of Directors, and the senior executives. The policy describes the components of such remuneration and how this contributes to the Company’s business strategy, in the context of its long term sustainable value creation. This Remuneration Policy is divided into five parts distinguishing between directors, senior management, employees, intermediaries and service providers.

 

Remuneration payable to Directors

 

Fixed remuneration

 

The remuneration payable to Directors shall be fixed and will not have any incentive programmes and will therefore not receive any performance-based remuneration. None of the Directors, in their capacity as Directors of the Company, is entitled to profit-sharing, share options or pension benefits.

 

In addition to fixed remuneration in respect of their position as members of the Board of Directors of the Company, individual Directors who are also appointed to chair, or to sit as members of, one or more committees or sub-committees of the Company, or its subsidiaries, are entitled to receive additional remuneration as may be determined by the Board of Directors from time to time. Any such additional remuneration shall, however, form part of the aggregate emoluments of the Directors as approved by the general meeting of the Company. The basis upon which such additional remuneration is paid shall take into account the skills, competencies and technical knowledge that members of such committees require and the respective functions, duties and responsibilities attaching to membership of such committees.

 

Other entitlements

 

The Company may also pay out fringe benefits, comprising of medical and life insurance.

 

Director Employment Service Contracts

 

As at the date hereof, none of the Directors have an employment service contract.

 

Remuneration payable to executives

 

Managing Director: The Remuneration and Nominations Committee will forward its proposal for the remuneration of a Managing Director (where one is appointed) to the Board of Directors (in the absence of the Managing Director), and the Board will endorse / amend / make recommendations as deemed fit. The remuneration of the Managing Director will consist of a salary and any performance-related bonuses or fringe benefits will be at the sole discretion of the Remuneration Committee with the final approval of the Board of Directors.

 

Chief Executive Officer: The remuneration of the Chief Executive Officer will consist of a salary, and any performance related bonuses and any fringe benefits will be at the sole discretion of the Chairman and submitted for approval of the Remuneration and Nominations Committee. The Chairman (directly or through the Chief Finance Officer) will forward any recommendations for any changes to the remuneration of the Chief Executive Officers for the consideration of the Remuneration and Nominations Committee which will in turn review any such request and forward any request to the Board for the Board’s final approval.

 

Head/Senior Manager: The remuneration of the Head / Senior Managers will be at the sole discretion of the Chairman and/or the Chief Executive Officer (where one is appointed) without the need to refer to the Remuneration and Nominations Committee or the Board of Directors subject that the remuneration does not exceed a yearly remuneration of Fifty Thousand Euros (€50,000). Any amount over this threshold will require the endorsement of the Remuneration Committee.

 

Senior executive service contracts

 

All senior executive contracts are of an indefinite duration and subject to the termination notice periods prescribed by law.

Remuneration Report

 

In terms of Capital Markets Rule 12.26K, the Company is also required to draw up an annual remuneration report (the “Remuneration Report”), which report is to:

 

provide an overview of the remuneration, including benefits in whatever form, awarded or due to members of the Board of Directors and the CEO during the financial year under review; and

explain whether any deviations have been made from the Remuneration Policy of the Company.

 

In this respect, the Company is hereby producing its remuneration report following the approval and entry into effectiveness, in October 2020, of the Remuneration Policy described in the preceding sections.

 

Remuneration paid to Directors

 

All remuneration for directors was in conformity with this policy. The remuneration paid to individual Directors during the year under review was as follows:

 

Name

Position

2022

2021

 

 

 

 

Paolo Catalfamo

Non-Executive Director and Chairman

€100,000

€100,000

Joseph Schembri

Independent Non-Executive Director

€21,000

€21,000

Joseph Del Raso

Independent Non-Executive Director

€21,000

€21,000

Cinzia Catalfamo

Non-Executive Director

€15,000

€15,000

Gregory Eugene McGowan

Independent Non-Executive Director

€18,000

€18,000

 

The Directors receive remuneration for their appointment to the Board, and remuneration for their role as members or chairpersons of any committees of the Board of the Company. The above-indicated remuneration is comprehensive also of their position as directors of any subsidiary forming part of the Group.

 

It is the shareholders, in terms of the Memorandum and Articles of Association of the Company, who determine the maximum annual aggregate emoluments of the directors by resolution at the annual general meeting of the Company. The aggregate amount fixed for this purpose during the last annual general meeting was €400,000.

 

The aggregate emoluments of the Directors in respect of their role as directors of the Company and, where applicable, as members of committees of the Board of Directors of the Company and non-executive directors of subsidiaries forming part of the Group, amounted to €175,000. The Directors do not expect the abovementioned maximum aggregate remuneration limit of €400,000 to be exceeded during the financial year ending 31 December 2022.

 

The Remuneration Committee is satisfied that the fixed remuneration for the year under review is in line with the core principles of the Remuneration Policy applicable during the year under review, including giving due regard to market conditions and remuneration rates offered by comparable organisations for comparable roles.

 

Remuneration paid to Senior Management

 

Remuneration paid to Senior Management amounts to €775,112 and excludes the fringe benefit for health insurance and life cover as described above.

 

Decision-making with respect to the Remuneration Policy

Whereas the Board of Directors is responsible for determining the Remuneration Policy of the Company, the Remuneration and Nominations Committee, acting in its function as the Remuneration Committee, is, in turn, responsible for overseeing and monitoring its implementation and ongoing review thereof. This policy is to be reviewed annually by the Remuneration and Nominations Committee of the Company. The annual review will ensure that the policy remains relevant for the Company and that any improvements by way of amendments are indeed effected.

 

In evaluating whether it is necessary or beneficial to supplement or otherwise alter the Remuneration Policy of the Company, the Remuneration Committee have regard to, inter alia, best industry and market practice on remuneration, the remuneration policies adopted by companies operating in the same industry sectors, as well as legal and, or statutory rules, recommendations or guidelines on remuneration, including but not limited to the Code of Principles of Good Corporate Governance contained in Appendix 5.1 of the Capital Markets Rules of the Listing Authority.

 

Whilst members of the Remuneration Committee may be present while his/her remuneration as a Director or other officer of the Company and, or of any other company forming part of the Group, is being discussed at a meeting of such Committee, any decision taken by the Committee in this respect shall be subject to the approval of the Board of Directors. At a meeting of the Board of Directors, no Director may be present while his/her remuneration as a Director or other officer of the Company and, or of any other company forming part of the Group, is being discussed.

 

Other information on remuneration in terms of Appendix 12.1 of the Capital Markets Rules

 

In terms of the requirements within Appendix 12.1 of the Capital Market Rules, the following table presents the annual change of remuneration, of the company’s performance, and of average remuneration on a full-time equivalent basis of the company’s employees (other than directors) over the two most recent financial years. The Company’s non-executive Directors, have been excluded from the table below since they have a fixed fee as described above.

 

 

2022

2021

Change

 

%

 

 

 

 

Annual aggregate employee remuneration

2,508,445

2,168,448

16

Company performance, profit after tax

6,067,452

6,067,452

1,058

Average employee remuneration (excluding CEO) –full-time equivalent

34,260

33,882

1

 

The contents of the Remuneration Report have been reviewed by the external auditor to ensure that the information required in terms of Appendix 12.1 to Chapter 12 of the Capital Markets rules have been included.

 

 

Statement of comprehensive income                                                   

Technical account – long term business of insurance

The Group

For the year ended 31 December

Notes

2022

2021

Earned premiums, net of reinsurance

Gross premiums written

3

12,926,107

12,757,784

Outward reinsurance premiums

(1,918,887)

(1,785,759)

Earned premiums, net of reinsurance

11,007,220

10,972,025

Net investment income

6

(1,034,938)

111,455

Investment contract fee income

1,953,936

1,804,755

Total technical income

11,926,218

12,888,235

Benefits and claims incurred, net of reinsurance

Benefits and claims paid

 -     gross amount

12,903,271

12,871,400

 -     reinsurers' share

(355,362)

(2,724,219)

12,547,909

10,147,181

Change in the provision for benefits and claims

 -     gross amount

  (84,451)

16,747

 -     reinsurers' share

583,656

  (12,116)

17

499,205

4,631

Benefits and claims incurred, net of reinsurance

13,047,114

10,151,812

Change in other technical provisions, net of reinsurance

Insurance contracts

 -     gross amount

(4,024,784)

(4,399,921)

 -     reinsurers' share

990,010

1,106,303

17

(3,034,774)

(3,293,618)

Investment contracts with DPF - gross

17

(26,147)

1,519,192

Investment contracts without DPF - gross

101,419

79,009

Change in other technical provisions, net of reinsurance

(2,959,502)

(1,695,417)

Net operating expenses

4

5,014,896

4,543,004

Total technical charges

15,102,508

12,999,399

Balance on the long-term business of insurance technical account

(3,176,290)

(111,164)

 

Statement of comprehensive income

Non-technical account

The Group

The Company

For the year ended 31 December

Notes

2022

2021

2022

2021

 €

 €

 €

 €

Balance on the long-term business of insurance technical account  

(3,176,290)

(111,164)

-

-

Commission and fees receivable

3

2,790,343

2,841,563

-

-

Commission payable and direct marketing costs

4

(234,978)

(347,778)

-

-

Increment in the value of in-force business

1,169,240

2,135,069

-

-

Finance costs

5

(91,983)

(441,578)

(256,479)

(569,282)

Amounts recharged to subsidiaries

-

-

583,835

-

Staff costs

4

(897,162)

(1,153,857)

(32,356)

-

Other expenses

4

(2,236,541)

(2,210,675)

(336,344)

(660,324)

Investment income net of allocation to the insurance technical account

6

(1,970,831)

1,241,994

-

(234,794)

Change in fair value of Investment in Subsidiaries

-

-

(653,059)

1,606,701

Movement in provision for impairment of other receivables

(258,311)

(259,960)

-

-

Other income

29,867

-

29,867

-

(Loss)/ profit for the year before other charges

(4,876,646)

1,693,614

(664,536)

142,301

Other provisions

(55,032)

(61,945)

-

-

(Loss) / profit before tax

(4,931,678)

1,631,669

(664,536)

142,301

Tax credit/ (charge)

7

1,797,867

(924,340)

(22,960)

-

(Loss)/ profit for the financial year attributable to the shareholders of the Company

(3,133,811)

707,329

(687,496)

142,301

Other comprehensive income

Items that will not be reclassified subsequently to profit or loss

Revaluation of property, plant and equipment  

20

(75,598)

 -

 -

 -

(75,598)

 -

 -

 -

Items that will be reclassified subsequently to profit or loss 

Net profit on available-for-sale financial assets  

20

970,158

1,751

 -

 -

Deferred tax on the revaluation of available-for-sale financial assets

20

(339,556)

(613)

 -

 -

630,602

1,138

 -

 -

Other comprehensive income for the year, net of tax

555,004

1,138

 -

 -

Total comprehensive (loss)/ income for the year

(2,578,807)

708,467

(687,496)

142,301

(Loss)/ earnings per share (cents)

9

(0.13)

2.2

Total comprehensive (loss) income for the year attributable to:

Non-controlling interest

(474,113)

817,400

Owners of the parent

(2,104,694)

(108,933)

 

 

 

(2,578,807)

708,467

 

 

 

 

 

The accounting policies and explanatory notes form an integral part of the financial statements.

 

 

Statement of financial position  

The Group

The Company

As at 31 December

Notes

2022

2021

2022

2021

 €

 €

 €

 €

ASSETS

Intangible assets

11

15,361,291

14,153,312

-

-

Right-of-use asset

27

167,531

283,880

166,001

276,230

Property, plant and equipment

13

3,623,954

3,625,100

-

427

Investment property

14

24,008,721

24,430,683

-

-

Investment in group undertakings

15

-

-

24,616,588

25,269,647

Other investments

16

87,429,200

91,219,724

-

-

Reinsurers' share of technical provisions

17

18,840,581

20,004,452

-

-

Deferred tax asset

12

1,298,458

 -

-

-

Taxation receivable

259,898

51,631

-

-

Trade and other receivables

18

3,391,649

3,975,197

2,178,560

2,031,781

Cash and cash equivalents

24

6,645,133

12,625,645

454,612

860,287

Asset held-for-sale

14

-

 

190,000

 

-

 

-

Total assets

161,026,416

170,559,624

27,415,761

28,438,372

EQUITY AND LIABILITIES

    

    

Capital and reserves

    

    

Share capital

19

7,017,842

8,735,160

7,017,842

8,735,160

Own shares

-

(1,717,318)

-

(1,717,318)

Other reserves

20

11,163,483

10,608,479

19,747

19,747

Capital redemption reserve

800,000

800,000

-

-

Merger reserve

-

-

5,651,631

5,651,631

Retained earnings

(4,465,251)

(1,805,553)

2,745,593

3,433,089

Non-controlling interest

7,838,933

8,313,046

-

-

Total equity

22,355,007

24,933,814

15,434,813

16,122,309

Technical provisions:

    

    

 Insurance contracts

17

60,001,855

64,026,640

-

-

 Investment contracts with DPF

17

30,187,659

30,213,806

-

-

 Investment contracts without DPF

17

33,070,993

34,395,648

-

-

 Provision for claims outstanding

17

1,748,839

1,423,495

-

-

 Lease Liability

27

153,874

259,192

152,094

245,801

 Interest bearing borrowings

21

4,252,740

4,730,586

9,246,917

9,667,026

 Taxation payable

152,305

190,952

53,402

53,402

 Deferred tax liability

12

1,656,286

2,396,044

-

-

 Trade and other payables

22

7,446,858

 

7,989,447

 

2,528,535

 

2,349,834

 Total liabilities

 

138,671,409

 

145,625,810

 

11,980,948

 

12,316,063

 Total equity and liabilities

 

161,026,416

 

170,559,624

 

27,415,761

 

28,438,372

 

 

The accompanying notes are an integral part of these financial statements.

 

The financial statements were approved and authorised for issue by the Board of Directors on 27 April 2023. The financial statements were signed on behalf of the Board of Directors by Prof. Paolo Catalfamo (Director) and Mr Joseph Schembri (Director) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report.

 

 

 

Statement of changes in equity

For the year ended 31 December

The Group

Share capital

Own shares

Other reserves

Capital redemption reserve

Retained earnings

Attributable to the owners of the parent

Non-controlling interest

Total

Balance as at 1 January 2022

8,735,160

(1,717,318)

10,608,479

800,000

(1,805,553)

16,620,768

8,313,046

24,933,814

Loss for the year

    -   

    -   

    -   

    -   

(2,659,698)

(2,659,698)

(474,113)

(3,133,811)

Other comprehensive gain for the year

    -   

    -   

555,004

    -   

    -   

555,004

    -   

555,004

Total comprehensive gain/(loss) for the year

  - 

  - 

555,004

  - 

(2,659,698)

(2,104,694)

(474,113)

(2,578,807)

Non-controlling interest

   -  

   -  

   -  

   -  

   -  

   -  

-

-

Cancellation of own shares

(1,717,318)

1,717,318

-

    -   

-

    -   

    -   

    -   

Balance as at 31 December 2022

7,017,842

-    

11,163,483

800,000

(4,465,251)

14,516,074

7,838,933

22,355,007

Balance as at 1 January 2021

8,735,160

    -   

10,731,697

800,000

(1,819,838)

18,447,019

    -   

18,447,019

Profit for the year

    -   

    -   

    -   

    -   

(110,071)

(110,071)

817,400

707,329

Other comprehensive gain for the year

    -   

    -   

1,138

    -   

    -   

1,138

    -   

1,138

Total comprehensive gain/(loss) for the year

  - 

  - 

1,138

  - 

(110,071)

(108,933)

817,400

708,467

Non-controlling interest

   -  

   -  

   -  

   -  

   -  

   -  

7,495,646

7,495,646

Transfer of deferred tax on reclassification of investment property to PPE

    -   

    -   

(124,356)

    -   

124,356

    -   

    -   

    -   

Exchange for own shares

    -   

(1,717,318)

    -   

    -   

    -   

(1,717,318)

    -   

(1,717,318)

    -   

(1,717,318)

(124,356)

    -   

124,356

(1,717,318)

7,495,646

5,778,328

Balance as at 31 December 2021

8,735,160

(1,717,318)

10,608,479

800,000

(1,805,553)

16,620,768

8,313,046

24,933,814

 

The Company

Share capital

Own shares

Other reserves

Merger reserve

Retained earnings

Total

Balance as at 1 January 2022

8,735,160

(1,717,318)

19,747

5,651,631

3,433,089

16,122,309

Loss for the year

(687,496)

(687,496)

Cancellation of own shares

(1,717,318)

1,717,318

-

-

-

-

Balance as at 31 December 2022

7,017,842

               -

19,747

5,651,631

2,745,593

15,434,813

Balance as at 1 January 2021

8,735,160

-

19,747

5,651,631

(21,564,589)

(7,158,051)

Prior year adjustment for change in accounting policy

-

-

-

-

24,855,377

24,855,377

Restated balance as at 1 January 2021

8,735,160

-

19,747

5,651,631

3,290,788

17,697,326

Profit for the year

-

-

-

-

142,301

142,301

Purchase of own shares

(1,717,318)

-

-

-

(1,717,318)

Balance as at 31 December 2021

8,735,160

(1,717,318)

19,747

5,651,631

3,433,089

16,122,309

 

 

In 2021, as a result of an exchange of shares process which took place at the time of listing of the shares of LifeStar Insurance p.l.c on the Malta Stock Exchange, LifeStar Holdings p.l.c. became the owner of 5,897,951 of its own shares. As at 31 December 2022, the amount of these shares is deducted from equity attributable to the owners of the Group until the shares are cancelled or reissued. On 14 December 2022, the Board approved the cancellation of its own shares with a value of €1,717,318.

 

The accounting policies and explanatory notes form an integral part of these financial statements.

 

 

Statement of cash flows

Consolidated

Holding Company

For the year ended 31 December

Notes

2022

2021

2022

2021

 €

 €

 €

 €

Cash flows (used in)/ generated from operations

23

(6,792,871)

6,753,151

118,435

3,480,236

Dividends received

697,214

434,815

-

-

Interest received

951,650

1,147,588

-

-

Interest paid

(95,363)

  -

-

-

Tax refund on tax at source

-

371,949

-

-

Tax paid

(257,446)

(103,445)

-

-

Net cash flows generated from operating activities

(5,496,816)

8,604,058

118,435

3,480,236

Cash flows (used in)/ generated from investing activities

Purchase of intangible assets

11

(655,553)

(616,192)

-

-

Purchase of property, plant and equipment

13

(241,797)

(84,865)

-

-

Purchase of investments at fair value through profit or loss

16

(8,927,610)

(16,710,558)

-

-

Purchase of investments at available-for-sale

16

(433,313)

(655,128)

-

-

Purchase of investments in equity measured at cost

16

(1,194,373)

 -   

 -   

 -    

Proceeds from disposal of investments

-

-

-

5,861,160

Proceeds from disposal of investments at fair value through profit or loss

16

10,105,845

8,126,304

-

-

Proceeds from disposal of available-for-sale financial assets

16

482,447

5,871,450

-

-

Proceeds on disposal of assets held for sale

14

190,000

-

-

-

Net proceeds from other investments - loans and receivables

16

10,766

(8,354)

-

-

Proceeds from disposal of term deposits

16

600,000

910,223

-

-

Net cash flows used in generated from investing activities

(63,588)

(3,167,120)

-

5,861,160

Cash flows (used in)/ generated from financing activities

Bank loan repayment

 -   

 -   

(420,109)

(525,081)

Repayment of bonds

-

-

 -

(10,204,098)

Payment of lease liability

-

-

(104,001)

(125,000)

Payment of bond issue costs

-

(345,445)

-

-

Net payments of interest-bearing borrowings

(420,108)

(10,729,179)

-

-

Net cash flows (used in)/ generated from financing activities

(420,108)

(11,074,624)

(524,110)

(10,854,179)

Net movement in cash and cash equivalents

(5,980,512)

(5,637,686)

(405,675)

(1,512,783)

Cash and cash equivalents as at the beginning of the year

12,625,645

18,263,331

860,287

2,373,070

Cash and cash equivalents as at the end of the year

24

6,645,133

12,625,645

454,612

860,287

 

 

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:

 

-

Level 1: inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

-

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

-

Level 3: inputs are unobservable inputs for the asset or liability.

 

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:

 

Reference to the Conceptual Framework (Amendments to IFRS 3)

COVID-19 – Related Rent Concessions beyond 30 June 2021 (Amendments to IFRS 16)

Property, Plant and Equipment: Proceeds Before Intended Use (Amendments to IAS 16)

Annual Improvements (2018-2020 Cycle):

-

Fees in the ‘10 per cent’ Test for Derecognition of Liabilities (Amendments to IFRS 9)

-

Lease Incentives (Amendments to IFRS 16)

 

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:

 

-

IFRS 17 ‘Insurance Contracts’

-

Classification of Liabilities as Current or Non-current (Amendments to IAS 1)

-

Deferred Tax related to Assets and Liabilities from a Single Transaction

 

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:

 

-

the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items;

-

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

-

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.

 

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:

 

-

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

-

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.

 

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:

 

-

any contracts that are onerous on initial recognition;

-

any contracts that, on initial recognition, have no significant possibility of becoming onerous subsequently; and

-

any remaining contracts in the portfolio.

 

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:

 

-

contracts for which there is a net gain at initial recognition, if any;

-

contracts for which, at initial recognition, there is no significant possibility of a net gain arising subsequently; and

-

remaining contracts in the portfolio, if any.

 

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:

 

-

The beginning of the coverage period of the group of contracts;

-

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;

-

When the Group determines that a group of contracts becomes onerous.

 

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:

 

-

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;

-

In all other cases, from the beginning of the coverage period of the first contract in the group.

 

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:

 

-

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

 

Both of the following criteria are satisfied:

-

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

-

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.

 

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:

 

-

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

-

has a substantive right to terminate the coverage.

 

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:

 

-

Premiums and related cash flows

-

Claims and benefits, including reported claims not yet paid, incurred claims not yet reported and expected future claims

-

Payments to policyholders resulting from embedded surrender value options

-

An allocation of insurance acquisition cash flows attributable to the portfolio to which the contract belongs

-

Claims handling costs

-

Policy administration and maintenance costs

-

An allocation of fixed and variable overheads directly attributable to fulfilling contracts

-

Transaction-based taxes

-

Costs incurred for performing investment activities that enhance insurance coverage benefits for the policyholder

-

Costs incurred for providing investment-related service to policyholders

 

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:

 

-

will reflect the time value of money, the characteristics of the cash flows and the liquidity characteristics of the contracts;

-

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

-

will exclude the effect of factors that influence such observable market prices but do not affect the future cash flows of the contracts.

 

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:

 

-

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)

-

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).

 

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:

 

-

The effect of any new contracts added to the group in the reporting period

-

Interest accreted on the carrying amount of the CSM during the reporting period, measured at the discount rates at initial recognition

 

The changes in fulfilment cash flows relating to future service, except to the extent that:

-

Such increases in the fulfilment cash flows exceed the carrying amount of the CSM, giving rise to a loss; or

-

Such decreases in the fulfilment cash flows are allocated to the loss component of the liability for remaining coverage

-

The effect of any currency exchange differences on the CSM

-

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.

 

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:

 

-

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.

-

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)

 

Differences between:

-

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

-

the actual amount that becomes payable in the year

-

Changes in the risk adjustment for non-financial risk that relate to future service.

 

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:

 

-

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.

-

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.

-

recognise in profit or loss the amount of CSM allocated to the coverage units provided during the period.

 

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:

 

-

the obligation to pay the policyholder an amount equal to the fair value of the underlying items; and

-

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.

 

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:

 

-

the CSM of any new contracts that are added to the group in the year;

-

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:

-

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

-

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);

-

the effect of any currency exchange differences on the CSM; and

-

the amount recognised as insurance revenue because of the services provided in the year.

 

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:

 

-

insurance finance income or expense,

-

changes in risk adjustment for non-financial risk recognised in profit or loss representing release from risk in the period; and

-

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.

 

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:

 

-

When the coverage period of each insurance contract in the group is one year or less.

-

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.

 

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:

 

-

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

-

The Group will determine the risk adjustment for non-financial risk so that it represents the amount of risk being transferred to the reinsurer

-

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

-

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.

 

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:

 

-

the CSM of any new contracts that will be added to the group in the year;

-

interest accreted on the carrying amount of the CSM during the year, measured at the discount rates determined on initial recognition;

-

income recognised in profit or loss in the year on initial recognition of onerous underlying contracts;

-

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;

-

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;

-

the effect of any currency exchange differences on the CSM; and

-

the amount recognised in profit or loss because of the services received in the year.

 

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:

 

-

the amount of the loss that relates to the underlying contracts; and

-

the percentage of claims on the underlying contracts that the Group expects to recover from the reinsurance contracts.

 

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:

 

-

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.

-

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.

 

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

-

The contract is modified such that the modification results in:

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the contract being outside the scope of IFRS 17;

-

a different insurance contract due to separating components from the host contract;

-

a substantially different contract boundary;

-

the contract being included in a different group of contracts.

 

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:

 

-

the fulfilment cash flows allocated to the group are adjusted to eliminate those that relate to the rights and obligations derecognised;

-

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

-

the number of coverage units for the expected remaining services will be adjusted to reflect the coverage units derecognised from the group.

 

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.

 

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

-

The CSM release measured based on coverage units provided

-

Other amounts, including experience adjustments for premium receipts for current or past services.

 

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);

-

the investment component or withdrawal amount is expected to include an investment return; and

-

the Group expects to perform investment activities to generate that investment return.

 

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.

 

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

-

The effect of financial risk and changes in financial risk.

 

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 under