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The
accounting policies and explanatory notes form an integral part of
the financial statements.
Accounting policies
The principal
accounting policies adopted in the preparation of these financial
statements are set out below. These policies have been consistently
applied to all the years presented except for those adopted for the
first time during 2022.
The
consolidated financial statements have been prepared from the
financial statements of the companies compromising the group as
detailed in noted to the consolidated financial
statements.
1.
Basis of preparation
These consolidated
financial statements comprise the Company and its subsidiaries
(collectively the “Group”). The Group is primarily
involved in the carrying on of long term business of insurance
under the Insurance Business Act (Cap. 403 of the Laws of Malta),
acting as an agent for sickness and accident insurance in terms of
the Insurance Distribution Act (Cap. 487 of the Laws of Malta), the
provision of investment services and advice in terms of the
Investment Services Act (Cap. 370 of the Laws of Malta), and the
provision on behalf of Group undertakings of property management
and consultancy services, including property acquisitions,
disposals and development projects.
These consolidated and
separate financial statements are prepared in accordance with
International Financial Reporting Standards as adopted by the EU
(EU IFRSs), and with the Companies Act (Cap. 386 of the Laws of
Malta). The consolidated financial statements include the financial
statements of LifeStar Holding p.l.c. and its subsidiary
undertakings. They also comply with the requirements of the
Insurance Business Act (Cap. 403 of the Laws of Malta), the
Investment Services Act (Cap. 370 of the Laws of Malta), and the
Insurance Distribution Act (Cap. 487 of the Laws of Malta) in
consolidating the results of LifeStar Insurance Limited, LifeStar
Health, and GlobalCapital Financial Management where appropriate.
The financial statements are prepared under the historical cost
convention, as modified by the fair valuation of investment
property, financial assets and financial liabilities at fair value
through profit or loss, available for sale investments and the
value of in-force business.
Fair value is the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date.
For financial reporting
purposes, fair value measurements are categorised into Level 1, 2
or 3 based on the degree to which the inputs to the fair value
measurements are observable and the significance of the inputs to
the fair value measurement in its entirety, which are described as
follows:
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Level 1:
inputs are quoted prices (unadjusted) in active markets for
identical assets or liabilities that the entity can access at the
measurement date;
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Level 2:
inputs are inputs, other than quoted prices included within Level
1, that are observable for the asset or liability, either directly
or indirectly; and
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Level 3:
inputs are unobservable inputs for the asset or
liability.
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For assets and
liabilities that are recognised in the financial statements at fair
value on a recurring basis, the Group determines when transfers are
deemed to have occurred between Levels in the hierarchy at the end
of each reporting period.
The preparation of
financial statements in conformity with EU IFRSs requires the use
of certain critical accounting estimates. It also requires
management to exercise their judgement in the process of applying
the Group’s accounting policies. The areas involving a higher
degree of judgement and estimates or complexity are disclosed in
Note 1 to these financial statements.
The consolidated
statement of financial position are presented in increasing order
of liquidity, with additional disclosures on the current or
non-current nature of the assets and liabilities provided within
the notes to the financial statements.
Appropriateness of
going concern assumption in the preparation of the Group’s
financial statements
As explained in the
Directors’ report, the Group made a loss of €3.2 million
(2021: profit of €0.7 million) for the year ended 31 December
2022 and, at balance sheet date, had net assets amounting to
€22.4 million (2021: €24.9 million).
The volatility in the
financial markets had a significant impact on the Group’s
financial performance for the financial year ending 31 December
2022, and will continue to impact its performance going forward.
Furthermore, an analysis was carried out on the credit rating of
the main counterparties and no significant downgrades were noted
since 31 December 2022. Such analysis was also extended to analyse
the effect on the Solvency Capital Requirements (the
“SCR”) of the Group by reference to stressed scenarios
in the latest ORSA report prepared by the Group. Taking into
consideration the current laws and regulations and the result from
the aforementioned stressed scenarios, the Group does not expect
that the effects of COVID-19 will impact its ability to satisfy the
regulatory solvency requirement. However, the Company continues to
explore any and all ways possible to strengthen its capital
base.
At a subsidiary level,
the pandemic also impacted the business of the Group, due to a
decrease in clients operating in the hospitality industry.
Customers started undertaking certain medical interventions that
were postponed from 2020. This resulted in lower revenues.
Consequently, the Directors do not anticipate a material impact on
the going concern status of the Group stemming from the COVID-19
pandemic.
During 2022,
GlobalCapital Financial Management Limited (GCFM) registered a
reduction in its losses and has embarked on a restructuring plan
aimed at identifying potential new revenue streams which shall
continue curtail the losses and eventually generate
profits.
Appropriateness of
going concern assumption in the preparation of the Company’s
financial statements
As explained in the
Directors’ report, the company made a total comprehensive
loss of € 0.7 million (2021: € 0.1 million) for the
year ended 31 December 2022 and, at balance sheet date, had net
assets amounting to € 15.4 million (2021: € 16.1
million).
When assessing the going
concern assumption for the Company, the Directors have made
reference to the Group’s performance and noted that the loss
resulted from movements in fair value of some of its subsidiaries.
The directors also note that the COVID-19 pandemic had limited
impact on the Company and that operations of the Company have
returned to a state of normality.
The directors have
submitted a plan to the regulator which shows that the
company’s balances due to related companies will be settled
from the sale of certain assets and the receipt of dividends from
subsidiaries. This plan is reviewed periodically by the
directors.
Having concluded this
assessment the Directors expect that the Group and the Company will
be able to sustain its operations over the next twelve months and
in the foreseeable future and consider the going concern assumption
in the preparation of the financial statements as appropriate as at
the date of authorisation for issue of these financial
statements.
Standards,
interpretations and amendments to published standards as endorsed
by the EU that are effective in the current year
The following accounting
pronouncements became effective from 1 January 2022 and have
therefore been adopted:
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Reference to the Conceptual
Framework (Amendments to IFRS 3)
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COVID-19 – Related Rent
Concessions beyond 30 June 2021 (Amendments to IFRS 16)
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Property, Plant and
Equipment: Proceeds Before Intended Use (Amendments to IAS
16)
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Annual Improvements
(2018-2020 Cycle):
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Fees in the ‘10
per cent’ Test for Derecognition of Liabilities (Amendments
to IFRS 9)
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Lease Incentives
(Amendments to IFRS 16)
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These amendments are not
applicable to the group or do not have a significant impact on
these financial statements and therefore no additional disclosures
have been made.
Standards,
interpretations and amendments to published standards as endorsed
by the EU that were effective before 2020 for which the Group
elected for the temporary exemption
IFRS 9, ‘Financial
instruments’, addresses the classification, measurement and
recognition of financial assets and financial liabilities. It
replaces the guidance in IAS 39 that relates to the classification
and measurement of financial instruments. The Standard supersedes
all previous versions of IFRS 9.
IFRS 9 retains but
simplifies the mixed measurement model and establishes three
primary measurement categories for financial assets: amortised
cost, fair value through other comprehensive income and fair value
through profit or loss. The basis of classification depends on the
entity’s business model and the contractual cash flow
characteristics of the financial asset. This single,
principle-based approach replaces existing rule-based requirements
that are generally considered to be overly complex and difficult to
apply.
The new model also
results in a single, forward-looking ‘expected loss’
impairment model that will require more timely recognition of
expected credit losses.
The new expected credit
losses model replaces the incurred loss impairment model used in
IAS 39. IFRS 9 also removes the volatility in profit or loss that
was caused by changes in the credit risk of liabilities elected to
be measured at fair value. This change in accounting means that
gains caused by the deterioration of an entity’s own credit
risk on such liabilities are no longer recognised in profit or
loss.
IFRS 9 is effective for
annual periods beginning on or after 1 January 2018, with earlier
application permitted.
The Group has applied
the temporary exemption as allowed under the Amendment to IFRS 4,
and has therefore deferred the application of IFRS 9 to be
concurrent with the effective date of IFRS 17. The Company
continues to apply the existing financial instruments Standard -
IAS 39.
Transition
The general principle in
IFRS 9 is for retrospective application in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors.
The transition requirements refer to the date of initial
application (DIA), which is the beginning of the reporting period
in which an insurer first applies IFRS 9. The date of initial
application for the group will be 1 January 2023. IFRS 9 contains
certain exemptions from full retrospective application. These
include an exemption from the requirement to restate comparative
information about classification and measurement, including
impairment. If an insurer does not restate prior periods, then
opening retained earnings (or other components of equity, as
appropriate) for the annual reporting period that includes the DIA
is adjusted for any difference between the carrying amounts of
financial instruments before adoption of IFRS 9 and the new
carrying amounts. The Group has elected to apply the exemption from
the requirement to restate comparative information.
The Group has performed
an assessment to consider the implications of the standard on
transition and its impact on the financial results and position.
The impact was not found to be material from a recognition and
measurement point of view.
According to the
assessment performed, applying the classification and measurement
rules for financial assets in terms of IFRS 9 to the Group’s
investment portfolio results in all such investments being measured
at FVTPL. The other financial assets are currently measured at
amortised cost under IAS 39 and these would continue being measured
at amortised cost under IFRS 9. All of the Group’s financial
liabilities are currently measured at amortised cost in terms of
IAS 39 and are expected to continue being measured at amortised
cost in terms of IFRS 9.
Standards, amendments
and Interpretations to existing Standards that are not yet
effective and have not been adopted early by the
Group
At the date of
authorisation of these financial statements, several new, but not
yet effective, Standards and amendments to existing Standards, and
Interpretations have been published by the IASB. None of these
Standards or amendments to existing Standards have been adopted
early by the Group.
IFRS 17 replaces IFRS 4
“Insurance Contracts” and is effective for annual
periods beginning on or after 1 January 2023, with early adoption
permitted. The Company will apply IFRS 17 for the first time on 1
January 2023. This standard will bring significant changes to the
accounting for insurance contracts, investment contracts with
discretionary participation features (“DPF”) and
reinsurance contracts, the impact of which cannot be assessed at
this point in time as the IFRS 17 implementation project is still
ongoing.
The anticipated changes
in the recognition and measurement of insurance contracts and
investment contracts with DPF issued and reinsurance contracts
held, the changes in presentation and disclosures and the
transition approach expected to be followed are described
below.
Other Standards and
amendments that are not yet effective and have not been adopted
early by the company include:
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IFRS 17 ‘Insurance
Contracts’
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Classification of
Liabilities as Current or Non-current (Amendments to IAS
1)
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Deferred Tax related to
Assets and Liabilities from a Single Transaction
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With the exception of
the implementation of IFRS 17 as further described below, these
other amendments are not expected to have a significant impact on
the financial statements in the period of initial application and
therefore no disclosures have been made.
1.1
Definition and classification of insurance
contracts
Insurance contracts are
contracts under which the Group accepts significant insurance risk
from a policyholder by agreeing to compensate the policyholder if a
specified uncertain future event adversely affects the
policyholder.
In making this
assessment, all substantive rights and obligations, including those
arising from law or regulation, will be considered on a
contract-by-contract basis at the contract issue date. The Group
will use judgement to assess whether a contract transfers insurance
risk (that is, if there is a scenario with commercial substance in
which the Group has the possibility of a loss on a present value
basis) and whether the accepted insurance risk is
significant.
The Group will determine
whether it has significant insurance risk, by comparing benefits
payable after an insured event with benefits payable if the insured
event did not occur.
The Group issues
contracts under which it accepts significant insurance risk from
its policyholders, which are classified as insurance
contracts.
Some investment
contracts contain discretionary participation features
(“DPF”), whereby the investor has the right and is
expected to receive, as a supplement to the amount not subject to
the Group’s discretion, potentially significant additional
benefits based on the return of specified pools of investment
assets.
The Group issues
investment contracts with DPF which are linked to the same pool of
assets as insurance contracts and have economic characteristics
similar to those of insurance contracts. The Group shall account
for these contracts applying IFRS 17.
Contracts will be
classified as direct participating contracts or contracts without
direct participation features.
A contract with direct
participation features is defined as one which, at inception, meets
the following criteria:
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the contractual terms
specify that the policyholder participates in a share of a clearly
identified pool of underlying items;
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the Company expects to
pay to the policyholder an amount equal to a substantial share of
the fair value returns on the underlying items; and
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the Company expects a
substantial proportion of any change in the amounts to be paid to
the policyholder to vary with the change in fair value of the
underlying items.
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These criteria will be
assessed at the individual contract level based on the
Group’s expectations at the contract’s inception, and
they will not be reassessed in subsequent periods, unless the
contract is modified. The variability in the cash flows will be
assessed over the expected duration of a contract. The duration of
a contract takes into account all cash flows within the
boundary.
The savings and pensions
(unit linked) contracts as well as the profit sharing contracts
held within the run-off portfolio of the Group will be classified
as direct participating contracts. Such contracts allow
policyholders to participate in investment returns with the Group,
in addition to compensation for losses from insured risk. These
contracts are substantially investment service-related contracts
where the return on the underlying items is shared with
policyholders. Underlying items comprise specified portfolios of
investment assets that determine amounts payable to
policyholders.
In addition to issuing
insurance contracts, the Group holds reinsurance contracts to
mitigate certain risk exposures. A reinsurance contract is an
insurance contract issued by a reinsurer to compensate the Group
for claims arising from one or more insurance contracts issued by
the Group. These are quota share and excess of loss reinsurance
contracts. For reinsurance contracts held by the Group, even if
they do not expose the issuer (the reinsurer) to the possibility of
a significant loss they would still be deemed to transfer
significant insurance risk if they transfer substantially all of
the insurance risk relating to the reinsured portions of the
underlying insurance contracts to the reinsurer.
1.2 Separating components from
insurance contracts
At inception, the Group
shall separate the following components from an insurance contract
and account for them as if they were stand-alone financial
instruments:
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derivatives embedded in
the contract whose economic characteristics and risks are not
closely related to those of the host contract, and whose terms
would not meet the definition of an insurance contract as a
stand-alone instrument; and
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distinct investment
components i.e. investment components that are not highly
inter-related with the insurance components and for which contracts
with equivalent terms are sold, or could be sold, separately in the
same market or the same jurisdiction.
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An investment component
comprises of the amounts that an insurance contract requires the
Group to repay to a policyholder in all circumstances, regardless
of whether an insured event occurs. Investment components which are
highly interrelated with the insurance contract of which they form
a part are considered non-distinct and are not separately accounted
for.
After separating any
embedded derivatives or distinct investment components, the Group
shall separate any promises to transfer to policyholders distinct
goods or services other than insurance coverage and investment
services and account for them as separate contracts with customers
(i.e. not as insurance contracts). A good or service is distinct if
the policyholder can benefit from it either on its own or with
other resources that are readily available to the policyholder. A
good or service is not distinct and is accounted for together with
the insurance component if the cash flows and risks associated with
the good or service are highly inter-related with the cash flows
and risks associated with the insurance component, and the Group
provides a significant service of integrating the good or service
with the insurance component.
The Group shall assess
its insurance contracts to determine whether they contain any
derivatives or investment components or promises to transfer to
policyholders distinct goods or services other than insurance
coverage and investment services which must be accounted for under
a different IFRS than IFRS 17. The Group shall apply, IFRS 17 to
all remaining components of the host insurance contract.
The Group issues some
contracts which include an embedded derivative (surrender option)
and/or investment component (account balance) under which the
surrender value is paid to the policyholder on maturity or earlier
lapse of the contract. These components have been assessed to meet
the definition of a highly related and non-distinct component. The
surrender option is interrelated with the value of the insurance
contract and as such, is not separated. Concerning the account
balance, the Group is unable to measure the investment component
separately from the contract and the policyholder is unable to
benefit from the investment component unless the insurance
component is also present and as such they will not be
separated.
The Group issues certain
contracts which include a promise to transfer a good or
non-insurance service. These transfers of a good or non-insurance
service are not distinct and therefore will not be separated from
the contracts.
Once the embedded
derivatives, investment components and the goods and services
components are separated, the Group shall assess whether the
contract should be separated into several insurance components
that, in substance, should be treated as separate
contracts.
To determine whether a
single legal contract does not reflect the substance of the
transaction and its insurance components recognised and measured
separately instead, the Group will consider whether there is an
interdependency between the different risks covered, whether
components can lapse independently of each other and whether the
components can be priced and sold separately. When the Group enters
into one legal contract with different insurance components
operating independently of each other, insurance components are
recognised and measured separately applying IFRS 17.
Concerning the contracts
with supplementary benefits (riders) the Group will determine if
the legal contract reflects the substance of the transaction and if
so the insurance components will not be separated.
The reinsurance
contracts held by the Group, despite the fact that they may cover
more than one types of risk exposures, would reflect single
contracts in substance and will be treated as one single accounting
contract for IFRS 17.
1.3 Aggregation level
The Group shall identify
portfolios by aggregating insurance contracts that are subject to
similar risks and managed together. The Group expects that all
contracts within each product line, as defined for management
purposes, have similar risks and, therefore, would represent a
portfolio of contracts when they are managed together.
Reinsurance contracts
held will be grouped into portfolios taking into consideration the
nature of the risk and the type of reinsurance cover.
Each portfolio will be
further sub-divided into groups of contracts to which the
recognition and measurement requirements of IFRS 17 will be
applied. At initial recognition, the Group will segregate contracts
based on when they were issued. A portfolio will contain all
contracts that were issued within a 12-month period. Each annual
cohort will be further disaggregated into three groups of
contracts:
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any contracts that are
onerous on initial recognition;
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any contracts that, on
initial recognition, have no significant possibility of becoming
onerous subsequently; and
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any remaining contracts
in the portfolio.
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Portfolios of
reinsurance contracts held will be assessed for aggregation
separately from portfolios of insurance contracts issued. Applying
the grouping requirements to reinsurance contracts held, the Group
will aggregate reinsurance contracts held into groups
of:
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contracts for which there
is a net gain at initial recognition, if any;
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contracts for which, at
initial recognition, there is no significant possibility of a net
gain arising subsequently; and
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remaining contracts in
the portfolio, if any.
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The Group will make an
evaluation of whether a set of contracts can be treated together in
making the profitability assessment based on reasonable and
supportable information. In the absence of such information the
Group will assess each contract individually.
If insurance contracts
within a portfolio would fall into different groups only because
law or regulation specifically constrains the Group’s
practical ability to set a different price or level of benefits for
policyholders with different characteristics, the Group may include
those contracts in the same group.
The determination of
whether a contract or a group of insurance contracts issued is
onerous will be based on the expectations as at the date of initial
recognition, with fulfilment cash flow expectations determined on a
probability-weighted basis. The Group will determine the
appropriate level at which reasonable and supportable information
would be available to assess whether the contracts are onerous at
initial recognition and whether the contracts not onerous at
initial recognition have a significant possibility of becoming
onerous subsequently.
A similar assessment
will be performed for reinsurance contracts held to determine the
contracts for which there is a net gain at initial recognition or
whether contracts for which there is not a net gain at initial
recognition have a significant possibility of a net gain
subsequently.
For contracts that the
Premium Allocation Approach (“PAA”) will be applied by
the Group, it shall assume that contracts are not onerous (for
reinsurance contracts there is not a net gain) on initial
recognition unless there are facts and circumstances indicating
otherwise. The Group will assess the likelihood of changes in
applicable facts and circumstances to determine whether contracts
not onerous (for reinsurance contracts there is not a net gain) at
initial recognition belong to a group with no significant
possibility of becoming onerous (for reinsurance contracts no
significant possibility of a net gain) in the future.
The composition of
groups established at initial recognition will not be subsequently
reassessed.
1.4 Initial
Recognition
The Group will recognise
groups of insurance contracts that it issues from the earliest of
the following:
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The beginning of the
coverage period of the group of contracts;
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The date when the first
payment from a policyholder in the group is due, or when the first
payment is received if there is no due date;
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When the Group
determines that a group of contracts becomes onerous.
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Concerning onerous
contracts such contracts expected on initial recognition to be
loss-making will be grouped together and such groups are to be
measured and presented separately. Once contracts are allocated to
a group, they will not be re-allocated to another group, unless
they are substantively modified.
The Group will recognise
a group of reinsurance contracts held:
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If the reinsurance
contracts provide proportionate coverage, at the later of the
beginning of the coverage period of the group, or the initial
recognition of any underlying contract;
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In all other cases, from
the beginning of the coverage period of the first contract in the
group.
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If the Group enters into
the reinsurance contract held at or before the date when an onerous
group of underlying contracts will be recognised prior to the
beginning of the coverage period of the group of reinsurance
contracts held, the reinsurance contract held will be recognised at
the same time as the group of underlying insurance contracts is
recognised.
The Group shall add new
contracts to the group when they meet the recognition
criteria.
1.5 Contract
Boundaries
Insurance
contracts
The Group will include
in the measurement of a group of insurance contracts all the future
cash flows within the boundary of each contract in the
group.
Cash flows are within
the boundary of an insurance contract if they arise from
substantive rights and obligations that exist during the reporting
period in which the Group can compel the policyholder to pay the
premiums, or in which the Group has a substantive obligation to
provide the policyholder with services.
Cash flows within the
boundary of an insurance contract are those that relate directly to
the fulfilment of the contract, including cash flows for which the
Group has discretion over the amount or timing.
A substantive obligation
to provide services ends when:
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The Group has the
practical ability to reassess the risks of the particular
policyholder and, as a result, can set a price or level of benefits
that fully reflects those risks; or
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Both of the following
criteria are satisfied:
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The Group has the
practical ability to reassess the risks of the portfolio of
insurance contracts that contain the contract and, as a result, can
set a price or level of benefits that fully reflects the risk of
that portfolio
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The pricing of the
premiums for coverage up to the date when the risks are reassessed
does not take into account the risks that relate to periods after
the reassessment date.
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In determining whether
all the risks will be reflected either in the premium or in the
level of benefits, the Group will consider all risks that
policyholders would transfer had it issued the contracts (or
portfolio of contracts) at the reassessment date. Similarly, the
Group will conclude on its practical ability to set a price that
fully reflects the risks in the contract or portfolio at a renewal
date by considering all the risks that it would assess when
underwriting equivalent contracts on the renewal date for the
remaining service. The assessment on the Group’s practical
ability to reprice existing contracts takes into account all
contractual, legal and regulatory restrictions. In doing so, the
Group will disregard restrictions that have no commercial
substance. The Group will also consider the impact of market
competitiveness and commercial considerations on its practical
ability to price new contracts and repricing existing contracts.
Judgement will be required to decide whether such commercial
considerations are relevant in concluding as to whether the
practical ability exists at the reporting date.
The Group issues
contracts that include an option to add insurance coverage at a
future date so that the Group is obligated to provide additional
coverage if the policyholder exercises the option. Group has no
right to compel the policyholder to pay premiums and the option to
add insurance coverage at a future date is an insurance component
that is not measured separately from the insurance
contract.
When the insurance
option is not in substance a separate contract and the terms are
guaranteed by the Group, the cash flows arising from the option are
within the boundary of the contract. If the option is not a
separate contract and the terms are not guaranteed by the Group,
the cash flows arising from the option might be either within or
outside the contract boundary, depending on whether the Group has
the practical ability to set a price that fully reflects the
reassessed risks of the whole contract. In cases where the Group
will not have the practical ability to reprice the whole contract
when the policyholder exercises the option to add coverage, the
expected cash flows arising from the additional premiums after the
option exercise date would be within the original contract
boundary.
In estimating expected
future cash flows of the group of contracts the Group will apply
its judgement in assessing future policyholder behaviour
surrounding the exercise of options available to them such as
surrenders options, and other options falling within the contract
boundary.
The Group will assess
the contract boundary at initial recognition and at each subsequent
reporting date to include the effect of changes in circumstances on
the Group’s substantive rights and obligations.
Reinsurance
contracts
For groups of
reinsurance contracts held, cash flows are within the contract
boundary if they arise from substantive rights and obligations of
the cedant that exist during the reporting period in which the
Group will be compelled to pay amounts to the reinsurer or has a
substantive right to receive insurance contract services from the
reinsurer.
A substantive right to
receive services from the reinsurer ends when the
reinsurer:
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has the practical ability
to reassess the risks transfer to it and can set a price or level
of benefits that fully reflects those reassessed risks
or
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has a substantive right
to terminate the coverage.
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The boundary of a
reinsurance contract held includes cash flows resulting from the
underlying contracts covered by the reinsurance contract. This
includes cash flows from insurance contracts that are expected to
be issued by the Group in the future if these contracts are
expected to be issued within the boundary of the reinsurance
contract held.
The Group holds
proportional life reinsurance contracts which have an unlimited
duration, but which allow both the reinsurer and the Group to
terminate the contract at three months’ notice for new
business ceded. The Group includes within the contracts boundary
only cash flows arising from such three months’ notice period
because it does not have substantive rights or obligations beyond
that point. Therefore, on initial recognition, the cash flows
within the reinsurance contract boundary are determined to be those
arising from underlying contracts that the Group expects to issue
and cede under the reinsurance contract within the next three
months. Subsequently, expected cash flows beyond the end of this
initial notice period are considered cash flows of new reinsurance
contracts and are recognised, separately from the initial contract,
as they fall within the rolling three-month notice period. Other
life reinsurance agreements have a cancellability clause for new
business with three months’ notice but this being effective
at the next annual renewal of the agreement and hence, in this
case, on initial recognition the cash flows within the reinsurance
contract boundary are determined to be those arising from
underlying contracts that the Group expects to issue and cede under
the reinsurance contract within the year. The Group will treat all
the above-mentioned reinsurance contracts as a series of contracts
that form an annual group and cover underlying business issued
within a year.
The Group holds
proportional group life reinsurance contracts that have a
-short-term boundary and cover short-term underlying contracts
issued within the term on a risk-attaching basis. All cash
flows arising from claims incurred and expected to be incurred
during the life of the underlying contracts are expected to be
included in the measurement.
Finally, the
Group’s non-proportional, excess of loss reinsurance
contracts held, have an annual term and provide coverage for claims
incurred during an accident year (i.e. loss occurring). Thus, all
cash flows arising from claims incurred and expected to be incurred
in the accident year will be included in the measurement of the
reinsurance contracts held.
1.6 Insurance acquisition
cashflows
Insurance acquisition
cash flows arise from the costs of selling, underwriting and
starting a group of insurance contracts (issued or expected to be
issued) that are directly attributable to the portfolio of
insurance contracts to which the group belongs. Such cash flows
include cash flows that are not directly attributable to individual
contracts or groups of insurance contracts within the
portfolio.
Insurance acquisition
cash flows that are directly attributable to a group of insurance
contracts will be allocated to that group and to renewal groups of
insurance contracts using a systematic and rational method and
considering, in an unbiased way, all reasonable and supportable
information that is available without undue cost or
effort.
A systematic and
rational method will be used to allocate insurance acquisition cash
flows directly attributable to a portfolio but not to groups of
contracts to such groups in the portfolio.
Insurance acquisition
cash flows arising before the recognition of the related group of
contracts will be recognised as an asset. Insurance acquisition
cash flows arise when they are paid or when a liability is required
to be recognised under a standard other than IFRS 17. Such an asset
shall be recognised for each group of contracts to which the
insurance acquisition cash flows are allocated. The asset will be
derecognised, fully or partially, when the insurance acquisition
cash flows are included in the measurement of the group of
contracts.
At each reporting date,
the Group shall revise the amounts allocated to groups to reflect
any changes in assumptions that determine the inputs to the
allocation method used. Amounts allocated to a group are not to be
revised once all contracts have been added to the group.
Impairment
At each reporting date,
if facts and circumstances indicate that an asset for insurance
acquisition cash flows may be impaired, then the Group shall
recognise an impairment loss in profit or loss so that the carrying
amount of the asset does not exceed the expected net cash inflow
for the related group and in case that the asset relates to future
renewals, an impairment loss will be recognised in profit or loss
to the extent that it expects those insurance acquisition cash
flows to exceed the net cash inflow for the expected renewals and
this excess has not already been recognised as an impairment loss
as mentioned above.
The Group shall reverse
any impairment losses in profit or loss and increases the carrying
amount of the asset to the extent that the impairment conditions
have improved.
1.7 Measurement of Insurance
contracts issued
The liability for
remaining coverage (“LRC”) shall represent the
Group’s obligation to investigate and pay valid claims under
existing contracts for insured events that have not yet occurred
(i.e. the obligation that relates to the unexpired portion of the
coverage period), comprising (a) fulfilment cash flows relating to
future service and (b) the contractual service margin yet to be
earned.
The liability for
incurred claims (“LIC”) shall include the Group’s
liability to pay valid claims for insured events that have already
incurred, other incurred insurance expenses arising from past
coverage service and it shall include the Group’s liability
to pay amounts the Group is obliged to pay the policyholder under
the contract, including repayment of investment components, when a
contract is derecognised. The estimate of LIC shall comprise the
fulfilment cash flows related to current and past service allocated
to the group at the reporting date.
The carrying amount of a
group of insurance contracts at each reporting date shall be the
sum of the LRC and the LIC.
1.7.1 Measurement on initial
recognition of contracts not measured under the PAA
Under the general
measurement model (“GMM”) the Group shall measure a
group of contracts on initial recognition as the sum of the
expected fulfilment cash flows within the contract boundary and the
contractual service margin representing the unearned profit in the
contracts relating to services that will be provided under the
contracts.
Fulfilment Cashflows
(“FCF”)
FCF shall comprise
unbiased and probability-weighted estimates of future cash flows,
an adjustment to reflect the time value of money and the financial
risks related to the future cash flows, to the extent that the
financial risks are not included in the estimates of the future
cash flows, plus a risk adjustment for non-financial
risk.
The Group’s
objective in estimating future cash flows shall be to determine the
expected value, or the probability weighted mean, of the full range
of possible outcomes, considering all reasonable and supportable
information available at the reporting date without undue cost or
effort, that reflect the timing and uncertainty of those future
cash flows.
The Group shall estimate
future cash flows considering a range of scenarios which have
commercial substance and give a good representation of possible
outcomes. The cash flows from each scenario are
probability-weighted and discounted using current
assumptions.
The Group shall estimate
certain FCF at the portfolio level or higher and then allocate such
estimates to groups of contracts.
When estimating future
cash flows, the Group shall include all cash flows that are within
the contract boundary including:
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Premiums and related cash
flows
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Claims and benefits,
including reported claims not yet paid, incurred claims not yet
reported and expected future claims
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Payments to policyholders
resulting from embedded surrender value options
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An allocation of
insurance acquisition cash flows attributable to the portfolio to
which the contract belongs
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Claims handling
costs
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Policy administration and
maintenance costs
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An allocation of fixed
and variable overheads directly attributable to fulfilling
contracts
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Transaction-based
taxes
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Costs incurred for
performing investment activities that enhance insurance coverage
benefits for the policyholder
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Costs incurred for
providing investment-related service to policyholders
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The cash flow estimates
shall include both market variables, which are consistent with
observable market prices, and non-market variables, which are not
contradictory with market information and based on internally and
externally derived data.
The Group shall update
its estimates at the end of each reporting period using all newly
available, as well as historic evidence and information about
trends. The Group shall determine its expectations of probabilities
of future events occurring at the end of the reporting period. In
developing new estimates, the Group shall consider the most recent
experience and earlier experience, as well as other
information.
Risk of the
Group’s non-performance will not be included in the
measurement of groups of contracts issued.
Risk Adjustment
(“RA”)
The risk adjustment for
non-financial risk for a group of contracts, determined separately
from the other estimates, is the compensation required for bearing
uncertainty about the amount and timing of the cash flows that
arises from non-financial risk.
The risk adjustment
shall also reflect the degree of diversification benefit the Group
will include when determining the compensation it will require for
bearing that risk; and both favourable and unfavourable outcomes,
in a way that will reflect the Group’s degree of risk
aversion.
The Group will use a
Risk-based capital approach based on which the risk adjustment can
be determined at the chosen level of confidence.
Time value of
money and Financial risks
The Group will adjust
the estimates of future cash flows to reflect the time value of
money and the financial risks related to those cash flows, to the
extent that the financial risks would not be included in the
estimates of cash flows. The discount rates to be applied to the
estimates of the future cash flows:
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will reflect the time
value of money, the characteristics of the cash flows and the
liquidity characteristics of the contracts;
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will be consistent with
observable market prices (if any) for financial instruments with
cash flows whose characteristics are consistent with those of the
contracts, in terms of, for example, timing, currency and
liquidity; and
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will exclude the effect
of factors that influence such observable market prices but do not
affect the future cash flows of the contracts.
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In determining discount
rates for the cash flows that do not vary based on the returns of
underlying items, the Group will use the ‘bottom-up
approach’ to estimate discount rates.
Contractual
Service Margin (“CSM”)
The CSM is a component
of the overall carrying amount of a group of insurance contracts
representing unearned profit the Group will recognise as it
provides insurance contract services over the coverage
period.
On initial recognition
of a group of contracts, if the total of (a) the fulfilment cash
flows, (b) any cash flows arising at that date and (c) any amount
arising from the derecognition of any assets or liabilities
previously recognised for cash flows related to the group
(including assets for insurance acquisition cash flows) is a net
inflow, the CSM will be measured as the equal and opposite amount
of the net inflow, which would result in no gain no loss, arising
on initial recognition.
If the total is a net
outflow, then the group is onerous. In this case, the net outflow
shall be recognised as a loss in profit or loss. A loss component
will be created to depict the amount of the net cash outflow, which
will determine the amounts that are to be subsequently presented in
profit or loss as reversals of losses on onerous contracts and
shall be excluded from insurance revenue.
The Group will
determine, at initial recognition, the group’s coverage units
and allocate the group’s CSM based on the coverage units
provided in the period.
1.7.2 Subsequent measurement of
contracts not measured under PAA
Changes in fulfilment
cash flows
At the end of each
reporting period, the Group will update the fulfilment cash flows
for both LIC and LRC to reflect the current estimates of the
amounts, timing and uncertainty of future cash flows, as well as
discount rates and other financial variables.
Experience adjustments
would be the difference between:
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The expected cash flow
estimate at the beginning of the period and the actual cash flows
for premiums received in the period (and any related cash flows
paid such as insurance acquisition cash flows)
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The expected cash flow
estimate at the beginning of the period and the actual incurred
amounts of insurance service expenses in the period (excluding
insurance acquisition expenses).
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Experience adjustments
relating to current or past service will be recognised in profit or
loss. For incurred claims (including incurred but not reported) and
other incurred insurance service expenses, experience adjustments
would always relate to current or past service. They would be
included in profit or loss as part of insurance service expenses.
Experience adjustments relating to future service will be included
in the LRC by adjusting the CSM.
Adjustments to the
CSM - Insurance contracts without direct participation
features
For a group of insurance
contracts, the carrying amount of the CSM of the group at the end
of the reporting period will equal the carrying amount at the
beginning of the reporting period adjusted, as follows:
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The effect of any new
contracts added to the group in the reporting period
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Interest accreted on the
carrying amount of the CSM during the reporting period, measured at
the discount rates at initial recognition
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The changes in fulfilment
cash flows relating to future service, except to the extent
that:
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Such increases in the
fulfilment cash flows exceed the carrying amount of the CSM, giving
rise to a loss; or
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Such decreases in the
fulfilment cash flows are allocated to the loss component of the
liability for remaining coverage
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The effect of any
currency exchange differences on the CSM
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The amount recognised as
insurance revenue because of the transfer of services in the
period, determined by the allocation of the CSM remaining at the
end of the reporting period (before any allocation) over the
current and remaining coverage period.
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The locked-in discount
rate is the weighted average of the rates applicable at the date of
initial recognition of contracts that joined a group over a
12-month period.
The changes in
fulfilment cash flows relating to future service that adjust the
CSM comprise of:
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Experience adjustments
that arise from the difference between the premium receipts (and
any related cash flows such as insurance acquisition cash flows)
and the estimate, at the beginning of the period, of the amounts
expected.
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Changes in estimates of
the present value of future cash flows in the liability for
remaining coverage, except those relating to the time value of
money and changes in financial risk (recognised in the statement of
profit or loss and other comprehensive income rather than adjusting
the CSM)
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Differences
between:
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any investment component
expected to become payable in the year, determined as the payment
expected at the start of the year plus any insurance finance income
or expenses related to that expected payment before it becomes
payable; and
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the actual amount
that becomes payable in the year
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Changes in the risk
adjustment for non-financial risk that relate to future
service.
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Except for changes in
the risk adjustment, adjustments to the CSM noted above will be
measured at discount rates that reflect the characteristics of the
cash flows of the group of insurance contracts at initial
recognition.
The CSM at the end of
the reporting period will represent the profit in the group of
insurance contracts that has not yet been recognised in profit or
loss, because it relates to future service.
An amount of the CSM
will be released to profit or loss in each period during which the
insurance contract services are provided.
In determining the
amount of the CSM to be released in each period, the Group will
follow three steps:
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determine the total
number of coverage units in the group. The amount of coverage units
in the group is determined by considering for each contract the
quantity of benefits provided under the contract and the expected
coverage period.
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allocate the CSM at the
end of the period (before any of it is released to profit or loss
to reflect the insurance contract services provided in the period)
equally to each of the coverage units provided in the current
period and expected to be provided in the future.
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recognise in profit or
loss the amount of CSM allocated to the coverage units provided
during the period.
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The number of coverage
units will change as insurance contract services will be provided,
contracts expire, lapse or surrender and new contracts are added
into the group. The total number of coverage units will depend on
the expected duration of the obligations that the Group has from
its contracts, which can differ from the legal contract maturity
because of the impact of policyholder behaviour and the uncertainty
surrounding future insured events. In determining a number of
coverage units, the Group shall exercise judgement in estimating
the likelihood of insured events occurring and policyholder
behaviours to the extent that they affect expected period of
coverage in the group, the different levels of service offered
across periods and the ‘quantity of benefits’ provided
under a contract.
The Group does not issue
insurance contracts generating cash flows in a foreign currency
that is different from the functional currency of the
Group.
Adjustments to the
CSM - Insurance contracts with direct participation
features
Direct participating
contracts are contracts under which the Group’s obligation to
the policyholder is the net of:
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the obligation to pay the
policyholder an amount equal to the fair value of the underlying
items; and
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a variable fee in
exchange for future services provided by the contracts, being the
amount of the Group’s share of the fair value of the
underlying items less fulfilment cash flows that do not vary based
on the returns on underlying items.
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When measuring a group
of direct participating contracts, the Group will adjust the
fulfilment cash flows for the whole of the changes in the
obligation to pay policyholders an amount equal to the fair value
of the underlying items. These changes do not relate to future
services and will be recognised in profit or loss. The Group would
then adjust any CSM for changes in the amount of the Group’s
share of the fair value of the underlying items which relate to
future services.
Hence, the carrying
amount of the CSM at each reporting date will be the carrying
amount at the start of the year, adjusted for:
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the CSM of any new
contracts that are added to the group in the year;
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the change in the amount
of the Group’s share of the fair value of the underlying
items and changes in fulfilment cash flows that relate to future
services, except to the extent that:
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a decrease in the amount
of the Group’s share of the fair value of the underlying
items, or an increase in the fulfilment cash flows that relate to
future services, exceeds the carrying amount of the CSM, giving
rise to a loss in profit or loss (included in insurance service
expenses) and creating a loss component; or
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an increase in the amount
of the Group’s share of the fair value of the underlying
items, or a decrease in the fulfilment cash flows that relate to
future services, is allocated to the loss component, reversing
losses previously recognised in profit or loss (included in
insurance service expenses);
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the effect of any
currency exchange differences on the CSM; and
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the amount recognised as
insurance revenue because of the services provided in the
year.
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Changes in fulfilment
cash flows that relate to future services shall include the changes
relating to future services specified above for contracts without
direct participation features (measured at current discount rates)
and changes in the effect of the time value of money and financial
risks that do not arise from underlying items – e.g. the
effect of financial guarantees.
Onerous
Contracts
After the loss component
will be recognised, the Group shall allocate any subsequent changes
in fulfilment cash flows of the LRC on a systematic basis between
‘loss component’ and ‘LRC excluding the loss
component’.
The subsequent changes
in the fulfilment cash flows of the LRC to be allocated would
be:
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insurance finance income
or expense,
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changes in risk
adjustment for non-financial risk recognised in profit or loss
representing release from risk in the period; and
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estimates of the present
value of future cash flows for claims and expenses released from
the LRC because of incurred insurance service expense in the
period.
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The Group will determine
the systematic allocation of insurance service expenses incurred
based on the percentage of loss component to the total outflows
included in the LRC, excluding any investment component
amount.
Any subsequent decreases
relating to future service in fulfilment cash flows allocated to
the group arising from changes in estimates of future cash flows
and the risk adjustments for non-financial risk will be allocated
first only to the loss component, until it is exhausted. Once it is
exhausted, any further decreases in fulfilment cash flows relating
to future service will create the group’s CSM.
1.7.3 Measurement of contracts
under the PAA
On initial recognition
the Group will apply the PAA:
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When the coverage period
of each insurance contract in the group is one year or
less.
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For groups of insurance
contracts including contracts with a coverage period extending
beyond one year the Group reasonably expects that such
simplification would produce a measurement of the LRC for the group
that would not differ materially from the one that would be
produced applying the requirements of the general measurement
model.
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On initial recognition,
the Group will measure the LRC at the amount of premiums received
in cash. As all the issued insurance contracts to which the PAA
will be applied have coverage of a year or less, the Group will
elect the policy of expensing insurance acquisition cash flows as
they are incurred.
On initial recognition
of each group of contracts, the Group expects that the time between
providing each part of the services and the related premium due
date is no more than a year. Accordingly, the Group will choose not
to adjust the liability for remaining coverage to reflect the time
value of money and the effect of financial risk.
There are no investment
components within insurance contracts issued that are measured
under the PAA.
The carrying amount of a
group of insurance contracts issued at the end of each reporting
period will be the sum of (a) the LRC and (b) the LIC, comprising
the FCF related to past service allocated to the group at the
reporting date.
The carrying amount of
the LRC for subsequent measurement purposes will be increased by
any premiums received and decreased by the amount recognised as
insurance revenue for services provided.
The LIC will be measured
similarly to the LIC’s measurement under the GMM. The
liability would equal the amount of the fulfilment cash flows
relating to incurred claims. For claims that the Group expects to
be paid within one year or less from the date of incurring the
Group will not adjust future cash flows for the time value of money
and the effect of financial risk. However, claims expected to take
more than one year to settle will be discounted.
If facts and
circumstances indicate that a group of insurance contracts measured
under the PAA is onerous on initial recognition or becomes onerous
subsequently, the Group will increase the carrying amount of the
LRC to the amount of the FCF determined under the GMM with the
amount of such an increase recognised in insurance service
expenses, and a loss component established for the amount of the
loss recognised. The fulfilment cash flows will be discounted at
current rates, as the liability for incurred claims will also be
discounted.
1.8 Measurement of reinsurance
contracts held
The same accounting
policies will be applied as for insurance contracts issued to
measure a group of reinsurance contracts held, adapted where
necessary to reflect features that differ from those of insurance
contracts.
1.8.1 Measurement of the asset
for remaining coverage (“ARC”)
Reinsurance contracts
measured under the general model (“GMM”)
The measurement of
reinsurance contracts held will follow the same principles as those
for insurance contracts issued, with the exception of the
following:
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Measurement of the cash
flow s shall include an allowance on a
probability-weighted basis for the effect of any non-performance by
the reinsurers, including the effects of collateral and losses from
disputes
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The Group will determine
the risk adjustment for non-financial risk so that it represents
the amount of risk being transferred to the reinsurer
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The Group shall recognise
both day 1 gains and day 1 losses at initial recognition in the
statement of financial position as a CSM and will release this to
profit or loss as the reinsurer renders services, except for any
portion of a day 1 loss that relates to events before initial
recognition as described below
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Changes in the fulfilment
cash flows will be recognised in profit or loss if the related
changes arising from the underlying ceded contracts have been
recognised in profit or loss. Alternatively, changes in the
fulfilment cash flows will adjust the CSM.
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The Group will measure
the estimates of the present value of future cash flows using
assumptions that would be consistent with those used to measure the
estimates of the present value of future cash flows for the
underlying insurance contracts.
On initial recognition,
the CSM of a group of reinsurance contracts will represent a net
cost or net gain on purchasing reinsurance. It would be measured as
the equal and opposite amount of the total of (a) the fulfilment
cash flows, (b) any amount arising from the derecognition of any
assets or liabilities previously recognised for cash flows related
to the group, (c) any cash flows arising at that date and (d) any
income recognised in profit or loss because of onerous underlying
contracts recognised at that date.
However, if any net cost
on purchasing reinsurance coverage would relate to insured events
that occurred before the purchase of the group, then the Group will
recognise the cost immediately in profit or loss as an
expense.
The carrying amount of
the CSM at each reporting date will be the carrying amount at the
start of the year, adjusted for:
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the CSM of any new
contracts that will be added to the group in the year;
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interest accreted on the
carrying amount of the CSM during the year, measured at the
discount rates determined on initial recognition;
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income recognised in
profit or loss in the year on initial recognition of onerous
underlying contracts;
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reversals of a
loss-recovery component to the extent that they are not changes in
the fulfilment cash flows of the group of reinsurance
contracts;
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changes in fulfilment
cash flows that relate to future services, measured at the discount
rates determined on initial recognition, unless they result from
changes in fulfilment cash flows of onerous underlying contracts,
in which case they are recognised in profit or loss and create or
adjust a loss-recovery component;
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the effect of any
currency exchange differences on the CSM; and
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the amount recognised in
profit or loss because of the services received in the
year.
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For a group of
reinsurance contracts covering onerous underlying contracts, the
Group will establish a loss-recovery component of the asset for
remaining coverage, will adjust the CSM and as a result will
recognise income when it recognises a loss on initial recognition
of onerous underlying contracts, if the reinsurance contract would
be entered into before or at the same time as the onerous
underlying contracts would be recognised. The adjustment to the CSM
will be determined by multiplying:
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the amount of the loss
that relates to the underlying contracts; and
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the percentage of claims
on the underlying contracts that the Group expects to recover from
the reinsurance contracts.
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The loss-recovery
component will be adjusted for changes in FCFs of the group of
reinsurance contracts relating to future services that result from
changes in FCFs of the onerous underlying contracts. If the
reinsurance contract will cover only some of the insurance
contracts included in an onerous group of contracts, then the Group
uses a systematic and rational method to determine the portion of
losses recognised on the onerous group of contracts that relates to
underlying contracts covered by the reinsurance
contract.
The loss-recovery
component will determine the amounts that are subsequently
presented in profit or loss as reversals of recoveries of losses
from the reinsurance contracts and would be excluded from the
allocation of reinsurance premiums paid. It would be adjusted to
reflect changes in the loss component of the onerous group of
underlying contracts, but it cannot exceed the portion of the loss
component of the onerous group of underlying contracts that the
Group expects to recover from the reinsurance contracts.
Reinsurance contracts
measured under the Premium Allocation Approach
(“PAA”)
The Group will apply the
PAA to measure a group of reinsurance contracts using the same
accounting policies to the insurance contracts, as adapted where
necessary to reflect the features of reinsurance
contracts.
The Group will apply the
PAA:
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To excess of loss
reinsurance contracts on loss occurring basis that provide coverage
on the insurance contracts originated for claims incurred during an
accident year.
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To proportional
reinsurance contracts on risk attaching basis that provide coverage
for short-term underlying insurance contracts and have an effective
period of more than one year the Group elects to apply the PAA
since at inception it expects it will provide an asset for
remaining coverage that would not differ materially from the
general model.
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Under the PAA, the
initial measurement of the asset equals the reinsurance premium
paid. The Group will measure the amount relating to remaining
service by allocating the amount of expected reinsurance premium
payments over the coverage period of receiving services for the
group. For all reinsurance contracts held the allocation will be
based on the passage of time.
On initial recognition
of each group of reinsurance contracts held, the Group expects that
the time between receiving each part of the services and the
related reinsurance premium due date is no more than a year.
Accordingly, the Group will not adjust the asset for remaining
coverage to reflect the time value of money and the effect of
financial risk.
Where the reinsurance
contracts held cover a group of onerous underlying insurance
contracts, the Group will adjust the carrying amount of the asset
for remaining coverage and recognise a gain when, in the same
period, it will report a loss on initial recognition of an onerous
group of underlying insurance contracts or on additional loss from
an already onerous group of underlying insurance contracts. The
recognition of this gain will result in the accounting for the loss
recovery component of the asset for the remaining coverage of a
group of reinsurance contracts held. The loss-recovery component
will be adjusted to reflect changes in the loss component of the
onerous group of underlying contracts, but it cannot exceed the
portion of the loss component of the onerous group of underlying
contracts that the Group expects to recover from the reinsurance
contracts.
1.8.2 Measurement of the asset
for incurred claims (“AIC”)
The Group will use
consistent assumptions to measure the estimates of the present
value of future cash flows for the group of reinsurance contracts
held and the estimates of the present value of future cash flows
for the group(s) of underlying insurance contracts. The Group shall
include in the estimates of the present value of the future cash
flows for the group of reinsurance contracts held the effect of any
risk of non-performance by the issuer of the reinsurance contract,
including the effects of collateral and losses from
disputes.
The risk adjustment for
non-financial risk for reinsurance contracts held will represent
the amount of risk being transferred by the Group to the
reinsurer.
1.9 Insurance contracts –
modification and derecognition
The Group will
derecognise insurance contracts when:
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The rights and
obligations relating to the contract are extinguished (i.e.,
discharged, cancelled or expired); or
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The contract is modified
such that the modification results in:
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the contract being
outside the scope of IFRS 17;
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a different
insurance contract due to separating components from the host
contract;
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a substantially
different contract boundary;
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the contract being
included in a different group of contracts.
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If any of the
modification criteria described above are met, the Group will
derecognise the initial contract and recognise the modified
contract as a new contract.
On derecognition of a
contract from within a group of contracts:
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the fulfilment cash
flows allocated to the group are adjusted to eliminate those that
relate to the rights and obligations derecognised;
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the CSM of the group is
to be adjusted for the change in the fulfilment cash flows, except
where such changes are allocated to a loss component;
and
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the number of coverage
units for the expected remaining services will be adjusted to
reflect the coverage units derecognised from the group.
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If a contract will be
derecognised because it is transferred to a third party, then the
CSM will also be adjusted for the premium charged by the third
party, unless the group is onerous.
If a contract is
derecognised because its terms are modified, then the CSM will also
be adjusted for the premium that would have been charged had the
Group entered into a contract with the new contract’s terms
at the date of modification, less any additional premium charged
for the modification. The new contract recognised will be measured
assuming that, at the date of modification, the Group received the
premium that it would have charged less any additional premium
charged for the modification.
If the contract
modification would not meet the above conditions the Group will
treat the effect of the modification as changes in the estimates of
fulfilment cash flows.
For insurance contracts
accounted for applying the PAA the Group will adjust insurance
revenue prospectively from the time of the contract
modification.
1.10 Investment contracts with
discretionary participation features
The Group shall
recognise investment contracts with DPF at the date when the Group
becomes a party to the contract. The investment contracts with DPF
will be aggregated in the same manner as insurance contracts. The
Group shall identify portfolios of such investment contracts with
DPF. Within that portfolio, the Group will aggregate them based on
three expected profitability levels (groups of onerous contracts,
groups of contracts that have no significant possibility of
becoming onerous subsequently, and groups that are neither onerous
nor have no significant possibility of becoming onerous
subsequently). Groups will only comprise of contracts issued not
more than a year apart.
At initial recognition,
similar to insurance contracts, the Group estimates the fulfilment
cash flows based on the present value of expected future cash flows
and a risk adjustment for non-financial risk. Any expected net
inflows are accounted for as the initial CSM.
In estimating future
cash flows, the Group will consider the contract boundary which
shall only include cash flows if they result from a substantive
obligation of the Group to deliver cash at a present or future
date.
In estimating the risk
adjustment for non-financial risk for investment contracts with
DPF, the Group will consider other non-financial risks, such as the
risks arising from the contract holder behaviour, e.g. lapse risk
and expense risk.
The Group will discount
cash flows using discount rates that reflect the characteristics of
the fulfilment cash flows, including the extent of their dependency
on the fair value of the underlying items.
The Group shall allocate
the CSM over the group’s whole duration period in a
systematic way reflecting the transfer of investment services under
a contract. The Group will measure investment contracts with DPF at
initial recognition as detailed in 1.7.1 “Measurement on
initial recognition of contracts not measured under the PAA”
and at subsequent measurement in accordance to 1.7.2
“Subsequent measurement of contracts not measured under
PAA” “Adjustments to the CSM – Insurance
contracts with direct participation features”.
1.11 Measurement - Significant
judgements and estimates
Estimates of future
cash flows
In estimating future
cash flows, the Group will incorporate, in an unbiased way, all
reasonable and supportable information that is available without
undue cost or effort at the reporting date. This information
includes both internal and external historical data about claims
and other experience, updated to reflect current expectations of
future events.
The estimates of future
cash flows will reflect the Group's view of current conditions at
the reporting date, as long as the estimates of any relevant market
variables are consistent with observable market prices.
When estimating future
cash flows, the Group will take into account current expectations
of future events that might affect those cash flows. However,
expectations of future changes in legislation that would change or
discharge a present obligation or create new obligations under
existing contracts will not be taken into account until the change
in legislation is substantively enacted.
Cash flows within the
boundary of a contract are those that relate directly to the
fulfilment of the contract, including those for which the Group has
discretion over the amount or timing. These include payments to (or
on behalf of) policyholders, insurance acquisition cash flows and
other costs that are incurred in fulfilling contracts. Insurance
acquisition cash flows and other costs that are incurred in
fulfilling contracts comprise both direct costs and an allocation
of fixed and variable overheads.
Cash flows will be
attributed to acquisition activities, other fulfilment activities
and other activities using activity-based costing techniques. Cash
flows attributable to acquisition and other fulfilment activities
will be allocated to group of contracts using methods that are
systematic and rational and will be consistently applied to all
costs that have similar characteristics.
Discount
rates
The Group will determine
the risk-free discount rates based on the risk-free interest rate
term structure published by the European Insurance and Occupational
Pensions Authority (EIOPA) for the purposes of the Solvency II
Directive. In addition to reflect the liquidity characteristics of
the contracts, the risk-free yield curves will be adjusted by an
illiquidity premium.
The requirement to
measure liabilities for insurance contracts and investment
contracts with DPF using discount rates determined applying the
IFRS17 requirements will be a change from the Group's current
practice. Under the current economic environment, the Group
estimates that the discount rates under IFRS 17 would generally be
lower than the corresponding rates under IFRS 4.
Risk adjustments for
non-financial risk
The risk adjustment for
non-financial risk will be determined to reflect the compensation
that the Group would require for bearing non-financial risk and its
degree of risk aversion. The risk adjustment will be determined
using a confidence level technique and specifically a Risk-based
capital approach with its target confidence level set at 80
percent, over an one year period, which represents the
Group’s degree of risk aversion.
Contractual Service
Margin
The CSM of a group of
contracts is recognised in profit or loss to reflect services
provided in each year, by identifying the coverage units in the
group, allocating the CSM remaining at the end of the year (before
any allocation) equally to each coverage unit provided in the year
and expected to be provided in future years, and recognising in
profit or loss the amount of the CSM allocated to coverage units
provided in the year. The number of coverage units is the quantity
of services provided by the contracts in the Group, determined by
considering for each contract the quantity of the benefits provided
and its expected coverage period. The coverage units will be
reviewed and updated at each reporting date.
The Group will determine
the coverage units for its insurance contracts and investment
contracts with DPF on the basis of their quantity of benefits (sum
insured), including any investment components, and the respective
expected durations of each contract.
For reinsurance
contracts held, the CSM amortisation shall reflect the level of
service received and depends on the number of underlying contracts
in-force.
1.12 Presentation
IFRS 17 will
significantly change how insurance contacts and investment
contracts with DPF issued and reinsurance contracts held are
presented and disclosed in the Group’s financial
statements.
The Group shall present
separately, in the statement of financial position, the carrying
amount of portfolios of:
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insurance contracts and
investment contracts with DPF issued that are assets,
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insurance contracts and
investment contracts with DPF issued that are
liabilities,
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reinsurance contracts
held that are assets,
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reinsurance contracts
held that are liabilities.
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Any assets or
liabilities for insurance acquisition cash flows recognised before
the corresponding insurance contracts will be included in the
carrying amount of the related portfolio of contracts.
The Group will
disaggregate the total amount recognised in the statement of profit
or loss and other comprehensive income into an insurance service
result, comprising insurance revenue and insurance service expense,
and insurance finance income or expenses.
The Group will not
disaggregate the change in risk adjustment for non-financial risk
between a financial and non-financial portion and will include the
entire change as part of the insurance service result.
The Group will
separately present income or expenses from reinsurance contracts
held from the expenses or income from insurance contracts and
investment contracts with DPF issued.
1.12.1 Insurance Service
Revenue
Contracts not
measured under the PAA
The Group’s
insurance revenue will depict the provision of coverage and other
services arising from a group of insurance contracts and investment
contracts with DPF at an amount that will reflect the consideration
to which the Group expects to be entitled in exchange for those
services. Insurance revenue from a group of insurance contracts and
a group of investment contracts with DPF will therefore be the
relevant portion for the period of the total consideration for the
contracts, (i.e., the amount of premiums paid to the Group adjusted
for financing effect (the time value of money) and excluding any
investment components).
The total consideration
for a group of contracts will cover amounts related to the
provision of services and be comprised of:
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Insurance service
expenses, excluding any amounts allocated to the loss component of
the liability for remaining coverage
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The risk adjustment for
non-financial risk related to current service, excluding any
amounts allocated to the loss component of the liability for
remaining coverage
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The CSM release measured
based on coverage units provided
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Other amounts, including
experience adjustments for premium receipts for current or past
services.
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In addition, the Group
will allocate a portion of premiums that relate to recovering
insurance acquisition cash flows to each period in a systematic way
based on the passage of time. The Company will recognise the
allocated amount, as insurance service revenue and an equal amount
as insurance service expenses.
The amount of the CSM of
a group of insurance contracts and a group of investment
contracts with DPF that will be recognised as insurance revenue in
each year will be determined by identifying the coverage units in
the group, allocating the CSM remaining at the end of the year
(before any allocation) equally to each coverage unit provided in
the year and expected to be provided in future years, and
recognising in profit or loss the amount of the CSM allocated to
coverage units provided in the year. The number of coverage units
will be the quantity of services provided by the contracts in the
group, determined by considering for each contract the quantity of
benefits provided and its expected coverage period. The coverage
units will be reviewed and updated at each reporting
date.
Services provided by
insurance contracts include insurance coverage and, for all direct
participating contracts, investment services for managing
underlying items on behalf of policyholders. In addition, some
contracts without direct participating features may also provide
investment services for generating an investment return for the
policyholder, if and only if:
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an investment component
exists or the policyholder has a right to withdraw an amount (e.g.
the policyholder’s right to receive a surrender value on
cancellation of a contract);
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the investment component
or withdrawal amount is expected to include an investment return;
and
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the Group expects to
perform investment activities to generate that investment
return.
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The expected coverage
period will reflect expectations of lapses and cancellations of
contracts, as well as the likelihood of insured events occurring to
the extent that they would affect the expected coverage period. The
period of investment services will end no later than the date on
which all amounts due to current policyholders relating to those
services would have been paid.
Contracts measured
under the PAA
For contracts measured
under the PAA, the insurance revenue for each period will be the
amount of expected premium receipts for providing services in the
period. The Group will recognise such insurance revenue based on
the passage of time by allocating premium receipts including
premium experience adjustments to each period of
service.
1.12.2 Loss Component
The Group will group
contracts that are onerous at initial recognition separately from
contracts in the same portfolio that are not onerous at initial
recognition. Groups that were not onerous at initial recognition
can also subsequently become onerous if assumptions and experience
changes. The Group will establish a loss component of the liability
for remaining coverage for any onerous group depicting the future
losses recognised.
A loss component will
represent a notional record of the losses attributable to each
group of onerous insurance contracts (or contracts profitable at
inception that have become onerous). The loss component will be
released based on a systematic allocation of the subsequent changes
in the fulfilment cash flows to: (i) the loss component; and (ii)
the liability for remaining coverage excluding the loss component.
The loss component will also be updated for subsequent changes in
estimates of the fulfilment cash flows related to future service.
The systematic allocation of subsequent changes to the loss
component would result in the total amounts allocated to the loss
component being equal to zero by the end of the coverage period of
a group of contracts (since the loss component will have been
materialised in the form of incurred claims). The Group will use
the proportion on initial recognition to determine the systematic
allocation of subsequent changes in future cash flows between the
loss component and the liability for remaining coverage excluding
the loss component.
1.12.3 Insurance Service
Expenses
Insurance service
expenses arising from insurance contracts and investment contracts
with DPF will be recognised in profit or loss generally as they
will be incurred. They will exclude repayments of investment
components and will comprise of:
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Incurred claims and
other insurance service expenses: For some life risk contracts,
incurred claims also include premiums waived on detection of
critical illness.
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Amortisation of
insurance acquisition cash flows: For contracts not measured under
the PAA, this will be equal to the amount of insurance revenue
recognised in the year that relates to recovering insurance
acquisition cash flows. For contracts measured under the PAA, the
Group will elect to expense insurance acquisition cash flows as
incurred.
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Losses on onerous
contracts and reversals of such losses.
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Adjustments to the
liabilities for incurred claims that do not arise from the effects
of the time value of money, financial risk and changes
therein.
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Impairment losses on any
assets for insurance acquisition cash flows and reversals of such
impairment losses.
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1.12.4 Insurance finance income
and expense
Insurance finance income
or expenses will comprise the change in the carrying amount of the
group of insurance contracts and investment contracts with DPF
arising from:
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The effect of the time
value of money and changes in the time value of money;
and
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The effect of financial
risk and changes in financial risk.
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For contracts without
direct participation features insurance finance income or expenses
will reflect interest accreted on the future cash flows and the CSM
and the effect of changes in interest rates and other financial
assumptions.
For contracts with
direct participation features insurance finance income or expenses
will comprise changes in the measurement of the groups of contracts
caused by changes in the value of under | 