Page 132 - Continental Reinsurance 2022 Annual Report

130 Notes to the Consolidated and separate financial statement - continued

For the year ended 31 December 2022

42 Capital Management

Continental Reinsurance Plc capital management strategy focus on the creation of shareholders’ value whilst meeting the crucial and equally important objective
of providing an appropriate level of capital to protect stakeholders’ interests and satisfy regulators.

“The Group’s objectives when managing capital are as follows: To ensure that capital is, and will continue to be, adequate for the safety, soundness and stability
of the Company; To generate sufficient capital to support the Company’s overall business strategy; To ensure that the Company meets all regulatory capital
ratios and the prudent buffer required by the Board.”
42.1 Solvency Margin
Solvency and the use of regulatory capital are monitored periodically by the company’s management, employing techniques based on the guidelines developed
by the NAICOM, for supervisory purposes. Regulatory capital requirements are designed to monitor capital adequacy and to protect policyholders.

The National Insurance Commission requires each registered insurance company to:
(a) hold the minimum level of the regulatory capital of N10billion and
(b) maintain a minimum ratio of either 15% of net premium or the amount of minimium capital requirement whichever is higher.

During the year under review, all businesses within the Group complied with the solvency margin regulation as stated by National Insurance Commission.

43 Management of financial and insurance risk

Continental Reinsurance Plc issues contracts that transfer insurance risk or financial risk or both. This section summarises these risks and the way the Group
manages them.
43.1 Management of Insurance risk

Continental Reinsurance Plc defines Insurance risk as the risk of loss arising from inadequate pricing, from uncertainties relating to the occurrence, amount and
timing of insurance liabilities or from adverse changes in claim reserves development.

"Continental Reinsurance Plc provide covers in all classes of reinsurance basically, non-life and life treaty and facultative reinsurance. "

The Group is exposed to underwriting risk through the reinsurance contracts that are underwritten. The risks within the underwriting risk arises from its
products which include Accident, Energy, Marine, Liability and life, both individual and group life.

To manage this risk, the underwriting function is conducted in accordance with a set of guidelines, which are defined in line with the Group’s risk appetite
statement. This risk is further mitigated by increasing diversification by region and by class and also by a retrocession programme, which takes into account the
Group’s risk exposure profile by class of business.

“Loss reserves are the largest liability on the statement of financial position and are inherently uncertain. Differences in actual losses and reserves can have a
material impact on future profitability. The sensitivity of the reserves could be potentially significant given the nature of the assumptions and variables included in
its estimation procedure.”

The sensitivity analysis for insurance risk illustrates how reserves could fluctuate because of changes in assumptions included in its calculation at the reporting
date.

The company has an in-house experienced actuarial team, which reviews reserves on a quarterly basis with the operations team. The company also carries out
independent reserves reviews for both life and non-life Business.