Page 77 - Continental Reinsurance 2022 Annual Report
P. 77
Statement of Significant Accounting Policies 75
See note 43.3 for sensitivity analysis on level 3 financial considerable judgement, experience and knowledge of
instruments the business is required by management in the
estimation of amounts due to contract holders. Actual
Valuation of Insurance contract liabilities results may differ resulting in positive or negative
Life insurance contract liabilities: change in estimated liabilities.
The liability for life insurance contracts is either based on
current assumptions or on assumptions established at The ultimate cost of outstanding claims is estimated by
the inception of the contract, reflecting the best using a range of standard actuarial claims projection
estimate at the time increased with a margin for risk and techniques, such as Chain Ladder and Bornheutter-
adverse deviation. All contracts are subject to a liability Ferguson methods. These methods primarily use
adequacy test, which reflect management's best current historical claim settlement trends as a base for assessing
estimate of future cash flows. future claims settlement amounts. Historical claims
developments are mainly analysed by underwriting
Certain acquisition costs related to the sale of new year, by type and line of business and by geographical
policies are recorded as deferred acquisition costs (DAC) territory. Large claims are separately addressed using
and are amortised to the profit or loss over time. If the loss adjusters' reports and historical large claims
assumptions relating to future profitability of these development patterns.
policies are not realised, the amortisation of these costs
could be accelerated and this may also require additional Additional qualitative judgement is required as
impairment writeoffs to the profit or loss. significant uncertainties remain such as future changes
in inflation, economic conditions, attitude to claiming,
2.4 Significant accounting judgements, estimates and foreign exchange rates, judicial decisions and
assumptions operational process.
The main assumptions used relates to mortality,
morbidity, investment returns, expenses, lapse and Similar judgements, estimates and assumptions are
surrender rates and discount rates. The Group bases employed in the assessment of losses attaching to
mortality and morbidity on standard industry mortality unearned premium exposures. The methods used are
tables which reflect historical experiences, adjusted based on time apportionment principles together with
when appropriate to reflect the Group's unique risk significant judgement to assess the adequacy of theses
exposure, product characteristics, target markets and liabilities and the attached uncertainty.
own claims severity and frequency experiences.
The carrying value at the reporting date of non-life
Assumptions on future expense are based on current insurance contract liabilities for the Group is
expense levels, adjusted for expected expense inflation, N78,265,624,000 (2021: N50,261,429,000) and
if appropriate. Company N30,931,735,000 (2021:
N22,730,632,000).
Lapse and surrender rates are based on the Group's
historical experience of lapses and surrenders. Pipeline reinsurance premium
For non-life reinsurance contracts, estimates have to be
Discount rates are based on current industry risk rates, made for expected future premium from policies
adjusted for the Group's own risk exposure. already written but not reported at the reporting date.
Due to the nature of reinsurance business, in particular
The carrying value at the reporting date of life insurance treaty business, it takes a significant period of time
contract liabilities for the Group is N5,160,413,000 before all premiums are reported for a given
(2021: N4,308,077,000) and Company underwriting period. Therefore considerable
N3,648,298,000 (2021: N2669,470,000). judgement, experience and knowledge of the business
is required by management in the estimation of pipeline
Non-life insurance contract liabilities: premiums due from contract holders. Actual results may
For non-life insurance contract, estimates have to be differ resulting in positive or negative changes in
made for the expected ultimate cost of all future estimated pipeline premium income.
payments attaching to incurred claims at the reporting
date. These include incurred but not reported ("IBNR") The pipeline premiums are estimated by using the Chain
claims. Due to the nature of reinsurance business, it Ladder technique. This technique primarily uses
takes a significant period of time before ultimate costs of historical reporting trends as a base for assessing future
claims can be established with certainty and therefore premium amounts. Historical premiums developments
