Page 88 - Continental Reinsurance 2022 Annual Report

86 Statement of Significant Accounting Policies
of changes in future cash flows reflect, and are
directionally consistent with, changes in related
observable data from year to year (such as changes in
unemployment rates, payment status, or other factors
that are indicative of incurred losses in the group and
their magnitude). The methodology and assumptions
used for estimating future cash flows are reviewed
regularly to reduce any differences between loss
estimates and actual loss experience.
Available-for-sale financial assets
For available-for-sale financial assets, the Group
assesses at each reporting date whether there is
objective evidence that an investment or a group of
investments is impaired.
In the case of equity investments classified as
available-for-sale, objective evidence would include a
‘significant or prolonged’ decline in the fair value of
the investment below its cost. ‘Significant’ is to be
evaluated against the original cost of the investment
and ‘prolonged’ against the period in which the fair
value has been below its original cost. Where there is
evidence of impairment, the cumulative loss –
measured as the difference between the acquisition
cost and the current fair value, less any impairment
loss on that investment previously recognised in the
profit or loss – is removed from other comprehensive
income and recognised in the profit or loss.
Impairment losses on equity investments are not
reversed through the profit or loss; increases in their
fair value after impairment are recognised directly in
other comprehensive income.
In the case of debt instruments classified as available-
for-sale, impairment is assessed based on the same
criteria as financial assets carried at amortised cost.
However, the amount recorded for impairment is the
cumulative loss measured as the difference between
the amortised cost and the current fair value, less any
impairment loss on that investment previously
recognised in the profit or loss.
Future interest income continues to be accrued based
on the reduced carrying amount of the asset and is
accrued using the rate of interest used to discount the
future cash flows for the purpose of measuring the
impairment loss. The interest income is recorded in the
profit or loss. If, in a subsequent year, the fair value of
a debt instrument increases and the increase can be
objectively related to an event occurring after the
impairment loss was recognised in the profit or loss,
the impairment loss is reversed through the profit or
loss.
2.13.5 Financial liabilities
Classication and subsequent measurement
After initial recognition, the subsequent measurement
of financial liabilities depends on their classifications as
follows:
a Financial liabilities at fair value through profit or
loss
This category comprises two sub-categories: financial
liabilities classified as held-for-trading, and financial
liabilities designated by the Group as at fair value
through profit or loss upon initial recognition.
A financial liability is classified as held-for-trading if it is
acquired or incurred principally for the purpose of
selling or repurchasing it in the near term or if it is part
of a portfolio of identified financial instruments that
are managed together and for which there is evidence
of a recent actual pattern of short-term profit-taking.
Derivatives are also categorised as held-for-trading,
unless designated as an effective hedging instrument.
Gains and losses arising from changes in fair value of
financial liabilities classified held-for-trading are
included in profit or loss and are reported as ‘Net
gains/(losses) on financial instruments classified as
held-for-trading’. Interest expenses on financial
liabilities held-for-trading are included in ‘Net interest
income’.
The Group did not have any financial liabilities that
meet the classification criteria at fair value through
profit or loss and did not designate any financial
liabilities as at fair value through profit or loss.
b Other liabilities measured at amortised cost
Financial liabilities that are not classified at fair value
through profit or loss fall into this category and are
subsequently measured at amortised cost.
2.13.6 Determination of fair value
IFRS 13 defines fair value as 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 (i.e. an exit price). The fair
value measurement is based on the presumption that
the transaction to sell the asset or transfer the liability
takes place either:
• In the principal market for the asset or liability or
• In the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market must
be accessible to the group.