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Diahuebs 30 di Juni 2022

Notes to the Abbreviated Financial Statements (continued)

the Dutch Caribbean and the strong growth of the international market is determined by using an internally developed bond val- and overlaying a further pessimistic scenario that explicitly
equity markets in 2021. The Company has made forward-looking uation model. Assumptions used in this model are validated and accounts for acute negative economic fallout. For the year ended
projections using the macroeconomic indicators, such as real GDP, periodically reviewed internally by qualified personnel. Since 2014 31 December 2021, the overlay for the acute negative scenario
unemployment, and inflation, which were available as at the end the Company has developed an internal investment valuation remains; however, the likelihood attributed to this and other pess-
of the reporting period. The ongoing uncertainty means an in- methodology based on the yield curves published by the Central mistic scenarios have been reduced given the improvements in
creased likelihood that actual economic outcomes will vary from Bank of Curacao and St. Maarten (CBCS) to estimate the fair value the current and expected economic environment. The resulting
estimates used, resulting in differences between the current of local fixed rate securities that do not have regular prices in an probability of default and losses given default were applied to all
accounting estimates and the actual future results of the Compa- active market. The yield curve used to value Aruban investments financial assets.
ny. These uncertainties predominantly affected the valuation of is the CBCS curve before issuance of debt to the Netherlands.
investment properties and measurement of expected credit losses Management also maintains the position that the lifetime default
on financial assets. Effect on Effect on risk of assets with several years remaining to maturity has not
fair value reserve statement of income significantly changed since the onset of the Covid-19 pandemic,
(a) The ultimate liability arising from claims made under 2021 2020 2021 2020 an important factor given that IFRS 9 requires that entities assess
insurance contracts AFL’000 AFL’000 AFL’000 AFL’000 the risk of default over the life of expected assets. Such assets
The estimation of the ultimate liability arising from claims made 1% increase account for a significant portion of the Company’s investment
under insurance contracts is an important accounting estimate. in market yields (7,318) (7,586) - (404) portfolio.
There are several sources of uncertainty that need to be consid- 1% decrease
ered in the estimate of the liability that the Company will ultimate- in market yields 8,376 8,024 - 428 (f) Income taxes
ly pay for such claims. The Company is subject to income taxes according to Aruban
(e) Impairment losses on financial assets laws. Estimates are required in determining the provision for
(b) Estimate of future benefit payments and premiums arising The measurement of expected credit loss allowance for financial income taxes. There are some transactions and calculations for
from long-term insurance contracts assets measured at amortised cost and fair value through other which the ultimate tax determination is uncertain during the
The determination of the liabilities under long-term insurance con- comprehensive income requires judgement, in particular, the ordinary course of business. The Company recognizes liabilities for
tracts is dependent on estimates made by the Company. Uncer- estimation of the amount and timing of future cash flows and anticipated tax audit issues based on estimates of whether
tainty in the estimation of future benefit payments and premium collateral values when determining impairment losses and the additional taxes will be due. Where the final tax outcome of these
receipts for long-term insurance contracts arises from the unpre- assessment of a significant increase in credit risk. These estimates matters is different from the amounts that were initially recorded,
dictability of long-term changes in overall levels of future mortality, are driven by a number of factors, changes in which can result in such differences will impact the income tax and deferred tax
morbidity, administrative expenses, investment income and the different levels of allowances. provisions in the period in which such determination is made.
variability in contract holder behaviour. Estimates are made as to
the expected number of deaths, voluntary terminations and other The Company’s expected credit loss calculations are outputs of (g) Impairment of non-financial assets
events giving rise to cash flows for each of the years in which the models with a number of underlying assumptions regarding the An impairment exists when the carrying value of an asset or cash
Company is exposed to risk. The Company bases these estimates choice of variable inputs and their interdependencies. Elements of generating unit exceeds its recoverable amount, which is the
on standard actuarial tables adjusted where appropriate to reflect the expected credit loss models that are considered accounting higher of its fair value less costs to sell and its value in use. The fair
the Company’s own experience or expectations. Although the judgements and estimates include: value less costs to sell calculation is based on available data from
pattern of future cash flows may be close to that indicated by past binding sales transactions in an arm’s length transaction of similar
experience some deviation in that pattern is probable. • The Company’s criteria for assessing if there has been a assets or observable market prices less incremental costs for
significant increase in credit risk and so allowances for financial disposing of the asset. The value in use calculation is based on a
The estimated number of deaths determines the value of the assets should be measured on a lifetime expected credit loss discounted cash flow model. The cash flows are derived from
benefit payments. The main source of uncertainty is that epidem- basis and the qualitative assessment approved budgets and do not include restructuring activities that
ics and wide-ranging lifestyle changes, such as in eating, smoking • The segmentation of financial assets when their ECL is the Company is not yet committed to or significant future invest-
and exercise habits, could result in future mortality being signifi- assessed on a collective basis ments that will enhance the asset’s performance of the cash gen-
cantly worse than in the past for the age group in which the Com- • Development of ECL models, including the various formulas erating unit being tested. The recoverable amount is most sensi-
pany has significant exposure to mortality risk. However, continu- and the choice of inputs tive to the discount rate used for the discounted cash flow model
ing improvements in medical care and social conditions could • Selection of forward-looking macroeconomic scenarios to as well as the expected future cash-inflows and the growth rate
result in improvements in longevity in excess of those allowed for derive the economic inputs into the expected credit loss models used for extrapolation purposes. The carrying amount of impair-
in the estimates used to determine the liability for contracts where • Determination of associations between macroeconomic sce- ment provisions on non-financial assets as at 31 December 2021
the Company is exposed to longevity risk. narios and, economic inputs and the effect on probabilities of was nil (2020: nil).
default, exposure at default and loss given default
Estimates are also made as to future investment income arising (h) Determining the lease term of contracts with extension
from the assets backing long-term insurance contracts. These es- The Company regularly review its internal models in the context of and termination options – Company as lessee
timates are based on current market returns as well as expecta- actual loss experience and adjust when necessary. The Company determines the lease term as the non-cancellable
tions about future economic and financial developments. term of the lease, together with any periods covered by an option
Forward-looking macroeconomic variables to extend the lease if it is reasonably certain to be exercised, or
The carrying amount of long-term insurance contracts (claims) as The estimation and application of forward-looking information any periods covered by an option to terminate the lease, if it is
at 31 December 2021 was AWG 761,607 (2020: AWG 710,320). requires significant judgment. PD, LGD and EAD inputs used to reasonably certain not to be exercised. In determining the lease
estimate Stage 1 and Stage 2 credit loss allowances are modelled term, the Company considers all facts and circumstances that cre-
(c) Business model assessment based on the macroeconomic variables (or changes in macro- ate an economic incentive to exercise an extension option, or not
Classification and measurement of financial assets depends on the economic variables) that are most closely correlated with credit exercise a termination option. The Company considers factors
results of the SPPI and the business model test. The Company losses in the relevant portfolio. The estimation of ECL on 12-month such as penalties to terminate, historical lease durations and the
determines the business model at a level that reflects how groups ECLs and Lifetime ECLs is a discounted probability-weighted esti- costs and business disruption required to replace leased assets.
of financial assets are managed together to achieve a particular mate that considers three future macroeconomic scenarios, with Where applicable, extension options in office space leases have
business objective. This assessment includes judgment reflecting macroeconomic projections varying by territory. The base case been included in the lease liability.
all relevant evidence including how the performance of the assets scenario assumes that a stable economic environment where
is evaluated and their performance measured, the risks that affect current conditions, based on available macroeconomic data, will The lease term is reassessed if an option is actually exercised (or
largely continue. Upside and downside scenarios are set relative to not exercised) or the Company becomes obliged to exercise (or
the performance of the assets and how these are managed and the base case scenario based on reasonably possible alternative not exercise) it. The assessment of reasonable certainty is only
how the managers of the assets are compensated. The Company macroeconomic conditions, considering macroeconomic forecasts revised if a significant event or a significant change in circumstances
monitors financial assets measured at amortised cost or fair value and trends. occurs, which affects this assessment, and that is within the
through other comprehensive income that are derecognised prior control of the lessee.
to their maturity to understand the reason for their disposal and Scenarios are reassessed on at least an annual basis and more
whether the reasons are consistent with the objective of the busi- frequently if conditions warrant. Scenarios are probability-weight- (h) Post employment benefits
ness for which the asset was held. Monitoring is part of the Com- ed separately for each territory modeled according to the best In conducting valuation exercises to measure the effect of all post
pany’s continuous assessment of whether the business model for estimate of their relative likelihood based on historical frequency employment benefit plans throughout the Company, the compa-
which the remaining financial assets are held continues to be and current trends and conditions. Probability weights are updat- ny’s external qualified actuaries use judgment and assumptions in
appropriate and if it is not appropriate whether there has been a ed on an annual basis or more frequently as warranted. determining discount rates, salary increases, pension increases
change in business model and so a prospective change to the and health care costs.
classification of those assets. Covid-19 Pandemic
In the prior year, to incorporate the economic impact of the
(d) Fair valuation of financial assets Covid-19 pandemic, the Company made adjustments to its ECL
The fair value of financial assets that are not traded in an active models such as increasing the likelihood of pessimistic scenarios
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