Page 15 - AM210630

Diaranson, 30 Juni 2021 AWEMainta 15

Notes to the Abbreviated Financial Statements (continued)

• The segmentation of financial assets when their ECL is 2009 financial crisis. The likelihood attributed to each scenario was (g) Post employment benefits
assessed on a collective basis further varied depending on the current and projected macro- In conducting valuation exercises to measure the effect of all post
• Development of ECL models, including the various formulas economic factors that prevailed in the different territories in which employment benefit plans throughout the Company, the company’s
and the choice of inputs the Company operates. The resulting escalated probability of de- external qualified actuaries use judgment and assumptions in
• Selection of forward-looking macroeconomic scenarios to derive fault and losses given default were applied to all financial assets. determining discount rates, salary increases, pension increases
the economic inputs into the expected credit loss models and health care costs.
• Determination of associations between macroeconomic IFRS 9 requires that entities assess the risk of default over the life
scenarios and, economic inputs and the effect on probabilities of expected assets. Many assets held by the Company have sev- (h) Covid-19 Pandemic
of default, exposure at default and loss given default eral years remaining to maturity. While there is escalated default During the year 2020 the Company had to deal with the conse-
risk in the current economic environment which may continue for quences of the COVID-19 virus. With COVID-19’s significant
The Company regularly review its internal models in the context of up to 3 years, this risk is expected to return to pre-pandemic levels impact on economic activity and employment levels at a local and
actual loss experience and adjust when necessary. thereafter. Management therefore believes that the lifetime regional level, consumer’s spending power has reduced signifi-
default risk of assets with several years to maturity is not signifi- cantly over a short period. In light of these circumstances the
Forward-looking macroeconomic variables cantly higher than prior to the onset of the Covid-19 pandemic. Company adjusted its provisioning process by stressing the credit
The estimation and application of forward-looking information rating calculations of local, internally rated investments. In addition
requires significant judgment. PD, LGD and EAD inputs used to (e) Taxation various stress testing were conducted for the regulators and for
estimate Stage 1 and Stage 2 credit loss allowances are modelled The Company is subject to income taxes according to Aruban internal purposes in order to ascertain the potential impacts on
based on the macroeconomic variables (or changes in macro- laws. Some estimates are required in determining the provision for regulatory calculations like solvency as well profitability and cash
economic variables) that are most closely correlated with credit income taxes. There are some transactions and calculations for flow as a result of possibly declines in premium income, foreign
losses in the relevant portfolio. The estimation of ECL on 12-month which the ultimate tax determination is uncertain during the exchange rates and investment values. However, in actuality, cash
ECLs and Lifetime ECLs is a discounted probability-weighted ordinary course of business. The Company recognizes liabilities for flow from investments and insurance activities saw no notable
estimate that considers three future macroeconomic scenarios, anticipated tax audit issues based on estimates of whether change during the year and the financial position of the Company
with macroeconomic projections varying by territory. The base additional taxes will be due. Where the final tax outcome of these remained stable. Technical result on the insurance business was
case scenario assumes that a stable economic enviroment where matters is different from the amounts that were initially recorded, also good mainly as a result of lower claims than foreseen in the
current conditions, based on available macroeconomic data, will such differences will impact the income tax and deferred tax budgets.
largely continue. Upside and downside scenarios are set relative to provisions in the period in which such determination is made.
the base case scenario based on reasonably possible alternative Although no economic growth is foreseen in 2021 - even some
macroeconomic conditions, considering macroeconomic forecasts (f) Impairment of non-financial assets decline may be expected - no large cancellations of existing policies
and trends. An impairment exists when the carrying value of an asset or cash and contracts are expected. Taking the 2020 experience into
generating unit exceeds its recoverable amount, which is the account, there is no reason to expect a surge in amounts claimed.
Scenarios are reassessed on at least an annual basis and more higher of its fair value less costs to sell and its value in use. The fair Therefore, the impact on technical result on insurances is not
frequently if conditions warrant. Scenarios are probability-weighted value less costs to sell calculation is based on available data from expected to be material. The cash flow from investments, particu-
separately for each territory modeled according to the best esti- binding sales transactions in an arm’s length transaction of similar larly the international portfolio, is expected to remain mostly
mate of their relative likelihood based on historical frequency and assets or observable market prices less incremental costs for unaffected by the pandemic due to the very high quality invest-
current trends and conditions. Probability weights are updated on disposing of the asset. The value in use calculation is based on a ment grade portfolio.
an annual basis or more frequently as warranted. discounted cash flow model. The cash flows are derived from
approved budgets and do not include restructuring activities that Further, in 2021 outstanding premiums will remain to be followed
Covid-19 Pandemic the Company is not yet committed to or significant future invest- closely to avoid having uncollectable amounts on premium-
Given the economic impact of the ongoing Covid-19 pandemic, ments that will enhance the asset’s performance of the cash amounts on the balance sheet besides the procedure for providing
the Company made some adjustments to its ECL models, such as generating unit being tested. The recoverable amount is most on amounts outstanding.
increasing the likelihood attributed to more pessimistic scenarios, sensitive to the discount rate used for the discounted cash flow
and overlaying a further pessimistic scenario that explicitly accounts model as well as the expected future cash-inflows and the growth Accordingly, the Company foresee no cause to expect a risk to
for acute negative economic fallout. rate used for extrapolation purposes. The carrying amount of continuity of the Company.
impairment provisions on non-financial assets as at 31 December
The added pessimistic scenario was modelled on the default rates 2020 was nil (2019: nil).
and losses given defaults that incurred at the height of the 2007-