Quarter 2 - financial statement for 2025

This consolidated and separate financial statements have been prepared using appropriate accounting policies, supported by reasonable judgments and estimates. The Directors have a reasonable expectation, based on an appropriate assessment of a comprehensive range of factors, that the Group has adequate resources to continue as going concern for the foreseeable future and has no intention or need to reduce substantially its business operations. Liquidity ratio, compliance with regulatory requirements, maintaining a net asset position and continuous evaluation of current ratio of the Group is carried out to ensure that there are no going concern threats to the operation of the Group.

A number of new standards are effective for annual periods beginning after 1 January 2024 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these financial statements. Those Standards, Amendments to Standards and Interpretations which may be relevant to the Group (or Company) are set out below. The Group and Company do not plan to adopt these standards early. The standards will be adopted in the period that they become mandatory unless otherwise indicated

1. Material Accounting Policies

   The Group has consistently applied the following accounting policies to all periods presented in these consolidated and separate financial statements, unless mentioned otherwise.

   1. Basis of Consolidation

      Business combination and goodwill

      The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

      The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

      Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

      Subsidiaries

      Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Group reassesses whether it has control if there are changes to one or more of the elements of control. This includes circumstances in which protective rights held (e.g. those resulting from a lending relationship) become substantive and lead to the Group having power over an investee.

      The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

      Loss of control

      When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related Non-controlling interest (NCI) and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

      Non- controlling interests

      Non-controlling Interest (NCI) are measured at their proportionate share of the acquiree's identifiable net assets at the acquisition date.

      Transaction eliminated on consolidation

      Intra-group balances and transactions, and any unrealised income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated.

      Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

   2. Insurance contracts
      1. Insurance and reinsurance contracts

         The definition of an insurance contract refers to 'insurance risk' which is defined as 'risk, other than financial risk, transferred from the holder of a contract to the issuer'

         The Company issues insurance contracts in the normal course of business, under which it accepts significant insurance risk from its policyholders. As a general guideline, the Company determines whether it has significant insurance risk, by comparing benefits payable after an insured event with benefits payable if the insured event did not occur. Insurance contracts can also transfer financial risk. The Company issues non-life insurance to individuals and businesses. Non-life insurance products offered include motor insurance, combined fire and burglary, general accident, bond, marine, engineering, oil & gas and aviation. These products offer protection of policyholder's assets and indemnification of other parties that have suffered damage as a result of a policyholder's accident.

         The Company does not issue any contracts with direct participating features.

         Separating components from insurance and reinsurance contracts

         Some insurance contracts may contain one or more components that would be within the scope of another IFRS if they were separate contracts. Such components may be embedded derivatives, an investment component, or a component for services other than insurance contract services. When separated, those components must be accounted for under the relevant IFRS instead of under IFRS 17. This makes these components more comparable to similar contracts that are issued by the Company and other entities as separate contracts and allows users of financial statements to better compare the risks undertaken by entities in different businesses or industries.

         Therefore, the Group:

         • Applies IFRS 9 to determine whether there is an embedded derivative to be bifurcated (i.e., be separated) and, if there is, account for that separate

           derivative.

         • Separates from a host insurance contract an investment component if, and only if, that investment component is distinct and apply IFRS 9 to

           account for the separated component unless it is an investment contract with discretionary participation features and then

         • Separates from the host insurance contract any promise to transfer to a policyholder distinct goods or services other than insurance contract

           services by applying IFRS 15.

           Embedded derivatives are not separated for accounting purposes if the non-derivative host is a financial asset within the scope of IFRS 9 i.e the classification criteria of IFRS 9 are applied to the financial asset as a whole, otherwise, an embedded derivative will be separated from the host contract if and only if, all the criteria below are met:

           1. The economic characteristics and risks of the embedded derivatives are not closely related to the economic characteristics and risks of the host;

           2. A separate instrument with the same terms as embedded derivative would meet the definition of a derivative; and

           3. The hybrid contract is not measured at fair value with changes in fair value recognized in profit or loss.

      An investment component is distinct if and only if, both of the following conditions are met;

      • The investment component and the insurance components are not highly interrelated

      • a contract with equivalent terms is sold, or could be sold, separately in the same market or the same jurisdiction, either by entities that issue insurance contracts or by other parties. An investment component and an insurance component are highly interrelated if and only if; the company is unable to measure one component without considering the other or the policyholder is unable to benefit from one component unless the other is also present, for example the lapse and maturity of one component causes the lapse or maturity of the other.

        The Company assesses its non-life insurance products to determine whether they contain distinct components which must be accounted for under another IFRS instead of under IFRS

        After identifying and separating any distinct components, the Company applies IFRS 17 to the remaining components of the host insurance contract.

        Currently, the Company's products do not include any distinct components that require separation.

        Level of aggregation

        IFRS 17 defines the level of aggregation to be used for measuring insurance contracts and their related profitability. This is a key issue in identifying onerous contracts and in determining the recognition of profit or loss and presentation in the financial statements. The starting point for aggregating contracts is to identify portfolios of insurance contracts. A portfolio comprises contracts that are subject to similar risks and managed together. IFRS 17 requires the Group to determine the level of aggregation for applying its requirements. The level of aggregation for the Group is determined firstly by dividing the business written into portfolios using the current lines of business framework with consideration for the reserving segmentation and product types within each line of business to support the definition of similar risk. These lines of business are motor Insurance, home insurance, combined fire, and burglary, marine, engineering, oil and gas, goods in transit, gadget protection and drone insurance. Group makes an evaluation of whether a series of contracts need to be treated together as one unit based on reasonable and supportable information, or whether a single contract contains components that need to be separated and treated as if they were stand-alone contracts. As such, what is treated as a contract for accounting purposes may differ from what is considered as a contract for other purposes (i.e., legal or management).

        IFRS 17 also requires that no group for level of aggregation purposes may contain contracts issued more than one year apart.

        The Group elected to group together those contracts that would fall into different groups only because law or regulation specifically constrains its practical ability to set a different price or level of benefits for policyholders with different characteristics. Currently, there is no law or regulation that constrained the Group's practical ability to set a different price or level of benefits for policyholder with different characteristics.

        The Group divides portfolios of reinsurance contracts held applying the same principles set out above.

        Initial recognition of insurance contracts

        The Group recognises groups of insurance contracts it issues from the earliest of the following:

      • The beginning of the coverage period of the group of contracts

      • The date when the first payment from a policyholder in the group is due or when the first payment is received if there is no due date

      • For a group of onerous contracts, when the group becomes onerous, if facts and circumstances indicate that the group is onerous

        Initial recognition of reinsurance contracts held

        The Group recognises a group of reinsurance contracts held it has entered into from the earlier of the following:

      • The beginning of the coverage period of the group of reinsurance contracts held. (However, the Group delays the recognition of a group of reinsurance contracts held that provide proportionate coverage until the date any underlying insurance contract is initially recognised, if that date is later than the beginning of the coverage period of the group of reinsurance contracts held.

        And

      • The date the Group recognises an onerous group of underlying insurance contracts if the Group entered into the related reinsurance contract held in

        the group of reinsurance contracts held at or before that date.

        The Company adds new contracts to the group in the reporting period in which that contract meets one of the criteria set out above.

        The issue date of a contract is when the Company has a contractual obligation to accept risk. The issue date is typically before the beginning of coverage and due date for the initial premium. However, the Company only recognizes issued insurance contracts before these dates if facts and circumstances indicate that the contracts in the group to which the PAA applies are onerous. For instance, in the case where business has been intentionally sold as onerous, the inception date of the contract will be the issue date.

        The recognition requirements for reinsurance contracts held that provide proportionate coverage are intended to simplify recognition for proportionate reinsurance contracts held. Circumstances in which the first underlying attaching contract is issued, shortly after the reinsurance contracts are written, will result in similar timing of recognition for proportionate and 'other-than-proportionate' reinsurance contracts. In other cases, there may be a greater difference in the timing of recognition.

        If there is no contractual due date, the first payment from the policyholder is deemed to be due when it is received. The Company determines whether any contracts form a group of onerous contracts before the earlier of the first two dates above (i.e., before the earlier of the beginning of the coverage period and the date when the first payment from a policyholder in the group is due) if facts and circumstances indicate there is such a group.

        Initial recognition of insurance acquisition cash flows

        Insurance acquisition cash flows are cash flows arising from the costs of selling, underwriting and starting a group of insurance contracts that are directly attributable to the portfolio of insurance contracts to which the group belongs. Such cash flows include cash flows that are not directly attributable to individual contracts or groups of insurance contracts within the portfolio.

        The company has aggregated its directly attributable expenses into the following classes including administrative and maintenance expense, claims and benefits expenses, management expenses and other operating expenses. The company allocates acquisition cost to policies based on applicable rate per policy, claims expenses are allocated based on number of claims on the policies and, a portion of maintenance cost is allocated based on the proportion of premium written.

        The company recognises an asset for insurance acquisition cash flows paid (or insurance acquisition cash flows for which a liability has been recognised under another IFRS standard) before the related group of insurance contracts is recognised, unless it elects to expense those acquisition cash flows as incurred for premium allocation approach contracts. The Company recognise such an asset for each related group of insurance contracts and allocates insurance acquisition cash flows to an existing or future group of insurance contracts using a systematic and rational method.

        The systematic and rational method of allocating insurance acquisition cash flows to groups of contracts is used to allocate;

      • Insurance acquisition cash flows that are directly attributable to a group of insurance contracts:

        • To that group; and

        • To groups that will include insurance contracts that are expected to arise from renewals of the insurance contracts in that group

      • Insurance acquisition cash flows directly attributable to a portfolio of insurance contracts that are not directly attributable to individual contracts or

        groups of contracts to groups in the portfolio.

        Where insurance acquisition cash flows have been paid or incurred before the related group of insurance contracts is recognised in the statement of financial position, a separate asset for insurance acquisition cash flows is recognised for each related group.

        The asset for insurance acquisition cash flow is derecognised from the statement of financial position when the insurance acquisition cash flows are included in the initial measurement of the related group of insurance contracts.

        After any re-allocation, the Company assesses the recoverability of the asset for insurance acquisition cash flows, if facts and circumstances indicate the asset may be impaired. When assessing the recoverability, the Company applies:

      • An impairment test at the level of an existing or future group of insurance contracts and

      • An additional impairment test specifically covering the insurance acquisition cashflows allocated to expected future contracts renewals

        If an impairment loss is recognised, the carrying amount of the asset is adjusted and an impairment loss is recognised in profit or loss.

        The Company recognises in profit or loss a reversal of some or all of an impairment loss previously recognised and increases the carrying amount of the asset, to the extent that the impairment conditions no longer exist or have improved.

        Initial recognition of investment contracts with discretionary participation features

        The date of initial recognition of an investment contract with discretionary participation features is the date that the entity becomes party to the contract. This is consistent with the requirements for recognition of a financial instrument in IFRS 9 and is likely to be earlier than the date of initial recognition for an insurance contract. Currently the Company does not issue investment contracts with discretionary participation features.

        Onerous groups of contracts

        The Company issues some contracts before the coverage period starts and the first premium becomes due. Therefore, the Company has determined whether any contracts issued form a group of onerous contracts before the earlier of the beginning of the coverage period and the date when the first payment from a policyholder in the group is due. The Company looks at facts and circumstances to identify if a group of contracts are onerous based on:

      • Pricing information

      • Results of similar contracts it has recognised

      • Environmental factors such as a change in market experience or regulations

      • Other Relevant risk factor which includes age, gender, occupation, geographical location and size of sum assured

        For groups of contracts measured using the premium allocation approach (PAA), the Company assumes all groups of insurance contracts to be non-onerous unless the board has approved the sales of loss-making contracts through an official process. The company will assess the probability of non-onerous contracts becoming onerous in the future base on expert judgement of the projected combined ratio. For subsequent measurement, the company use combined ratio as facts and circumstances hence, a group of contracts will be deemed onerous if there has been a combined ratio of over 100% in two (2) subsequent annual reporting periods.

        Measurement - Premium Allocation Approach

        Insurance contract - Initial measurement

        The premium allocation approach is an optional simplified form of measuring an eligible group of insurance contracts issued or reinsurance contracts held. The eligibility is assessed for each group of insurance contracts and the election is made for each eligible group. However, the ability to use the premium allocation approach for reinsurance contracts held must be assessed separately from the use of the premium allocation approach for the related underlying insurance contracts covered by reinsurance.

        The premium allocation approach compared to the general model, results in a simpler accounting method:

        The Company applies the premium allocation approach (PAA) to all the insurance contracts that it issues and reinsurance contracts that it holds, as:

      • The coverage period of each contract in the group is one year or less, including insurance contract services arising from all premiums within the

        contract boundary Or

      • For contracts longer than one year, the Company has modelled possible future scenarios and reasonably expects that the measurement of the liability for remaining coverage for the group containing those contracts under the PAA does not differ materially from the measurement that would be produced applying the general model. In assessing materiality, the Company has also considered qualitative factors such as the nature of the risk and types of its lines of business.

        All the Non-life products are measured using the PAA approach because the coverage period of each contract it issues is for a period of One (1) year except for the engineering, and oil and gas portfolio which could be issued for a period of more than one year. For this product, the company will perform the PAA eligibility test as required by the second criteria stated above and has set materiality level for difference in the liability for remaining coverage at plus or minus 5% for total portfolio and not more than plus or minus 10% for each group of insurance contracts or portfolio.

        The company interprets "reasonably expects" to mean the liability for remaining coverage under the premium allocation approach (PAA) and general measurement model (GMM) under all probable scenarios is Immaterial. Hence the company has defined probable scenario for both economic and non-economic assumptions which includes interest rate sensitivity of +/- 1%, expected combined ratio of +/-10%, lapse at +/-10%. The Company does not apply the PAA if, at the inception of the group of contracts, it expects significant variability in the fulfilment cash flows that would affect the measurement of the liability for the remaining coverage during the period before a claim is incurred. Variability in the fulfilment cash flows increases with, for example:

      • The extent of future cash flows related to any derivatives embedded in the contracts

      • The length of the coverage period of the group of contracts

        For a group of contracts that is not onerous at initial recognition, the Company measures the liability for remaining coverage as:

      • The premiums, if any, received at initial recognition

      • Minus any insurance acquisition cash flows at that date, with the exception of contracts which are one year or less where this is expensed,

      • Plus or minus any amount arising from the derecognition at that date of the asset recognised for insurance acquisition cash flows and

      • Any other asset or liability previously recognised for cash flows related to the group of contracts that the Company pays or receives before the

        group of insurance contracts is recognised.

        For engineering contracts and, oil and gas contracts, the liability for remaining coverage (LFRC) is discounted to reflect the time value of money and the effect of financial risk. For all other business, there is no allowance for time value of money as the premiums are received within one year of the coverage period.

        Where claims are to be paid within a year the company would not discount the liability for incurred claims (LFIC) for the time value of money, however where claims are settled after a year period, the company would consider the impact of the time value of money on its liability for incurred claims (LFIC)

        The company interpret that all contracts measured using the premium allocation approach (PAA) are profitable unless there has been approval through an official process to implement commercial actions such as promotional discounts on premium rate, selling loss leaders to gain market shares or no claims discount on renewal of policies that would results in a group of contracts being onerous.

        Where facts and circumstances indicate that contracts are onerous at initial recognition, the Company performs additional analysis to determine if a net outflow is expected from the contract. Such onerous contracts are separately grouped from other contracts and the Company recognises a loss in profit or loss for the net outflow, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows. A loss component is established by the Company for the liability for remaining coverage for such onerous group depicting the losses recognized.

        In assessing the profitability of the contracts, the company has used "all

        reasonable and supportable information available at reporting date without undue cost or effort", hence the company has used the combined ratio for this assessment. The combined ratio represents the total costs and losses divided by the earned premium and a combined ratio of below 100% indicates that the business is profitable. The company assesses whether a group of contracts will be deemed onerous subsequently if there has been combined ratio over 100% in two (2) subsequent annual reporting.

        Reinsurance contracts held - initial measurement

        The Company measures its reinsurance assets for a group of reinsurance contracts that it holds on the same basis as insurance contracts that it issues. However, they are adapted to reflect the features of reinsurance contracts held that differ from insurance contracts issued, for example the generation of expenses or reduction in expenses rather than revenue.

        Where the Company recognises a loss on initial recognition of an onerous group of underlying insurance contracts or when further onerous underlying insurance contracts are added to a group, the Company establishes a loss-recovery component of the asset for remaining coverage for a group of reinsurance contracts held depicting the recovery of losses.

        The loss-recovery component adjusts the carrying amount of the asset for remaining coverage.

        Insurance contracts - subsequent measurement

        The Company measures the carrying amount of the liability for remaining coverage at the end of each reporting period as the liability for remaining coverage at the beginning of the period:

      • Plus, premiums received in the period

      • Minus insurance acquisition cash flows, with the exception of insurance product line for which the Company chooses to expense insurance

        acquisition cash flows as they occur

      • Plus, any amounts relating to the amortisation of the insurance acquisition cash flows recognised as an expense in the reporting period for the

        group

      • Plus, any adjustment to the financing component, where applicable

      • Minus the amount recognised as insurance revenue for the services provided in the period

      • Minus any investment component paid or transferred to the liability for incurred claims

        The Company estimates the liability for incurred claims as the fulfilment cash flows related to incurred claims. The fulfilment cash flows incorporate, in an unbiased way, all reasonable and supportable information available without undue cost or effort about the amount, timing and

        uncertainty of those future cash flows, they reflect current estimates from the perspective of the Company, and include an explicit adjustment for nonfinancial risk (the risk adjustment). The Company does not adjust the future cash flows for the time value of money and the effect of financial risk

        for the measurement of liability for incurred claims that are expected to be paid within one year of being incurred.

        Where, during the coverage period, facts and circumstances indicate that a group

        of insurance contracts is onerous, the Company recognises a loss in profit or loss for the net outflow, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows. A loss component is established by the Company for the liability for remaining coverage for such onerous group depicting the losses recognised.

        Subsequent measurement - liability for incurred claims

        The liability for incurred claims for a group of insurance contracts subject to the premium allocation approach (which should usually be nil on initial recognition) is measured in the same way as the liability for incurred claims using the general model (i.e., a discounted estimate of future cash flows with a risk adjustment for non-financial risk).

        However, when applying the premium allocation method to the liability for remaining coverage, the company is, for the liability for incurred claims, the company is not required to adjust future cash flows for the time value of money and the effect of financial risk if those cash flows (for that group of insurance contracts) are expected to be paid or received in one year or less from the date the claims are incurred. This is a separate election from the choice not to adjust the carrying amount of the liability for remaining coverage to reflect the time value of money and the effect of financial risk at initial recognition.

        When the entire insurance finance income or expenses is included in profit or loss, the company discounts the incurred claims at current rates (i.e., the rate at the reporting date). When insurance finance income or expenses is disaggregated between profit or loss and other comprehensive income the amount of insurance finance income or expenses included in profit or loss is determined using the discount rate at the date of the incurred claim.

        Reinsurance contracts held - subsequent measurement

        The subsequent measurement of reinsurance contracts held follows the same principles as those for insurance contracts issued and has been adapted to reflect the specific features of reinsurance held.

        Where the Company has established a loss-recovery component, the Company subsequently reduces the loss- recovery component to zero in line with reductions in the onerous group of underlying insurance contracts in order to reflect that the loss-recovery component shall not exceed the portion of the carrying amount of the loss component of the onerous group of underlying insurance contracts that the Company expects to recover from the group of reinsurance contracts held.

        Insurance contracts - modification and derecognition

        An insurance contract may be modified, either by agreement between the parties or as result of regulation. If the terms are modified, the Company derecognises the original insurance contract and recognise the modified contract as a new contract, if and only if, any of the conditions listed below are satisfied.

      • If the modified terms were included at contract inception:

      • The modified contract would have been excluded from the scope of IFRS 17.

      • The Company would have separated different components from the host insurance contract resulting in a different insurance contract to which

        IFRS 17 would have applied.

      • The modified contract would have had a substantially different contract boundary

      • The modified contract would have been included in a different group of contracts at initial recognition (e.g., the contracts would have been onerous

        at initial recognition rather than having no significant possibility of being onerous subsequently)

      • The original contract met the definition of an insurance contract with direct participation features, but the modified contract no longer meets that

        definition or vice versa.

      • The Company applied the premium allocation approach to the original contract, but the modifications mean that the contract no longer meets the

        eligibility criteria for that approach.

        In summary, any contract modification that changes the accounting model or the applicable standard for measuring the components of the insurance contract, is likely to result in derecognition.

        If a contract modification meets none of the conditions above for derecognition, the Company would treat any changes in cash flows caused by the modification as changes in the estimates of the fulfilment cash flows.

        The Company derecognises insurance contracts when:

      • The rights and obligations relating to the contract are extinguished (i.e., discharged, cancelled or expired)

        Or

      • The contract is modified such that the modification results in a change in the measurement model or the applicable standard for measuring a component of the contract, substantially changes the contract boundary, or requires the modified contract to be included in a different group. In such cases, the Company derecognises the initial contract and recognises the modified contract as a new contract

        When a modification is not treated as a derecognition, the Company recognises amounts paid or received for the modification with the contract as an adjustment to the relevant liability for remaining coverage.

        The Company treats the derecognition of a contract three different ways, depending on the circumstances.

        Derecognition resulting from extinguishment

        The Company derecognises an insurance contract from within a group of insurance contracts by applying the following requirements:

      • The fulfilment cash flows allocated to the group for both the liability for remaining coverage and the liability for incurred claims are adjusted to eliminate the present value of the future cash flows and risk adjustment for non-financial risk relating to the rights and obligations that have been derecognised from the group

      • The contractual service margin of the group is adjusted for the change in fulfilment cash flows described above, to the extent required by the

        general model

      • The number of coverage units for expected remaining insurance contract services is adjusted to reflect the coverage units derecognised from the group, and the amount of the contractual service margin recognised in profit or loss in the period is based on that adjusted number to reflect services provided in the period

        Derecognition resulting from transfer

        When the Company derecognises an insurance contract because it transfers the contract to a third party, the Company:

      • Adjusts the fulfilment cash flows allocated to the group for the rights and obligations that have been derecognised

      • Adjusts the contractual service margin of the group from which the contract has been derecognised for the difference between the change in the contractual cash flows resulting from derecognition and the premium charged by the third party (unless the decrease in fulfilment cash flows is allocated to the loss component of the liability for remaining coverage).

        If there is no contractual service margin to be adjusted, then the difference between the fulfilment cash flows derecognised and the premium charged by the third party is recognised in profit or loss.

        Derecognition resulting from modification

        When the Company derecognises an insurance contract and recognises a new insurance contract as a result of a modification described above, the Company:

      • Adjusts the fulfilment cash flows allocated to the group relating to the rights and obligations that have been derecognised, as discussed above

      • Adjusts the contractual service margin of the group, from which the contract has been derecognised for the difference between the change in the contractual cash flows resulting from derecognition and the hypothetical premium the Company would have charged, had it entered into a contract with terms equivalent to the new contract at the date of the contract modification, less any additional premium charged for the modification (unless the decrease in fulfilment cash flows is allocated to the loss component of the liability for remaining coverage)

        And

      • Measures the new contract recognised assuming the Company received the hypothetical premium that it would have charged, had it entered into

        the modified contract at the date of the contract modification.

        Presentation

        The Company has presented separately, in the statement of financial position, the carrying amount of portfolios of insurance contracts issued that are assets, portfolios of insurance contracts issued that are liabilities, portfolios of reinsurance contracts held that are assets and portfolios of reinsurance contracts held that are liabilities.

        Any assets for insurance acquisition cash flows recognised before the corresponding insurance contracts are included in the carrying amount of the related groups of insurance contracts are allocated to the carrying amount of the portfolios of insurance contracts that they relate to.

        The Company disaggregates the total amount recognised in the statement of profit or loss and other comprehensive income into an insurance service result, comprising insurance revenue and insurance service expense, and insurance finance income or expenses.

        The Company does not disaggregate the change in risk adjustment for non-financial risk between a financial and non-financial portion and includes the entire change as part of the insurance service result.

        The Company separately presents income or expenses from reinsurance contracts held from the expenses or income from insurance contracts issued.

        Level of aggregation - Life Business

        The Company has elected to include in the same group, contracts where its ability to set prices or levels of benefits for policyholders with different characteristics is constrained by regulation. The annuity contracts, credit life contracts, endowment contracts, funeral expenses policy, group life, individual life, mortgage policy and term life insurance portfolios are divided into:

      • A group of contracts that are onerous at initial recognition

      • A group of contracts that at initial recognition have no significant possibility of becoming onerous subsequently

      • A group of the remaining contracts in the portfolio

        The reinsurance contracts held portfolios are further divided into:

      • A group of contracts on which there is a net gain on initial recognition

      • A group of contracts that have no significant possibility of a net gain arising subsequent to initial recognition

      • A group of the remaining contracts in the portfolio

        For contracts measured under the PAA, the company assume that no contracts in a portfolio of insurance contracts are onerous at initial recognition unless there has been an approval through an official process to implement commercial actions which include promotional discounts on premium rates, selling loss leaders to gain market shares or no claims discount on renewal of policies, which could result into a group of contracts being onerous.

        For subsequent measurement, the onerous contract assessment is only required if facts and circumstances indicate that a group of contacts is onerous.

        Contract boundary

        A contract is an arrangement that binds one or both of the parties involved. If both parties are bound equally, the boundary of the contract is generally clear. Similarly, if neither party is bound, there is no genuine contract, thus:

      • The outer limit of the existing contract is the point at which the entity is no longer required to provide coverage and the policyholder has no right of

        renewal. Beyond that outer limit, neither party is bound.

      • The company is no longer bound by the existing contract at the point at which the contract confers on the company the practical ability to reassess

        the risk presented by a policyholder and, as a result, the right to set a price that fully reflects that risk.

        The measurement of a group of insurance contracts includes all the cash flows expected to result from the contracts in the group, reflecting estimates of policyholder behavior. Thus, to identify the future cash flows that will arise as the entity fulfils its obligations, it is necessary to determine the contract boundary that distinguishes whether future premiums, and the resulting benefits and claims, arise from:

      • Existing insurance contracts. If so, those future premiums, and the resulting benefits and claims, are included in the measurement of the group of

        insurance contracts Or

      • Future insurance contracts. If so, those future premiums, and the resulting benefits and claims, are not included in the measurement of the group of

        existing insurance contracts

        As such, the company does not recognize a liability or asset relating to expected premiums or expected claims outside the boundary as such amounts relates to future insurance contracts. However, the company recognizes an asset for acquisition cash flows paid before the related group of insurance contracts is recognized.

        The Company includes in the measurement of a group of insurance contracts all the future cash flows within the boundary of each contract in the group.

        Cash flows are within the boundary of an insurance contract if they arise from substantive rights and obligations that exist during the reporting period in which the Company can compel the policyholder to pay the premiums, or in which the Company has a substantive obligation to provide the policyholder with insurance contract services. A substantive obligation to provide insurance contract services ends when:

      • The Company has the practical ability to reassess the risks of the particular policyholder and, as a result, can set a price or level of benefits that fully

        reflects those risks Or

        Both of the following criteria are satisfied:

      • The Company has the practical ability to reassess the risks of the portfolio of insurance contracts that contain the contract and, as a result, can set a

        price or level of benefits that fully reflects the risk of that portfolio

      • The pricing of the premiums up to the date when the risks are reassessed does not take into account the risks that relate to periods after the

        reassessment date.

        A liability or asset relating to expected premiums or claims outside the boundary of the insurance contract is not recognised. Such amounts relate to future insurance contracts.

        The company have set contract boundaries based on its portfolio of insurance contracts which is stated as follows:

        For Individual Life

      • Credit Life: The contract boundary is set equal to the term of the credit life policy

      • Term Assurance: The contract boundary is set equal to the term of the term assurance policy

      • Endowments: The contract boundary is set equal to the term of the endowment policy

      • Funeral: The company has assumed that all policyholders will be dead by age 110, hence the contract boundary is 110 years.

      • Education: The contract boundary is set equal to the term of the education policy.

        For Group Life

      • Group life: The contract boundary is set equal to the policy term which is one year

      • Annuities: The company has assumed that all annuitants will be dead by age 120. Hence the contract boundary is 120 years.

        For life contracts with renewal periods, the Company assesses whether premiums and related cash flows that arise from the renewed contract are within the contract boundary. The pricing of the renewals is established by the Company by considering all the risks covered for the policyholder by the Company, when underwriting equivalent contracts on the renewal dates for the remaining coverage. The Company reassess contract boundary of each group at the end of each reporting period.

        Measurement - General Model Insurance contract - Initial Measurement

        The general model measures a group of insurance contracts as the sum of the following components, or 'building blocks', for each group of

        insurance contracts:

      • Fulfilment cash flows, which comprise:

        • Estimates of expected future cash flows over the life of the contract

        • An adjustment to reflect the time value of money and the financial risks related to the future cash flows to the extent that the financial risks are not included in the estimates of the future cash flows

        • A risk adjustment for non-financial risk

      • A contractual service margin representing unearned profit an entity will recognise as it provides service under the insurance contracts in the group

        Fulfilment Cashflows (FCF)

        Fulfilment cash flows comprise unbiased and probability-weighted estimates of future cash flows, discounted to present value to reflect the time value of money and financial risks, plus a risk adjustment for non-financial risk.

        The Company's objective in estimating future cash flows is to determine the expected value, or the probability-weighted mean, of the full range of possible outcomes, considering all reasonable and supportable information available at the reporting date without undue cost or effort. The Company estimates future cash flows considering a range of scenarios which have commercial substance and give a good representation of possible outcomes.

        The cash flows from each scenario are probability- weighted and discounted using current assumptions.

        When estimating future cash flows, the Company includes all cash flows that are within the contract boundary including:

      • Premiums and related cash flows

      • Claims and benefits, including reported claims not yet paid, incurred claims not yet reported and expected future claims

        • Payments to policyholders resulting from embedded surrender value options

        • An allocation of insurance acquisition cash flows attributable to the portfolio to which the contract belongs

      • Claims handling costs

      • Policy administration and maintenance costs, including recurring commissions that are expected to be paid to intermediaries

      • An allocation of fixed and variable overheads directly attributable to fulfilling insurance contracts

      • Transaction-based taxes including; premium taxes, value added taxes

      • Payments by the Company in a fiduciary capacity to meet tax obligations incurred by policyholder

      • Allocation of fixed and variable overheads directly attributable to fulfilling insurance contracts

      • Cost that the company incurs in providing investment- related services for investment contracts without direct participation features

      • Any other costs specifically chargeable to the policyholder under the term of the contract

        The Company incorporates, in an unbiased way, all reasonable and supportable information available without undue cost or effort about the amount, timing and uncertainty of those future cash flows. The Company estimates the probabilities and amounts of future payments under existing contracts based on information obtained, including:

      • Information about claims already reported by policyholders

      • Other information about the known or estimated characteristics of the insurance contracts

      • Historical data about the Company's own experience, supplemented when necessary with data

        from other sources. Historical data is adjusted to reflect current conditions

      • Current pricing information, when available

        The measurement of fulfilment cash flows-includes insurance acquisition cash flows which are allocated based on rational and systematic manner as prescribed above.

        Contractual Service Margin (CSM)

        The Company's CSM is a component of the asset or liability for the group of insurance contracts that represents the unearned profit the Company will recognise as it provides services in the future. The Company measures the CSM on initial recognition at an amount that, unless the group of contracts is onerous, results in no income or expenses arising from:

      • Initial recognition of the fulfilment cash flows

      • Derecognition at the date of initial recognition of any asset or liability recognised for insurance acquisition cash flows

      • Any cash flows arising from the contracts in the group at that date

        For groups of contracts assessed as onerous, the Company has recognised a loss in profit or loss for the net outflow, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows and the CSM of the group being zero. A loss component has been established by the Company for the liability for remaining coverage for an onerous group depicting the losses recognized for additional disclosures on the loss component.

        The liability for remaining coverage is the Company's obligation to investigate and pay valid claims for insured events that have not yet occurred (i.e., the obligation that relates to the unexpired portion of the coverage period) and at initial recognition, comprises all remaining expected future cash inflows and cash outflows under an insurance contract plus the CSM for that contract.

        The liability for incurred claims is the Company's obligation to investigate and pay valid claims for insured events that have already occurred, including events that have occurred but for which claims have not been reported, and other incurred insurance expenses. At initial recognition of a group of contracts, the liability for incurred claims is usually nil as no insured events have occurred.

        Insurance contracts - subsequent measurement

        The CSM at the end of the reporting period represents the profit in the group of insurance contracts that has not yet been recognised in profit or loss, because it relates to future service to be provided.

        For a group of insurance contracts, the carrying amount of the CSM of the group at the end of the reporting period equals the carrying amount at the beginning of the reporting period adjusted, as follows:

      • The effect of any new contracts added to the group

      • Interest accreted on the carrying amount of the CSM during the reporting period, measured at the discount rates at initial recognition

      • The changes in fulfilment cash flows relating to future service, except to the extent that:

        • Such increases in the fulfilment cash flows exceed the carrying amount of the CSM, giving rise to a loss OR

        • Such decreases in the fulfilment cash flows are allocated to the loss component of the liability for remaining coverage

      • The effect of any currency exchange differences on the CSM

      • The amount recognised as insurance revenue because of the transfer of services in the period, determined by the allocation of the CSM remaining

        at the end of the reporting period (before any allocation) over the current and remaining coverage period

        The locked-in discount rate is the weighted average of the rates applicable at the date of initial recognition of contracts that joined a group over a 12-month period. The discount rate used for accretion of interest on the CSM is determined using the bottom-up approach at inception

        The changes in fulfilment cash flows relating to future service that adjust the CSM comprise of:

      • Experience adjustments that arise from the difference between the premium receipts (and any related cash flows such as insurance acquisition cash flows and insurance premium taxes) and the estimate, at the beginning of the period, of the amounts expected. Differences related to premiums received (or due) related to current or past services are recognised immediately in profit or loss while differences related to premiums received (or due) for future services are adjusted against the CSM

      • Changes in estimates of the present value of future cash flows in the liability for remaining coverage, except those relating to the time value of

        money and changes in financial risk (recognised in the statement of profit or loss and other comprehensive income rather than adjusting the CSM)

      • Differences between any investment component expected to become payable in the period and the actual investment component that becomes

        payable in the period. Those differences are determined by comparing (i) the actual investment component that becomes payable in the period with

        (ii) the payment in the period that was expected at the start of the period plus any insurance finance income or expenses related to that expected payment before it becomes payable.

      • Changes in the risk adjustment for non-financial risk that relate to future service

        Except for changes in the risk adjustment, adjustments to the CSM noted above are measured at discount rates that reflect the characteristics of the cash flows of the group of insurance contracts at initial recognition.

        Where, during the coverage period, a group of insurance contracts becomes onerous, the Company recognises a loss in profit or loss for the net outflow, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows. A loss component is established by the Company for the liability for remaining coverage for such onerous group depicting the losses recognised.

        The Company measures the carrying amount of a group of insurance contracts at the end of each reporting period as the sum of:

        1. the liability for remaining coverage comprising fulfilment cash flows related to future service allocated to the group at that date and the CSM of the group at that date; and

        2. the liability for incurred claims for the Company comprised the fulfilment cash flows related to past service allocated to the group at that date.

        Reinsurance contracts held - initial measurement

        The measurement of reinsurance contracts held follows the same principles as those for insurance contracts issued, with the exception of the following:

      • Measurement of the cash flows include an allowance on a probability-weighted basis for the effect of any non-performance by the reinsurers,

        including the effects of collateral and losses from disputes

      • The Company determines the risk adjustment for non-financial risk so that it represents the amount of risk being transferred to the reinsurer

      • The Company recognises both day 1 gains and day 1 losses at initial recognition in the statement of financial position as a CSM and releases this to

        profit or loss as the reinsurer renders services, except for any portion of a day 1 loss that relates to events before initial recognition

        Where the company recognises a loss on initial recognition of an onerous group of underlying insurance contracts or when further onerous underlying insurance contracts are added to a group, it establishes a loss-recovery component of the asset for remaining coverage for a group of reinsurance contracts held depicting the recovery of losses.

        The loss recovery component adjust the carrying amount of the asset for remaining coverage.

        When the company enters into reinsurance contracts held which provide coverage relating to events that occurred before the purchase of the reinsurance, such cost is recognised in the profit or loss on initial recognition.

        Reinsurance contracts held - Subsequent measurement

        The measurement of reinsurance contracts held follows the same principles as those for insurance contracts issued, with the exception of the following:

      • Changes in the fulfilment cash flows are recognised in profit or loss if the related changes arising from the underlying ceded contracts have been

        recognised in profit or loss. Alternatively, changes in the fulfilment cash flows adjust the CSM.

      • Changes in the fulfilment cash flows that result from changes in the risk of non-performance by the issuer of a reinsurance contract held do not

      adjust the contractual service margin as they do not relate to future service.

      Any change in the fulfilment cash flows of a retroactive reinsurance contract held due to the changes of the liability for incurred claims of the underlying contracts is taken to profit and loss and not the contractual service margin of the reinsurance contract held.

      Where a loss component has been set up subsequent to initial recognition of a group of underlying insurance contracts, the portion of income that has been recognised from related reinsurance contracts held is disclosed as a loss-recovery component.

   3. Revenue recognition
      1. Insurance revenue (PAA)

         The insurance revenue for the period is the amount of expected premium receipts (excluding any investment component) allocated to the period. The Company allocates the expected premium receipts to each period of insurance contract services on the basis of the passage of time. But if the expected pattern of release of risk during the coverage period differs significantly from the passage of time, then the allocation is made on the basis of the expected timing of incurred insurance service expenses.

         The Company changes the basis of allocation between the two methods above as necessary, if facts and circumstances change. The change is accounted for prospectively as a change in accounting estimate.

         Insurance revenue (Non-PAA)

         The Company's insurance revenue depicts the provision of coverage and other services arising from a group of insurance contracts at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services. Insurance revenue from a group of insurance contracts is therefore the relevant portion for the period of the total consideration for the contracts, (i.e., the amount of premiums paid to the Company adjusted for financing effect (the time value of money) and excluding any distinct investment components). The total consideration for a group of contracts covers amounts related to the provision of services and is comprised of:

         • Insurance service expenses, excluding any amounts allocated to the loss component of the liability for remaining coverage

         • The risk adjustment for non-financial risk, excluding any amounts allocated to the loss component of the liability for remaining coverage

         • The CSM release

         • Amounts related to insurance acquisition cash flows

      2. Loss component (PAA)

         The Company assumes that no contracts are onerous at initial recognition unless facts and circumstances indicate otherwise. Where this is not the case, and if at any time during the coverage period, the facts and circumstances indicate that a group of insurance contracts is onerous, the Company establishes a loss component as the excess of the fulfilment cash flows that relate to the remaining coverage of the group over the carrying amount of the liability for remaining coverage of the group. Accordingly, by the end of the coverage period of the group of contracts the loss component will be zero.

         Loss component (Non-PAA)

         The Company has grouped contracts that are onerous at initial recognition separately from contracts in the same portfolio that are not onerous at initial recognition. Groups of insurance contracts that were not onerous at initial recognition can also subsequently become onerous if assumptions and experience changes. The Company has established a loss component of the liability for remaining coverage for any onerous group depicting the future losses recognised.

         A loss component represents a notional record of the losses attributable to each group of onerous insurance contracts (or contracts profitable at inception that have become onerous). The loss component is released based on a systematic allocation of the subsequent changes in the fulfilment cash flows to:

         1. the loss component; and

         2. the liability for remaining coverage excluding the loss component.

         The loss component is also updated for subsequent changes in estimates of the fulfilment cash flows related to future service. The systematic allocation of subsequent changes to the loss component results in the total amounts allocated to the loss component being equal to zero by the end of the coverage period of a group of contracts (since the loss component will have been materialised in the form of incurred claims). The Company uses the proportion on initial recognition to determine the systematic allocation of subsequent changes in future cash flows between the loss component and the liability for remaining coverage excluding the loss component.

      3. Loss-recovery components

         Where the Company recognises a loss on initial recognition of an onerous group of underlying insurance contracts, or when further onerous underlying insurance contracts are added to a group, the Company establishes a loss-recovery component of the asset for remaining coverage for a group of reinsurance contracts held depicting the expected recovery of the losses.

         A loss-recovery component is subsequently reduced to zero in line with reductions in the onerous group of underlying insurance contracts in order to reflect that the loss-recovery component shall not exceed the portion of the carrying amount of the loss component of the onerous group of underlying insurance contracts that the Company expects to recover from the group of reinsurance contracts held.

      4. Investment income on financial assets

         Investment income on financial assets is composed of interest income and dividend income.

         Interest income is recognized in profit or loss as it accrues and is calculated by using the effective interest rate method. Fees and commissions that are an integral part of the effective yield of the financial asset or liability are recognized as an adjustment to the effective interest rate of the instrument. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the

         financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.

         Dividend income from investments is recognized when the shareholders' rights to receive payment have been established.

      5. Net gains on finacial assets

         Represents gains and losses on investments carried at FVTPL. These include fair value gains, interest income, exchange gains and gains and losses on disposal of these financial assets.

      6. Other operating income

      Other operating income represents income generated from sources other than insurance service revenue, net gains on financial assets at FVTPL and investment income. It includes rental income and profit on disposal of property and equipment. Rental income is recognized on an accrual basis. This also includes mudarabah income from the Takaful insurance

   4. Expense recognition
      1. Insurance finance income and expense

         Insurance finance income or expenses comprise the change in the carrying amount of the group of insurance contracts arising from:

         • The effect of the time value of money and changes in the time value of money; and

         • The effect of financial risk and changes in financial risk.

           The Company systematically allocates expected total insurance finance income or expenses over the duration of the group of contracts to profit or loss using discount rates determined on initial recognition of the group of contracts.

           In the event of transfer of a group of insurance contracts or derecognition of an insurance contract, the Company reclassifies the insurance income finance or expense to profit or loss as a reclassification adjustment to any remaining amounts for the group (or contract) that were previously recognised in other comprehensive income.

      2. Net income or expense from reinsurance contracts held (PAA)

         The Company presents separately on the face of the statement of profit or loss and other comprehensive income, the amounts expected to be recovered from reinsurers, and an allocation of the reinsurance premiums paid. The Company treats reinsurance cash flows that are contingent on claims on the underlying contracts as part of the claims that are expected to be reimbursed under the reinsurance contract held, and excludes investment components and commissions from an allocation of reinsurance premiums presented on the face of the statement of profit or loss and other comprehensive income

         Net income or expense from reinsurance contracts held (Non-PAA)

         The Company presents separately on the face of the statement of profit or loss and other comprehensive, income the amounts expected to be recovered from reinsurers, and an allocation of the reinsurance premiums paid. The Company treats reinsurance cash flows that are contingent on claims on the underlying contracts as part of the claims that are expected to be reimbursed under the reinsurance contract held and excludes investment components and commissions from an allocation of reinsurance premiums presented on the face of the statement of profit or loss and other comprehensive income.

      3. Management expenses

      Management expenses are recognised in profit or loss when goods are received or services rendered. They are expenses other than insurance service expenses and include employee benefits, depreciation charges and other operating expenses.

   5. Investment contracts

      Investment contracts are those contracts that transfer financial risks with no significant insurance risk.

      Financial risk is the risk of a possible future change in one or more of a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract.

      The Group enters into investment contracts with guarantee returns and other businesses of savings nature. Those contracts are termed investment contract liabilities and are initially measured at fair value and subsequently at amortised cost.

      Finance cost on investment contract liabilities is recognised as an expense in profit or loss using the effective interest rate.

   6. Cash and cash equivalents

      Cash and cash equivalents include cash in hand, bank and call deposits and other short-term highly liquid investments with original maturities of three months or less, which are subject to insignificant risk of changes in their fair value and used by the Group to manage its short term commitments. Cash and cash equivalents are measured at amortised cost in the statement of financial position.

   7. Financial assets

      Classification

      1. Recognition and initial measurement

         The Group recognises deposits with financial institutions and loans and borrowings on the date on which they are originated. All other financial instruments (including regular-way purchases and sales of financial assets) are recognised on the trade date, which is the date on which the Group becomes a party to the contractual provisions of the instrument.

         A financial asset or financial liability is initially measured at fair value plus, for a financial asset or financial liability not measured at FVTPL, transaction costs that are directly attributable to its acquisition or issue.

      2. Classification and subsequent measurement

Classification

On initial recognition, a financial asset is classified as measured at amortised cost, FVOCI or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

• it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

• its contractual terms give rise on specified dates to cash flows that are SPPI.

  A financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

• it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

• its contractual terms give rise on specified dates to cash flows that are SPPI.

  The Group elects to present changes in the fair value of certain equity investments that are not held for trading in OCI. The election is made on an instrument-by-instrument basis on initial recognition and is irrevocable.

  All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. In addition, on initial recognition the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

  Business model assessment

  The Group assesses the objective of the business model in which a financial asset is held for each portfolio of financial assetsb because this best reflects the way that the business is managed and information is provided to management. The information considered includes:

• the stated policies and objectives for the portfolio and the operation of those policies in practice, including whether management's strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of assets;

• how the performance of the portfolio is evaluated and reported to the Group's management;

• the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;

• how managers of the business are compensated (e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected); and

• the frequency, volume and timing of sales in prior periods, the reasons for such sales and expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group's stated objective for managing the financial assets is achieved and how cash flows are realised.

  Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent

  with the Group's continuing recognition of the assets.

  For a majority of debt investments, the objective of the Group's business model is to fund insurance contract liabilities. The Group undertakes significant buying and selling activity on a regular basis to rebalance its portfolio of assets and to ensure that contractual cash flows from the financial assets are sufficient to settle insurance contract liabilities. The Group determines that both collecting contractual cash flows as they come due and selling financial assets to maintain the desired asset profile are integral to achieving the business model's objective.

  Certain debt securities are held in separate portfolios for long-term yield. These securities may be sold, but such sales are not expected to be more than infrequent. The Group considers that these securities are held within a business model whose objective is to hold assets to collect the contractual cash flows.

  Portfolios of financial assets that are managed and whose performance is evaluated on a fair value basis, which include underlying items of participating contracts, and portfolios of financial assets that are held for trading are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.

  Assessment of whether contractual cash flows are SPPI

  For the purposes of this assessment, principal is defined as the fair value of the financial asset on initial recognition. However, the principal may change over time - e.g. if there are repayments of principal. Interest is defined as consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

  In assessing whether the contractual cash flows are SPPI, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:

• contingent events that would change the amount or timing of cash flows;

• leverage features;

• prepayment and extension features;

• terms that limit the Group's claim to cash flows from specified assets (e.g. non-recourse asset arrangements); and

• features that modify consideration for the time value of money (e.g. periodic reset of interest rates).

A prepayment feature is consistent with the SPPI criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination of the contract. In addition, for a financial asset acquired at a premium or discount to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant on initial recognition.

Some prepayment features permit the debtor to prepay the debt instrument at an amount calculated as the remaining contractual cash flows discounted at the current market benchmark interest rate plus a fixed spread. The Group has determined that these prepayment features are consistent with the SPPI criterion. Because the Group would be compensated only for the change in the market benchmark interest rate and for lost interest margin, the prepayment penalty would not include any non-SPPI risks and may be seen as reasonable compensation.