Page 209 - EXIM_AR2021

ANNUAL REPORT 2021 207

Notes to the fiNaNcial statemeNts

43. insUrance risks

The principal underwriting risk to which the Group and the Bank is exposed is credit risk in connection with credit, guarantee
and political risk insurance underwriting activities. Management has established underwriting processes and limits to manage
this risk by performing credit review on its policy holders and buyers.

The underwriting function undertakes qualitative and quantitative risk assessments on all buyers and clients before deciding
on an approved insured amount. Policies in riskier markets may be rejected or charged at a higher premium rate accompanied
by stringent terms and conditions to commensurate the risks.
Concentration limits are set to avoid heavy concentration within a specific region or country. Maximum limits are set for buyer
credit limits and client facility limits for prudent risk mitigation.

For the monitoring of buyer risks, the Group and the Bank takes into consideration both qualitative and quantitative factors and
conducts regular reviews on the buyers’ credit standing and payment performance to track any deterioration in their financial
position that may result in a loss to the Group and the Bank.

On country risk, the Group and the Bank periodically reviews the economic and political conditions of the insured markets as
to revise its guidelines, wherever appropriate. In order to mitigate the insurance risk, the Group and the Bank may cede or
transfer the risk to another insurance company. The ceding arrangement minimises the net loss to the Group and the Bank
arising from potential claims.

Key assumptions
The sensitivity analysis is based upon the assumptions set out in the actuarial report and is subject to the reliances and
limitations contained within the report. One particular reliance is that the net sensitivity results assume that all reinsurance
recoveries are receivable in full.
The sensitivity items shown are independent of each other. In practice, a combination of adverse and favourable changes could
occur.

The sensitivity results are not intended to capture all possible outcomes. Significantly more adverse or favourable results are
possible.

Sensitivity analysis
The independent actuarial firm engaged by the Group and the Bank re-runs its valuation models on various bases. An analysis
of sensitivity around various scenarios provides an indication of the adequacy of the Group’s and the Bank’s estimation
process in respect of its Insurance contracts and Takaful certificates. The table presented below demonstrates the sensitivity
of the Insurance contract liabilities and Takaful certificates estimates to particular movements in assumptions used in the
estimation process.
The analysis below is performed for reasonably possible movements in key assumptions with all other assumptions held
constant, showing the impact on gross and net liabilities, profit before tax and equity. The correlation of assumptions will have
a significant effect in determining the ultimate claims liabilities, but to demonstrate the impact due to changes in assumptions,
assumptions had to be changed on an individual basis.

2021 2020
Net Net
RM’000 RM’000

Estimated claim liabilities (Note 22) 43,051 51,701