Page 140 - EXIM-Bank_Annual-Report-2023

EXIM BANk MALAySIA
138 A Vision to Serve Empowering Growth Management Discussion and Analysis
ANNUAL REPORT 2023
Notes to the fiNaNcial statemeNts

3. SIGNIFICANT ACCOuNTING ESTIMATES AND JuDGEMENT (cont’d)
3.2 Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year, are described below. The Group and the Bank based its assumption and estimates on parameters available
when the financial statements were prepared. Existing circumstances and assumptions about future developments,
however, may change due to market changes or circumstances arising that are beyond the control of the Group and
the Bank. Such changes will be reflected in the assumptions when they occur.
(a) uncertainty in accounting estimates for liabilities of insurance business (Note 44)
The key significant areas of estimation uncertainty and critical judgements in measuring insurance contract/takaful
certificate liabilities include:
- Estimates of future cash flows
In estimating the future cash flows, the Group and Bank incorporates, in an unbiased way, all reasonable and
supportable information that is available without undue cost or effort at the reporting date. This information
includes both internal and external historical data about claims and other experiences, updated to reflect current
expectations of future events.

The estimates of future cash flows reflect the the Group and Bank’s view of current conditions at the reporting
date and current expectations of future events that might affect those cash flows.

The estimates of future cash flows reflect the the Group and Bank’s view of current conditions at the reporting
date and current expectations of future events that might affect those cash flows.
- Risk adjustments for non-financial risk

Risk adjustments for non-financial risk are determined to reflect the compensation that the Group and
Bank would require for bearing non-financial risk and its degree of risk aversion. The Group and Bank applies
a confidence level technique to determine the risk adjustments for non-financial risk of both its insurance
contacts/takaful certificates and reinsurance contracts.
Under a confidence level technique, the Group estimates the probability distribution of the expected value
of the future cash flows at each reporting date and calculates the risk adjustment for non-financial risk as the
excess of the value at risk at the target confidence level over the expected present value of the future cash flows
allowing for the associated risks over all future years. The target confidence level is 75th percentile, in line with
the regulatory requirement of BNM under the Risk Based Capital Framework for insurers/takaful operators.
- Contractual service margin

The CSM is a component of the assets or liabilities for the group of insurance contract/takaful certificates
that represents the unearned profit that the Group will recognise as it provides services in the future.
An amount of the CSM for a group of insurance/takaful contracts/certificates is recognised in profit or loss as
insurance/takaful revenue in each period to reflect the services provided under the group of insurance/takaful
contracts/certificates in that period. The amount is determined by:
- Identifying the coverage units in the group;
- Allocating the CSM at the end of the period (before recognising any amounts in profit or loss to reflect the
services provided in the period) equally to each coverage unit provided in the current period and expected to
be provided in the future years; and
- Recognising in profit or loss the amount allocated to coverage units provided in the period.