NOTES TO F I NANC I AL STATEMENTS 2. BASIS OF PREPARATION These audited financial statements of the Company are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS) Accounting Standards”), which comprise standards and interpretations approved by the International Accounting Standards Board, and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee that remain in effect. The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity or areas where assumptions are significant to the financial statements are disclosed in Note 4. The financial statements have been prepared for the individual company only. The Company presents its Statement of Financial Position broadly in order of liquidity. 3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES 3.1. New and amended standards and interpretations In these financial statements, the Company has applied IFRS 17 and IFRS 9 for the first time. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. 3.1.1. IFRS 17 Insurance Contracts IFRS 17 replaces IFRS 4 Insurance Contracts for annual periods beginning on or after 1 January 2023. The Company has restated comparative information for 2022 applying the transitional provisions in Appendix C to IFRS 17. The nature of the changes in accounting policies can be summarised, as follows: 3.1.1.1. Changes to classification and measurement The adoption of IFRS 17 did not change the classification of the Company’s insurance contracts. The Company was previously permitted under IFRS 4 to continue accounting using its previous accounting policies. However, IFRS 17 establishes specific principles for the recognition and measurement of insurance contracts issued and reinsurance contracts held by the Company. IFRS 17 has a default approach to measuring groups of insurance contracts known as the general measurement model. An entity should apply the general measurement model to all groups of insurance contracts except as follows: • a simplified or premium allocation approach (“PAA”) may be applied for groups of insurance contracts meeting either of the specified criteria for that approach; • for groups of reinsurance contracts held, an entity should apply either the general measurement model or the premium allocation approach as modified by separate measurement requirements; • an adaptation of the general measurement model, the ‘variable fee approach’ is applied to insurance contracts with direct participation features; and • for groups of investment contracts with discretionary participation features, an entity applies the general measurement model (as modified) because of the lack of insurance risk in the contracts. Under IFRS 17, the Company’s insurance contracts issued and reinsurance contracts held are all eligible to be measured by applying the PAA. The PAA simplifies the measurement of insurance contracts in comparison with the general model in IFRS 17. The measurement principles of the PAA differ from the ‘earned premium approach’ used by the Company under IFRS 4 in the following key areas: • The liability for remaining coverage reflects premiums received less deferred insurance acquisition cash flows and less amounts recognised in revenue for insurance services provided. • Measurement of the liability for remaining coverage involves an explicit evaluation of risk adjustment for non financial risk when a group of contracts is onerous in order to calculate a loss component (previously these may have formed part of the unexpired risk reserve provision). 95
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