kontinuita - Komunálna Poisťovňa

NOTES TO
THE FINANCIAL
STATEMENTS
(ii) Estimates of future cash inflows from insurance
premiums received
Uncertainty in the estimation of future insurance benefits
and premium confirmations from long-term insurance
contracts arises from the unpredictability of
long-term changes in overall levels of mortality and
the variability in policyholder behaviour.
The Company uses various mortality tables for different
types of insurance (death, mixed insurance or pension
insurance). The Company uses the statistics in
respect to voluntary policy cancellations to find out the
deviation of the actual experience with policy cancellations
compared to assumptions. Statistical methods
are used to estimate the appropriate lapse ratio. For
insurance policies with the guaranteed annuity payment
option, the level of insurance risk also depends
on the number of policyholders who will exercise the
annuity benefit option. The lower the current market
interest rates compared to implicit interest rates guaranteed
in annuity benefits, the more probable it is that
policyholders will exercise their option to have annuity
payments. The continuing prolongation of life, reflected
in current annuity rates, increases the probability that
the insurance risk for the Company will be higher, as
the policyholders will prefer annuity payments. For the
time being, the Company does not have enough historical
data used as a basis for estimating the number
of policyholders who will exercise the annuity payment
option.
4.2 Financial risk
As a result of its activities, the Company is exposed to
financial risk through its financial assets, financial liabilities,
liabilities from insurance, and assets and liabilities
from reinsurance. In particular, the key
financial risk is the risk that the proceeds from the
Company’s financial assets will not suffice to fund its
liabilities arising from insurance and investment contracts.
The most important financial risk components
are market, credit, interest, and liquidity risks. The
most important market risk components are currency,
fair value, and price risks.
In general, the risk management program focuses on
the unpredictability of situations on the financial markets
and seeks to minimize any potential adverse effects
on the Company’s financial position.
4.2.1 Liquidity risk
The basic principle for managing assets and liabilities
is to invest into securities the nature of which corresponds
to the nature of insurance contracts they relate
to.
In life insurance, the Company matches cash flows
from financial assets and insurance contracts in each
year so that every year, the present value of cash inflows
from financial assets is at least as high as the
present value of future liabilities arising from these insurance
contracts. The Company’s management evaluates
the cash flow coverage on a monthly basis and
makes decisions about the allocation of assets with respect
to their matching with liabilities. The Company
also makes sure that the income generated from such
financial assets always exceeds the interest rate guaranteed
in life insurance contracts.
The Company faces the risk of daily requirements for
available cash mainly due to its insurance activities
(claim settlement). Liquidity risk is the risk that cash
will not be available at an adequate cost to cover insurance
liabilities when they become due. The Company
has set limits to maintain a sufficient amount of
available funds to settle all liabilities due.
KONTINUITA ANNUAL REPORT 127