kontinuita - Komunálna Poisťovňa

NOTES TO
THE FINANCIAL
STATEMENTS
(ii) Currency risk
The Company is exposed to currency risk, mainly in respect
to the Croatian kuna (HRK). In general, the Company
invests into assets denominated in currencies in
which the Company’s liabilities are denominated, thus
mitigating the currency risk arising from the nature of
its business activities. Currency risk arises mainly for
securities and liabilities denominated in other currencies.
If HRK weakened or strengthened by 5% against
SKK, the Company is expected to suffer a loss or generate
a profit of SKK 2.8 million from securities denominated
in HRK.
(iii) Price risk
Price risk is a risk that the fair value of a financial asset
will change from reasons other than changes in interest
or foreign exchange rates. The Company is exposed
to price risk due to investments into equity securities,
with the risk being affected mainly by stock market developments.
The outcome of the sensitivity analysis shows an impact
on the Company’s profit and equity in case of
changes in the market price of equity securities. At
31 December 2008, equity securities totalled SKK
457,461 thousand (2007: SKK 554,968 thousand). If
their market price decreased/increased by 10%, equity
would be lower/higher by SKK 45,746 thousand
(2007: SKK 55,496 thousand). The impact of price risk
on profit is not material for equity securities that
cover investment life insurance, as the related liabilities
arising from these contracts are affected in the
same way.
4.2.3 Credit risk
The Company is exposed to credit risk, which is the risk
that a counterparty will be unable to repay its debts in
full when due. The main areas where the Company is
exposed to the credit risk include:
• amounts due from insurance contracts,
• amounts due from reinsurance,
• receivables from business partners,
• issuers of securities, and
• cash.
Reinsurance is used to manage insurance risk. However,
this does not reduce the Company’s liability as
primary insurer. If a reinsurer fails to settle its liabilities
from whatever reason, the Company remains liable
for the liabilities from insurance to the
policyholder. The Company reviews the credit risk of
reinsurers in co-operation with its shareholder.
The Company uses several tools to manage insurance
receivables from the insured – one of them being the
reminder process for overdue receivables, which is
carried out at regular intervals.
If unsuccessful, the Company takes other measures,
using a several-stage collection process (intervention
activities, court settlement, and seizure). In addition,
the Company monitors receivables on a monthly basis
by checking their payment status and ageing structure.
Based on this, the default risk is assessed, and the
value of impaired receivables is reduced by setting up
a valuation allowance.
The table below summarizes the credit risk exposure,
using the rating of the Standard & Poors Agency, except
for mortgage bonds issued by banks seated in
Slovakia. Based on a thorough analysis of the legislative
environment regulating the mortgage banking
area, and considering a lower amount of risk related
to mortgage bonds compared to debentures issued by
banks, the parent company has decided to show an internally
assigned rating at the AA level for such mortgage
bonds since 2007.
KONTINUITA ANNUAL REPORT 131