Page 197 - CJ 2019 INTEGRATED REPORT

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NOTES TO THE FINANCIAL
STATEMENTS 31 DECEMBER 2019 (CONTINUED)
FINANCIAL
RISK MANAGEMENT (CONTINUED)
Financial risk arising in in in in the the Life Assurance Business subsidiary (the “LABS”)
The following relate to the the LABS which is the the subsidiary that operates a a a a a a a life assurance business The LABS exposes the the the Group to a a a a a a a a a a a a a a a a a a a a range of financial financial financial financial risks through its its financial financial financial financial assets assets financial financial financial financial liabilities liabilities reinsurance assets assets and insurance insurance insurance liabilities liabilities In particular the the the the key financial financial financial financial risk risk is is is is that fin fin fin in in fin in in in in the the the the long-term its its its investment proceeds are are not sufficient to fund the the the obligations arising from from its its insurance insurance contracts The The most important components of this financial risk risk risk risk risk risk are are are interest interest rate rate risk risk risk risk risk risk equity equity price risk risk risk risk risk risk foreign currency currency risk risk risk risk risk risk and and and credit risk risk risk risk risk risk These risks arise from from open positions fin in in in in interest interest interest rate rate rate currency currency and and and and and equity equity equity products all of which are are are exposed to general and and and and and specific market movements The risks that the the LABS and and and and the the Group face are are primarily interest interest rate rate risk risk risk and and and and equity equity price risk risk risk The The LABS manages financial risks via its its Investment Investment Committee which is is mandated to achieve long-term investment investment returns fin in in in in in in in in excess of of its its obligations under insurance insurance and and and investment investment investment contracts contracts The The principal technique of of the the the Investment Investment Committee is is is is to to to to match assets assets to to to to the the the liabilities liabilities arising from insurance insurance and and investment investment contracts contracts by reference to to to to the the the type of of of benefits payable to to to to to contract contract holders For each distinct class of of of liabilities liabilities a a a a a a a a a a a a a a a a a a a a a a a separate portfolio of of of assets assets is is is is is maintained The LABS has not changed the processes used to to manage fits its risks from previous periods Fixed and guaranteed insurance contracts Insurance contracts with guaranteed guaranteed guaranteed and and fixed fixed fixed terms have benefit benefit payments that are fixed fixed fixed and and guaranteed guaranteed guaranteed at at at the the the the inception of of the the the the the contract contract contract The financial financial component of of these benefits benefits is is usually a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a guaranteed guaranteed guaranteed fixed fixed fixed interest rate rate (for the the the the the insurance contracts contracts this rate rate may apply to maturity and/or death benefits) and and and hence the the the the the the the the LABS’s primary financial financial financial risk risk on on on on these contracts contracts is is is is is the the the the the the risk risk that interest income and and and capital redemptions from the the the the the the financial financial assets backing the the the the the the liabilities is is is is insufficient to fund the the the guaranteed benefits payable Liquidity risk Liquidity risk risk is is is is the the the the risk risk that the the the the LABS is is is is unable to meet its obligations when they fall due as as as as a a a a a a a a a a a a a result of policyholder benefit payments cash cash cash requirements from contractual commitments or or other cash cash cash outflows outflows such as as as as as debt maturities Such outflows outflows would deplete available cash cash cash resources for operational trading and and investments activities In extreme circumstances lack of of of liquidity could result in in in in fin in in in reductions in in in in fin in in in the the statement of of of financial position and and sales of of of assets or or potentially an an an an an an an an an inability to to fulfil policyholder commitments The risk that the the LABS will be be unable to to do so is is is inherent in in fin in in in in in in in all all insurance operations and and and can be be affected by a a a a a a a a a a a a a a a a a a a range of institution-specific and and and marketwise events events including but not limited to credit events systemic shocks and and natural disasters The LABS is exposed to to to daily daily calls on its available cash cash resources resources with regard to to to claims claims and maintains a a a a a a a a a a a a a a a a a a a a a certain certain level of cash cash resources resources in in in in in in in in in in the the bank to to to service the the daily daily claims claims Investments are are are also made in in in in in in in in in in certain certain liquid investments investments such as as as as Government Treasury bills and and investments investments in in in in in in in in in equity shares that are are are traded in in in in in in in in in active markets and and can be readily disposed of of of The Company has also made arrangements in in in in in in in its its reinsurance programme to cater for large claims whereby its its reinsurers will pay their share of of of these losses within a a a a a a a a a a a a a a a short period of of of time through cash calls Mismatch risk All insurance liabilities liabilities liabilities are are are asset asset backed Mismatch risk arises when the the the the nature nature term term and and currency currency of of of backing assets are are are different from the the the the the nature nature term term and and currency currency of of of liabilities liabilities liabilities Nature of of of liabilities liabilities liabilities refers to whether they are are are fixed indexed or variable (DPF) at at the the LABS’s discretion 2 (f)
INTEGRATED REPORT 2019