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Directors’ report

Statement of directors’ responsibilities

Corporate governance – statement of compliance

Remuneration report

Statement of comprehensive income

Technical account – long-term business of insurance

Non-technical account

#### Statement of financial position

#### Statement of changes in equity

Statement of cash flows

Accounting policies

Notes to the financial statements

Independent auditor’s report

### ## Directors’ Report The Directors present their report and the audited consolidated financial statements for the year ended 31 December 2022. Principal activities LifeStar Holding p.l.c. (the “Company”) together with its subsidiaries (the “Subsidiaries”), together hereinafter referred to as the “LifeStar Group” or “the Group”, is involved in:
- | the carrying on of long-term business of insurance under the Insurance Business Act (Cap. 403 of the Laws of Malta);
- | acting as an agent for sickness and accident insurance in terms of the Insurance Distribution Act (Cap. 487 of the Laws of Malta);
- | the provision of investment services and advice in terms of the Investment Services Act (Cap. 370 of the Laws of Malta); and
- | the provision on behalf of Group undertakings of property management and consultancy services, including property acquisitions, disposals and development projects.
Review of business Consolidated results 2022 proved to be another uncertain year as the Covid-19 pandemic has continued to impact businesses globally. While many hoped that the pandemic would come to an end, the development of new variants continued to impact all sectors globally. Like many businesses, the Group has learnt to operate within this reality and the circumstances obtained positive results. In fact, LifeStar Holding p.l.c. on a consolidated basis generated a total comprehensive loss of €2.6 million (2021: profit of €0.7 million). The pre-tax loss for the year amounted to €5.0 million (2021: profit of €1.6 million). During the year, the Group continued to undertake restructuring and transformation activity to align the business operations with the Board’s approved strategy and to strengthen its capital based. This was achieved by implementing a holistic strategic plan, designed to permanently resolve various legacy issues that continue to negatively impact the LifeStar Group and to support the consolidation and future growth of the Group. As part of this restructuring, Global Capital Holdings Limited merged with LifeStar Holding p.l.c., on 1 December 2020, effective from 1 January 2020. Furthermore, on 4 May 2021 the Malta Financial Services Authority approved an offer for sale of 18,518,519 ordinary shares in LifeStar Insurance p.l.c. at an offer price of €0.54 per share (‘the Share Offer’) and the offer of 6,570,000 ordinary shares in LifeStar Insurance p.l.c. to its shareholders in exchange for their ordinary shares in LifeStar Holding p.l.c. at an exchange ratio of 1 LifeStar Holding p.l.c. share to 1 share in LifeStar Insurance p.l.c. (‘the Exchange Offer). From the Share Offer, 10,854,000 shares (for a total value of €5,861,160) were received by LifeStar Insurance p.l.c., whilst 5,897,951 shares from the Exchange Offer (for a total value of €3,184,894) were received by LifeStar Insurance p.l.c. The Group also redeemed in full the 5% Unsecured Bond in June 2021. Furthermore, on 6 May 2021, the Malta Financial Services Authority approved the issue of €10,000,000 4% Subordinated Bonds due 2026-2031 issued by LifeStar Insurance p.l.c. (the “Subordinated Bonds”). A total of 24,313 Subordinated Bonds (for a total value of €2,431,300) were received by LifeStar Insurance p.l.c. Group assets decreased by 5.6% (2021: increased by 2.6%) from €170.6 million as at 31 December 2021 to €161.2 million as at 31 December 2022, and shareholder funds also decreased by 10.3% (2021: increased by 35.2%). The Group’s net asset value at end of the year stood at €22.4 million (2021: €24.9 million). LifeStar Insurance p.l. c. (“LSI plc”) LifeStar Insurance p.l.c.’s continued to register an increase in gross written premium of 1.3% when compared to the previous year to close off at €12.9 million. Value of in-force business also saw a healthy increase of €760 thousand or 6.4%. As indicated above the Insurance business was adversely affected by the downward trend experienced in all classes of investments. The group incurred an unrealised loss on investments of €4.1 million. This contributed to overall loss to the group of €3.1 million (2021: profit €544 thousand) and generated a total loss for the year of €1.8 million (2021: income of €1.9 million). The loss is due to the adverse unrealised losses on investments, surrenders, maturities and a number of one - off costs. Our Index Linked and Unit Linked insurance continued in their popularity and we saw a double - digit growth just surpassing the 18% to close off at just over €11.2 million (2021: €9.5 million). In 2022, LifeStar Health Limited declared a net interim dividend of €500,000 (2021: net dividend €1,000,000). Operating expenses increased on the prior year by €0.6 million, due mainly to professional and legal fees. The balance on the long-term technical account closed off with a loss of €3.2 million compared to the loss in 2021 of €0.3 million. Another important measure for a Life Company would be the Value of in Force Business. 2022 produced a healthy increase of €0.8 million (2021: €1.4 million). This led to a total comprehensive loss for the year of €1.5 million compared to total comprehensive income of €2.6 million in 2021. Total assets of the Group decreased by 4.6% (2021: 6.5%) from €171.9 million to € 164.1 million as at the end of the current reporting period. Technical provisions decreased by 3.9% (2021: increased by 4.5%) from € 130.1 million to €125.0 million. The Company’s Solvency II ratio was a healthy one and, as at 185% (2021: 165%). LSI’s value of in-force business for 2022 registered an increase of €0.8 million (2021: €1.4 million) and, in aggregate, amounted to €12.7 million (2021: €11.9 million) at end of the current year - representing the discounted projected future shareholder profits expected from the insurance policies in force as at year end, adjusted for taxation. LifeStar Insurance Board of directors approved a 2022 bonus declaration of 3.5% for Money Plus policies (2021: 3.5%) and 0.5% (2021: 1.0%) for all other interest sensitive products. The Company also announced a bonus rate of 0.5% (2021: 0.5%) for paid up policies. LifeStar Health Limited LifeStar Health Limited generated higher revenue and earnings during 2022; however, earnings generated during 2022 were slightly lower than the previous due to lower profit commission and lower Bupa Global International Business. Consequently, LifeStar Health Limited, registered a profit before tax of €0.4 million (2021: €0.6 million), as revenue increased marginally in 2022 to €1.83 million (2021: €1.81 million). Total assets decreased from €2.6 million in 2021 to €2.0 million in 2022 and total equity decreased from €1.4 million in 2021 to €1.2 million in 2022 after declaring an interim net dividend of €0.5 million. LifeStar Health Limited is required to comply with the own funds requirement as set by the Malta Financial Services Authority. The minimum capital requirements (defined as “the capital resource requirements”) must be maintained at all times throughout the year. LifeStar Health Limited monitors its capital level through detailed reports compiled with management accounts. Any transactions that may potentially affect LifeStar Health Limited’s regulatory position are immediately reported to the directors for resolution prior to notifying the Malta Financial Services Authority. The Company exceeded the required minimum capital requirements during the year under review. GlobalCapital Financial Management Limited (“GCFM”) During the year ending 31 December 2022, the Company generated revenue of €732,853 (2021: €697,439) and other income of €175,303 (2021: €204,908), of which €25,000 (2021: €110,000) was attributable to the profit recognised on the sale of book. As a result, the Company recognized provisions for claims settlement of €152,072 (2021: reversal of €13,974) and recorded settled claims of €207,104 (2021: €47,971) in its income statement. However, this was offset by direct costs and administrative expenses totalling €825,024 (2021: €1,063,714 which principally relate to salaries (2022: €457,876; 2021: €608,161) and professional and consultancy fees (2022: €143,094; 2021: €210,454). The net asset position of the Company as at 31 December 2022 amounted to €327,217 (€263,475). During 2020 the shareholder contributed €1,207,421 by means of a shareholder’s loan and shareholder’s contribution, the latter of which is subject to regulatory approval. As set out in Note 18 the shareholder’s loan is unsecured, interest free, repayable at the discretion of the Company and has no fixed repayment date. Future outlook The directors intend to continue to operate in line with the Group’s current business plan. Principal risks and uncertainties The Group’s principal risks and uncertainties are further disclosed in Note 1 – Critical accounting estimates and judgements, Note 2 – Management of insurance and financial risk, Note 11 – Intangible assets covering details on the Group’s goodwill and value of in-force business, Note 14 – Investment property disclosing the significant observable inputs, and Note 17 – Technical provisions which includes the valuation assumptions. Financial risk management Note 2 to the financial statements provides details in connection with the Group’s use of financial instruments, its financial risk management objectives and policies and the financial risks to which it is exposed. Results and dividends The consolidated statement of comprehensive income sets out the results of the Group. The Group’s total comprehensive loss amounted to €3.2 million (2021: profit of €0.7 million), whilst the pre-tax loss for the year amounted to €5.0 million (2021: profit of €1.7 million). The Directors do not recommend the declaration of a dividend (2021: €Nil). However, a gross dividend of €500 thousand was declared by LifeStar Health Limited as subject to regulatory no objection. Events after the financial reporting date As we progress through 2023, certain events which might have the potential of impacting the results of the holding company and the group are possible repercussions from the war in Ukraine on the European and, more generally, on the world economy as well as rising inflation and stock market uncertainty. Other concerns could arise from another pandemic flareup although the latter is considered unlikely in the short term as vaccinations have been administered on a large scale globally. Post the end of the reporting date however, as aforementioned, the potential risks to the performance of any company is from high inflation witnessed in the last few months which has forced many major central banks to increases interest rates as a counter-measure for inflation. So far, Malta has been well shielded from increases in fuel and utility prices, though the Government has hinted that this may not be sustainable in the longer term. Should the government halt its subsidies on energy and other assistance to industry in general, this could lead to further price increases and possibly a reduction in disposable income, and which in-turn would adversely influence the propensity to save. To date we have not seen any impact on the level of business being written with us. Our next challenge is now to increase efficiency even further to mitigate as much as possible the effect of rising prices but also with a view to help in protecting the environment in line with national targets and efforts done by industry as well as our peers. We are not otherwise aware of any further events that could possibly have an effect on the operations of the LifeStar Holdings Group. Going concern The Directors, as required by Capital Markets Rule 5.62, have considered the Group’s operating performance, the statement of financial position at year end, as well as the business plan for the coming year, and they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Directors The Directors of the Company who held office during the period were: Paolo Catalfamo (Chairman) Joseph Schembri (Senior Independent Director) Joseph Del Raso Cinzia Catalfamo Gregory Eugene McGowan In terms of the Company’s Articles of Association, Directors elected at an Annual General meeting shall hold office until the next subsequent Annual General Meeting, unless they resign or are removed from office. On the lapse of such term, a Director shall be eligible for re-appointment. ## Remuneration Committee and Corporate Governance The Board of Directors has set up an Audit and Risk Committee, as well as a Remuneration and Nominations Committee. The Board of the Company will be submitting to the Shareholders at the next Annual General Meeting the Remuneration Report for the financial year ending 31 December 2022 (the “Reporting Period”). The Remuneration Report is drawn up in accordance with, and in fulfilment of the provisions of Chapter 12 of the Capital Markets Rules issued by the Malta Financial Services Authority (“Capital Markets Rules”) relating to the Remuneration Report and Section 8A of the Code of Principles of Good Corporate Governance (Appendix 5.1 of the Capital Market Rules) regarding the Remuneration Statement. The Remuneration Report provides a comprehensive overview of the nature and quantum of remuneration paid to the individual Directors and members of Executive Management during the Reporting Period and details how this complies with the Company’s Remuneration Policy. The Remuneration Report is intended to provide increased corporate transparency, increased accountability and a better shareholder oversight of the remuneration paid to Directors and members of Executive Management. The contents of the Remuneration Report have been reviewed by the Company’s Auditors to ensure that the information required in terms of Appendix 12.1 of the Capital Market Rules has been included. The Group’s arrangements for corporate governance are reported in the ‘Corporate Governance - Statement of Compliance’ section. ## Statement of Directors’ responsibilities The Directors are required by the Companies Act (Cap. 386 of the Laws of Malta) to prepare financial statements in accordance with International Financial Reporting Standards as adopted by the EU which give a true and fair view of the state of affairs of the Group at the end of each financial year and of the profit or loss of the Group for the year then ended. In preparing the financial statements, the Directors are responsible for:
- | ensuring that the financial statements have been drawn up in accordance with International Financial Reporting Standards (IFRS’s) as adopted by the EU;
- | selecting and applying appropriate accounting policies;
- | making accounting estimates that are reasonable in the circumstances; and
- | ensuring that the financial statements are prepared on the going concern basis unless it is inappropriate to presume that the Group will continue in business as a going concern.
The Directors are responsible for ensuring that proper accounting records are kept which disclose with reasonable accuracy at any time the financial position of the Group and which enable the Directors to ensure that the financial statements comply with the Companies Act (Cap. 386 of the Laws of Malta). This responsibility includes designing, implementing and maintaining such internal control as the Directors determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Directors are also responsible for safeguarding the assets of the Group, and including by taking reasonable steps for the prevention and detection of fraud and other irregularities. In addition, the Directors are required to ensure that the Group companies have, at all times, complied an observed the various requirements, more specifically that LifeStar Insurance p.l.c. adhered to the provisions and requirements of the Insurance Business Act (Cap. 403 of the Laws of Malta); that LifeStar Health Limited has, at all times, complied with and observe the various requirements of the Insurance Distribution Act (Cap. 487 of the Law of Malta); and that Global Capital Financial Management Limited was in compliance of the Investment Services Act (Cap. 370 of the Laws of Malta). Auditors Grant Thornton have intimated their willingness to continue in office. A resolution to reappoint Grant Thornton as auditor of the Group will be proposed at the forthcoming annual general meeting. Information pursuant to Capital Markets Rule 5.64 The Company has an authorised share capital of €58,234,400 divided into 200,000,000 ordinary shares with a nominal value of €0.291172 each (2021: €58,234,400). During the latest Extraordinary General Meeting of the Company held on the 05th December 2022, it had been resolved that 5,897,951 issued Ordinary shares, each of a nominal value of €0.291172, which were held by the Company and which constituted non-voting shares listed on the official list of the Malta Stock Exchange, were to be cancelled. Consequent to such extraordinary resolution, the issued share capital of the Company listed on the Malta Stock Exchange was reduced from €8,735,160 divided into 30,000,000 Ordinary shares, each of a nominal value of €0.291172, which Ordinary Shares were all listed on the official list of the Malta Stock Exchange, to €7,017,841.81 divided into 24,102,049 Ordinary Shares of a nominal value of €0.291172 each. A copy of the extraordinary resolution was submitted to the Malta Business Registry on the 19th December 2022. The Malta Business Registry published the relative notice in connection with the reduction in share capital required in terms of the provisions of the Companies Act (Chapter 386 of the Laws of Malta) on the 20th April 2023. The issued shares of the Company consist of one class of ordinary shares with equal voting rights attached. The shares carry equal rights to participate in any distribution of dividends declared by the Company. Each share shall be entitled to one vote at the meetings of the shareholders. The shares are freely transferable in accordance with the rules and regulations of the Malta Stock Exchange, as applicable from time to time, and in terms of the provisions of the Articles of Association of the Company. The Directors confirm that, as at 31 December 2022, Investar p.l.c. 65.48% (2021: 52.60%), GlobalCapital Financial Management Limited as nominee for Client accounts 31.78% (2021: 23.74%) held a shareholding in excess of 5% of the total issued share capital. At 31 December 2021, LifeStar Holding plc held a shareholding of 19.7% which constituted non-voting shares. The Nominations and Remuneration Committee of the Board of Directors currently consists solely of independent Non-Executive Directors. It has the responsibility to assist and advise the Board of Directors on matters relating to the remuneration of the Board of Directors and senior management, in order to motivate and retain executives and ensure that the Company is able to attract the best talents in the market in order to maximise shareholder value. The rules governing the appointment and replacement of the Company’s Directors are contained in Articles 73 to 81 of the Company’s Articles of Association. Directors of the Company shall be elected on an individual basis by ordinary resolution of the Company in general meeting. The said ordinary resolution shall be determined and decided by means of a poll. The Company may, by an ordinary resolution of the members entitled to vote at a general meeting of the Company, remove any Director before the expiration of his term of office. The Directors can only issue and allot shares up to such maximum amount not exceeding the authorised share capital of the Company, as may be authorised by ordinary resolution of the general meeting in accordance with section 85 of the Companies Act. This and other powers vested in the Company’s Directors are confirmed in Articles 82 to 99 of the Company’s Articles of Association. During the current year, the Company cancelled 19.7% own shares. It is hereby declared that as at 31 December 2022, the information required under Capital Markets Rules 5.64.4, 5.64.5, 5.64.7, 5.64.10 and 5.64.11 is not applicable to the Company. Information pursuant to Capital Markets Rule 5.70.1 The Company made advances to Investar p.l.c. during the year which were still outstanding as at 31 December 2022. Other than the above, there were no material contracts to which the Company, or its subsidiary was a party, and in which anyone of the Company’s Directors was directly or indirectly interested. Information pursuant to Capital Markets Rule 5.70.2 The Company Secretary is Dr Clinton Calleja and the registered office is LifeStar Holding p.l.c., Testaferrata Street, Ta’ Xbiex, Malta. Statement by the Directors pursuant to Capital Markets Rule 5.68 We, the undersigned, declare that to the best of our knowledge, the financial statements prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and its subsidiaries included in the consolidation taken as a whole, and that this Director’s Report includes a fair review of the performance of the business and the position of the Company and its subsidiaries included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Signed on behalf of the Board of Directors on 27 April 2023 by Prof. Paolo Cata lfamo (Chairman) and Joseph Schembri (Director) as per the Directors’ Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report. ## Corporate Governance – Statement of Compliance Pursuant to the Capital Markets Rules issued by the Malta Financial Services Authority, the Company whose equity securities are listed on a regulated market should endeavour to adopt the Code of Principles of Good Corporate Governance (“the Code”) as contained in Appendix 5.1 to Chapter 5 of the Capital Markets Rules. In terms of the Capital Markets Rules, the Company is hereby reporting on the extent of its adoption of the Code. The Company acknowledges that the Code does not prescribe mandatory rules but recommends principles so as to provide proper incentives for the Board of Directors (“the Board”) and the Company’s management to pursue objectives that are in the interests of the Company and its shareholders. Good corporate governance is the responsibility of the Board, and in this regard the Board has carried out a review of the Company’s compliance with the Code during the period under review, and hereby provides its report thereon. As demonstrated by the information set out in th is statement, the Company believes that during the reporting period, it has been in full compliance with the Code. Compliance with the Code Principles one and four: The Board The Directors report that for the financial year under review, the Directors have provided the necessary leadership in the overall direction of the Company and have performed their responsibilities for the efficient and smooth running of the Company with honesty, competence and integrity. The Company is committed to the highest standards of business conduct and seeks to maintain these standards across all of its operations. Directors, individually and collectively, are of appropriate calibre, with the necessary skill and experience to assist them in providing leadership, integrity and judgment in directing the Company towards the maximisation of shareholder value and to make an effective contribution to the leadership and decision-making processes of the Company as reflected by the Company’s strategy and policies. Members of the Board are selected on the basis of their core competencies and professional background so as to ensure the continued success of the Company. All the members of the Board are fully aware of, and conversant with, the statutory and regulatory requirements connected to the business of the Company. The Board is accountable for its performance and that of its delegates to shareholders and other relevant stakeholders. The responsibilities of the Board also inv olve the oversight of the Company’s internal control procedures and financial performance, and the review of business risks facing the Company, in order to ensure that these are adequately identified, evaluated, managed and minimised. The activities of the Board are exercised in a manner designed to ensure that it can effectively supervise the operations of the Company and protect the interests of the shareholders and stakeholders. All directors are required to:
• | Exercise prudent and effective controls which enable risk to be assessed and managed in order to achieve continued prosperity to the Company;
• | Be accountable for all actions or non-actions arising from discussion and actions taken by them or their delegates;
• | Determine the Company’s strategic aims and the organisational structure;
• | Regularly review management performance and ensure that the Company has the appropriate mix of financial and human resources to meet its objectives and improve the economic and commercial prosperity of the Company;
• | Acquire a broad knowledge of the business of the Company;
• | Be aware of and be conversant with the statutory and regulatory requirements connected to the business of the Company;
• | Allocate sufficient time to perform their responsibilities; and
• | Regularly attend meetings of the board.
The Board has established an Audit and Risk Committee in terms of the Capital Markets Rules 5.117 – 5.134A in order to assist with the monitoring of the Company’s present and future operations, threats and risks in the external environment and current and future strengths and weaknesses. The Audit and Risk Committee ensures that the Company has the appropriate policies and procedures in place to ensure that the Company and its employees maintain the highest standards of corporate conduct, including compliance with applicable laws, regulations, business and ethical standards. The Audit and Risk Committee has a direct link to the Board and is represented by the Chairman of the Audit and Risk Committee in all Board meetings. Principle two: Chairman and Chief Executive Officer Due to the structure of the Company and the nature of its operations, the Company does not employ a Chief Executive Officer (CEO) at Company level. Prof. Paolo Catalfamo occupies the post of Chairman and is responsible to:
• | Lead the board and set its agenda;
• | Ensure that the directors of the board receive precise, timely and objective information so that they can take sound decisions and effectively monitor the performance of the company;
• | Ensure effective communication with shareholders; and
• | Encourage active engagement by all members of the board for discussion of complex or contentious issues.
Joseph C. Schembri is appointed as the Senior Independent Director of the Company to act a reference and coordination point for the requests and contributions of non-executive directors and, in particular, those who are independent. The regulated operating subsidiaries of the Company, LifeStar Insurance plc, LifeStar Health Limited and GlobalCapital Financial Management Limited each have a CEO or Managing Director. The CEO of LifeStar Insurance plc is Cristina Casingena. The Managing Director of LifeStar Health Limited is Adriana Zarb Adami. In the case of GlobalCapital Financial Management Limited, the Managing Director is Konrad Camilleri. Principle three: Composition of the Board In accordance with the provisions of the Company’s Articles of Association, the ap pointment of Directors to the Board is exclusively reserved to the Company’s shareholders, except in so far as appointment is made to fill a casual vacancy on the Board, and which appointment would expire at the Company’s Annual General Meeting following appointment. Any vacancy among the Directors may be filled by the co-option of another person to fill such vacancy. Such co-option shall be made by the Board of Directors. The Board has the overall responsibility for the activities carried out within the Company and the Group. The Board understands and fully appreciates the business risk issues and key performance indicators affecting the ability of the Company to achieve its objectives. The Board is composed of five (5) Directors (one (1) of whom is the Chairman). All Directors are non-executive Directors. For the purpose of Capital Markets Rules 5.118 and 5.119, Mr Joseph C Schembri, Mr Joseph Del Raso and Mr Gregory Eugene McGowan are the non-executive Directors which are deemed independent. The independent non-executive Directors constitute a majority of the Board. Mr Joseph Schembri was confirmed in his position as non-executive Senior Independent Director of the Company. Each director is mindful-of maintaining independence, professionalism and integrity in carrying out his duties, responsibilities and providing judgement as a director of the Company. The Board co nsiders that none of the independent directors of the Company:
• | Are or have been employed in any capacity by the Company;
• | Have or have had, over the past three years, a significant business relationship with the Company;
• | Have received or receives significant additional remuneration from the company in addition to its director’s fee;
• | Have close family ties with any of the company’s executive directors or senior employees;
• | Have served on the Board of the Company for more than twelve consecutive years; and
• | Have or have been within the last three years an engagement partner or a member of the audit team of the present or former external auditor of the Company, or any member of the Group.
Each of the directors hereby declares that he undertakes to:
• | Maintain in all circumstances his independence of analysis, decision and action;
• | Not to seek or accept any unreasonable advantages that could be considered as compromising his independence; and
• | Clearly express his opposition in the event that he finds that a decision of the Board may harm the Company.
The Board of Directors is currently chaired by Prof. Paolo Catalfamo. Th e Company Secretary (Dr. Clinton Calleja) attends all meetings and takes minutes. Under the direction of the Chairman, the Company Secretary’s responsibilities include ensuring good information flows between the Board of Directors and its Committees and between senior management and the Directors, as well as ensuring that the Board of Directors’ procedures are followed. The Company’s Articles of Association also provide for adequate controls and procedures in so far as the treatment of conflicts of interest during Board of Directors meetings is concerned. The follow ing Directors served on the Board during the period under review: Prof. Paolo Catalfamo Non-executive Director and Chairman Mr. Joseph Schembri Senior, Independent, Non-executive Director Mr Joseph Del Raso Independent, Non-executive Director Mr. Gregory Eugene McGowan Independent, Non-executive Director Ms. Cinzia Catalfamo Non-executive Director Principle Five: Board Meetings The Directors meet regularly to dispatch the business of the Board. The Directors are notified of forthcoming meetings by the Company Secretary with the issue of an agenda and supporting Board papers, which are circulated in advance of the meeting. Minutes of Board meetings are taken, recording inter alia attendance, and resolutions taken at the meeting. The Chairman ensures that all relevant issues are on the agenda supported by all available information, whilst encouraging the presentation of views pertinent to the subject matter and giving all Directors every opportunity to contribute to relevant issues on the agenda. The agenda for the meeting seeks to achieve a balance between long-term strategic and short-term performance issues. The Board of Directors meets in accordance with a regular schedule of meetings and reviews and evaluates the Group’s strategy, major operational and financial plans, as well as new material initiatives to be undertaken by the Group. The Board of Directors meets formally at least once every quarter and at other times on an ‘as and when’ required basis. During the period under review, the Board of Directors met seven (7) times. The following Directors attended Board meetings as follows:
| Meetings
Prof. Paolo Catalfamo | 7
Mr. Joseph Schembri | 7
Mr. Joseph Del Raso | 5
Mr. Gregory Eugene McGowan | 7
Ms. Cinzia Catalfamo | 4
Principle Six: Information and Professional development The Company ensures that it provides Directors with relevant information to enable them to effectively contribute to Board decisions. The Company Secretary ensures effective information flows within the Board, Committees and between Senior Management and Directors, as well as facilitating professional development. The Company Secretary advises the Board through the Chairman on governance matters. Directors may, in the course of their duties, take independent professional advice on any matter at the Company’s expense. The Company will provide for additional individual Directors' training on a requirements basis. The Chief Executive Officer ensures that systems are in place:
• | to provide for the development and training of the management and employees generally so that the Company remains competitive;
• | to provide additional training for individual Directors where necessary;
• | to monitor management and staff morale; and
• | to establish a succession plan for senior management.
Principle Seven: Evaluation of Board of Directors Performance The Chairman of the Board informally evaluates the performance of the Board members, which assessment is followed by discussions within the Board. Through this process, the activities and working methods of the Board and each committee member are evaluated. Amongst the things examined by the Chairman through his assessment are the following: how to improve the work of the Board further, whether or not each individual member takes an active part in the discussions of the Board and the committees; whether they contribute independent opinions and whether the meeting atmosphere facilitates open discussions. Under the present circumstances the Board does not consider it necessary to appoint a committee to carry out a performance evaluation of its role as the Board’s performance is furthermore also under the scrutiny of the shareholders. The self-evaluation of the Board has not led to any material changes in the Company’s governance structures and organisations. Principle Eight: Committees Audit and Risk Committee The Board of Directors delegates certain responsibilities to the Audit Committee, the terms of reference of which reflect the requirements stipulated in the Capital Markets Rules. As part of its terms of reference, the Audit Committee of the Company has the responsibility to, if required, vet, approve, monitor and scrutinise related party transactions falling within the ambits of the Capital Markets Rules, and to make its recommendations to the Board of Directors on any such proposed related party transactions. The Audit Committee also assists the Board of Directors in monitoring and reviewing the Group’s financial statements, accounting policies and internal control mechanisms in accordance with the Committee’s terms of reference. The primary purposes of the Audit Committee is to protect the interests of the Company’s shareholders and assist the Directors in conducting their role effectively so that the Company’s decision-making capability and the accuracy of its reporting and financial results are maintained at a high level at all times. In the performance of its duties the Audit Committee calls upon any person it requires to attend meetings. The external auditors of the Company are invited to attend all relevant meetings. The internal auditors are also invited to attend meetings of the Audit Committee and report directly any findings of their audit process. The head of legal and compliance, as well as the compliance officers of the regulated subsidiaries are invited to attend meetings of the Audit Committee to present their compliance reports. In addition, the Audit Committee invites the Acting Chief Financial Officer and other members of management to attend Audit Committee meetings on a regular basis and as deemed appropriate. The Audit Committee also approves and reviews the Group’s Compliance Plan and Internal Audit Plan prior to the commencement of every financial year and monitors the implementation of these plans. The remit of the Audit Committee was also extended to include Group risk management, and it is also referred to as the Audit and Risk Committee. During the financial year under review, the Audit Committee held ten (10) meetings.
Members | Committee meetings attended
Joseph Schembri | 10
Joseph Del Raso | 9
Gregory Eugene McGowan | 9
The Audit Committee was chaired by Joseph Schembri, who is an auditor by profession, and is considered to be an independent non-executive member possessing the necessary competence in auditing/accounting as required in terms of the Capital Markets Rules. All the members that served on the Audit Committee were deemed by the Board of Directors to be Independent Non-Executive Directors, and the Board of Directors felt that as a whole the Audit Committee had the necessary skills, qualifications and experience in satisfaction of the Capital Markets Rules. The terms of reference of the Audit Committee include, inter alia , its support to the Board of the Company in its responsibilities in dealing with issues of risk management, control and governance and associated assurance. The Board has set formal terms that establish the composition, role, function, the parameters of the Audit Committee’s remit as well as the basis for the processes that it is required to comply with. The Audit Committee is expected to deal with and advise the Board on the following matters:
• | its monitoring responsibility over the financial reporting processes, financial policies and internal control structures;
• | monitoring the performance of the entity or entities borrowing funds (the subsidiaries) from the Company;
• | maintaining communications on such matters between the Board, management and the independent auditors;
• | facilitating the independence of the external audit process and addressing issues arising from the audit process; and
• | preserving the Company’s assets by understanding the risk environment and determining how to deal with those risks.
In addition, the Audit Committee also has the role and function of scrutinising and evaluating any proposed transaction prior to be entered into by the Company and a related party, to ensure that the execution of any such transaction is at arm's length and on a commercial basis and ultimately in the best interests of the Company. The Audit Committee oversees the financial reporting of the Company and ensures the process takes place in a timely manner. The Audit Committee is free to question any information that may seem unclear. Nominations and Remuneration Committee The Board of Directors has appointed a Nominations and Remuneration Committee, which fulfils the joint-function of a Nominations Committee as well as a Remuneration Committee. In fulfilling the nominations’ function, the Committee is responsible for recommending Directors for election by shareholders at the Annual General Meeting, for planning the structure, size, performance and composition of the Group’s subsidiary boards, for the appointment of senior executives and management and for the development of a succession plan for senior executives and management. During the financial year under review, the Nominations and Remuneration Committee met four (4) times and was composed of Joseph Del Raso as Chairman, and Joseph Schembri and Gregory Eugene McGowan as members. Remuneration Function The Remuneration and Nomination Committee monitors, reviews, and advises on the Company’s remuneration policy as well as approves the remuneration packages of senior executives and management. The main activities of the Remuneration and Nomination Committee include devising appropriate policies and remuneration packages to attract, retain, and motivate Directors and senior management of a high calibre in order to well position the Company and LifeStar Health within the insurance market and its areas of business. In the fulfilment of its remuneration matters oversight, the Committee monitors, reviews and advises on the Group’s Remuneration Policy, as well as approves the remuneration packages of senior executives and Management. Nominations Function The Remuneration and Nominations Committee is also responsible for making recommendations for appointment to the Board and for reviewing in order to ensure that appointments to the Boards are conducted in a systematic, objective and consistent manner. It is also responsible for the review of performance of the Company’s Board members and committees, the appointment of senior executives and management and the development of a succession plan for senior executives and management. Additionally, this committee monitors, reviews and advises on the Company’s remuneration policy as well as approves the remuneration packages of senior executives and management. Executive Management Committee The Executive Management Committee manages the Group’s day-to-day business and the implementation of the strategy established by the Board of Directors. The Executive Management Committee as at 31 December 2022 was composed of the Managing Directors of each of the operating regulated subsidiaries of the Group, as well as of the Chief Financial Officer, the Chief Information Officer, the Chief Operations Officer and Risk and the Head of Legal and Compliance.
Members | Role
Roberto Apap Bologna | Chief Executive Officer LifeStar Holding p.l.c.
Cristina Casingena | Chief Executive Officer LifeStar Insurance p.l.c.
Adriana Zarb Adami | Managing Director LifeStar Health Limited
Konrad Camilleri | Managing Director GlobalCapital Financial Management Limited
Amanda Mifsud | Acting Chief Financial Officer
Adrian Mizzi | Chief Information Officer
Jonathan Camilleri | Chief Operations Officer
Michael Schembri | Head Legal and Compliance
Internal controls The Board is ultimately responsible for the Company’s system of internal controls and for reviewing its effectiveness. The Company has an appropriate organisational structure for planning, executing, controlling and monitoring business operations in order to achieve its objectives. The Group encompasses different licensed activities regulated by the MFSA. These activities include the carrying on of long-term business of insurance under the Insurance Business Act (Cap. 403 of the Laws of Malta); acting as an agent for sickness and accident insurance in terms of the Insurance Distribution Act (Cap. 487 of the Laws of Malta); and the provision of investment services and advice in terms of the Investment Services Act (Cap. 370 of the Laws of Malta). The Board of Directors has continued to ensure that effective internal controls and processes are maintained to support sound operations. The regulated subsidiaries have also set up Committees to further enhance internal controls and processes. These include the setting up of an Executive Committee, Asset and Liability Committee and the Risk Management Committee at life company level. Policies such as Risk Compliance Monitoring Programmes, Risk Management, Complaints, Data Protection, Internal Audit and Anti-Money Laundering Policies and Procedures as well as a Conflict of Interest Policy have been adopted. The Directors are aware that internal control systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and can only provide reasonable, and not absolute, assurance against normal business risks. During the financial year under review the Company operated a system of internal controls which provided reasonable assurance of effective and efficient operations covering all controls, including financial and operational controls and compliance with laws and regulations. Processes are in place for identifying, evaluating and managing the significant risks facing the Company. The Company has implemented control procedures designed to ensure complete and accurate accounting for financial transactions and to limit the potential exposure to loss of assets or fraud. Measures taken include physical controls, segregation of duties and reviews by management, internal audit and the external auditors. The Internal Audit Department monitors and reviews the Group’s compliance with policies, standards and best practice in accordance with an Internal Audit Plan approved by the Audit Committee. KPMG fulfil the functions of internal auditors of the Company. Principle Nine and Ten: Relations with Shareholders and with the Market, and Institutional Shareholders The Company recognises the importance of maintaining a dialogue with its shareholders and of keeping the market informed to ensure that its strategies and performance are well understood. During the period under review, the Company has maintained an effective communication with the market through a number of channels including Company announcements and Circulars. The Company shall also communicate with its shareholders through the Company’s Annual General Meeting (“AGM”) to be held later in 2023, which will include resolutions such as the approval of the Annual Report and Audited Financial Statements for the year ended 31 December 2022, the election/re-election of Directors, the determination of the maximum aggregate emoluments that may be paid to Directors, the appointment of auditors and the authorisation of the Directors to set the auditors’ remuneration, as well as any other resolution as may necessary in terms of law or as required by the Company. In terms of Rule 12.26L of the Capital Market Rules, an annual general meeting shall have the right to hold an advisory vote on the remuneration report of the most recent financial year. Both the Chairman of the Board and the Chairman of the Audit Committee will be available to answer shareholder questions, which may be put forward in terms of Rule 12.24 of the Capital Markets Rules. Apart from the AGM, the Group communicates and shall communicate with its shareholders through the publication of its Annual Report and Financial Statements, the publication of interim results, updates and articles on the Group’s website, the publication of Group announcements and press releases. The Office of the Company Secretary maintains regular communication between the Company and its investors. Individual shareholders can raise matters relating to their shareholdings and the business of the Company at any time throughout the year, and are given the opportunity to ask questions at the AGM or to submit written questions in advance. As provided by the Companies Act (Cap. 386), minority shareholders may convene Extraordinary General Meetings. Principle Eleven: Conflicts of Interest The Directors are fully aware of their responsibility always to act in the best interests of the Company and its shareholders as a whole irrespective of whoever appointed or elected them to serve on the Board. On joining the Board and regularly thereafter, the Directors are informed of their obligations on dealing in securities of the Company within the parameters of law, including the Capital Markets Rules, and Directors follow the required notification procedures. Directors’ direct interest in the shareholding of the Company:
| Number of shares as at 31 December 2022
Prof. Paolo Catalfamo | Nil
Mr. Joseph Schembri | Nil
Mr. Gregory McGowan | Nil
Mr. Joseph Del Raso | Nil
Ms. Cinzia Catalfamo | Nil
With the exception of Paolo Catalfamo, none of the Directors of the Company have any direct interest in the shares of the Company’s subsidiaries or investees or any disclosable interest in any contracts or arrangements either subsisting at the end of the last financial year or entered into during this financial year. No other changes in the Directors’ interest in the shareholding of the Company between year-end and 27 April 2023. Prof. Paolo Catalfamo holds shares in the Company indirectly through his shareholding in Investar plc, through GlobalCapital Financial Management Limited as nominee for client accounts. Principle Twelve: Corporate social responsibility The Company seeks to adhere to sound Principles of Corporate Social Responsibility in its management practices, and is committed to enhance the quality of life of all stakeholders of the Company. The Board is mindful of the environment and its responsibility within the community in which it operates. In carrying on its business the Company is fully aware of and at the forefront in preserving the environment and continuously reviews its policies aimed at respecting the environment and encouraging social responsibility and accountability. During the financial year under review, the Group pursued its corporate social responsibility by supporting and contributing to a number of charitable causes. ## Remuneration Report Remuneration Committee The remuneration functions of the Remuneration and Nominations Committee were performed by Joseph Del Raso, as Chairman, as well as Joseph Schembri and Gregory Eugene McGowan as members. Remuneration policy The Company’s remuneration of its Directors and senior executives is based on the remuneration policy adopted and approved by the shareholders of the Company at the annual general meeting. The Remuneration Policy of the Company is available for inspection on the Company’s website. During the latest general meeting held on 24 June 2022 the meeting approved the Remuneration Statement published as part of the annual report of the Company for the financial year ended 31 December 2021. The Remuneration Policy of the Company is intended to provide an over-arching framework that establishes the principles and parameters to be applied in determining the remuneration to be paid to any member of the Board of Directors, and the senior executives. The policy describes the components of such remuneration and how this contributes to the Company’s business strategy, in the context of its long term sustainable value creation. This Remuneration Policy is divided into five parts distinguishing between directors, senior management, employees, intermediaries and service providers. Remuneration payable to Directors Fixed remuneration The remuneration payable to Directors shall be fixed and will not have any incentive programmes and will therefore not receive any performance-based remuneration. None of the Directors, in their capacity as Directors of the Company, is entitled to profit-sharing, share options or pension benefits. In addition to fixed remuneration in respect of their position as members of the Board of Directors of the Company, individual Directors who are also appointed to chair, or to sit as members of, one or more committees or sub-committees of the Company, or its subsidiaries, are entitled to receive additional remuneration as may be determined by the Board of Directors from time to time. Any such additional remuneration shall, however, form part of the aggregate emoluments of the Directors as approved by the general meeting of the Company. The basis upon which such additional remuneration is paid shall take into account the skills, competencies and technical knowledge that members of such committees require and the respective functions, duties and responsibilities attaching to membership of such committees. Other entitlements The Company may also pay out fringe benefits, comprising of medical and life insurance. Director Employment Service Contracts As at the date hereof, none of the Directors have an employment service contract. Remuneration payable to executives
• | Managing Director: The Remuneration and Nominations Committee will forward its proposal for the remuneration of a Managing Director (where one is appointed) to the Board of Directors (in the absence of the Managing Director), and the Board will endorse / amend / make recommendations as deemed fit. The remuneration of the Managing Director will consist of a salary and any performance-related bonuses or fringe benefits will be at the sole discretion of the Remuneration Committee with the final approval of the Board of Directors.
• | Chief Executive Officer: The remuneration of the Chief Executive Officer will consist of a salary, and any performance related bonuses and any fringe benefits will be at the sole discretion of the Chairman and submitted for approval of the Remuneration and Nominations Committee. The Chairman (directly or through the Chief Finance Officer) will forward any recommendations for any changes to the remuneration of the Chief Executive Officers for the consideration of the Remuneration and Nominations Committee which will in turn review any such request and forward any request to the Board for the Board’s final approval.
• | Head/Senior Manager: The remuneration of the Head / Senior Managers will be at the sole discretion of the Chairman and/or the Chief Executive Officer (where one is appointed) without the need to refer to the Remuneration and Nominations Committee or the Board of Directors subject that the remuneration does not exceed a yearly remuneration of Fifty Thousand Euros (€50,000). Any amount over this threshold will require the endorsement of the Remuneration Committee.
Senior executive service contracts All senior executive contracts are of an indefinite duration and subject to the termination notice periods prescribed by law. Remuneration Report In terms of Capital Markets Rule 12.26K, the Company is also required to draw up an annual remuneration report (the “Remuneration Report”), which report is to:
• | provide an overview of the remuneration, including benefits in whatever form, awarded or due to members of the Board of Directors and the CEO during the financial year under review; and
• | explain whether any deviations have been made from the Remuneration Policy of the Company.
In this respect, the Company is hereby producing its remuneration report following the approval and entry into effectiveness, in October 2020, of the Remuneration Policy described in the preceding sections. Remuneration paid to Directors All remuneration for directors was in conformity with this policy. The remuneration paid to individual Directors during the year under review was as follows:
Name | Position | 2022 | 2021
Paolo Catalfamo | Non-Executive Director and Chairman | €100,000 | €100,000
Joseph Schembri | Independent Non-Executive Director | €21,000 | €21,000
Joseph Del Raso | Independent Non-Executive Director | €21,000 | €21,000
Cinzia Catalfamo | Non-Executive Director | €15,000 | €15,000
Gregory Eugene McGowan | Independent Non-Executive Director | €18,000 | €18,000
The Directors receive remuneration for their appointment to the Board, and remuneration for their role as members or chairpersons of any committees of the Board of the Company. The above-indicated remuneration is comprehensive also of their position as directors of any subsidiary forming part of the Group. It is the shareholders, in terms of the Memorandum and Articles of Association of the Company, who determine the maximum annual aggregate emoluments of the directors by resolution at the annual general meeting of the Company. The aggregate amount fixed for this purpose during the last annual general meeting was €400,000. The aggregate emoluments of the Directors in respect of their role as directors of the Company and, where applicable, as members of committees of the Board of Directors of the Company and non-executive directors of subsidiaries forming part of the Group, amounted to €175,000. The Directors do not expect the abovementioned maximum aggregate remuneration limit of €400,000 to be exceeded during the financial year ending 31 December 2022. The Remuneration Committee is satisfied that the fixed remuneration for the year under review is in line with the core principles of the Remuneration Policy applicable during the year under review, including giving due regard to market conditions and remuneration rates offered by comparable organisations for comparable roles. Remuneration paid to Senior Management Remuneration paid to Senior Management amounts to €775,112 and excludes the fringe benefit for health insurance and life cover as described above. Decision-making with respect to the Remuneration Policy Whereas the Board of Directors is responsible for determining the Remuneration Policy of the Company, the Remuneration and Nominations Committee, acting in its function as the Remuneration Committee, is, in turn, responsible for overseeing and monitoring its implementation and ongoing review thereof. This policy is to be reviewed annually by the Remuneration and Nominations Committee of the Company. The annual review will ensure that the policy remains relevant for the Company and that any improvements by way of amendments are indeed effected. In evaluating whether it is necessary or beneficial to supplement or otherwise alter the Remuneration Policy of the Company, the Remuneration Committee have regard to, inter alia, best industry and market practice on remuneration, the remuneration policies adopted by companies operating in the same industry sectors, as well as legal and, or statutory rules, recommendations or guidelines on remuneration, including but not limited to the Code of Principles of Good Corporate Governance contained in Appendix 5.1 of the Capital Markets Rules of the Listing Authority. Whilst members of the Remuneration Committee may be present while his/her remuneration as a Director or other officer of the Company and, or of any other company forming part of the Group, is being discussed at a meeting of such Committee, any decision taken by the Committee in this respect shall be subject to the approval of the Board of Directors. At a meeting of the Board of Directors, no Director may be present while his/her remuneration as a Director or other officer of the Company and, or of any other company forming part of the Group, is being discussed. Other information on remuneration in terms of Appendix 12.1 of the Capital Markets Rules In terms of the requirements within Appendix 12.1 of the Capital Market Rules, the following table presents the annual change of remuneration, of the company’s performance, and of average remuneration on a full-time equivalent basis of the company’s employees (other than directors) over the two most recent financial years. The Company’s non-executive Directors, have been excluded from the table below since they have a fixed fee as described above.
| 2022 | 2021 | Change
| € | € | %
Annual aggregate employee remuneration | 2,508,445 | 2,168,448 | 16
Company performance, profit after tax | 6,067,452 | 6,067,452 | 1,058
Average employee remuneration (excluding CEO) –full-time equivalent | 34,260 | 33,882 | 1
The contents of the Remuneration Report have been reviewed by the external auditor to ensure that the information required in terms of Appendix 12.1 to Chapter 12 of the Capital Markets rules have been included.

## Statement of comprehensive income
### Technical account – long term business of insurance
|  | The Group
For the year ended 31 December | Notes | 2022 |  | 2021
|  | € |  | €
Earned premiums, net of reinsurance |  |  |  |
Gross premiums written | 3 | 12,926,107 |  | 12,757,784
Outward reinsurance premiums |  | (1,918,887) |  | (1,785,759)
Earned premiums, net of reinsurance |  | 11,007,220 |  | 10,972,025
Net investment income | 6 | (1,034,938) |  | 111,455
Investment contract fee income |  | 1,953,936 |  | 1,804,755
Total technical income |  | 11,926,218 |  | 12,888,235
Benefits and claims incurred, net of reinsurance |  |  |  |
Benefits and claims paid |  |  |  |
- gross amount |  | 12,903,271 |  | 12,871,400
- reinsurers' share |  | (355,362) |  | (2,724,219)
|  | 12,547,909 |  | 10,147,181
Change in the provision for benefits and claims |  |  |  |
- gross amount |  | (84,451) |  | 16,747
- reinsurers' share |  | 583,656 |  | (12,116)
| 17 | 499,205 |  | 4,631
Benefits and claims incurred, net of reinsurance |  | 13,047,114 |  | 10,151,812
Change in other technical provisions, net of reinsurance |  |  |  |
Insurance contracts |  |  |  |
- gross amount |  | (4,024,784) |  | (4,399,921)
- reinsurers' share |  | 990,010 |  | 1,106,303
| 17 | (3,034,774) |  | (3,293,618)
Investment contracts with DPF - gross | 17 | (26,147) |  | 1,519,192
Investment contracts without DPF - gross |  | 101,419 |  | 79,009
Change in other technical provisions, net of reinsurance |  | (2,959,502) |  | (1,695,417)
Net operating expenses | 4 | 5,014,896 |  | 4,543,004
Total technical charges |  | 15,102,508 |  | 12,999,399
Balance on the long-term business of insurance technical account |  | (3,176,290) |  | (111,164)

## Statement of comprehensive income
Non-technical account
|  | The Group |  | The Company
For the year ended 31 December | Notes | 2022 |  | 2021 |  | 2022 |  | 2021
|  | € |  | € |  | € |  | €
Balance on the long-term business of insurance technical account |  | (3,176,290) |  | (111,164) |  | - |  | -
Commission and fees receivable | 3 | 2,790,343 |  | 2,841,563 |  | - |  | -
Commission payable and direct marketing costs | 4 | (234,978) |  | (347,778) |  | - |  | -
Increment in the value of in-force business |  | 1,169,240 |  | 2,135,069 |  | - |  | -
Finance costs | 5 | (91,983) |  | (441,578) |  | (256,479) |  | (569,282)
Amounts recharged to subsidiaries |  | - |  | - |  | 583,835 |  | -
Staff costs | 4 | (897,162) |  | (1,153,857) |  | (32,356) |  | -
Other expenses | 4 | (2,236,541) |  | (2,210,675) |  | (336,344) |  | (660,324)
Investment income net of allocation to the insurance technical account | 6 | (1,970,831) |  | 1,241,994 |  | - |  | (234,794)
Change in fair value of Investment in Subsidiaries |  | - |  | - |  | (653,059) |  | 1,606,701
Movement in provision for impairment of other receivables |  | (258,311) |  | (259,960) |  | - |  | -
Other income |  | 29,867 |  | - |  | 29,867 |  | -
(Loss)/ profit for the year before other charges |  | (4,876,646) |  | 1,693,614 |  | (664,536) |  | 142,301
Other provisions |  | (55,032) |  | (61,945) |  | - |  | -
(Loss) / profit before tax |  | (4,931,678) |  | 1,631,669 |  | (664,536) |  | 142,301
Tax credit/ (charge) | 7 | 1,797,867 |  | (924,340) |  | (22,960) |  | -
(Loss)/ profit for the financial year attributable to the shareholders of the Company |  | (3,133,811) |  | 707,329 |  | (687,496) |  | 142,301
Other comprehensive income |  |  |  |  |  |  |  |
Items that will not be reclassified subsequently to profit or loss |  |  |  |  |  |  |  |
Revaluation of property, plant and equipment | 20 | (75,598) |  | - |  | - |  | -
|  | (75,598) |  | - |  | - |  | -
Items that will be reclassified subsequently to profit or loss |  |  |  |  |  |  |  |
Net profit on available-for-sale financial assets | 20 | 970,158 |  | 1,751 |  | - |  | -
Deferred tax on the revaluation of available-for-sale financial assets | 20 | (339,556) |  | (613) |  | - |  | -
|  | 630,602 |  | 1,138 |  | - |  | -
Other comprehensive income for the year, net of tax |  | 555,004 |  | 1,138 |  | - |  | -
Total comprehensive (loss)/ income for the year |  | (2,578,807) |  | 708,467 |  | (687,496) |  | 142,301
(Loss)/ earnings per share (cents) | 9 | (0.13) |  | 2.2 |  |  |  |
Total comprehensive (loss) income for the year attributable to: |  |  |  |  |  |  |  |
Non-controlling interest |  | (474,113) |  | 817,400 |  |  |  |
Owners of the parent |  | (2,104,694) |  | (108,933) |  |  |  |
|  | (2,578,807) |  | 708,467 |  |  |  |

The accounting policies and explanatory notes form an integral part of the financial statements.

## Statement of financial position
|  | The Group |  | The Company
As at 31 December | Notes | 2022 |  | 2021 |  | 2022 |  | 2021
|  | € |  | € |  | € |  | €
ASSETS |  |  |  |  |  |  |  |
Intangible assets | 11 | 15,361,291 |  | 14,153,312 |  | - |  | -
Right-of-use asset | 27 | 167,531 |  | 283,880 |  | 166,001 |  | 276,230
Property, plant and equipment | 13 | 3,623,954 |  | 3,625,100 |  | - |  | 427
Investment property | 14 | 24,008,721 |  | 24,430,683 |  | - |  | -
Investment in group undertakings | 15 | - |  | - |  | 24,616,588 |  | 25,269,647
Other investments | 16 | 87,429,200 |  | 91,219,724 |  | - |  | -
Reinsurers' share of technical provisions | 17 | 18,840,581 |  | 20,004,452 |  | - |  | -
Deferred tax asset | 12 | 1,298,458 |  | - |  | - |  | -
Taxation receivable |  | 259,898 |  | 51,631 |  | - |  | -
Trade and other receivables | 18 | 3,391,649 |  | 3,975,197 |  | 2,178,560 |  | 2,031,781
Cash and cash equivalents | 24 | 6,645,133 |  | 12,625,645 |  | 454,612 |  | 860,287
Asset held-for-sale | 14 | - |  | 190,000 |  | - |  | -
Total assets |  | 161,026,416 |  | 170,559,624 |  | 27,415,761 |  | 28,438,372
EQUITY AND LIABILITIES |  |  |  |  |  |  |  |
Capital and reserves |  |  |  |  |  |  |  |
Share capital | 19 | 7,017,842 |  | 8,735,160 |  | 7,017,842 |  | 8,735,160
Own shares |  | - |  | (1,717,318) |  | - |  | (1,717,318)
Other reserves | 20 | 11,163,483 |  | 10,608,479 |  | 19,747 |  | 19,747
Capital redemption reserve |  | 800,000 |  | 800,000 |  | - |  | -
Merger reserve |  | - |  | - |  | 5,651,631 |  | 5,651,631
Retained earnings |  | (4,465,251) |  | (1,805,553) |  | 2,745,593 |  | 3,433,089
Non-controlling interest |  | 7,838,933 |  | 8,313,046 |  | - |  | -
Total equity |  | 22,355,007 |  | 24,933,814 |  | 15,434,813 |  | 16,122,309
Technical provisions: |  |  |  |  |  |  |  |
Insurance contracts | 17 | 60,001,855 |  | 64,026,640 |  | - |  | -
Investment contracts with DPF | 17 | 30,187,659 |  | 30,213,806 |  | - |  | -
Investment contracts without DPF | 17 | 33,070,993 |  | 34,395,648 |  | - |  | -
Provision for claims outstanding | 17 | 1,748,839 |  | 1,423,495 |  | - |  | -
Lease Liability | 27 | 153,874 |  | 259,192 |  | 152,094 |  | 245,801
Interest bearing borrowings | 21 | 4,252,740 |  | 4,730,586 |  | 9,246,917 |  | 9,667,026
Taxation payable |  | 152,305 |  | 190,952 |  | 53,402 |  | 53,402
Deferred tax liability | 12 | 1,656,286 |  | 2,396,044 |  | - |  | -
Trade and other payables | 22 | 7,446,858 |  | 7,989,447 |  | 2,528,535 |  | 2,349,834
Total liabilities |  | 138,671,409 |  | 145,625,810 |  | 11,980,948 |  | 12,316,063
Total equity and liabilities |  | 161,026,416 |  | 170,559,624 |  | 27,415,761 |  | 28,438,372

The accompanying notes are an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board of Directors on 27 April 2023. The financial statements were signed on behalf of the Board of Directors by Prof. Paolo Catalfamo (Director) and Mr Joseph Schembri (Director) as per the Directors' Declaration on ESEF Annual Financial Report submitted in conjunction with the Annual Financial Report.

## Statement of changes in equity
For the year ended 31 December
| The Group
| Share capital |  | Own shares |  | Other reserves |  | Capital redemption reserve |  | Retained earnings |  | Attributable to the owners of the parent |  | Non-controlling interest |  | Total
| € |  | € |  | € |  | € |  | € |  | € |  | € |  | €
Balance as at 1 January 2022 | 8,735,160 |  | (1,717,318) |  | 10,608,479 |  | 800,000 |  | (1,805,553) |  | 16,620,768 |  | 8,313,046 |  | 24,933,814
Loss for the year | - |  | - |  | - |  | - |  | (2,659,698) |  | (2,659,698) |  | (474,113) |  | (3,133,811)
Other comprehensive gain for the year | - |  | - |  | 555,004 |  | - |  | - |  | 555,004 |  | - |  | 555,004
Total comprehensive gain/(loss) for the year | - |  | - |  | 555,004 |  | - |  | (2,659,698) |  | (2,104,694) |  | (474,113) |  | (2,578,807)
Non-controlling interest | - |  | - |  | - |  | - |  | - |  | - |  | - |  | -
Cancellation of own shares | (1,717,318) |  | 1,717,318 |  | - |  | - |  | - |  | - |  | - |  | -
Balance as at 31 December 2022 | 7,017,842 |  | - |  | 11,163,483 |  | 800,000 |  | (4,465,251) |  | 14,516,074 |  | 7,838,933 |  | 22,355,007
Balance as at 1 January 2021 | 8,735,160 |  | - |  | 10,731,697 |  | 800,000 |  | (1,819,838) |  | 18,447,019 |  | - |  | 18,447,019
Profit for the year | - |  | - |  | - |  | - |  | (110,071) |  | (110,071) |  | 817,400 |  | 707,329
Other comprehensive gain for the year | - |  | - |  | 1,138 |  | - |  | - |  | 1,138 |  | - |  | 1,138
Total comprehensive gain/(loss) for the year | - |  | - |  | 1,138 |  | - |  | (110,071) |  | (108,933) |  | 817,400 |  | 708,467
Non-controlling interest | - |  | - |  | - |  | - |  | - |  | - |  | 7,495,646 |  | 7,495,646
Transfer of deferred tax on reclassification of investment property to PPE | - |  | - |  | (124,356) |  | - |  | 124,356 |  | - |  | - |  | -
Exchange for own shares | - |  | (1,717,318) |  | - |  | - |  | - |  | (1,717,318) |  | - |  | (1,717,318)
| - |  | (1,717,318) |  | (124,356) |  | - |  | 124,356 |  | (1,717,318) |  | 7,495,646 |  | 5,778,328
Balance as at 31 December 2021 | 8,735,160 |  | (1,717,318) |  | 10,608,479 |  | 800,000 |  | (1,805,553) |  | 16,620,768 |  | 8,313,046 |  | 24,933,814

| The Company
| Share capital |  | Own shares |  | Other reserves |  | Merger reserve |  | Retained earnings |  | Total
| € |  | € |  | € |  | € |  | € |  | €
Balance as at 1 January 2022 | 8,735,160 |  | (1,717,318) |  | 19,747 |  | 5,651,631 |  | 3,433,089 |  | 16,122,309
Loss for the year |  |  |  |  |  |  |  |  | (687,496) |  | (687,496)
Cancellation of own shares | (1,717,318) |  | 1,717,318 |  | - |  | - |  | - |  | -
Balance as at 31 December 2022 | 7,017,842 |  | - |  | 19,747 |  | 5,651,631 |  | 2,745,593 |  | 15,434,813
Balance as at 1 January 2021 | 8,735,160 |  | - |  | 19,747 |  | 5,651,631 |  | (21,564,589) |  | (7,158,051)
Prior year adjustment for change in accounting policy | - |  | - |  | - |  | - |  | 24,855,377 |  | 24,855,377
Restated balance as at 1 January 2021 | 8,735,160 |  | - |  | 19,747 |  | 5,651,631 |  | 3,290,788 |  | 17,697,326
Profit for the year | - |  | - |  | - |  | - |  | 142,301 |  | 142,301
Purchase of own shares |  |  | (1,717,318) |  | - |  | - |  | - |  | (1,717,318)
Balance as at 31 December 2021 | 8,735,160 |  | (1,717,318) |  | 19,747 |  | 5,651,631 |  | 3,433,089 |  | 16,122,309

In 2021, as a result of an exchange of shares process which took place at the time of listing of the shares of LifeStar Insurance p.l.c on the Malta Stock Exchange, LifeStar Holdings p.l.c. became the owner of 5,897,951 of its own shares. As at 31 December 2022, the amount of these shares is deducted from equity attributable to the owners of the Group until the shares are cancelled or reissued. On 14 December 2022, the Board approved the cancellation of its own shares with a value of €1,717,318. The accounting policies and explanatory notes form an integral part of these financial statements.

## Statement of cash flows
|  | Consolidated |  | Holding Company
For the year ended 31 December | Notes | 2022 |  | 2021 |  | 2022 |  | 2021
|  | € |  | € |  | € |  | €
Cash flows (used in)/ generated from operations | 23 | (6,792,871) |  | 6,753,151 |  | 118,435 |  | 3,480,236
Dividends received |  | 697,214 |  | 434,815 |  | - |  | -
Interest received |  | 951,650 |  | 1,147,588 |  | - |  | -
Interest paid |  | (95,363) |  | - |  | - |  | -
Tax refund on tax at source |  | - |  | 371,949 |  | - |  | -
Tax paid |  | (257,446) |  | (103,445) |  | - |  | -
Net cash flows generated from operating activities |  | (5,496,816) |  | 8,604,058 |  | 118,435 |  | 3,480,236
Cash flows (used in)/ generated from investing activities |  |  |  |  |  |  |  |
Purchase of intangible assets | 11 | (655,553) |  | (616,192) |  | - |  | -
Purchase of property, plant and equipment | 13 | (241,797) |  | (84,865) |  | - |  | -
Purchase of investments at fair value through profit or loss | 16 | (8,927,610) |  | (16,710,558) |  | - |  | -
Purchase of investments at available-for-sale | 16 | (433,313) |  | (655,128) |  | - |  | -
Purchase of investments in equity measured at cost | 16 | (1,194,373) |  | - |  | - |  | -
Proceeds from disposal of investments |  | - |  | - |  | - |  | 5,861,160
Proceeds from disposal of investments at fair value through profit or loss | 16 | 10,105,845 |  | 8,126,304 |  | - |  | -
Proceeds from disposal of available-for-sale financial assets | 16 | 482,447 |  | 5,871,450 |  | - |  | -
Proceeds on disposal of assets held for sale | 14 | 190,000 |  | - |  | - |  | -
Net proceeds from other investments - loans and receivables | 16 | 10,766 |  | (8,354) |  | - |  | -
Proceeds from disposal of term deposits | 16 | 600,000 |  | 910,223 |  | - |  | -
Net cash flows used in generated from investing activities |  | (63,588) |  | (3,167,120) |  | - |  | 5,861,160
Cash flows (used in)/ generated from financing activities |  |  |  |  |  |  |  |
Bank loan repayment |  | - |  | - |  | (420,109) |  | (525,081)
Repayment of bonds |  | - |  | - |  | - |  | (10,204,098)
Payment of lease liability |  | - |  | - |  | (104,001) |  | (125,000)
Payment of bond issue costs |  | - |  | (345,445) |  | - |  | -
Net payments of interest-bearing borrowings |  | (420,108) |  | (10,729,179) |  | - |  | -
Net cash flows (used in)/ generated from financing activities |  | (420,108) |  | (11,074,624) |  | (524,110) |  | (10,854,179)
Net movement in cash and cash equivalents |  | (5,980,512) |  | (5,637,686) |  | (405,675) |  | (1,512,783)
Cash and cash equivalents as at the beginning of the year |  | 12,625,645 |  | 18,263,331 |  | 860,287 |  | 2,373,070
Cash and cash equivalents as at the end of the year | 24 | 6,645,133 |  | 12,625,645 |  | 454,612 |  | 860,287

The accounting policies and explanatory notes form an integral part of the financial statements. ## Accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented except for those adopted for the first time during 2022. The consolidated financial statements have been prepared from the financial statements of the companies compromising the group as detailed in noted to the consolidated financial statements. 1. Basis of preparation These consolidated financial statements comprise the Company and its subsidiaries (collectively the “Group”). The Group is primarily involved in the carrying on of long term business of insurance under the Insurance Business Act (Cap. 403 of the Laws of Malta), acting as an agent for sickness and accident insurance in terms of the Insurance Distribution Act (Cap. 487 of the Laws of Malta), the provision of investment services and advice in terms of the Investment Services Act (Cap. 370 of the Laws of Malta), and the provision on behalf of Group undertakings of property management and consultancy services, including property acquisitions, disposals and development projects. These consolidated and separate financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU (EU IFRSs), and with the Companies Act (Cap. 386 of the Laws of Malta). The consolidated financial statements include the financial statements of LifeStar Holding p.l.c. and its subsidiary undertakings. They also comply with the requirements of the Insurance Business Act (Cap. 403 of the Laws of Malta), the Investment Services Act (Cap. 370 of the Laws of Malta), and the Insurance Distribution Act (Cap. 487 of the Laws of Malta) in consolidating the results of LifeStar Insurance Limited, LifeStar Health, and GlobalCapital Financial Management where appropriate. The financial statements are prepared under the historical cost convention, as modified by the fair valuation of investment property, financial assets and financial liabilities at fair value through profit or loss, available for sale investments and the value of in-force business. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
- | Level 1: inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
- | Level 2: inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
- | Level 3: inputs are unobservable inputs for the asset or liability.
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines when transfers are deemed to have occurred between Levels in the hierarchy at the end of each reporting period. The preparation of financial statements in conformity with EU IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise their judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement and estimates or complexity are disclosed in Note 1 to these financial statements. The consolidated statement of financial position are presented in increasing order of liquidity, with additional disclosures on the current or non-current nature of the assets and liabilities provided within the notes to the financial statements. Appropriateness of going concern assumption in the preparation of the Group’s financial statements As explained in the Directors’ report, the Group made a loss of €3.2 million (2021: profit of €0.7 million) for the year ended 31 December 2022 and, at balance sheet date, had net assets amounting to €22.4 million (2021: €24.9 million). The volatility in the financial markets had a significant impact on the Group’s financial performance for the financial year ending 31 December 2022, and will continue to impact its performance going forward. Furthermore, an analysis was carried out on the credit rating of the main counterparties and no significant downgrades were noted since 31 December 2022. Such analysis was also extended to analyse the effect on the Solvency Capital Requirements (the “SCR”) of the Group by reference to stressed scenarios in the latest ORSA report prepared by the Group. Taking into consideration the current laws and regulations and the result from the aforementioned stressed scenarios, the Group does not expect that the effects of COVID-19 will impact its ability to satisfy the regulatory solvency requirement. However, the Company continues to explore any and all ways possible to strengthen its capital base. At a subsidiary level, the pandemic also impacted the business of the Group, due to a decrease in clients operating in the hospitality industry. Customers started undertaking certain medical interventions that were postponed from 2020. This resulted in lower revenues. Consequently, the Directors do not anticipate a material impact on the going concern status of the Group stemming from the COVID-19 pandemic. During 2022, GlobalCapital Financial Management Limited (GCFM) registered a reduction in its losses and has embarked on a restructuring plan aimed at identifying potential new revenue streams which shall continue curtail the losses and eventually generate profits. Appropriateness of going concern assumption in the preparation of the Company’s financial statements As explained in the Directors’ report, the company made a total comprehensive loss of € 0.7 million (2021: € 0.1 million) for the year ended 31 December 2022 and, at balance sheet date, had net assets amounting to € 15.4 million (2021: € 16.1 million). When assessing the going concern assumption for the Company, the Directors have made reference to the Group’s performance and noted that the loss resulted from movements in fair value of some of its subsidiaries. The directors also note that the COVID-19 pandemic had limited impact on the Company and that operations of the Company have returned to a state of normality. The directors have submitted a plan to the regulator which shows that the company’s balances due to related companies will be settled from the sale of certain assets and the receipt of dividends from subsidiaries. This plan is reviewed periodically by the directors. Having concluded this assessment the Directors expect that the Group and the Company will be able to sustain its operations over the next twelve months and in the foreseeable future and consider the going concern assumption in the preparation of the financial statements as appropriate as at the date of authorisation for issue of these financial statements. Standards, interpretations and amendments to published standards as endorsed by the EU that are effective in the current year The following accounting pronouncements became effective from 1 January 2022 and have therefore been adopted:
• | Reference to the Conceptual Framework (Amendments to IFRS 3)
• | COVID-19 – Related Rent Concessions beyond 30 June 2021 (Amendments to IFRS 16)
• | Property, Plant and Equipment: Proceeds Before Intended Use (Amendments to IAS 16)
• | Annual Improvements (2018-2020 Cycle):
- | Fees in the ‘10 per cent’ Test for Derecognition of Liabilities (Amendments to IFRS 9)
- | Lease Incentives (Amendments to IFRS 16)
These amendments are not applicable to the group or do not have a significant impact on these financial statements and therefore no additional disclosures have been made. Standards, interpretations and amendments to published standards as endorsed by the EU that were effective before 2020 for which the Group elected for the temporary exemption IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. The Standard supersedes all previous versions of IFRS 9. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income and fair value through profit or loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. This single, principle-based approach replaces existing rule-based requirements that are generally considered to be overly complex and difficult to apply. The new model also results in a single, forward-looking ‘expected loss’ impairment model that will require more timely recognition of expected credit losses. The new expected credit losses model replaces the incurred loss impairment model used in IAS 39. IFRS 9 also removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value. This change in accounting means that gains caused by the deterioration of an entity’s own credit risk on such liabilities are no longer recognised in profit or loss. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with earlier application permitted. The Group has applied the temporary exemption as allowed under the Amendment to IFRS 4, and has therefore deferred the application of IFRS 9 to be concurrent with the effective date of IFRS 17. The Company continues to apply the existing financial instruments Standard - IAS 39. Transition The general principle in IFRS 9 is for retrospective application in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The transition requirements refer to the date of initial application (DIA), which is the beginning of the reporting period in which an insurer first applies IFRS 9. The date of initial application for the group will be 1 January 2023. IFRS 9 contains certain exemptions from full retrospective application. These include an exemption from the requirement to restate comparative information about classification and measurement, including impairment. If an insurer does not restate prior periods, then opening retained earnings (or other components of equity, as appropriate) for the annual reporting period that includes the DIA is adjusted for any difference between the carrying amounts of financial instruments before adoption of IFRS 9 and the new carrying amounts. The Group has elected to apply the exemption from the requirement to restate comparative information. The Group has performed an assessment to consider the implications of the standard on transition and its impact on the financial results and position. The impact was not found to be material from a recognition and measurement point of view. According to the assessment performed, applying the classification and measurement rules for financial assets in terms of IFRS 9 to the Group’s investment portfolio results in all such investments being measured at FVTPL. The other financial assets are currently measured at amortised cost under IAS 39 and these would continue being measured at amortised cost under IFRS 9. All of the Group’s financial liabilities are currently measured at amortised cost in terms of IAS 39 and are expected to continue being measured at amortised cost in terms of IFRS 9. Standards, amendments and Interpretations to existing Standards that are not yet effective and have not been adopted early by the Group At the date of authorisation of these financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published by the IASB. None of these Standards or amendments to existing Standards have been adopted early by the Group. IFRS 17 replaces IFRS 4 “Insurance Contracts” and is effective for annual periods beginning on or after 1 January 2023, with early adoption permitted. The Company will apply IFRS 17 for the first time on 1 January 2023. This standard will bring significant changes to the accounting for insurance contracts, investment contracts with discretionary participation features (“DPF”) and reinsurance contracts, the impact of which cannot be assessed at this point in time as the IFRS 17 implementation project is still ongoing. The anticipated changes in the recognition and measurement of insurance contracts and investment contracts with DPF issued and reinsurance contracts held, the changes in presentation and disclosures and the transition approach expected to be followed are described below. Other Standards and amendments that are not yet effective and have not been adopted early by the company include:
- | IFRS 17 ‘Insurance Contracts’
- | Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
- | Deferred Tax related to Assets and Liabilities from a Single Transaction
With the exception of the implementation of IFRS 17 as further described below, these other amendments are not expected to have a significant impact on the financial statements in the period of initial application and therefore no disclosures have been made. 1.1 Definition and classification of insurance contracts Insurance contracts are contracts under which the Group accepts significant insurance risk from a policyholder by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. In making this assessment, all substantive rights and obligations, including those arising from law or regulation, will be considered on a contract-by-contract basis at the contract issue date. The Group will use judgement to assess whether a contract transfers insurance risk (that is, if there is a scenario with commercial substance in which the Group has the possibility of a loss on a present value basis) and whether the accepted insurance risk is significant. The Group will determine whether it has significant insurance risk, by comparing benefits payable after an insured event with benefits payable if the insured event did not occur. The Group issues contracts under which it accepts significant insurance risk from its policyholders, which are classified as insurance contracts. Some investment contracts contain discretionary participation features (“DPF”), whereby the investor has the right and is expected to receive, as a supplement to the amount not subject to the Group’s discretion, potentially significant additional benefits based on the return of specified pools of investment assets. The Group issues investment contracts with DPF which are linked to the same pool of assets as insurance contracts and have economic characteristics similar to those of insurance contracts. The Group shall account for these contracts applying IFRS 17. Contracts will be classified as direct participating contracts or contracts without direct participation features. A contract with direct participation features is defined as one which, at inception, meets the following criteria:
- | the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items;
- | the Company expects to pay to the policyholder an amount equal to a substantial share of the fair value returns on the underlying items; and
- | the Company expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value of the underlying items.
These criteria will be assessed at the individual contract level based on the Group’s expectations at the contract’s inception, and they will not be reassessed in subsequent periods, unless the contract is modified. The variability in the cash flows will be assessed over the expected duration of a contract. The duration of a contract takes into account all cash flows within the boundary. The savings and pensions (unit linked) contracts as well as the profit sharing contracts held within the run-off portfolio of the Group will be classified as direct participating contracts. Such contracts allow policyholders to participate in investment returns with the Group, in addition to compensation for losses from insured risk. These contracts are substantially investment service-related contracts where the return on the underlying items is shared with policyholders. Underlying items comprise specified portfolios of investment assets that determine amounts payable to policyholders. In addition to issuing insurance contracts, the Group holds reinsurance contracts to mitigate certain risk exposures. A reinsurance contract is an insurance contract issued by a reinsurer to compensate the Group for claims arising from one or more insurance contracts issued by the Group. These are quota share and excess of loss reinsurance contracts. For reinsurance contracts held by the Group, even if they do not expose the issuer (the reinsurer) to the possibility of a significant loss they would still be deemed to transfer significant insurance risk if they transfer substantially all of the insurance risk relating to the reinsured portions of the underlying insurance contracts to the reinsurer. ## 1.2 Separating components from insurance contracts At inception, the Group shall separate the following components from an insurance contract and account for them as if they were stand-alone financial instruments:
- | derivatives embedded in the contract whose economic characteristics and risks are not closely related to those of the host contract, and whose terms would not meet the definition of an insurance contract as a stand-alone instrument; and
- | distinct investment components i.e. investment components that are not highly inter-related with the insurance components and for which contracts with equivalent terms are sold, or could be sold, separately in the same market or the same jurisdiction.
An investment component comprises of the amounts that an insurance contract requires the Group to repay to a policyholder in all circumstances, regardless of whether an insured event occurs. Investment components which are highly interrelated with the insurance contract of which they form a part are considered non-distinct and are not separately accounted for. After separating any embedded derivatives or distinct investment components, the Group shall separate any promises to transfer to policyholders distinct goods or services other than insurance coverage and investment services and account for them as separate contracts with customers (i.e. not as insurance contracts). A good or service is distinct if the policyholder can benefit from it either on its own or with other resources that are readily available to the policyholder. A good or service is not distinct and is accounted for together with the insurance component if the cash flows and risks associated with the good or service are highly inter-related with the cash flows and risks associated with the insurance component, and the Group provides a significant service of integrating the good or service with the insurance component. The Group shall assess its insurance contracts to determine whether they contain any derivatives or investment components or promises to transfer to policyholders distinct goods or services other than insurance coverage and investment services which must be accounted for under a different IFRS than IFRS 17. The Group shall apply, IFRS 17 to all remaining components of the host insurance contract. The Group issues some contracts which include an embedded derivative (surrender option) and/or investment component (account balance) under which the surrender value is paid to the policyholder on maturity or earlier lapse of the contract. These components have been assessed to meet the definition of a highly related and non-distinct component. The surrender option is interrelated with the value of the insurance contract and as such, is not separated. Concerning the account balance, the Group is unable to measure the investment component separately from the contract and the policyholder is unable to benefit from the investment component unless the insurance component is also present and as such they will not be separated. The Group issues certain contracts which include a promise to transfer a good or non-insurance service. These transfers of a good or non-insurance service are not distinct and therefore will not be separated from the contracts. Once the embedded derivatives, investment components and the goods and services components are separated, the Group shall assess whether the contract should be separated into several insurance components that, in substance, should be treated as separate contracts. To determine whether a single legal contract does not reflect the substance of the transaction and its insurance components recognised and measured separately instead, the Group will consider whether there is an interdependency between the different risks covered, whether components can lapse independently of each other and whether the components can be priced and sold separately. When the Group enters into one legal contract with different insurance components operating independently of each other, insurance components are recognised and measured separately applying IFRS 17. Concerning the contracts with supplementary benefits (riders) the Group will determine if the legal contract reflects the substance of the transaction and if so the insurance components will not be separated. The reinsurance contracts held by the Group, despite the fact that they may cover more than one types of risk exposures, would reflect single contracts in substance and will be treated as one single accounting contract for IFRS 17. ## 1.3 Aggregation level The Group shall identify portfolios by aggregating insurance contracts that are subject to similar risks and managed together. The Group expects that all contracts within each product line, as defined for management purposes, have similar risks and, therefore, would represent a portfolio of contracts when they are managed together. Reinsurance contracts held will be grouped into portfolios taking into consideration the nature of the risk and the type of reinsurance cover. Each portfolio will be further sub-divided into groups of contracts to which the recognition and measurement requirements of IFRS 17 will be applied. At initial recognition, the Group will segregate contracts based on when they were issued. A portfolio will contain all contracts that were issued within a 12-month period. Each annual cohort will be further disaggregated into three groups of contracts:
- | any contracts that are onerous on initial recognition;
- | any contracts that, on initial recognition, have no significant possibility of becoming onerous subsequently; and
- | any remaining contracts in the portfolio.
Portfolios of reinsurance contracts held will be assessed for aggregation separately from portfolios of insurance contracts issued. Applying the grouping requirements to reinsurance contracts held, the Group will aggregate reinsurance contracts held into groups of:
- | contracts for which there is a net gain at initial recognition, if any;
- | contracts for which, at initial recognition, there is no significant possibility of a net gain arising subsequently; and
- | remaining contracts in the portfolio, if any.
The Group will make an evaluation of whether a set of contracts can be treated together in making the profitability assessment based on reasonable and supportable information. In the absence of such information the Group will assess each contract individually. If insurance contracts within a portfolio would fall into different groups only because law or regulation specifically constrains the Group’s practical ability to set a different price or level of benefits for policyholders with different characteristics, the Group may include those contracts in the same group. The determination of whether a contract or a group of insurance contracts issued is onerous will be based on the expectations as at the date of initial recognition, with fulfilment cash flow expectations determined on a probability-weighted basis. The Group will determine the appropriate level at which reasonable and supportable information would be available to assess whether the contracts are onerous at initial recognition and whether the contracts not onerous at initial recognition have a significant possibility of becoming onerous subsequently. A similar assessment will be performed for reinsurance contracts held to determine the contracts for which there is a net gain at initial recognition or whether contracts for which there is not a net gain at initial recognition have a significant possibility of a net gain subsequently. For contracts that the Premium Allocation Approach (“PAA”) will be applied by the Group, it shall assume that contracts are not onerous (for reinsurance contracts there is not a net gain) on initial recognition unless there are facts and circumstances indicating otherwise. The Group will assess the likelihood of changes in applicable facts and circumstances to determine whether contracts not onerous (for reinsurance contracts there is not a net gain) at initial recognition belong to a group with no significant possibility of becoming onerous (for reinsurance contracts no significant possibility of a net gain) in the future. The composition of groups established at initial recognition will not be subsequently reassessed. ## 1.4 Initial Recognition The Group will recognise groups of insurance contracts that it issues from the earliest of the following:
- | The beginning of the coverage period of the group of contracts;
- | The date when the first payment from a policyholder in the group is due, or when the first payment is received if there is no due date;
- | When the Group determines that a group of contracts becomes onerous.
Concerning onerous contracts such contracts expected on initial recognition to be loss-making will be grouped together and such groups are to be measured and presented separately. Once contracts are allocated to a group, they will not be re-allocated to another group, unless they are substantively modified. The Group will recognise a group of reinsurance contracts held:
- | If the reinsurance contracts provide proportionate coverage, at the later of the beginning of the coverage period of the group, or the initial recognition of any underlying contract;
- | In all other cases, from the beginning of the coverage period of the first contract in the group.
If the Group enters into the reinsurance contract held at or before the date when an onerous group of underlying contracts will be recognised prior to the beginning of the coverage period of the group of reinsurance contracts held, the reinsurance contract held will be recognised at the same time as the group of underlying insurance contracts is recognised. The Group shall add new contracts to the group when they meet the recognition criteria. ## 1.5 Contract Boundaries Insurance contracts The Group will include in the measurement of a group of insurance contracts all the future cash flows within the boundary of each contract in the group. Cash flows are within the boundary of an insurance contract if they arise from substantive rights and obligations that exist during the reporting period in which the Group can compel the policyholder to pay the premiums, or in which the Group has a substantive obligation to provide the policyholder with services. Cash flows within the boundary of an insurance contract are those that relate directly to the fulfilment of the contract, including cash flows for which the Group has discretion over the amount or timing. A substantive obligation to provide services ends when:
- | The Group has the practical ability to reassess the risks of the particular policyholder and, as a result, can set a price or level of benefits that fully reflects those risks; or
| Both of the following criteria are satisfied:
- | The Group has the practical ability to reassess the risks of the portfolio of insurance contracts that contain the contract and, as a result, can set a price or level of benefits that fully reflects the risk of that portfolio
- | The pricing of the premiums for coverage up to the date when the risks are reassessed does not take into account the risks that relate to periods after the reassessment date.
In determining whether all the risks will be reflected either in the premium or in the level of benefits, the Group will consider all risks that policyholders would transfer had it issued the contracts (or portfolio of contracts) at the reassessment date. Similarly, the Group will conclude on its practical ability to set a price that fully reflects the risks in the contract or portfolio at a renewal date by considering all the risks that it would assess when underwriting equivalent contracts on the renewal date for the remaining service. The assessment on the Group’s practical ability to reprice existing contracts takes into account all contractual, legal and regulatory restrictions. In doing so, the Group will disregard restrictions that have no commercial substance. The Group will also consider the impact of market competitiveness and commercial considerations on its practical ability to price new contracts and repricing existing contracts. Judgement will be required to decide whether such commercial considerations are relevant in concluding as to whether the practical ability exists at the reporting date. The Group issues contracts that include an option to add insurance coverage at a future date so that the Group is obligated to provide additional coverage if the policyholder exercises the option. Group has no right to compel the policyholder to pay premiums and the option to add insurance coverage at a future date is an insurance component that is not measured separately from the insurance contract. When the insurance option is not in substance a separate contract and the terms are guaranteed by the Group, the cash flows arising from the option are within the boundary of the contract. If the option is not a separate contract and the terms are not guaranteed by the Group, the cash flows arising from the option might be either within or outside the contract boundary, depending on whether the Group has the practical ability to set a price that fully reflects the reassessed risks of the whole contract. In cases where the Group will not have the practical ability to reprice the whole contract when the policyholder exercises the option to add coverage, the expected cash flows arising from the additional premiums after the option exercise date would be within the original contract boundary. In estimating expected future cash flows of the group of contracts the Group will apply its judgement in assessing future policyholder behaviour surrounding the exercise of options available to them such as surrenders options, and other options falling within the contract boundary. The Group will assess the contract boundary at initial recognition and at each subsequent reporting date to include the effect of changes in circumstances on the Group’s substantive rights and obligations. Reinsurance contracts For groups of reinsurance contracts held, cash flows are within the contract boundary if they arise from substantive rights and obligations of the cedant that exist during the reporting period in which the Group will be compelled to pay amounts to the reinsurer or has a substantive right to receive insurance contract services from the reinsurer. A substantive right to receive services from the reinsurer ends when the reinsurer:
- | has the practical ability to reassess the risks transfer to it and can set a price or level of benefits that fully reflects those reassessed risks or
- | has a substantive right to terminate the coverage.
The boundary of a reinsurance contract held includes cash flows resulting from the underlying contracts covered by the reinsurance contract. This includes cash flows from insurance contracts that are expected to be issued by the Group in the future if these contracts are expected to be issued within the boundary of the reinsurance contract held. The Group holds proportional life reinsurance contracts which have an unlimited duration, but which allow both the reinsurer and the Group to terminate the contract at three months’ notice for new business ceded. The Group includes within the contracts boundary only cash flows arising from such three months’ notice period because it does not have substantive rights or obligations beyond that point. Therefore, on initial recognition, the cash flows within the reinsurance contract boundary are determined to be those arising from underlying contracts that the Group expects to issue and cede under the reinsurance contract within the next three months. Subsequently, expected cash flows beyond the end of this initial notice period are considered cash flows of new reinsurance contracts and are recognised, separately from the initial contract, as they fall within the rolling three-month notice period. Other life reinsurance agreements have a cancellability clause for new business with three months’ notice but this being effective at the next annual renewal of the agreement and hence, in this case, on initial recognition the cash flows within the reinsurance contract boundary are determined to be those arising from underlying contracts that the Group expects to issue and cede under the reinsurance contract within the year. The Group will treat all the above-mentioned reinsurance contracts as a series of contracts that form an annual group and cover underlying business issued within a year. The Group holds proportional group life reinsurance contracts that have a -short-term boundary and cover short-term underlying contracts issued within the term on a risk-attaching basis. All cash flows arising from claims incurred and expected to be incurred during the life of the underlying contracts are expected to be included in the measurement. Finally, the Group’s non-proportional, excess of loss reinsurance contracts held, have an annual term and provide coverage for claims incurred during an accident year (i.e. loss occurring). Thus, all cash flows arising from claims incurred and expected to be incurred in the accident year will be included in the measurement of the reinsurance contracts held. ## 1.6 Insurance acquisition cashflows Insurance acquisition cash flows arise from the costs of selling, underwriting and starting a group of insurance contracts (issued or expected to be issued) that are directly attributable to the portfolio of insurance contracts to which the group belongs. Such cash flows include cash flows that are not directly attributable to individual contracts or groups of insurance contracts within the portfolio. Insurance acquisition cash flows that are directly attributable to a group of insurance contracts will be allocated to that group and to renewal groups of insurance contracts using a systematic and rational method and considering, in an unbiased way, all reasonable and supportable information that is available without undue cost or effort. A systematic and rational method will be used to allocate insurance acquisition cash flows directly attributable to a portfolio but not to groups of contracts to such groups in the portfolio. Insurance acquisition cash flows arising before the recognition of the related group of contracts will be recognised as an asset. Insurance acquisition cash flows arise when they are paid or when a liability is required to be recognised under a standard other than IFRS 17. Such an asset shall be recognised for each group of contracts to which the insurance acquisition cash flows are allocated. The asset will be derecognised, fully or partially, when the insurance acquisition cash flows are included in the measurement of the group of contracts. At each reporting date, the Group shall revise the amounts allocated to groups to reflect any changes in assumptions that determine the inputs to the allocation method used. Amounts allocated to a group are not to be revised once all contracts have been added to the group. Impairment At each reporting date, if facts and circumstances indicate that an asset for insurance acquisition cash flows may be impaired, then the Group shall recognise an impairment loss in profit or loss so that the carrying amount of the asset does not exceed the expected net cash inflow for the related group and in case that the asset relates to future renewals, an impairment loss will be recognised in profit or loss to the extent that it expects those insurance acquisition cash flows to exceed the net cash inflow for the expected renewals and this excess has not already been recognised as an impairment loss as mentioned above. The Group shall reverse any impairment losses in profit or loss and increases the carrying amount of the asset to the extent that the impairment conditions have improved. ## 1.7 Measurement of Insurance contracts issued The liability for remaining coverage (“LRC”) shall represent the Group’s obligation to investigate and pay valid claims under existing contracts for insured events that have not yet occurred (i.e. the obligation that relates to the unexpired portion of the coverage period), comprising (a) fulfilment cash flows relating to future service and (b) the contractual service margin yet to be earned. The liability for incurred claims (“LIC”) shall include the Group’s liability to pay valid claims for insured events that have already incurred, other incurred insurance expenses arising from past coverage service and it shall include the Group’s liability to pay amounts the Group is obliged to pay the policyholder under the contract, including repayment of investment components, when a contract is derecognised. The estimate of LIC shall comprise the fulfilment cash flows related to current and past service allocated to the group at the reporting date. The carrying amount of a group of insurance contracts at each reporting date shall be the sum of the LRC and the LIC. ## 1.7.1 Measurement on initial recognition of contracts not measured under the PAA Under the general measurement model (“GMM”) the Group shall measure a group of contracts on initial recognition as the sum of the expected fulfilment cash flows within the contract boundary and the contractual service margin representing the unearned profit in the contracts relating to services that will be provided under the contracts. Fulfilment Cashflows (“FCF”) FCF shall comprise unbiased and probability-weighted estimates of future cash flows, an adjustment to reflect the time value of money and the financial risks related to the future cash flows, to the extent that the financial risks are not included in the estimates of the future cash flows, plus a risk adjustment for non-financial risk. The Group’s objective in estimating future cash flows shall be to determine the expected value, or the probability weighted mean, of the full range of possible outcomes, considering all reasonable and supportable information available at the reporting date without undue cost or effort, that reflect the timing and uncertainty of those future cash flows. The Group shall estimate future cash flows considering a range of scenarios which have commercial substance and give a good representation of possible outcomes. The cash flows from each scenario are probability-weighted and discounted using current assumptions. The Group shall estimate certain FCF at the portfolio level or higher and then allocate such estimates to groups of contracts. When estimating future cash flows, the Group shall include all cash flows that are within the contract boundary including:
- | Premiums and related cash flows
- | Claims and benefits, including reported claims not yet paid, incurred claims not yet reported and expected future claims
- | Payments to policyholders resulting from embedded surrender value options
- | An allocation of insurance acquisition cash flows attributable to the portfolio to which the contract belongs
- | Claims handling costs
- | Policy administration and maintenance costs
- | An allocation of fixed and variable overheads directly attributable to fulfilling contracts
- | Transaction-based taxes
- | Costs incurred for performing investment activities that enhance insurance coverage benefits for the policyholder
- | Costs incurred for providing investment-related service to policyholders
The cash flow estimates shall include both market variables, which are consistent with observable market prices, and non-market variables, which are not contradictory with market information and based on internally and externally derived data. The Group shall update its estimates at the end of each reporting period using all newly available, as well as historic evidence and information about trends. The Group shall determine its expectations of probabilities of future events occurring at the end of the reporting period. In developing new estimates, the Group shall consider the most recent experience and earlier experience, as well as other information. Risk of the Group’s non-performance will not be included in the measurement of groups of contracts issued. Risk Adjustment (“RA”) The risk adjustment for non-financial risk for a group of contracts, determined separately from the other estimates, is the compensation required for bearing uncertainty about the amount and timing of the cash flows that arises from non-financial risk. The risk adjustment shall also reflect the degree of diversification benefit the Group will include when determining the compensation it will require for bearing that risk; and both favourable and unfavourable outcomes, in a way that will reflect the Group’s degree of risk aversion. The Group will use a Risk-based capital approach based on which the risk adjustment can be determined at the chosen level of confidence. Time value of money and Financial risks The Group will adjust the estimates of future cash flows to reflect the time value of money and the financial risks related to those cash flows, to the extent that the financial risks would not be included in the estimates of cash flows. The discount rates to be applied to the estimates of the future cash flows:
- | will reflect the time value of money, the characteristics of the cash flows and the liquidity characteristics of the contracts;
- | will be consistent with observable market prices (if any) for financial instruments with cash flows whose characteristics are consistent with those of the contracts, in terms of, for example, timing, currency and liquidity; and
- | will exclude the effect of factors that influence such observable market prices but do not affect the future cash flows of the contracts.
In determining discount rates for the cash flows that do not vary based on the returns of underlying items, the Group will use the ‘bottom-up approach’ to estimate discount rates. Contractual Service Margin (“CSM”) The CSM is a component of the overall carrying amount of a group of insurance contracts representing unearned profit the Group will recognise as it provides insurance contract services over the coverage period. On initial recognition of a group of contracts, if the total of (a) the fulfilment cash flows, (b) any cash flows arising at that date and (c) any amount arising from the derecognition of any assets or liabilities previously recognised for cash flows related to the group (including assets for insurance acquisition cash flows) is a net inflow, the CSM will be measured as the equal and opposite amount of the net inflow, which would result in no gain no loss, arising on initial recognition. If the total is a net outflow, then the group is onerous. In this case, the net outflow shall be recognised as a loss in profit or loss. A loss component will be created to depict the amount of the net cash outflow, which will determine the amounts that are to be subsequently presented in profit or loss as reversals of losses on onerous contracts and shall be excluded from insurance revenue. The Group will determine, at initial recognition, the group’s coverage units and allocate the group’s CSM based on the coverage units provided in the period. ## 1.7.2 Subsequent measurement of contracts not measured under PAA Changes in fulfilment cash flows At the end of each reporting period, the Group will update the fulfilment cash flows for both LIC and LRC to reflect the current estimates of the amounts, timing and uncertainty of future cash flows, as well as discount rates and other financial variables. Experience adjustments would be the difference between:
- | The expected cash flow estimate at the beginning of the period and the actual cash flows for premiums received in the period (and any related cash flows paid such as insurance acquisition cash flows)
- | The expected cash flow estimate at the beginning of the period and the actual incurred amounts of insurance service expenses in the period (excluding insurance acquisition expenses).
Experience adjustments relating to current or past service will be recognised in profit or loss. For incurred claims (including incurred but not reported) and other incurred insurance service expenses, experience adjustments would always relate to current or past service. They would be included in profit or loss as part of insurance service expenses. Experience adjustments relating to future service will be included in the LRC by adjusting the CSM. Adjustments to the CSM - Insurance contracts without direct participation features For a group of insurance contracts, the carrying amount of the CSM of the group at the end of the reporting period will equal the carrying amount at the beginning of the reporting period adjusted, as follows:
- | The effect of any new contracts added to the group in the reporting period
- | Interest accreted on the carrying amount of the CSM during the reporting period, measured at the discount rates at initial recognition
| The changes in fulfilment cash flows relating to future service, except to the extent that:
- | Such increases in the fulfilment cash flows exceed the carrying amount of the CSM, giving rise to a loss; or
- | Such decreases in the fulfilment cash flows are allocated to the loss component of the liability for remaining coverage
- | The effect of any currency exchange differences on the CSM
- | The amount recognised as insurance revenue because of the transfer of services in the period, determined by the allocation of the CSM remaining at the end of the reporting period (before any allocation) over the current and remaining coverage period.
The locked-in discount rate is the weighted average of the rates applicable at the date of initial recognition of contracts that joined a group over a 12-month period. The changes in fulfilment cash flows relating to future service that adjust the CSM comprise of:
- | Experience adjustments that arise from the difference between the premium receipts (and any related cash flows such as insurance acquisition cash flows) and the estimate, at the beginning of the period, of the amounts expected.
- | Changes in estimates of the present value of future cash flows in the liability for remaining coverage, except those relating to the time value of money and changes in financial risk (recognised in the statement of profit or loss and other comprehensive income rather than adjusting the CSM)
| Differences between:
- | any investment component expected to become payable in the year, determined as the payment expected at the start of the year plus any insurance finance income or expenses related to that expected payment before it becomes payable; and
- | the actual amount that becomes payable in the year
- | Changes in the risk adjustment for non-financial risk that relate to future service.
Except for changes in the risk adjustment, adjustments to the CSM noted above will be measured at discount rates that reflect the characteristics of the cash flows of the group of insurance contracts at initial recognition. The CSM at the end of the reporting period will represent the profit in the group of insurance contracts that has not yet been recognised in profit or loss, because it relates to future service. An amount of the CSM will be released to profit or loss in each period during which the insurance contract services are provided. In determining the amount of the CSM to be released in each period, the Group will follow three steps:
- | determine the total number of coverage units in the group. The amount of coverage units in the group is determined by considering for each contract the quantity of benefits provided under the contract and the expected coverage period.
- | allocate the CSM at the end of the period (before any of it is released to profit or loss to reflect the insurance contract services provided in the period) equally to each of the coverage units provided in the current period and expected to be provided in the future.
- | recognise in profit or loss the amount of CSM allocated to the coverage units provided during the period.
The number of coverage units will change as insurance contract services will be provided, contracts expire, lapse or surrender and new contracts are added into the group. The total number of coverage units will depend on the expected duration of the obligations that the Group has from its contracts, which can differ from the legal contract maturity because of the impact of policyholder behaviour and the uncertainty surrounding future insured events. In determining a number of coverage units, the Group shall exercise judgement in estimating the likelihood of insured events occurring and policyholder behaviours to the extent that they affect expected period of coverage in the group, the different levels of service offered across periods and the ‘quantity of benefits’ provided under a contract. The Group does not issue insurance contracts generating cash flows in a foreign currency that is different from the functional currency of the Group. Adjustments to the CSM - Insurance contracts with direct participation features Direct participating contracts are contracts under which the Group’s obligation to the policyholder is the net of:
- | the obligation to pay the policyholder an amount equal to the fair value of the underlying items; and
- | a variable fee in exchange for future services provided by the contracts, being the amount of the Group’s share of the fair value of the underlying items less fulfilment cash flows that do not vary based on the returns on underlying items.
When measuring a group of direct participating contracts, the Group will adjust the fulfilment cash flows for the whole of the changes in the obligation to pay policyholders an amount equal to the fair value of the underlying items. These changes do not relate to future services and will be recognised in profit or loss. The Group would then adjust any CSM for changes in the amount of the Group’s share of the fair value of the underlying items which relate to future services. Hence, the carrying amount of the CSM at each reporting date will be the carrying amount at the start of the year, adjusted for:
- | the CSM of any new contracts that are added to the group in the year;
- | the change in the amount of the Group’s share of the fair value of the underlying items and changes in fulfilment cash flows that relate to future services, except to the extent that:
- | a decrease in the amount of the Group’s share of the fair value of the underlying items, or an increase in the fulfilment cash flows that relate to future services, exceeds the carrying amount of the CSM, giving rise to a loss in profit or loss (included in insurance service expenses) and creating a loss component; or
- | an increase in the amount of the Group’s share of the fair value of the underlying items, or a decrease in the fulfilment cash flows that relate to future services, is allocated to the loss component, reversing losses previously recognised in profit or loss (included in insurance service expenses);
- | the effect of any currency exchange differences on the CSM; and
- | the amount recognised as insurance revenue because of the services provided in the year.
Changes in fulfilment cash flows that relate to future services shall include the changes relating to future services specified above for contracts without direct participation features (measured at current discount rates) and changes in the effect of the time value of money and financial risks that do not arise from underlying items – e.g. the effect of financial guarantees. Onerous Contracts After the loss component will be recognised, the Group shall allocate any subsequent changes in fulfilment cash flows of the LRC on a systematic basis between ‘loss component’ and ‘LRC excluding the loss component’. The subsequent changes in the fulfilment cash flows of the LRC to be allocated would be:
- | insurance finance income or expense,
- | changes in risk adjustment for non-financial risk recognised in profit or loss representing release from risk in the period; and
- | estimates of the present value of future cash flows for claims and expenses released from the LRC because of incurred insurance service expense in the period.
The Group will determine the systematic allocation of insurance service expenses incurred based on the percentage of loss component to the total outflows included in the LRC, excluding any investment component amount. Any subsequent decreases relating to future service in fulfilment cash flows allocated to the group arising from changes in estimates of future cash flows and the risk adjustments for non-financial risk will be allocated first only to the loss component, until it is exhausted. Once it is exhausted, any further decreases in fulfilment cash flows relating to future service will create the group’s CSM. ## 1.7.3 Measurement of contracts under the PAA On initial recognition the Group will apply the PAA:
- | When the coverage period of each insurance contract in the group is one year or less.
- | For groups of insurance contracts including contracts with a coverage period extending beyond one year the Group reasonably expects that such simplification would produce a measurement of the LRC for the group that would not differ materially from the one that would be produced applying the requirements of the general measurement model.
On initial recognition, the Group will measure the LRC at the amount of premiums received in cash. As all the issued insurance contracts to which the PAA will be applied have coverage of a year or less, the Group will elect the policy of expensing insurance acquisition cash flows as they are incurred. On initial recognition of each group of contracts, the Group expects that the time between providing each part of the services and the related premium due date is no more than a year. Accordingly, the Group will choose not to adjust the liability for remaining coverage to reflect the time value of money and the effect of financial risk. There are no investment components within insurance contracts issued that are measured under the PAA. The carrying amount of a group of insurance contracts issued at the end of each reporting period will be the sum of (a) the LRC and (b) the LIC, comprising the FCF related to past service allocated to the group at the reporting date. The carrying amount of the LRC for subsequent measurement purposes will be increased by any premiums received and decreased by the amount recognised as insurance revenue for services provided. The LIC will be measured similarly to the LIC’s measurement under the GMM. The liability would equal the amount of the fulfilment cash flows relating to incurred claims. For claims that the Group expects to be paid within one year or less from the date of incurring the Group will not adjust future cash flows for the time value of money and the effect of financial risk. However, claims expected to take more than one year to settle will be discounted. If facts and circumstances indicate that a group of insurance contracts measured under the PAA is onerous on initial recognition or becomes onerous subsequently, the Group will increase the carrying amount of the LRC to the amount of the FCF determined under the GMM with the amount of such an increase recognised in insurance service expenses, and a loss component established for the amount of the loss recognised. The fulfilment cash flows will be discounted at current rates, as the liability for incurred claims will also be discounted. ## 1.8 Measurement of reinsurance contracts held The same accounting policies will be applied as for insurance contracts issued to measure a group of reinsurance contracts held, adapted where necessary to reflect features that differ from those of insurance contracts. ### 1.8.1 Measurement of the asset for remaining coverage (“ARC”) Reinsurance contracts measured under the general model (“GMM”) The measurement of reinsurance contracts held will follow the same principles as those for insurance contracts issued, with the exception of the following:
- | Measurement of the cash flow s shall include an allowance on a probability-weighted basis for the effect of any non-performance by the reinsurers, including the effects of collateral and losses from disputes
- | The Group will determine the risk adjustment for non-financial risk so that it represents the amount of risk being transferred to the reinsurer
- | The Group shall recognise both day 1 gains and day 1 losses at initial recognition in the statement of financial position as a CSM and will release this to profit or loss as the reinsurer renders services, except for any portion of a day 1 loss that relates to events before initial recognition as described below
- | Changes in the fulfilment cash flows will be recognised in profit or loss if the related changes arising from the underlying ceded contracts have been recognised in profit or loss. Alternatively, changes in the fulfilment cash flows will adjust the CSM.
The Group will measure the estimates of the present value of future cash flows using assumptions that would be consistent with those used to measure the estimates of the present value of future cash flows for the underlying insurance contracts. On initial recognition, the CSM of a group of reinsurance contracts will represent a net cost or net gain on purchasing reinsurance. It would be measured as the equal and opposite amount of the total of (a) the fulfilment cash flows, (b) any amount arising from the derecognition of any assets or liabilities previously recognised for cash flows related to the group, (c) any cash flows arising at that date and (d) any income recognised in profit or loss because of onerous underlying contracts recognised at that date. However, if any net cost on purchasing reinsurance coverage would relate to insured events that occurred before the purchase of the group, then the Group will recognise the cost immediately in profit or loss as an expense. The carrying amount of the CSM at each reporting date will be the carrying amount at the start of the year, adjusted for:
- | the CSM of any new contracts that will be added to the group in the year;
- | interest accreted on the carrying amount of the CSM during the year, measured at the discount rates determined on initial recognition;
- | income recognised in profit or loss in the year on initial recognition of onerous underlying contracts;
- | reversals of a loss-recovery component to the extent that they are not changes in the fulfilment cash flows of the group of reinsurance contracts;
- | changes in fulfilment cash flows that relate to future services, measured at the discount rates determined on initial recognition, unless they result from changes in fulfilment cash flows of onerous underlying contracts, in which case they are recognised in profit or loss and create or adjust a loss-recovery component;
- | the effect of any currency exchange differences on the CSM; and
- | the amount recognised in profit or loss because of the services received in the year.
For a group of reinsurance contracts covering onerous underlying contracts, the Group will establish a loss-recovery component of the asset for remaining coverage, will adjust the CSM and as a result will recognise income when it recognises a loss on initial recognition of onerous underlying contracts, if the reinsurance contract would be entered into before or at the same time as the onerous underlying contracts would be recognised. The adjustment to the CSM will be determined by multiplying:
- | the amount of the loss that relates to the underlying contracts; and
- | the percentage of claims on the underlying contracts that the Group expects to recover from the reinsurance contracts.
The loss-recovery component will be adjusted for changes in FCFs of the group of reinsurance contracts relating to future services that result from changes in FCFs of the onerous underlying contracts. If the reinsurance contract will cover only some of the insurance contracts included in an onerous group of contracts, then the Group uses a systematic and rational method to determine the portion of losses recognised on the onerous group of contracts that relates to underlying contracts covered by the reinsurance contract. The loss-recovery component will determine the amounts that are subsequently presented in profit or loss as reversals of recoveries of losses from the reinsurance contracts and would be excluded from the allocation of reinsurance premiums paid. It would be adjusted to reflect changes in the loss component of the onerous group of underlying contracts, but it cannot exceed the portion of the loss component of the onerous group of underlying contracts that the Group expects to recover from the reinsurance contracts. Reinsurance contracts measured under the Premium Allocation Approach (“PAA”) The Group will apply the PAA to measure a group of reinsurance contracts using the same accounting policies to the insurance contracts, as adapted where necessary to reflect the features of reinsurance contracts. The Group will apply the PAA:
- | To excess of loss reinsurance contracts on loss occurring basis that provide coverage on the insurance contracts originated for claims incurred during an accident year.
- | To proportional reinsurance contracts on risk attaching basis that provide coverage for short-term underlying insurance contracts and have an effective period of more than one year the Group elects to apply the PAA since at inception it expects it will provide an asset for remaining coverage that would not differ materially from the general model.
Under the PAA, the initial measurement of the asset equals the reinsurance premium paid. The Group will measure the amount relating to remaining service by allocating the amount of expected reinsurance premium payments over the coverage period of receiving services for the group. For all reinsurance contracts held the allocation will be based on the passage of time. On initial recognition of each group of reinsurance contracts held, the Group expects that the time between receiving each part of the services and the related reinsurance premium due date is no more than a year. Accordingly, the Group will not adjust the asset for remaining coverage to reflect the time value of money and the effect of financial risk. Where the reinsurance contracts held cover a group of onerous underlying insurance contracts, the Group will adjust the carrying amount of the asset for remaining coverage and recognise a gain when, in the same period, it will report a loss on initial recognition of an onerous group of underlying insurance contracts or on additional loss from an already onerous group of underlying insurance contracts. The recognition of this gain will result in the accounting for the loss recovery component of the asset for the remaining coverage of a group of reinsurance contracts held. The loss-recovery component will be adjusted to reflect changes in the loss component of the onerous group of underlying contracts, but it cannot exceed the portion of the loss component of the onerous group of underlying contracts that the Group expects to recover from the reinsurance contracts. ### 1.8.2 Measurement of the asset for incurred claims (“AIC”) The Group will use consistent assumptions to measure the estimates of the present value of future cash flows for the group of reinsurance contracts held and the estimates of the present value of future cash flows for the group(s) of underlying insurance contracts. The Group shall include in the estimates of the present value of the future cash flows for the group of reinsurance contracts held the effect of any risk of non-performance by the issuer of the reinsurance contract, including the effects of collateral and losses from disputes. The risk adjustment for non-financial risk for reinsurance contracts held will represent the amount of risk being transferred by the Group to the reinsurer. ### 1.9 Insurance contracts – modification and derecognition The Group will derecognise insurance contracts when:
- | The rights and obligations relating to the contract are extinguished (i.e., discharged, cancelled or expired); or
- | The contract is modified such that the modification results in:
- | the contract being outside the scope of IFRS 17;
- | a different insurance contract due to separating components from the host contract;
- | a substantially different contract boundary;
- | the contract being included in a different group of contracts.
If any of the modification criteria described above are met, the Group will derecognise the initial contract and recognise the modified contract as a new contract. On derecognition of a contract from within a group of contracts:
- | the fulfilment cash flows allocated to the group are adjusted to eliminate those that relate to the rights and obligations derecognised;
- | the CSM of the group is to be adjusted for the change in the fulfilment cash flows, except where such changes are allocated to a loss component; and
- | the number of coverage units for the expected remaining services will be adjusted to reflect the coverage units derecognised from the group.
If a contract will be derecognised because it is transferred to a third party, then the CSM will also be adjusted for the premium charged by the third party, unless the group is onerous. If a contract is derecognised because its terms are modified, then the CSM will also be adjusted for the premium that would have been charged had the Group entered into a contract with the new contract’s terms at the date of modification, less any additional premium charged for the modification. The new contract recognised will be measured assuming that, at the date of modification, the Group received the premium that it would have charged less any additional premium charged for the modification. If the contract modification would not meet the above conditions the Group will treat the effect of the modification as changes in the estimates of fulfilment cash flows. For insurance contracts accounted for applying the PAA the Group will adjust insurance revenue prospectively from the time of the contract modification. ### ### 1.10 Investment contracts with discretionary participation features The Group shall recognise investment contracts with DPF at the date when the Group becomes a party to the contract. The investment contracts with DPF will be aggregated in the same manner as insurance contracts. The Group shall identify portfolios of such investment contracts with DPF. Within that portfolio, the Group will aggregate them based on three expected profitability levels (groups of onerous contracts, groups of contracts that have no significant possibility of becoming onerous subsequently, and groups that are neither onerous nor have no significant possibility of becoming onerous subsequently). Groups will only comprise of contracts issued not more than a year apart. At initial recognition, similar to insurance contracts, the Group estimates the fulfilment cash flows based on the present value of expected future cash flows and a risk adjustment for non-financial risk. Any expected net inflows are accounted for as the initial CSM. In estimating future cash flows, the Group will consider the contract boundary which shall only include cash flows if they result from a substantive obligation of the Group to deliver cash at a present or future date. In estimating the risk adjustment for non-financial risk for investment contracts with DPF, the Group will consider other non-financial risks, such as the risks arising from the contract holder behaviour, e.g. lapse risk and expense risk. The Group will discount cash flows using discount rates that reflect the characteristics of the fulfilment cash flows, including the extent of their dependency on the fair value of the underlying items. The Group shall allocate the CSM over the group’s whole duration period in a systematic way reflecting the transfer of investment services under a contract. The Group will measure investment contracts with DPF at initial recognition as detailed in 1.7.1 “Measurement on initial recognition of contracts not measured under the PAA” and at subsequent measurement in accordance to 1.7.2 “Subsequent measurement of contracts not measured under PAA” “Adjustments to the CSM – Insurance contracts with direct participation features”. ### ### 1.11 Measurement - Significant judgements and estimates Estimates of future cash flows In estimating future cash flows, the Group will incorporate, 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 experience, updated to reflect current expectations of future events. The estimates of future cash flows will reflect the Group's view of current conditions at the reporting date, as long as the estimates of any relevant market variables are consistent with observable market prices. When estimating future cash flows, the Group will take into account current expectations of future events that might affect those cash flows. However, expectations of future changes in legislation that would change or discharge a present obligation or create new obligations under existing contracts will not be taken into account until the change in legislation is substantively enacted. Cash flows within the boundary of a contract are those that relate directly to the fulfilment of the contract, including those for which the Group has discretion over the amount or timing. These include payments to (or on behalf of) policyholders, insurance acquisition cash flows and other costs that are incurred in fulfilling contracts. Insurance acquisition cash flows and other costs that are incurred in fulfilling contracts comprise both direct costs and an allocation of fixed and variable overheads. Cash flows will be attributed to acquisition activities, other fulfilment activities and other activities using activity-based costing techniques. Cash flows attributable to acquisition and other fulfilment activities will be allocated to group of contracts using methods that are systematic and rational and will be consistently applied to all costs that have similar characteristics. Discount rates The Group will determine the risk-free discount rates based on the risk-free interest rate term structure published by the European Insurance and Occupational Pensions Authority (EIOPA) for the purposes of the Solvency II Directive. In addition to reflect the liquidity characteristics of the contracts, the risk-free yield curves will be adjusted by an illiquidity premium. The requirement to measure liabilities for insurance contracts and investment contracts with DPF using discount rates determined applying the IFRS17 requirements will be a change from the Group's current practice. Under the current economic environment, the Group estimates that the discount rates under IFRS 17 would generally be lower than the corresponding rates under IFRS 4. Risk adjustments for non-financial risk The risk adjustment for non-financial risk will be determined to reflect the compensation that the Group would require for bearing non-financial risk and its degree of risk aversion. The risk adjustment will be determined using a confidence level technique and specifically a Risk-based capital approach with its target confidence level set at 80 percent, over an one year period, which represents the Group’s degree of risk aversion. Contractual Service Margin The CSM of a group of contracts is recognised in profit or loss to reflect services provided in each year, by identifying the coverage units in the group, allocating the CSM remaining at the end of the year (before any allocation) equally to each coverage unit provided in the year and expected to be provided in future years, and recognising in profit or loss the amount of the CSM allocated to coverage units provided in the year. The number of coverage units is the quantity of services provided by the contracts in the Group, determined by considering for each contract the quantity of the benefits provided and its expected coverage period. The coverage units will be reviewed and updated at each reporting date. The Group will determine the coverage units for its insurance contracts and investment contracts with DPF on the basis of their quantity of benefits (sum insured), including any investment components, and the respective expected durations of each contract. For reinsurance contracts held, the CSM amortisation shall reflect the level of service received and depends on the number of underlying contracts in-force. ### ### 1.12 Presentation IFRS 17 will significantly change how insurance contacts and investment contracts with DPF issued and reinsurance contracts held are presented and disclosed in the Group’s financial statements. The Group shall present separately, in the statement of financial position, the carrying amount of portfolios of:
- | insurance contracts and investment contracts with DPF issued that are assets,
- | insurance contracts and investment contracts with DPF issued that are liabilities,
- | reinsurance contracts held that are assets,
- | reinsurance contracts held that are liabilities.
Any assets or liabilities for insurance acquisition cash flows recognised before the corresponding insurance contracts will be included in the carrying amount of the related portfolio of contracts. The Group will disaggregate the total amount recognised in the statement of profit or loss and other comprehensive income into an insurance service result, comprising insurance revenue and insurance service expense, and insurance finance income or expenses. The Group will not disaggregate the change in risk adjustment for non-financial risk between a financial and non-financial portion and will include the entire change as part of the insurance service result. The Group will separately present income or expenses from reinsurance contracts held from the expenses or income from insurance contracts and investment contracts with DPF issued. ### ### 1.12.1 Insurance Service Revenue Contracts not measured under the PAA The Group’s insurance revenue will depict the provision of coverage and other services arising from a group of insurance contracts and investment contracts with DPF at an amount that will reflect the consideration to which the Group expects to be entitled in exchange for those services. Insurance revenue from a group of insurance contracts and a group of investment contracts with DPF will therefore be the relevant portion for the period of the total consideration for the contracts, (i.e., the amount of premiums paid to the Group adjusted for financing effect (the time value of money) and excluding any investment components). The total consideration for a group of contracts will cover amounts related to the provision of services and be comprised of:
- | Insurance service expenses, excluding any amounts allocated to the loss component of the liability for remaining coverage
- | The risk adjustment for non-financial risk related to current service, excluding any amounts allocated to the loss component of the liability for remaining coverage
- | The CSM release measured based on coverage units provided
- | Other amounts, including experience adjustments for premium receipts for current or past services.
In addition, the Group will allocate a portion of premiums that relate to recovering insurance acquisition cash flows to each period in a systematic way based on the passage of time. The Company will recognise the allocated amount, as insurance service revenue and an equal amount as insurance service expenses. The amount of the CSM of a group of insurance contracts and a group of investment contracts with DPF that will be recognised as insurance revenue in each year will be determined by identifying the coverage units in the group, allocating the CSM remaining at the end of the year (before any allocation) equally to each coverage unit provided in the year and expected to be provided in future years, and recognising in profit or loss the amount of the CSM allocated to coverage units provided in the year. The number of coverage units will be the quantity of services provided by the contracts in the group, determined by considering for each contract the quantity of benefits provided and its expected coverage period. The coverage units will be reviewed and updated at each reporting date. Services provided by insurance contracts include insurance coverage and, for all direct participating contracts, investment services for managing underlying items on behalf of policyholders. In addition, some contracts without direct participating features may also provide investment services for generating an investment return for the policyholder, if and only if:
- | an investment component exists or the policyholder has a right to withdraw an amount (e.g. the policyholder’s right to receive a surrender value on cancellation of a contract);
- | the investment component or withdrawal amount is expected to include an investment return; and
- | the Group expects to perform investment activities to generate that investment return.
The expected coverage period will reflect expectations of lapses and cancellations of contracts, as well as the likelihood of insured events occurring to the extent that they would affect the expected coverage period. The period of investment services will end no later than the date on which all amounts due to current policyholders relating to those services would have been paid. Contracts measured under the PAA For contracts measured under the PAA, the insurance revenue for each period will be the amount of expected premium receipts for providing services in the period. The Group will recognise such insurance revenue based on the passage of time by allocating premium receipts including premium experience adjustments to each period of service. ### 1.12.2 Loss Component The Group will group contracts that are onerous at initial recognition separately from contracts in the same portfolio that are not onerous at initial recognition. Groups that were not onerous at initial recognition can also subsequently become onerous if assumptions and experience changes. The Group will establish a loss component of the liability for remaining coverage for any onerous group depicting the future losses recognised. A loss component will represent a notional record of the losses attributable to each group of onerous insurance contracts (or contracts profitable at inception that have become onerous). The loss component will be released based on a systematic allocation of the subsequent changes in the fulfilment cash flows to: (i) the loss component; and (ii) the liability for remaining coverage excluding the loss component. The loss component will also be updated for subsequent changes in estimates of the fulfilment cash flows related to future service. The systematic allocation of subsequent changes to the loss component would result in the total amounts allocated to the loss component being equal to zero by the end of the coverage period of a group of contracts (since the loss component will have been materialised in the form of incurred claims). The Group will use the proportion on initial recognition to determine the systematic allocation of subsequent changes in future cash flows between the loss component and the liability for remaining coverage excluding the loss component. ### 1.12.3 Insurance Service Expenses Insurance service expenses arising from insurance contracts and investment contracts with DPF will be recognised in profit or loss generally as they will be incurred. They will exclude repayments of investment components and will comprise of:
- | Incurred claims and other insurance service expenses: For some life risk contracts, incurred claims also include premiums waived on detection of critical illness.
- | Amortisation of insurance acquisition cash flows: For contracts not measured under the PAA, this will be equal to the amount of insurance revenue recognised in the year that relates to recovering insurance acquisition cash flows. For contracts measured under the PAA, the Group will elect to expense insurance acquisition cash flows as incurred.
- | Losses on onerous contracts and reversals of such losses.
- | Adjustments to the liabilities for incurred claims that do not arise from the effects of the time value of money, financial risk and changes therein.
- | Impairment losses on any assets for insurance acquisition cash flows and reversals of such impairment losses.
### ### 1.12.4 Insurance finance income and expense Insurance finance income or expenses will comprise the change in the carrying amount of the group of insurance contracts and investment contracts with DPF arising from:
- | The effect of the time value of money and changes in the time value of money; and
- | The effect of financial risk and changes in financial risk.
For contracts without direct participation features insurance finance income or expenses will reflect interest accreted on the future cash flows and the CSM and the effect of changes in interest rates and other financial assumptions. For contracts with direct participation features insurance finance income or expenses will comprise changes in the measurement of the groups of contracts caused by changes in the value of underlying items (excluding additions and withdrawals). For contracts measured under the PAA insurance finance or expenses will reflect interest accreted on the future cash flows under the LIC and the effect of changes in interest rates and other financial assumptions. The Group will not disaggregate changes in the risk adjustment for non-financial risk between insurance service result and insurance financial income or expenses. The Group has an accounting policy choice to either present all of the period’s insurance finance income or expenses in profit or loss or to split the amount between profit or loss and other comprehensive income (OCI). The accounting policy choice is applied on a portfolio-by-portfolio basis. The Group will include all insurance finance income or expenses for the reporting period in profit or loss for all its portfolios. ### 1.12.5 Net income or expense from reinsurance contracts held Net expenses from reinsurance contracts will comprise an allocation of reinsurance premiums paid less amounts recovered from reinsurers. The Group will present separately on the face of the statement of profit or loss and other comprehensive income the amounts expected to be recovered from reinsurers, and an allocation of the reinsurance premiums paid. The Group will treat reinsurance cash flows that are contingent on claims on the underlying contracts as part of the claims that are expected to be reimbursed under the reinsurance contract held. Ceding commissions that are not contingent on claims of the underlying contracts will be presented as a deduction in the premiums to be paid to the reinsurer which is then allocated to profit or loss. ### 1.13 Transition approach Changes in accounting policies resulting from the adoption of IFRS 17 will be applied using the full retrospective approach to the extent practicable, except as described below. ### Contracts measured under the PAA The Group will apply the full retrospective approach on transition for all groups of insurance and reinsurance contracts containing contracts with short-term coverage period not extending beyond one year. For these short-term contracts it was concluded that reasonable and supportable information that is necessary to apply the full retrospective approach is available. Applying the full retrospective approach, the Group will:
- | identify, recognise and measure each group of insurance contracts as if IFRS 17 had always applied;
- | identify, recognise and measure any assets for insurance acquisition cash flows as if IFRS 17 had always applied;
- | derecognise previously reported balances that would not have existed if IFRS 17 had always been applied. These shall include deferred acquisition costs for insurance contracts and insurance receivables and payables. Under IFRS 17, they are included in the measurement of the insurance contracts;
- | and recognise any resulting net difference in equity.
### Contracts not measured under the PAA Changes in accounting policies resulting from the adoption of IFRS 17 for all groups of insurance contracts, investment contracts with DPF and reinsurance contracts containing contracts with long-term coverage period extending beyond one year will be applied using the fair value transition approach. Obtaining reasonable and supportable information to apply the full retrospective approach, for these contracts, was impracticable without undue cost or effort. Under this method these groups of contracts on transition date, 1 January 2022, will be measured at fair value, any existing balances that would not exist had IFRS 17 applied will be derecognised and the resulting net difference will be recognised in equity. Under the fair value approach, the CSM (or the loss component) at 1 January 2022 will be determined as the difference between the fair value of a group of contracts at that date and the fulfilment cash flows at that date. In determining fair value, the Group will apply the requirements of IFRS 13 Fair Value Measurement, except for the demand deposit floor requirement, as is prescribed by IFRS 17. Specifically, the fair value of the insurance contracts will be measured as the sum of (a) the present value of the net cash flows expected to be generated by the contracts, determined using a discounted cash flow technique; and (b) an additional margin, determined using a cost of capital technique. Differences in the Group's approach to measuring fair value from the IFRS 17 requirements for measuring fulfilment cash flows will give rise to a CSM at 1 January 2022. In particular, in measuring fair value the Group will include a margin comprising a risk premium to reflect what market participants would demand as compensation for the uncertainty inherent in the cash flows and a profit margin to reflect what market participants would require to assume the obligations to service the insurance contracts. In determining this margin, the Group will consider certain costs that are not directly attributable to fulfilling the contracts (e.g. general overheads) and certain risks that were not reflected in the fulfilment cash flows, among other factors that a market participant would consider. When applying the fair value transition approach the Group will aggregate contracts issued more than one year apart. For the application of the fair value approach, the Group will not use the permitted modification to use reasonable and supportable information available at the transition date and will instead use information available at the date of inception or initial recognition in order to determine whether any contracts are direct participating contracts. Despite this, the Group will use the permitted modification to use reasonable and supportable information available at the transition date to identify groups of contracts. The discount rate when applying the fair value approach will be determined at the transition date. ### Transition Impact The Group has started a project to implement IFRS 17 and expects that the new standard will have an impact on the Group’s results and financial position both upon transition and subsequent reporting periods. The impact however cannot be reliably quantified currently because the IFRS 17 implementation project is ongoing and has not been finalised yet. 2. Basis for consolidation Subsidiaries Subsidiaries are all entities over which the Group has control. The Group controls an investee when the Group is exposed, or has rights , to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The existence and effect of potential voting rights that are when those rights give the Group the current ability to direct the relevant activities are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The acquisition method of accounting is used to ac count for the acquisition of subsidiaries by the Group. The consideration is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Acquisition related costs are recognised in the profit and loss as incurred, except for costs to issue debt or equity securities. Goodwill arising in a business combination is recognised as an asset at the date that control is acquired. Goodwill is measured as the excess of:
a. | The aggregate of:
(i) | the consideration transferred;
(ii) | the amount of any non-controlling interest in the acquiree; and
(iii) | in a business combination achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree.
b. | The net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed.
Any gain on a bargain purchase, after reassessment, is recognised immediat ely in profit or loss. Inter-company transactions, balance s and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transfer red. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. A listing of the Group’s principal subsidiaries is set out in Note 15. 3. Intangible assets (a) Goodwill Goodwill arising in a business combination that is accounted for using the acquisition method is recognised as an asset at the date that control is acquired. Goodwill is measured as the excess of (a) the aggregate of: (i) the consideration transferred; (ii) the amount of any non-controlling interests in the acquiree; and (iii) in a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree; and (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Any gain on a bargain purchase, after reassessment, is recognised immediately in profit or loss. (b) Value of in-force business On acquisition of a portfolio of long term contracts, the net present value of the Shareholders’ interest in the expected after-tax cash flows of the in-force business is capitalised in the statement of financial position as an asset. The value of in-force business is subsequently determined by the Directors on an annual basis, based on the advice of the approved actuary. The valuation represents the discounted value of projected future transfers to Shareholders from policies in force at the year-end, after making provision for taxation. In determining this valuation, assumptions relating to future mortality, persistence and levels of expenses are based on experience of the type of business concerned. Gross investment returns assumed vary depending on the mix of investments held and expected market conditions. All movements in the in-force business valuation are credited or debited to the profit or loss. They are subsequently transferred out of retained earnings to other reserves. (c) Computer software Acquired computer so ftware licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised using the straight-line method over their estimated useful lives (between five and thirteen years). Costs associated with maintaining computer software programmes are recognised as an expense as incurred. 4. Deferred income tax Deferred income tax is provided using the balance sheet liability method for temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates or those that are substantively enacted by the end of the reporting period are used in the determination of deferred income tax. Deferred income tax related to the fair value re-measurement of investments is allocated between the technical and non-technical account depending on whether the temporary differences are attributed to policyholders or shareholders respectively. Deferred tax assets are recognised only to the extent that future taxable profit will be available such that realisation of the related tax benefit is probable. 5. Property, plant and equipment Property, plant and equipment, comprising land and buildings, office furniture, fittings and equipment, are initially recorded at cost and are subsequently shown at cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount, or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group, and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the profit or loss during the financial period in which they are incurred. Depreciation is calculated using the straight-line method to allocate the cost of the assets to their residual values over their estimated useful lives as follows:
|  | %
Buildings |  | 2 - 20
Office furniture, fittings and equipment |  | 20 - 25
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Property, plant and equipment are dereco gnised on disposal or when no future economic benefits are expected from their use or disposal. Gains or losses arising from derecognition represent the difference between the net disposal proceeds, if any, and the carrying amount, and are included in profit or loss in the period of derecognition. 6. Assets held for sale The Group classifies assets as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset, excluding finance costs and income tax expense. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the plan to sell the asset and the sale expected to be completed within one year from the date of the classification. Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position. 7. Investment properties Freehold and leasehold properties treated as investments principally comprise buildings that are held for long term rental yields or capital appreciation or both, and that are not occupied by the Group. Investment properties are initially measured at cost including related transaction costs. Investment properties are subsequently carried at fair value, representing open market value determined annually by external valuers, or by virtue of a Directors’ valuation. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this i nformation is not available, the Group uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. The fair value of investment properties reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions. Subsequent expenditure is charged to the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the profit or loss during the financial period in which they are incurred. Unrealised gains and losses arising from changes in fair value (net of deferred taxation) are recognised in the profit or loss. 8. Investment in group undertakings In the Company’s financial statements, shares in group undertakings are accounted for at fair value through profit and loss (FVTPL). The Company accounts for the investment at FVTPL and did not make the irrevocable election to account for it at fair value through other comprehensive income (FVOCI). The dividend income from such investments is included in profit or loss in the accounting year in which the Company’s right to receive payment of any dividend is established. 9. Other financial instruments Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially recognised at their fair value plus directly attributable transaction costs for all financial assets or financial liabilities not classified at fair value through Profit or Loss. Financial assets and financial liabilities are off-set and the net amount presented in the stat ement of financial position when the Group has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Financial assets are derecognised w hen the contractual rights to the cash flows from the financial assets expire or when the entity transfers the financial asset and the transfer qualifies for derecognition. Financial liabilities are derecognised when they are extinguished. This occurs whe n the obligation specified in the contract is discharged, cancelled or expires. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recorded at t he proceeds received, net of direct issue costs. (i) Trade receivables Trade receivables are classified with current assets and are stated at their nominal value. (ii) Investments The Group classifies its other financial assets in the following catego ries: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired. The Directors determine the appropriate classification of the Group’s financial assets at initial recognition and re-evaluate such designation at every reporting date. (a) Financial assets at fair value through profit or loss This category has two sub-categories: financia l assets held for trading and those designated at fair value through profit or loss at inception. A non-derivative financial asset is classified into this category at inception if acquired principally for the purpose of selling in the near-term, if it forms part of a portfolio of financial assets that are managed together and for which there is evidence of short term profit-taking, if the financial asset is part of a group of financial assets that is managed on a portfolio basis and whose performance is evaluated and reported internally to the Group’s key management personnel on a fair value basis in accordance with a documented financial assets strategy or if this designation eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. (b) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and f ixed maturity that the Group has the positive intention and ability to hold to maturity other than those that upon initial recognition are designated as at fair value through profit or loss, those that are designated as available-for-sale financial assets and those that meet the definition of loans and receivables are classified as held-to-maturity investments. After initial measurement, such financial assets are subsequently measured at amortised cost using the Effective Interest Rate (“EIR”) method, less impairment. Amoritsed costs are calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the statement of comprehensive income. The losses arising from impairment are recognised in the statement of comprehensive income. (c) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those that are held for trading or that are designated as at fair value through profit or loss or as available for sale or those for which the Group may not recover substantially all of its investment other than because of credit deterioration. They include, inter alia, receivables, interest bearing deposits and advances. (d) Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are either designated in this category by the Group or not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. All purchases and sales of financial assets are recognised on the trade date, which is the date that the Group commits t o purchase or sell the assets. All financial assets are initially recognised at fair value, plus in the case of financial assets not carried at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where they have been transferred and the transfer qualifies for de-recognition. Financial assets at fair value through profit or loss are subseque ntly re-measured at fair value. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are recognised in profit or loss. Available-for-sale financial assets are measured at their f air value. Gains and losses arising from a change in fair value are recognised in other comprehensive income, except for impairment losses and foreign exchange gains and losses on monetary assets, until the financial asset is derecognised, at which time the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment. Interest calculated using the effective interest method is recognised in profit or loss. Loans and receivables are carried at amortised cost using the EIR method, less any provision for impairment. The fair value of quoted financial assets is based on quoted marke t prices at the end of the reporting period. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same and discounted cash flow analysis. (e) Equity instruments that do not have a quoted market price Investments in equity instruments tha t do not have a quoted market price in an active market, and whose fair value cannot be reliably measured, are not be designated as at fair value through profit or loss. The fair value of investments in equity instruments that do not have a quoted price in an active market for an identical instrument is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant for that instrument; or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. Investments in equity instruments that do not have a quoted price in an active market and whose fair value cannot be reliably measured are measured at cost. (iii) Trade payables Trade payables are cl assified with current liabilities and are stated at their nominal value. (iv) Shares issued by the Company Ordinary shares issu ed by the Company are classified as equity instruments. 10. Impairment of assets (a) Impairment of financial assets at amortised cost and available-for-sale investments The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (“a loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired includ es observable data that comes to the attention of the Group about the following events:
(i) | significant financial difficulty of the issuer or debtor;
(ii) | a breach of contract, such as a default or delinquency in payments;
(iii) | If it’s probable that the issuer or debtor will enter bankruptcy or other financial reorganisation; and
(iv) | observable data indicating that there is a measurable decrease in the estimated future cash flow from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group.
In addition to the above loss events, objective evidence of impairment for an investment in an equity instrument includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered and/or a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost. For financial assets at amortised cost, the Group first assesses whether objective evidence of impairment exists for financial assets that are indi vidually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred on financial assets carried at amortised cost, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statement of comprehensive income. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as improved credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the profit or loss. When a decline in the fair value of an availab le-for-sale financial asset has been recognised in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative impairment loss that had been recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment and is measured as the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss. (a) Impairment of financial assets at amortised cost and available-for-sale investments - continued Impairment losses recognised in profit or loss for an available-for-sale investment in an equity instrument are not reversed through profit or loss. Impairment losses recognised in profit or loss for an available-for-sale investment in a debt instrument are reversed through profit or loss if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss. (b) Impairment of other financial assets At the end of each reporting period, the carrying amount of other financial assets is r eviewed to determine whether there is an indication of impairment and if any such indication exists, the recoverable amount of the asset is estimated. An impairment loss is the amount by which the amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of fair value less the costs to sell and value in use. Impairment losses and reversals are recognised in profit or loss. (c) Impairment of non-financial assets Assets that are subject to amortisation or depreciation, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, principally comprise property, plant and equipment and computer software. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). An impairment loss recognised in a prior year is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. Impairment losses and reversals are recognised in profit or loss. 11. Offsetting financial instruments Financial assets and liabilities are offset and the net amount report ed in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. 12. Insurance contracts and investment contracts with DPF (a) Classification Insurance contracts are those contracts that transfer significant insurance risk. Such contracts may also transfer financial risk. As a general guideline, the Group defines as significant insurance risk the possibility of having to pay benefits on the occurrence of an insured event that are at least 10% more than the benefits payable if the insured event did not occur. Investment contracts are those contracts that transfer financial risk with no significant insurance risk. A number of insurance and investment contracts contain a DPF (“Discretionary participation feature”). This feature entitles the holder to receive, as a supplement to guaranteed benefits, additional benefits or bonuses:
- | that are likely to be a significant portion of the total contractual benefits;
- | whose amount or timing is contractually at the discretion of the Group; and
- | that are based on realised and/or unrealised investment returns on underlying assets held by the the Group.
Local statutory regulations and the terms and conditions of these contracts set out the bases for the determination of the amounts on which the additional discretionary benefits are based (the DPF eligible surplus), and within which the Group may exercise its discretion as to the quantum and timing of their payment to contract holders, also considering the advice of the approved actuary. (b) Recognition and measurement Insurance contracts and investment contracts with DPF are categorised depending on the duration of risk and whether or not the terms and conditions are fixed. (i) Short term insurance contracts These contracts are short duration life insurance contracts. They protect the Group’s customers from the consequences of events (such as death or disability) that would affect the ability of the customer or his/her dependants to maintain their current level of income. Guaranteed benefits paid on occurrence of the specified insurance event are either fixed or linked to the extent of the economic loss suffered by the policyholder. There are no maturity or surrender benefits under these insurance contracts. (ii) Long-term contracts - Insurance contracts without DPF These contracts insure events associated with human life (mainly for death) over a long and fixed duration. The guaranteed and fixed element for these contracts relates to the sum assured, i.e. the benefit payable on death. Premiums are recognised as revenue when they become payable by the contract holder. Premiums are shown before deduction of commission and are inclusive of policy fees receivable. - Investment contracts with DPF In addition to the guaranteed amount payable on death, these products combine a savings element whereby a portion of the premium receivable, and declared returns, are accumulated for the benefit of the policyholder. Annual returns may combine a guaranteed rate of return and a discretionary element. Premiums are recognised as revenue when they become payable by the contract holder. Premiums are shown before deduction of commission and are inclusive of policy fees receivable. These long-term contracts are substantially savings products since they do not transfer significant insurance risk. Annual returns may combine a guaranteed rate of return and a discretionary element. The Group does not recognise the guaranteed element separately from the DPF for any of the contracts that it issues. As permitted by IFRS 4, it continues to apply accounting policies existing prior to this standard in respect of such contracts, further summarised as follows:
(i) | Premiums are recognised as revenue when they are paid and allocated to the respective policy account value. Premiums are shown before deduction of commission, and are inclusive of policy fees receivable.
(ii) | Maturity claims are charged against revenue when due for payment. Surrenders are accounted for when paid or, if earlier, on the date when the policy ceases to be included within the calculation of the liability. Death claims and all other claims are accounted for when notified. Claims payable include related internal and external claims handling costs.
(iii) | Bonuses charged to the long-term business technical account in a given year comprise:
(a) | new reversionary bonuses declared in respect of that year, which are provided within the calculation of the respective liability;
(b) | terminal bonuses paid out to policyholders on maturity and included within claims paid; and
(c) | terminal bonuses accrued at the Group’s discretion and included within the respective liability.
(iv) | Life insurance and investment contracts with DPF liabilities
A liability for long term contractual benefits that are expected to be incurred in the future is recorded when premiums are recognised. This liability is determined by the approved actuary following his annual investigation of the financial condition of the Group’s long-term business as required under the Insurance Business Act (Cap. 403 of the Laws of Malta). It is calculated in accordance with the relevant legislation governing the determination of liabilities for the purposes of statutory solvency. The calculation uses a prospective valuation method, unless a retrospective calculation results in a higher liability, and makes explicit provision for vested reversionary bonuses. Provision is also made, explicitly or implicitly, for future reversionary bonuses. The prospective method is determined as the sum of the expected discounted value of the benefit payments and the future administration expenses that are directly related to the contract, less the expected discounted value of the theoretical premiums that would be required to meet the benefits and administration expenses based on the valuation assumptions used. The liability is based on assumptions as to mortality, maintenance expenses and investment income that are established at the time the contract is issued, subject to solvency restrictions set out in the Insurance Business Act (Cap. 403 of the Laws of Malta). The retrospective method is based on the insurance premium credited to the policyholder’s account, together with explicit provision for vested bonuses accruing as at the end of the reporting period, and adjustment for mortality risk and other benefits. At each reporting date, an assessment is made of whether the recognised life insurance liabilities, net of related DAC, are adequate by using an existing liability adequacy test performed in accordance with IFRS 4 requirements and the Insurance Business Act (Cap. 403 of the Laws of Malta). The liability value is adjusted to the extent that it is insufficient to meet expected future benefits and expenses. In performing the adequacy test, current best estimates of future contractual cash flows, including related cash flows such as claims handling and policy administration expenses, policyholder options and guarantees, as well as investment income from assets backing such liabilities, are used. Aggregation levels and the level of prudence applied in the test are consistent with IFRS 4 requirements and the Insurance Business Act (Cap. 403 of the Laws of Malta). To the extent that the test involves discounting of cash flows, the interest rate applied may be prescribed regulations by the Insurance Business Act (Cap. 403 of the Laws of Malta) or may be based on management’s prudent expectation of current market interest rates. Any inadequacy is recorded in the statement of profit or loss, initially by impairing DAC and, subsequently, by establishing an additional insurance liability for the remaining loss. In subsequent periods, the liability for a block of business that has failed the adequacy test is based on the assumptions that are established at the time of the loss recognition. The assumptions do not include a margin for adverse deviation. Impairment losses resulting from liability adequacy testing are reversed in future years if the impairment no longer exists. This long-term liability is recalculated at the end of each reporting period. The above method of calculation satisfies the minimum liability adequacy test required by IFRS 4. The liability in respect of short-term insurance contracts is based on statistical analysis for the claims incurred but not reported, estimates of the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions), and further includes the portion of premiums received on in-force contracts that relate to unexpired risks at the end of the reporting period. (c) Reinsurance contracts held Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts in accounting policy 12(a) are classified as reinsurance contracts held. Contracts that do not meet the classification requirements are classified as financial assets. The benefits to which the Group is entitled under its reinsurance contracts held are recognised as reinsurers’ share of technical provisions or receivables from reinsurers (unless netted off against amounts payable to reinsurers). These assets consist of short-term balances due from reinsurers (classified within receivables), as well as longer term receivables (classified as reinsurers’ share of technical provisions) that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised as an expense when due. The Group assesses its reinsurance assets for impairment on an annual basis. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the profit or loss. The Group gathers objective evidence that a reinsurance asset is impaired using the same process adopted for financial assets held at amortised cost. The impairment loss is also calculated following the same method used for these financial assets. These processes are described in accounting policy 10(a). (d) Receivables and payables related to insurance contracts Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and policyholders. If there is objective evidence that the insurance receivable is impaired, the Group reduces the carrying amount of the insurance receivable accordingly and recognises that impairment loss in the profit or loss in a similar manner to the process described above for reinsurance contracts held (also see accounting policy 10(a)). 13. Investments contracts without DPF The Group issues investment contracts without DPF. Premium arising on these contracts is classified as a financial liability – investment contracts without DPF. Investment contracts without fixed terms are financial liabilities whose fair value is dependent on the fair value of underlying financial assets and are designated at inception as at fair value through profit or loss. The fair value of a unit linked financial liability is determined using the current unit values that reflect the fair values of the financial assets linked to the financial liability multiplied by the number of units attributed to the contract holder at the end of the reporting period. If the investment contract is subject to a surrender option, the fair value of the financial liability is never less than the amount payable on surrender, where applicable. Other benefits payable are also accrued as appropriate. 14. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and demand deposits, together with short-term, highly liquid investments that are readily convertible to a known amount of cash, and that are subject to an insignificant risk of changes in value. For the purposes of the consolidated statement of cash flows, cash and cash equivalents comprise cash in hand, deposits held at call with banks and time deposits maturing within three months (unless these are held specifically for investment purposes) and are net of the bank overdraft, which is included with liabilities. 15. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. Trade payables are stated at their nominal value unless the effect of discounting is material. Borrowing co sts are capitalised within property held for development in so far as they relate to the specific external financing of assets under development. Such borrowing costs are capitalised during the development phase of the project. Other borrowing costs are recognised as an expense in the year to which they relate. 16. Share capital Ordinary shares are classified as equity. Incremental costs directly att ributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. 17. Dividend distribution Dividend distribution to the Group’s Shareholder s is recognised as a liability in the Group’s financial statements in the period in which the dividends are declared. 18. Fiduciary activities Client monies are held by the Group as a result of clients’ trades that have not yet been fulfilled. They ar e not included in the financial statements as these assets are held in a fiduciary capacity. 19. Provisions Provisions are reco gnised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. 20. Revenue recognition Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. Revenue also includes interest, dividend and rental income. The following specific recognition criteria must also be met before revenue is recognised: (a) Rendering of services Premium recognition dealing with insurance contracts and investments contracts with DPF is described in accounting policy 12. Revenue arising from the issue of investment contracts without DPF is recognised in the accounting period in which the services are rendered. Other turnover arising on rendering of services represents commission, consultancy and advisory fees receivable in respect of the Group’s activities in providing insurance agency, brokerage or investment services. Revenues are recognised in the financial statements in line with fulfilment of the performance obligations and the consideration is allocated to each performance obligation and recognised as revenue as the performance obligation is performed over the duration of the contract. (b) Dividend income Dividend income is recognised when the right to receive payment is established. (c) Interest income Interest income from financial assets not classified as fair value through profit or loss is recognised using the effective interest method. The Group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the Group’s revenue listed in Accounting Policy 20, the Group considers the effects of variable consideration, existence of a significant financing component, non-cash consideration, and consideration payable to the customer (if any). If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. 21. Foreign currencies (a) Functional and presentation currency It ems included in the financial statements of the Group entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Euro, which is the Group’s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange ga ins and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss. Non-monetary assets and liabilities denominated in currencies other than the functional currency that are measured at fair value are re-translated using the exchange rate ruling on the date the fair value was measured. Non-monetary assets and liabilities denominated in currencies other than the functional currency that are measured in terms of historical cost are not re-translated. Exchange differences arising on the translation of non-monetary items carried at fair value are included in profit or loss for the period, except for differences arising on the re-translation of non-monetary items in respect of which gains and losses are recognised in other comprehensive income. For such non-monetary items, any exchange component of that gain or loss is also recognised in other comprehensive income. 22. Investment return Investment return includes dividend income, net fair value movements on financial assets at fair value through profit or loss (including interest income from financial assets classified as fair value through profit or loss), interest income from financial assets not classified as fair value through profit or loss, rental receivable and net fair value movements on investment property and is net of investment expenses, charges and interest. The investment return is allocated between the insurance technical account and the non-technical account on the basis of the investment return as recommended by the approved actuary. 23. Leases (i) Group as a lessor Lessor accounting remains similar to treatment under IAS 17 meaning that lessors continue to classify leases as finance or operating leases. To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset. The Group recognises lease payments received under operating leases as income on a straight-line basis over the lease term as part of ‘other income’ – Note 6. (ii) Group as a lessee A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. Right-of-use asset The Group recognises a right-of-use asset at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset of the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The Group presents right-of-use asset that do not meet the definition of investment property as ‘right-of-use assets’. Lease liability The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. Estimating the incremental borrowing rate The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate ("IBR") to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating). Lease payments included in the measurement of the lease liability comprise the following:
- | fixed payments (including payments which are essentially fixed), minus any incentive to lease to be paid;
- | the price for exercising a purchase option which the lessee is reasonably certain to exercise; and
- | payments for early cancellation.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in rate, if there is a change in the Group estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. 24. Employee benefits The Group contributes towards the state pension in accordance with local legislation. The only obligation is to make the required contributions. Costs are expensed in the period in which they are incurred. 25. Taxation Current tax is charged or credited to profit or loss except when it relates to items recognised in other comprehensive income or directly in equity. The charge/credit for current tax is based on the taxable result for the period. The taxable result for the period differs from the result as reported in profit or loss because it excludes items which are non-assessable or disallowed and it further excludes items which are taxable or deductible in other periods. It is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period ## Notes to the financial statements 1. Critical accounting estimates and judgements The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Estimates and judgements are continually evaluated and based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. In the opinion of the Directors, the accounting estimates and judgements made in the course of preparing these financial statements are not difficult, subjective or complex to a degree which would warrant their description as critical in terms of the requirements of IAS 1, unless further described below. (a) Fair valuation of investment properties The determination of the fair value of investment properties at the end of the reporting period requires the use of significant management estimates. Details of the valuation methodology and key assumptions of investment property classified as Level 3 are disclosed in Note 14 to the financial statements. (b) Value of in-force business The value of in-force business is a projection of future Shareholders’ profit expected from insurance policies in force at the year-end, appropriately discounted and adjusted for the effect of taxation. This valuation requires the use of assumptions relating to future mortality, persistence, levels of expenses and investment returns over the longer term (see accounting policy 3(b)). Details of key assumptions and sensitivity for this intangible asset are provided in Note 11 to the financial statements. (c) Technical provisions The Group’s technical provisions at year-end are determined in accordance with accounting policy 12. Details of key assumptions and sensitivities to the valuation are disclosed in Note 17 to the financial statements. 2. Management of insurance and financial risk The Group holds or issues contracts that transfer insurance risk or financial risk or both. This section summarises these risks and the way the Group manages them. Insurance risk The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount and timing of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable. For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year from the estimate established using statistical techniques. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Group has developed its insurance underwriting strategy to diversify the type of insurance risk accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk and geographical location. (a) Frequency and severity of claims For contracts where death is the insured risk, the most significant factors that could increase the overall frequency of claims are epidemics or wide spread changes in lifestyle, resulting in earlier or more claims than expected. At present, these risks do not vary significantly in relation to the location of the risk insured by the Group. However, undue concentration by amounts could have an impact on the severity of benefit payments on a portfolio basis. For contracts with fixed and guaranteed benefits and fixed future premiums, there are no mitigating terms and conditions that reduce the insurance risk accepted. Investment contracts with DPF (“Discretionary participation feature”) carry negligible insurance risk. The Group manages these risks through its underwriting strategy and reinsurance agreements. The underwriting strategy is intended to ensure that the risks underwritten are well diversified in terms of type of risk and the level of insured benefits. Medical selection is also included in the Group’s underwriting procedures with premiums varied to reflect the health condition and lifestyle of the applicants. The Group has retention limits on any single life assured for term business or risk premium business. The Group reinsures the excess of the insured benefits over approved retention limits under a treaty reinsurance arrangement. Short term insurance contracts are also protected through a combination of selective quota share and surplus reinsurance. Further, the Group has a “CAT XL” reinsurance arrangement to cover its exposure in the case of an event affecting more than three lives. In general, all large sums assured are facultatively reinsured on terms that substantially limit the Group’s maximum net exposure. The Directors consider that all other business is adequately protected through treaty reinsurance with a reasonable spread of benefits payable according to the age of the insured, and the size of the sum assured. The Group is largely exposed to insurance risk in one geographical area, Malta. Single event exposure is capped through the “CAT XL” reinsurance arrangement as referred above. (b) Lapse and surrender rates Lapses relate to the termination of policies due to non–payment of premiums. Surrenders relate to the voluntary termination of policies by policyholders. Policy termination assumptions are determined using statistical measures based on the Group’s experience and vary by product type, policy duration and sales trends. An increase in lapse rates early in the life of the policy would tend to reduce profits for shareholders, but later increases are broadly neutral in effect. (c) Policy Maintenance Expenses Operating expenses assumptions reflect the projected costs of maintaining and servicing in–force policies and associated overhead expenses. The current level of expenses is taken as an appropriate expense base, adjusted for expected expense inflation if appropriate. An increase in the level of expenses would result in an increase in expenditure, thereby reducing profits for the shareholders. (d) Investment return The weighted average rate of return is derived based on a model portfolio that is assumed to back consistent with the long–term asset allocation strategy. These estimates are based on current as well as expectations about future economic and financial developments. An increase in investment return would lead to an increase in profits for the shareholders. (e) Discount rate Life insurance liabilities are determined as the sum of the discounted value of the expected benefits and future administration expenses directly related to the contract, less the discounted value of the expected theoretical premiums that would be required to meet these future cash outflows. Discount rates are based on current industry risk rates, adjusted for the Group’s own risk exposure. A decrease in the discount rate will increase the value of the insurance liability and therefore reduce profits for the shareholders. (f) Sources of uncertainty in the estimation of future benefit payments and premium receipts Uncertainty in the estimation of future benefit payments and premium receipts for long term insurance contracts arises from the unpredictability of long-term changes in overall levels of mortality and the variability in contract holder behaviour. The Group uses appropriate base tables of standard mortality according to the type of contract being written. The Group does not take credit for future lapses in determining the liability for long term contracts in accordance with the insurance rules regulating its calculation. Financial risk The Group is exposed to financial risk through its financial assets and liabilities, reinsurance assets, and insurance liabilities. In particular, the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance and investment contracts with DPF. The most important components of financial risk are market risk (including currency risk, cash flow, fair value interest rate risk and price risk), credit risk and liquidity risk. These risks partly arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The Group manages these positions through adherence to an investment policy. The policy adopted is modelled to take into account actuarial recommendations and is developed to achieve long term investment returns in excess of its obligations under insurance and investment contracts with DPF. The principal technique underlying the Group’s framework is to broadly match assets to the liabilities arising from insurance and investment contracts with DPF by reference to the type of benefits payable to contract holders, and the recommended portfolio mix as advised by the approved actuary. The Group’s investment policy is formally approved by the Board of Directors. Portfolio review processes and investment decisions are generally delegated to a dedicated Sub-Investment Committee or the Chief Executive Officer. Transactions in excess of pre-established parameters are subject to Board of Directors approval. The procedures consider, inter alia, a recommended portfolio structure, authorisation parameters, asset and counterparty limits and currency restrictions. Management reports to the Investment Committee on a regular basis. The Committee meets to consider, inter alia, investment prospects, liquidity, and the performance of the portfolio and the overall framework of the Group’s investment strategy. Solvency considerations as regulated by the relevant Authority are also taken into account as appropriate. (a) Cash flow and fair value interest rate risk The Group is exposed to the risk of fluctuating market interest rate. Assets/liabilities with variable rates expose the Group to cash flow interest risk. Assets/liabilities with fixed rates expose the Group to fair value interest rate risk to the extent that they are measured at fair value. The total assets and liabilities subject to interest rate risk are the following:
|  | The Group |  | The Company
|  | 2022 |  | 2021 |  | 2022 |  | 2021
|  | € |  | € |  | € |  | €
Assets |  |  |  |  |  |  |  |
Assets at floating interest rates |  | 6,589,389 |  | 9,886,690 |  | 454,612 |  | 860,287
Assets at fixed interest rates |  | 26,423,712 |  | 29,374,880 |  | - |  | -
|  | 33,013,101 |  | 39,261,570 |  | 454,612 |  | 860,287
Liabilities |  |  |  |  |  |  |  |
Technical provisions |  | 90,189,514 |  | 94,240,446 |  | - |  | -
Liabilities at floating interest rate |  | - |  | - |  | 7,139,426 |  | 7,041,697
|  | 90,189,514 |  | 94,240,446 |  | 7,139,426 |  | 7,041,697
As disclosed in note 21, the company obtained loans from LifeStar Insurance p.l.c amounting to €7,139,429 (2020: €7,041,697) which is subject to an annual interest rate of 3%. This exposure does not give rise to fair value interest rate risk since the loans are carried at amortised cost in the financial statements. Interest rate risk is monitored by the Board of Directors on an ongoing basis. This risk is mitigated through the distribution of fixed interest investments over a range of maturity dates, and the definition of an investment policy as described earlier, which limits the amount of investment in any one interest earning asset or towards any one counterparty. Management monitors the movement in interest rates and, where possible, reacts to material movements in such rates by adjusting or restructuring its investment or financing structure and by maintaining an appropriate mix between fixed and floating rate instruments. As at the end of the reporting period, the Directors considered that no hedging arrangements were necessary to address interest rate risk. Insurance and investment contracts with DPF have benefit payments that are fixed and guaranteed at the inception of the contract (for example, sum assured), or as bonuses are declared. The financial component of these benefits is usually a guaranteed fixed interest rate set at the inception of the contract, or the supplemental benefits payable. The Group’s primary financial risk on these contracts is the risk that interest income and capital redemptions from the financial assets backing the liabilities are insufficient to fund the guaranteed benefits payable. The supplemental benefits payable to holders of such contracts are based substantially on historic and current rates of return on fixed income securities held as well as the Group’s expectations for future investment returns. The impact of interest rate risk is mitigated by the presence of the DPF. Guaranteed benefits increase as supplemental benefits are declared and allocated to contract holders. All insurance and investment contracts with a DPF feature can be surrendered before maturity for a cash surrender value specified in the contractual terms and conditions. This surrender value is either lower than or at least equal to the carrying amount of the contract liabilities as a result of the application of surrender penalties set out in the contracts. The Group is not required to, and does not, measure this embedded derivative at fair value. The sensitivity for interest rate risk illustrates how changes in the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates at the reporting date. The Group’s interest rate risk arises primarily on fixed-income and floating rate financial assets held to cover policyholder liabilities. Interest-bearing assets or liabilities attributable to the shareholders are not significant, or they mainly mature in the short term, and as a result the Group’s income and operating cash flows are substantially independent of changes in market interest rates in this regard. An indication of the sensitivity of insurance results to a variation of investment return on policyholders’ assets is provided in Note 11 to the financial statements in relation to the value of in-force business. Further sensitivity to investment return variations in relation to technical provisions is provided in Note 17 to the financial statements. Should the carrying amounts of assets at fixed interest rates at the end of the reporting period increase/decrease by 10%, with all other variables held constant, the impact on the Group’s pre-tax profit would be +/- €2,642,371 (2021: +/- €2,937,488). The Group is not exposed to significant cash flow interest rate risk on assets at floating interest rates as a reasonably possible change would not result in a significant cash flow interest rate risk. (b) Price risk The Group is exposed to market price risk arising from the uncertainty about the future prices of investments held that are classified in the statement of financial position as at fair value through profit or loss or as available for sale. This risk is mitigated through the adherence to an investment policy geared towards diversification as described earlier. The Group is exposed to price risk in respect of listed equity investment. Approximately 27% (2021: 26%) of equity securities held at fair value through profit or loss in Note 16 relate to holdings in three local banks. The remaining equity securities held at fair value through profit or loss are mainly held in equities in the Telecommunication Services and Information Technology sectors. The total assets subject to equity price risk are the following:
| The Group |  | The Company
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
Investments in group undertakings (Note 15) | - |  | - |  | 24,031,432 |  | 24,031,424
Other investments (Note 16) | 25,518,258 |  | 26,322,906 |  | - |  | -
| 25,518,258 |  | 26,322,906 |  | 24,031,432 |  | 24,031,424
The sensitivity analysis for price risk illustrates how changes in the fair value of equity securities will fluctuate because of changes in market prices, whether these changes are caused by factors specific to the individual equity issuer, or factors affecting all similar equity securities traded in the market. The sensitivity analysis measures the change in the fair value of the instruments for a hypothetical change of 10% in the market price of financial assets at fair value through profit or loss. The amounts generated from the sensitivity analysis are forward-looking estimates of market risk assuming certain market conditions. Actual results in the future may differ materially from those projected results due to the inherent uncertainty of global financial markets. Should market prices at the end of the reporting period increase/decrease by 10% (2021: 10%), with all other variables held constant, the impact on the Group’s pre-tax profit would be +/- € 2,551,826 (2021: +/- € 2,632,291 ). Should market prices at the end of the reporting period increase/decrease by 10% (2021: 10%), with all other variables held constant, the impact on the Company's pre-tax profit would be +/- € 2,403,143 (2021: +/- € 2,403,124). This sensitivity analysis is based on a change in an assumption while holding all assumptions constant and does not consider, for example, the mitigating impact of the DPF element on policyholder liabilities for contracts with a DPF. (c) Currency risk The Group’s exposure to foreign exchange risk arises primarily from investments that are denominated in currencies other than the Euro. As at 31 December 2022, the Group’s exposure to foreign currency investments (principally comprising a mix of US Dollar, UK Pound and Swiss Franc) represented 5.4% (2021: 8.0%) of the Group’s total investments excluding the term deposits in Note 16. Approximately 5.2% (2021: 6.8%) of the Group’s cash and cash equivalents and term deposits, are denominated in foreign currency (principally comprising a mix of US Dollar, UK Pound and Swiss Franc). The risk arising from foreign currency transactions is managed by regular monitoring of the relevant exchange rates and management’s reaction to material movements thereto. For financial instruments held or issued, a sensitivity analysis technique that measures the change in the fair value and the cash flows of the Group’s financial instruments at the reporting date for hypothetical changes in exchange rates has been used. The amounts generated from the sensitivity analysis are forward-looking estimates of market risk assuming certain market conditions. Actual results in the future may differ materially from those projected results due to the inherent uncertainty of global financial markets. The sensitivity analysis is for illustrative purposes only, as in practice market rates rarely change in isolation and are likely to be interdependent. Should exchange rates at the end of the reporting period differ by +/-10% (2021: +/-10%), with all other variables held constant, the impact on the Company’s pre-tax profit would be +/- €498,329 (2021: +/- €806,349). (d) Credit risk The Group has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Financial assets that potentially subject the Group to concentrations of credit risk consist principally of: - other investments (including counterparty risk); - reinsurers’ share of technical provisions; - amount due from insurance policyholders and intermediaries; - trade and other receivables; and - cash and cash equivalents. The Group is exposed to credit risk as at the financial year-end in respect of amounts due from subsidiary undertakings and cash at bank balances, which are placed with reliable financial institutions. The Group structures the levels of credit risk it accepts by placing limits on its exposure to a single counterparty, or groups of counterparties. Limits on the level of credit risk by category are defined within the Group’s investment policy as described earlier. This policy also considers regulatory restrictions on asset and counterparty exposures. Further detail on the content of the Group’s investment portfolio is provided in Note 16 to these financial statements. Credit risk in respect of trade and other receivables is not deemed to be significant after considering the range of underlying debtors, and their creditworthiness. Receivables are stated net of impairment. Further detail in this regard is provided in Note 18 to the financial statements. Reinsurance is used to manage insurance risk. This does not, however, discharge the Group’s liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the Group remains liable for payment to the policyholder. The creditworthiness of reinsurers is considered on an ongoing basis and by reviewing their financial strength prior to finalisation of any contract. The Group’s reinsurer retained its Standard and Poor’s rating of AAA to AA+ bracket as at 31 December 2022. The credit risk in respect of cash at bank is mitigated by placing such balances with reliable financial institutions. Credit risk in respect of the amounts due from subsidiary undertakings to the Company is closely monitored by the Company and is tested for impairment as disclosed in Note 18. The following table illustrates the assets that expose the Group to credit risk as at the end of the reporting period and includes the Standard & Poor’s, Moody’s and ARC’s composite rating for debt securities at fair value through profit or loss, when available, and the default rating for deposits with banks and cash and cash equivalents, when available. Assets bearing credit risk at the end of the reporting period are analysed as follows:
| The Group
| As at 31 December 2022
| AAA |  | BBB | Below B |
| to AA | A | to B | to unrated | Total
| € | € | € | € | €
Investments |  |  |  |  |
Debt securities at fair value through profit or loss | 1,784,640 | 6,100,953 | 9,162,373 | 4,614,829 | 21,662,795
| 1,784,640 | 6,100,953 | 9,162,373 | 4,614,829 | 21,662,795
Loans and receivables |  |  |  |  |
Loans secured on policies | - | - | - | 25,529 | 25,529
Other loans and receivables | - | 3,087,047 | - | - | 3,087,047
Trade and other receivables | - | - | - | 3,391,751 | 3,391,751
Term Deposits | - | - | - | 1,500,000 | 1,500,000
Cash and cash equivalents | - | 472,104 | 6,173,029 | - | 6,645,133
| - | 3,559,151 | 6,173,029 | 4,917,280 | 14,649,460
Reinsurance share of technical provisions | 18,840,581 | - | - | - | 18,840,581
Total assets bearing credit risk | 20,625,221 | 9,660,104 | 15,335,402 | 9,532,109 | 55,152,836
| The Group
| As at 31 December 2021
| AAA |  | BBB | Below B |
| to AA | A | to B | to unrated | Total
| € | € | € | € | €
Investments |  |  |  |  |
Debt securities at fair value through profit or loss | 2,061,068 | 5,933,846 | 10,235,536 | 5,756,255 | 23,986,705
| 2,061,068 | 5,933,846 | 10,235,536 | 5,756,255 | 23,986,705
Loans and receivables |  |  |  |  |
Loans secured on policies | - | - | - | 36,295 | 36,295
Other loans and receivables | - | 3,288,174 | - | - | 3,288,174
Trade and other receivables | - | - | - | 3,672,964 | 3,672,964
Term Deposits | - | - | - | 2,100,000 | 2,100,000
Cash and cash equivalents | - | - | 11,812,965 | 812,680 | 12,625,645
| - | 3,288,174 | 11,812,965 | 6,621,939 | 21,723,078
Reinsurance share of technical provisions | 20,004,452 | - | - | - | 20,004,452
Total assets bearing credit risk | 22,065,520 | 9,222,020 | 22,048,501 | 12,378,194 | 65,714,235
Unrated financial assets principally comprise locally traded bonds on the Malta Stock Exchange, receivables and certain deposits with local bank institutions for which no credit rating is available. As at 31 December 2022 and 2021 the Group had significant exposure with the Government of Malta through investments in debt securities. In 2022, these were equivalent to 7.0% (2021: 6.5%) of the Group’s total investments. The tables below analyse the Group’s financial assets into relevant maturity groupings based on the remaining period between the end of the reporting period and the maturity date. The expected cash outflows for insurance and investment contracts do not consider the impact of early surrenders. Resilience and closure reserves are not included in the figures below.
| The Company
| 2022 | 2021
| € | €
Classes of financial assets - carrying amounts |  |
Financial assets at amortised cost |  |
Receivable from Ultimate shareholder | 47,898 | 33,035
Receivable from parent company | 203,383 | 128,124
Receivables from subsidiaries | 1,771,438 | 1,679,635
Other receivables | 106,078 | 121,217
Cash and cash equivalents | 454,612 | 860,287
| 2,583,409 | 2,822,298
| The Group
| Expected discounted cash inflows
|  | Between | Between | Between |  |
| Less than | one and | five and | ten and | Over |
| one year | five years | ten years | twenty years | 20 years | Total
| € | € | € | € | € | €
As at 31 December 2022 |  |  |  |  |  |
Reinsurance share of Technical provisions | 665,354 | 103,791 | 724,524 | 3,957,236 | 13,389,675 | 18,840,580
As at 31 December 2021 |  |  |  |  |  |
Reinsurance share of Technical provisions | 97,698 | 65,769 | 676,334 | 3,698,188 | 15,466,463 | 20,004,452
(e) Liquidity risk Liquidity is the risk that cash may not be available to pay obligations when due at a reasonable cost. The Group adopts a prudent liquidity risk management approach by maintaining a sufficient proportion of its assets in cash and marketable securities through the availability of an adequate amount of committed credit facilities and the ability to close out market positions. Senior management is updated on a regular basis on the cash position of the Group illustrating, inter alia, actual cash balance net of operational commitments falling due in the short term as well as investment commitments falling due in the medium and long term. The Group is exposed to daily calls on its available cash resources in order to meet its obligations, including claims arising from contracts in issue by the Group. Other financial liabilities which expose the Group to liquidity risk mainly comprise the borrowings disclosed in Note 21 and trade and other payables disclosed in Note 22. The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on the remaining period between the end of the reporting period and the maturity date. The expected cash outflows for insurance and investment contracts do not consider the impact of early surrenders. Expected cash outflows on unit linked liabilities have been excluded since they are matched by expected inflows on backing assets.
| The Group
As at 31 December 2022 | Contracted undiscounted cash outflows
| Less than one year | Between one and two years | Between two and five years | Over five years | Total | Carrying amount |
| € | € | € | € | € | € |
Interest bearing borrowings | 650,799 | 590,450 | 590,450 | 2,526,366 | 4,358,065 | 4,252,740 |
Trade and other payables | 7,446,860 | - | - | - | 7,446,860 | 7,446,860 |
| 8,097,659 | 590,450 | 590,450 | 2,526,366 | 11,804,925 | 11,699,600 |
| The Group
| Expected discounted cash outflows
| Less than one year | Between one and two years | Between two and five years | Between 10 and 20 years | Over twenty years | Total |
| € | € | € | € | € | € |
Technical provisions | 7,754,990 | 30,407,566 | 13,275,351 | 19,338,397 | 54,233,042 | 125,009,346 |
| The Group
As at 31 December 2021 | Contracted undiscounted cash outflows |  |  |
| Less than one year | Between one and two years | Between two and five years | Over five years | Total | Carrying amount |
| € | € | € | € | € | € |
Interest bearing borrowings | 624,936 | 537,885 | 1,640,382 | 2,105,257 | 4,908,460 | 4,730,586 |
Trade and other payables | 7,989,447 | - | - | - | 7,989,447 | 7,989,447 |
| 8,614,383 | 537,885 | 1,640,382 | 2,105,257 | 12,897,907 | 12,720,033 |
| The Group
| Expected discounted cash outflows
| Less than one year | Between one and two years | Between two and five years | Between 10 and 20 years | Over twenty years | Total |
| € | € | € | € | € | € |
Technical provisions | 14,257,208 | 28,529,074 | 13,967,431 | 16,992,733 | 56,313,143 | 130,059,589 |
The tables below analyse the Company's financial liabilities into relevant maturity groupings based on the remaining period between the end of the reporting period and maturity date.
| The Company
| Contracted undiscounted cashflows
| Less than one year | Between one and two years | Between two and five years | Over five years | Total | Carrying amount
| € | € | € | € | € | €
As at 31 December 2022 |  |  |  |  |  |
Interest bearing borrowings | 650,799 | 590,450 | 590,450 | 7,520,543 | 9,352,242 | 9,246,917
Trade and other payables | 2,528,533 | - | - | - | 2,528,533 | 2,528,533
| 3,179,332 | 590,450 | 590,450 | 7,520,543 | 11,880,775 | 11,775,450
As at 31 December 2021 |  |  |  |  |  |
Interest bearing borrowings | 624,936 | 537,885 | 6,503,812 | 2,177,997 | 9,844,630 | 9,667,026
Trade and other payables | 2,349,834 | - | - | - | 2,349,834 | 2,349,834
| 2,974,770 | 537,885 | 6,503,812 | 2,177,997 | 12,194,464 | 12,016,860
3. Particulars of business The Group writes long term and linked long term insurance business: (i) Gross premiums written Gross premium income is made up of direct insurance business and is further analysed between:
| The Group
| Periodic premiums |  | Single premiums
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
Gross premium income | 6,492,673 |  | 6,647,138 |  | 6,433,434 |  | 6,110,646
|  |  |  |  | 2022 |  | 2021
|  |  |  |  | € |  | €
Comprising: |  |  |  |  |  |  |
Individual business |  |  |  |  | 12,476,693 |  | 12,316,462
Group contracts |  |  |  |  | 449,414 |  | 441,322
|  |  |  |  | 12,926,107 |  | 12,757,784
Periodic and single premiums credited to liabilities in Note 17 in relation to linked products classified as investment contracts without DPF was as follows:
| The Group
| Periodic premiums |  | Single premiums
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
Investment contracts | 11,272,565 |  | 9,537,978 |  | - |  | -
All long-term contracts of insurance are concluded in or from Malta. (ii) Reinsurance premiums outwards The reinsurance premiums which represents the aggregate of all items relating to reinsurance outwards, mainly attributable to insurance contracts, amounted to a charge of €1,918,887 (2021: €1,785,759) to the long term business technical account for the year ended 31 December 2022. (i) Analysis between insurance and investment contracts
| The Group
| 2022 |  | 2021
| € |  | €
Gross premiums written |  |  |
Insurance contracts | 6,492,673 |  | 6,647,138
Investment contracts with DPF | 6,433,434 |  | 6,110,646
| 12,926,107 |  | 12,757,784
| 2022 |  | 2021
| € |  | €
Claims incurred, net of reinsurance |  |  |
Insurance contracts | 6,264,394 |  | 4,988,091
Investment contracts with DPF | 6,523,707 |  | 4,905,071
Transfer from administrative expenses | 259,013 |  | 258,648
| 13,047,114 |  | 10,151,810
(i) Net operating expenses
| The Group |
| 2022 |  | 2021
| € |  | €
Acquisition costs | 12,108 |  | 74,436
Administrative expenses | 5,466,010 |  | 4,545,291
Reinsurance commissions and profit participation | (463,222) |  | (76,723)
| 5,014,896 |  | 4,543,004
Total commissions for direct business accounted for in the financial year amounted to € 2,112,260 (2021: €2,259,833). (ii) Bonuses and rebates, net of reinsurance Reversionary bonuses declared in the year amounted to € 605,781 (2021: € 88 2,196).

The Group’s reportable segments under IFRS 8 are identified as follows:
• | Investment and advisory services - the provision of services in terms of the Investment Services Act (Cap. 370 of the Laws of Malta);
• | Business of insurance - to carry on long-term business of insurance under the Insurance Business Act (Cap. 403 of the Laws of Malta);
• | Agency and brokerage services - provision of agency or brokerage services for health or other general insurance in terms of the Insurance Distribution Act (Cap. 487 of the Laws of Malta); and
• | Property services - to handle property acquisitions, disposals and development projects both long and short term.
The other operating segment includes corporate expenses and other activities which are not reportable segments due to their immateriality. Certain expenses, finance costs and taxes are not allocated across the segments. The accounting policies of the reportable segments are the same as the Group’s accounting policies. Segment profit or loss represents the results generated by each segment without the allocation of certain finance costs, impairment of goodwill and taxation. This is the measure reported to the Group’s chief executive officer for the purpose of resource allocation and assessment of segment performance. All the Group’s turnover is primarily generated in and from Malta. Segment assets consist primarily of investments, receivables, intangible assets, property, plant and equipment and operating cash. Segment liabilities comprise insurance technical provisions and other operating liabilities. Capital expenditure comprises additions to computer software and to property, plant and equipment. Unallocated assets comprise investments that are not allocated to policyholders, taxation and intra group receivables. Unallocated liabilities mainly comprise borrowings, taxation and intra group payables. All non-current assets (other than financial instruments, deferred tax assets and rights under insurance contracts) are held in Malta with the exception of investment property located in Italy amounting to €7,500,000 (2021: €7,500,000), in Croatia of €720,000 (2021: €720,000). Reversionary bonuses declared in the year amounted to €605,781 (2021: €882,196). 4. Expenses by nature
| The Group |  | The Company
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
Staff costs | 2,388,368 |  | 2,402,971 |  | 32,356 |  | -
Commission and direct marketing costs | 2,112,260 |  | 2,158,054 |  | - |  | -
Amortisation of computer software (Note 11) | 242,829 |  | 217,492 |  | - |  | -
Depreciation of property, plant and machinery (Note 13) | 223,645 |  | 117,785 |  | 427 |  | 707
Impairment (note 14) | 133,835 |  | - |  | - |  | -
Other provisions | 505,032 |  | 61,945 |  | - |  | -
Legal and professional fees | 1,159,274 |  | 1,096,165 |  | 131,456 |  | 69,004
Insurance and licence costs | 245,068 |  | 243,749 |  | - |  | -
IT related expenses | 595,464 |  | 427,508 |  | - |  | -
Staff training and welfare costs | 12,260 |  | 10,427 |  | - |  | -
Lease expenses | 111,050 |  | 136,644 |  | 10,294 |  | 25,679
Interest on Related party loans | - |  | - |  | 59,586 |  | 90,901
Other expenses | 911,118 |  | 1,536,988 |  | 134,581 |  | 474,033
| 8,640,203 |  | 8,409,728 |  | 368,700 |  | 660,324
Allocated as follows: |  |  |  |  |  |  |
Long term business technical account |  |  |  |  |  |  |
- claims related expenses | - |  | - |  | - |  | -
- staff costs | 1,777,543 |  | 1,084,973 |  | - |  | -
- net operating expenses | 3,237,353 |  | 3,458,031 |  | - |  | -
Non-technical account |  |  |  |  |  |  |
- staff costs | 897,162 |  | 1,255,636 |  | 32,356 |  | -
- commission and direct marketing | 234,978 |  | 245,999 |  | - |  | -
costs |  |  |  |  |  |  |
- other provisions | 55,032 |  | 61,945 |  | - |  | -
- other administrative expenses | 2,438,135 |  | 2,303,144 |  | 336,344 |  | 660,324
| 8,640,203 |  | 8,409,728 |  | 368,700 |  | 660,324
Auditor’s remuneration for the current financial year amounted to €227,100 (2021: €123,000) for the Group. Other fees payable to the auditor comprise €Nil (2021: €Nil) for other assurance services, €38,170 (2021: €4,975) for tax services and €11,960 (2021: €39,500) for other non-audit services. Other provisions for the year under review represent the best estimate of the expected outflow of resources to settle a present obligation resulting from outstanding court and arbitration cases against the Group. Staff costs
| The Group |  | The Company
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
Staff costs, including directors’ |  |  |  |  |  |  |
emoluments (Note 8): |  |  |  |  |  |  |
Wages and salaries | 2,538,086 |  | 2,286,063 |  | 2,538,086 |  | 2,286,063
Social security costs | 129,307 |  | 116,908 |  | 129,307 |  | 116,908
| 2,667,393 |  | 2,402,971 |  | 2,667,393 |  | 2,402,971
Recharged to group undertakings | - |  | - |  | (2,635,037) |  | (2,402,971)
| 2,667,393 |  | 2,402,971 |  | 32,356 |  | -
The average number of persons employed by both the Group and company during the year are analysed below:
| 2022 |  | 2021
| € |  | €
Managerial | 9 |  | 7
Sales | 4 |  | 3
Administrative | 54 |  | 54
| 67 |  | 64
The table above represents salaried staff and does not include self-employed Tied Insurance Intermediaries. ## 5. Finance costs
| The Group |  | The Company
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
Finance costs |  |  |  |  |  |  |
Interest on intercompany loans | - |  | - |  | 261,458 |  | 182,104
Net interest (income)/ expense on bank loan | (4,979) |  | 50,714 |  | (44,074) |  | 50,714
Other interest | - |  | 43,481 |  | 39,095 |  | 43,702
Bond interest | 96,962 |  | 347,383 |  | - |  | 292,762
| 91,983 |  | 441,578 |  | 256,479 |  | 569,282
## 6. Investment return
| The Group
| 2022 |  | 2021
| € |  | €
Investment income |  |  |
Rental income from investment property | 356,149 |  | 569,746
Dividends received from investments at fair value through profit or loss | 693,479 |  | 431,598
Dividends received from available-for-sale investments | 3,735 |  | 3,217
Interest receivable from: |  |  |
- investments at fair value through profit or loss | 244,371 |  | 983,843
- other loans and receivables | 398,936 |  | 316,481
- available-for-sale investments | 801,869 |  | -
Other income / (expenses) | (228,007) |  | 1,135,279
| 2,270,532 |  | 3,440,164
Investment charges and expenses |  |  |
Investment management charges | (220,682) |  | (61,279)
Impairment loss on non-quoted equity | (377,000) |  | -
Interest payable on: |  |  |
Other finance costs | - |  | (220)
| (597,682) |  | (61,499)
Movement in fair value |  |  |
Net gains on investment property and assets held for sale | (325,903) |  | 30,000
Net fair value gain/ (loss) on investment – bonds | (2,996,907) |  | (664,335)
Net fair value gain/ (loss) on investment – equity and collective investment schemes | (1,355,809) |  | (1,390,881)
| (4,678,619) |  | (2,025,216)
Realised gain on sale of investments | - |  | 82,833
Total investment return | (3,005,769) |  | 1,353,449
Allocated as follows: |  |  |
Long term business technical account | (1,034,938) |  | 111,455
Statement of comprehensive income | (1,970,831) |  | 1,241,994
| (3,005,769) |  | 1,353,449
## 7. Income tax
| The Group |  | The Company
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
Current tax charge/(credit) | 170,670 |  | (41,380) |  | 22,960 |  | -
Deferred tax (credit)/ charge | (1,968,537) |  | 965,720 |  | - |  | -
| (1,797,867) |  | 924,340 |  | 22,960 |  | -
Income tax recognised in other comprehensive income is as follows:
| The Group
| 2022 |  | 2021
| € |  | €
Deferred tax |  |  |
Arising on income and expenses |  |  |
recognised in other comprehensive income: |  |  |
Revaluations of available-for-sale financial assets | 339,556 |  | 613
| 339,556 |  | 613
The tax on the Group’s profit/(loss) before tax differs from the theoretical amount that would arise using the basic tax rate as follows:
| The Group |  | The Company
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
(Loss) /profit before tax | (4,931,678) |  | 1,631,669 |  | (664,536) |  | 142,301
Tax on loss/ (profit)at 35% | 1,726,088 |  | (571,084) |  | 232,588 |  | (49,805)
Tax effect of: |  |  |  |  |  |  |
Exempt income and income subject to a reduced rate of tax | 120,446 |  | 101,620 |  | - |  | -
Non-deductible expenditure | (472,161) |  | (475,542) |  | (255,548) |  | 49,805
Unrelieved foreign tax | 267,131 |  | (14,829) |  | - |  | -
Adjustment relating to prior year taxation | 191,262 |  | - |  | - |  | -
Other differences | (34,899) |  | 35,495 |  | - |  | -
Tax income / (expense) | (1,797,867) |  | (924,340) |  | (22,960) |  | -
8. Directors’ emoluments
| The Group |  | The Company
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
Directors’ emoluments | 213,000 |  | 191,250 |  | 213,000 |  | 191,250
Recharged to group undertakings | - |  | - |  | (180,644) |  | (191,250)
| 213,000 |  | 191,250 |  | 32,356 |  | -
The executive directors are entitled to participate in a health insurance scheme subsidised by the Group. 9. Earnings per share Earnings per share is based on the net profit for the year divided by the weighted average number of ordinary shares in issue during the year.
| The Group
| 2022 |  | 2021
| € |  | €
Net (loss)/ profit attributable to shareholders | (3,133,811) |  | 707,329
Weighted average number of ordinary shares in issue | 24,102,049 |  | 30,000,000
Earnings per share (cents) | (13c) |  | 2c2
There is no difference between basic and diluted earnings per share as the Group has no potential dilutive ordinary shares. 10. Dividends The Directors of the Company do not recommend the payment of a dividend for 2022 as the Company had no distributable reserves at the end of the reporting period. No dividend was also paid in 2021. 11. Intangible assets
| The Group
|  |  | Value of |  |  |  |  |  |
|  |  | in-force |  | Computer |  | Passporting |  |
| Goodwill |  | business |  | software |  | Assets under dev. |  | Total
| € |  | € |  | € |  | € |  | €
Year ended 31 December 2022 |  |  |  |  |  |  |  |  |
Opening carrying amount | 311,541 |  | 11,929,714 |  | 1,912,057 |  | - |  | 14,153,312
Increment in value in force business (Note 20) | - |  | 760,006 |  | - |  | - |  | 760,006
Additions | - |  | - |  | 435,544 |  | - |  | 435,544
Reclassification |  |  |  |  | 31,259 |  | 220,000 |  | 251,259
Impairment recovery |  |  |  |  | 2,893 |  | 1,103 |  | 3,996
Amortisation charge (Note 4) | - |  | - |  | (242,826) |  | - |  | (242,826)
Closing carrying amount | 311,541 |  | 12,689,720 |  | 2,138,927 |  | 221,103 |  | 15,361,291
At 31 December 2022 |  |  |  |  |  |  |  |  |
Cost or valuation | 311,541 |  | 12,689,720 |  | 4,043,797 |  | 221,103 |  | 17,266,161
Accumulated amortisation | - |  | - |  | (1,904,870) |  | - |  | (1,904,870)
Carrying amount | 311,541 |  | 12,689,720 |  | 2,138,927 |  | 221,103 |  | 15,361,291
Year ended 31 December 2021 |  |  |  |  |  |  |  |  |
Opening carrying amount | 311,541 |  | 10,541,919 |  | 1,535,678 |  | - |  | 12,389,138
Increment in value in force business (Note 20) | - |  | 1,387,795 |  | - |  | - |  | 1,387,795
Additions | - |  | - |  | 593,871 |  | - |  | 593,871
Amortisation charge (Note 4) | - |  | - |  | (217,492) |  | - |  | (217,492)
Closing carrying amount | 311,541 |  | 11,929,714 |  | 1,912,057 |  | - |  | 14,153,312
At 31 December 2021 |  |  |  |  |  |  |  |  |
Cost or valuation | 311,541 |  | 11,929,714 |  | 3,576,994 |  | - |  | 15,818,249
Accumulated amortisation | - |  | - |  | (1,664,937) |  | - |  | (1,664,937)
Carrying amount | 311,541 |  | 11,929,714 |  | 1,912,057 |  | - |  | 14,153,312
Amortisation of computer software amounting to €242,826 (2021: €217,492) is included in expenses by nature (Note 4). Computer software relates to the Group’s policy administration system. The carrying amount of the software is €2,138,927 (2021: €1,912,057) will be fully amortised in 7 years (2021: 8 years). Value of in-force business – assumptions, changes in assumptions and sensitivity The value of in-force business (“VOIFB”) represents the net present value of projected future transfers to Shareholders from policies in force at the year end, after making provision for deferred taxation. The value of in-force business is determined by the Directors on an annual basis, based on the advice of the approved actuary. The assumption parameters of the valuation are based on a combination of the Group’s experience and market data. Due to the long-term nature of the underlining business, the cash flow projection period for each policy is set to its maturity date. The valuation is based on a discount rate of 5.25% (2021: 5.25%) and a growth rate of 3.4% to 3.55% (2021: 3.6% to 4.3%) depending on the type of policy. The valuation assumes a margin of 1% (2021: 1%) between the weighted average projected investment return and the discount factor applied. The calculation also assumes lapse rates varying from 0.5% to 22% (2021: 0.5% to 20%), and expenses are implicitly inflated. Sensitivity of the main assumptions underlying the valuation is applied as follows:
- | a 10% increase in the assumption for policy maintenance expenses reduces the VOIFB by €1,386,987 (2021: €1,223,490);
- | a decrease in the projected investment return by 10% reduces the VOIFB by €697,540 (2021: €949,524); and
- | an increase in the discount factor by 10% reduces the VOIFB by €733,827 (2021: €679,973).
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. 12. Deferred tax Deferred taxes are calculated on temporary differences under the balance sheet liability method using a principal tax rate ranging between 8% and 35% (2021: 8% and 35%). In particular temporary differences on investment properties situated in Malta that have been owned by the Group since 1 January 2004 are calculated under the liability method using a principal tax rate of 8% of the carrying amount, while investment properties situated in Malta that had been acquired by the Group before 1 January 2004 are calculated under the liability method using a principal tax rate of 10% of the carrying amount. Deferred tax on temporary differences on investment properties situated outside Malta has been calculated based on tax rates that have been enacted or substantively enacted at the end of the reporting period. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off a current tax asset against a current tax liability and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. The movement on the deferred tax asset account is as follows:
| The Group
| 2022 |  | 2021
| € |  | €
Year ended 31 December |  |  |
At beginning of year | - |  | (285)
Deferred tax charged on other comprehensive income | (339,556) |  | -
Deferred tax (credit)/ charge | 1,638,014 |  | 285
At end of year | 1,298,458 |  | -
Deferred income taxes are calculated on temporary differences under the liability method using a principal tax rate of 35% (2021: 35%). The movement in the Group’s deferred tax asset/(liability) for the current period can be summarised as follows:
| At beginning of the year |  | Charged to income statement |  | Charged to other comprehensive income |  | At end of year
| € |  | € |  | € |  | €
Losses carried forward | - |  | 508,742 |  | - |  | 508,742
Fair value losses on investments | - |  | 1,068,219 |  | (278,503) |  | 789,716
| - |  | 1,576,961 |  | (278,503) |  | 1,298,458
The movement in the Group’s deferred tax asset/(liability) for the comparative period can be summarised as follows:
| At beginning of the year |  | Charged to income statement |  | At end of year
| € |  | € |  | €
Accelerated tax depreciation | (285) |  | 285 |  | -
| (285) |  | 285 |  | -
The movement on the Group’s deferred tax liability account is as follows:
| The Group
| 2022 |  | 2021
| € |  | €
Year ended 31 December |  |  |
At the beginning of the year | 2,396,044 |  | 2,107,168
Credited to profit and loss account (Note 7) | (739,758) |  | 288,263
Credited to other comprehensive income (Note 7) | - |  | 613
At end of year | 1,656,286 |  | 2,396,044
Deferred taxation at the year-end is in respect of the following temporary differences:
| The Group
| 2022 |  | 2021
| € |  | €
Fair value adjustments | 1,201,445 |  | 1,994,049
Property taxable at 8% or 10% | - |  | (124,357)
Losses carried forward | (508,742) |  | -
Accelerated tax depreciation | 20,387 |  | 342,456
Leases recognises under IFRS 16 | 230 |  | 119
Unutilised tax losses and capital allowances | (61,011) |  | (10,126)
Others | (294,481) |  | 193,903
Net deferred income tax liability / (asset) | 357,828 |  | 2,396,044
The Directors consider that the above temporary differences are substantially non-current in nature. 13. Property, plant and equipment
| The Group
| Land and building | Office furniture, fittings and equipment | Total
| € | € | €
Year ended 31 December 2022 |  |  |
Opening carrying amount | 3,521,903 | 103,197 | 3,625,100
Additions | 152,043 | 4,716 | 156,759
Reclassification from investment property | 38,761 | - | 38,761
Revaluation for the year ended | (75,598) | - | (75,598)
Reclassification to intangible assets | - | (31,259) | (31,259)
Depreciation charge (Note 4) | (60,005) | (29,804) | (89,809)
Closing carrying amount | 3,577,104 | 46,850 | 3,623,954
At 31 December 2022 |  |  |
Cost | 4,153,652 | 1,782,512 | 5,936,164
Accumulated depreciation | (576,548) | (1,735,662) | (2,312,210)
Carrying amount | 3,577,104 | 46,850 | 3,623,954
Year ended 31 December 2021 |  |  |
Opening carrying amount | 2,023,020 | 58,221 | 2,081,241
Additions | 26,100 | 81,088 | 107,188
Reclassification to investment property | 1,554,456 | - | 1,554,456
Depreciation charge (Note 4) | (81,673) | (36,112) | (117,785)
Closing carrying amount | 3,521,903 | 103,197 | 3,625,100
At 31 December 2021 |  |  |
Cost | 4,038,446 | 1,809,055 | 5,847,501
Accumulated depreciation | (516,543) | (1,705,858) | (2,222,401)
Carrying amount | 3,521,903 | 103,197 | 3,625,100
€1,764,773 (2021: €1,747,494) worth of office furniture, fittings and equipment assets are fully depreciated but still in use.
| The Company
| €
Year ended 31 December 2022 |
Opening carrying amount | 427
Depreciation charge (note 4) | (427)
Closing carrying amount | -
At 31 December 2022 |
Cost | 114,279
Accumulated depreciation | (114,279)
Carrying amount | -
Year ended 31 December 2021 |
Opening carrying amount | 1,134
Depreciation charge (note 4) | (707)
Closing carrying amount | 427
At 31 December 2021 |
Cost | 114,279
Accumulated depreciation | (113,852)
Carrying amount | 427
14. Investment property
| The Group
| 2022 |  | 2021
| € |  | €
Year ended 31 December |  |  |
Opening net book amount | 24,430,683 |  | 25,143,350
Additions | 85,038 |  | -
Reclassification to property, plant and equipment | (38,761) |  | (1,554,456)
Impairment | (133,836) |  | -
Net fair value gains | (334,403) |  | 841,789
At end of year | 24,008,721 |  | 24,430,683
At 31 December 2022 |  |  |
Cost | 11,887,343 |  | 11,841,066
Accumulated fair value gains | 12,121,378 |  | 12,589,617
Net book amount | 24,008,721 |  | 24,430,683
Details about the Group’s investment properties, including those classified as non-current assets held-for-sale, and information about the fair value hierarchy at 31 December 2022 and 2021 are as follows:
| Fair value measurement at end of the reporting period using:
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| € |  | € |  | € |  | €
2022 |  |  |  |  |  |  |
Investment property: |  |  |  |  |  |  |
Local property | - |  | - |  | 15,835,730 |  | 15,835,730
Foreign property | - |  | - |  | 8,172,991 |  | 8,172,991
Total | - |  | - |  | 24,008,721 |  | 24,008,721
| Fair value measurement at end of the reporting period using:
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| € |  | € |  | € |  | €
2021 |  |  |  |  |  |  |
Investment property: |  |  |  |  |  |  |
Local property | - |  | - |  | 16,208,894 |  | 16,208,894
Foreign property | - |  | - |  | 8,411,791 |  | 8,411,791
Total | - |  | - |  | 24,620,685 |  | 24,620,685
In estimating the fair value of the properties, the highest and best use of the properties is their current use. In accordance with the Group's accounting policy, the valuation of investment properties is assessed by the Board of Directors at the end of every reporting period. During 2021, the Group revalued its investment property on the basis of valuations obtained from an independent professionally qualified valuer. During 2022, the Group didn’t obtain any valuations from an independent professionally qualified valuer but the Group has done an internal impairment assessment on all the properties and an impairment charge was made on certain properties. This impairment charge was approved by the Board of Directors. The fair value movements in relation to investment property during 2022 were debited to profit or loss and are presented within ‘Investment return and fair value movements’ (refer Note 6). During the current financial period, the foreign property previously reclassified to asset held-for-sale has been sold for €190,000. During 2021, the value of this property was reduced by €10,000 as disclosed in Note 6. The table below includes further information about the Group’s Level 3 fair value measurements for local properties:
| Significant unobservable input | Narrative sensitivity
| € | €
2022 / 2021 |  |
Local properties | Rental value per square metre, ranging from €150 to €400 (2021: €90 to €280) | The higher the price per square metre, the higher the fair value
| Rent growth of 2.85% (2021: 1.6%) per annum | The higher the rent growth, the higher the fair value
| Discount rate of 5.55% (2021: 5.55%) | The higher the discount rate, the lower the fair value
Foreign property – Croatia | Value per square metre of €144 (2021: €144) | The higher the price per square metre, the higher the fair value
The Group’s investment property portfolio also includes a property of an exceptional nature – a Baronial castle situated outside of Rome, which accounts for 4.6% (2021: 4.0%) of the Group’s total assets. The specialised nature of this property makes such an assessment particularly judgmental. A professional valuation of the property was obtained in 2022 to provide the most probable market value of the asset on an ‘as is’ basis taking cognisance of the building’s physical condition, facilities and components. The 2022 valuation is based on an average value per square metre of €3,404 based on a sales comparison approach. The values proposed by the various valuation experts over the last 9 years varied materially from each other resulting in a wide range of possible estimates. This highlights the significance of the judgements involved in estimating the fair value of this property as well as the subjectivity of each valuation. The Directors resolved to maintain the carrying value of this property towards the lower end of this range. Det ails about the Group’s investment properties classified as Level 3 at 31 December 2022 and 2021 are as follows:
| Local |  | Foreign |  |
| property |  | property |  | Total
| € |  | € |  | €
Year ended 31 December 2022 |  |  |  |  |
At the beginning of the year | 16,208,894 |  | 8,221,789 |  | 24,430,683
Property reclassified to property, plant and equipment | (38,761) |  | - |  | (38,761)
Impairment | - |  | (133,836) |  | (133,836)
Additions | - |  | 85,038 |  | 85,038
Fair value gains | (334,403) |  | - |  | (334,403)
At end of year | 15,835,730 |  | 8,172,991 |  | 24,008,721
| Local |  | Foreign |  |
| property |  | property |  | Total
| € |  | € |  | €
Year ended 31 December 2021 |  |  |  |  |
At the beginning of the year | 17,763,350 |  | 7,380,000 |  | 25,143,350
Property reclassified to property, plant and equipment | (1,554,456) |  | - |  | (1,554,456)
Fair value gains | - |  | 841,789 |  | 841,789
At end of year | 16,208,894 |  | 8,221,789 |  | 24,430,683
15. Investment in group undertakings The principal group undertakings at 31 December are shown below:
Group undertakings | Registered Office | Principal place of business | Class of shares held | Percentage of shares held
|  |  |  | 2022 | 2021
Central Landmark Development Limited | Testaferrata Street, Ta’ Xbiex Malta | Malta | Ordinary shares | 100% | 100%
Global Estates Limited | Testaferrata Street, Ta’ Xbiex Malta | Malta | Ordinary ‘A’ shares | 100% | 100%
Global Properties Limited (Međunarodne Nekretnine d.o.o.) | 26/A/3 Gunduliceva, Split Croatia | Croatia | Ordinary shares | 100% | 100%
GlobalCapital Financial Management Limited * | Testaferrata Street, Ta’ Xbiex Malta | Malta | Ordinary shares | 100% | 100%
LifeStar Health * Insurance Agency Limited | Testaferrata Street, Ta’ Xbiex Malta | Malta | Ordinary ‘A’ shares | 74% | 74%
LifeStar Life * Insurance Limited | Testaferrata Street, Ta’ Xbiex Malta | Malta | Ordinary shares | 74% | 74%
Quadrant Italia S.R.L. | Via Bruxelles 34 Cap 00100 Rome RM Italy | Italy | Ordinary shares | 100% | 100%
* The distribution of dividends by these subsidiary undertakings may be restricted by the solvency requirements of relevant legislation, mainly the Insurance Business Act (Cap. 403 of the Laws of Malta), the Insurance Distribution Act (Cap. 487 of the Laws of Malta) and the Investment Services Act (Cap. 370 of the Laws of Malta) and any ad hoc specific notifications by the regulator to the marked regulated entities.
| The Company
| 2022 |  | 2021
| € |  | €
Opening cost and net book amount | 25,269,647 |  | 31,476,218
(Decrease)/ increase in fair value | (653,059) |  | 1,606,701
Disposal of investment | - |  | (7,813,272)
Closing net books amount | 24,616,588 |  | 25,269,647
The fair value of the Company’s investments is determined on the basis of the net assets of the underlying companies as disclosed below. As from the year ending 31 December 2022, the fair value of the Company’s shares in LifeStar Insurance plc is determined on the basis of the quoted prices for those shares.
| Capital and reserves
| 2022 |  | 2021
| € |  | €
Central Landmark Development Limited | (285,426) |  | (273,271)
Global Estates Limited | (15,074) |  | (11,022)
Global Properties Limited (Međunarodne Nekretnine d.o.o.) | 144,327 |  | 138,458
GlobalCapital Financial Management Limited | 327,217 |  | 263,475
LifeStar Insurance p.l.c. sub-group | - |  | -
Quadrant Italia S.R.L. | 414,112 |  | 1,120,598
| Profit / (loss)
| 2022 |  | 2021
| € |  | €
Central Landmark Development Limited | (12,155) |  | (15,304)
Global Estates Limited | (4,052) |  | (6,479)
Global Properties Limited (Međunarodne Nekretnine d.o.o.) | 5,869 |  | 36,930
GlobalCapital Financial Management Limited | 63,757 |  | (161,470)
LifeStar Insurance p.l.c. sub-group | - |  | -
Quadrant Italia S.R.L. | (706,486) |  | 138,577
In 2022, LifeStar Insurance p.l.c. was listed on Malta Stock Exchange. The quoted price of its shares at 31 December 2022 was €0.50 per share. The total amount of the investment in LifeStar Insurance p.l.c. amounts to €24,031,425. 16. Other investments The Group’s other investments are summarised by measurement category in the table below:
| The Group
| 2022 |  | 2021
| € |  | €
Fair value through profit or loss | 77,980,894 |  | 82,499,812
Available-for-sale investments | 2,759,131 |  | 1,838,107
Investments in equity measured at cost | 2,076,599 |  | 1,457,336
Loans and receivables | 3,112,576 |  | 3,324,469
Term deposits | 1,500,000 |  | 2,100,000
Total investments | 87,429,200 |  | 91,219,724
Included in the Group total investments are €33,070,993 (2021: €34,395,648) of assets held to cover linked liabilities. These relate to collective investment schemes which are classified as investments at fair value through profit or loss as described in accounting policy 12. Their expected recovery is back-to-back with the respective technical provision for linked liabilities which maturity table is disclosed in Note 2. (a) Investments at fair value through profit or loss
| The Group
| 2022 |  | 2021
| € |  | €
Equity securities and units in unit trusts: |  |  |
Listed shares | 20,297,067 |  | 19,033,513
Collective investment schemes | 3,978,593 |  | 6,011,080
| 24,275,660 |  | 25,044,593
Assets held to cover linked liabilities: |  |  |
Collective investment schemes | 32,042,439 |  | 33,468,514
Debt securities - fixed interest rate: |  |  |
Government bonds | 11,957,843 |  | 13,012,962
Corporate bonds | 9,704,952 |  | 10,973,743
| 21,662,795 |  | 23,986,705
Total investments at fair value through profit or loss | 77,980,894 |  | 82,499,812
Maturity of debt securities classified as fair value through profit or loss.
| The Group
| 2022 |  | 2021
| € |  | €
Within 1 year | 803,410 |  | 844,139
Between 1 and 2 years | 931,470 |  | 757,320
Between 2 and 5 years | 7,425,342 |  | 9,336,814
Over 5 years | 12,502,573 |  | 13,048,432
| 21,662,795 |  | 23,986,705
| The Group
| % |  | %
Weighted average effective interest rate at the balance sheet date | 5 |  | 4
There were no Group investments which were pledged in favour of third parties at the financial year-end (2021: none). The movements in investments classified at fair value through profit or loss are summarised as follows:
| The Group
| 2022 |  | 2021
| € |  | €
Year ended 31 December |  |  |
At beginning of year | 82,499,812 |  | 74,930,424
Additions | 8,927,610 |  | 16,710,558
Disposals (sale and redemption) | (10,105,845) |  | (8,126,304)
Net fair value and foreign exchange movements | (3,340,683) |  | (1,014,866)
At end of year | 77,980,894 |  | 82,499,812
At 31 December |  |  |
Cost | 71,597,776 |  | 72,747,482
Accumulated fair value and foreign exchange gains | 6,383,118 |  | 9,752,330
Carrying amount | 77,980,894 |  | 82,499,812
The table below analyses debt securities classified at fair value through profit or loss by sector:
| The Group
| 2022 |  | 2021
| € |  | €
Banks | 1,568,912 |  | 1,566,991
Energy | 718,520 |  | 803,342
Government | 11,957,844 |  | 13,012,962
Other | 7,417,519 |  | 8,603,410
| 21,662,795 |  | 23,986,705
(b) Available-for-sale investment
| The Group
| 2022 |  | 2021
| € |  | €
Equity securities | 2,759,131 |  | 1,838,107
Total investments at available-for-sale | 2,759,131 |  | 1,838,107
The movements in investments classified as available-for-sale are summarised as follows:
| The Group
| 2022 |  | 2021
| € |  | €
Year ended 31 December |  |  |
Balance at 1 January | 1,838,107 |  | 1,205,377
Additions | 433,313 |  | 655,128
Disposals | (482,447) |  | (10,290)
Foreign currency movement | - |  | (13,859)
Net fair value movement | 970,158 |  | 1,751
Balance at 31 December | 2,759,131 |  | 1,838,107
At 31 December |  |  |
Cost | 1,921,639 |  | 1,970,773
Accumulated fair value and foreign currency movements | 837,492 |  | (132,666)
Net book amount | 2,759,131 |  | 1,838,107
(c) Investments in equity measured at cost
| The Group
| 2022 |  | 2021
| € |  | €
Equity securities | 2,076,599 |  | 1,457,336
The movements in investments classified as equity measured at cost are summarised as follows:
| 2022 |  | 2021
| € |  | €
Year ended 31 December |  |  |
Balance at 1 January | 1,457,336 |  | 1,362,102
Additions | 1,194,373 |  | -
Impairment loss | (477,846) |  | -
Foreign currency movement | (97,264) |  | 95,234
Balance at 31 December | 2,076,599 |  | 1,457,336
The ultimate shareholder of LifeStar Holding p.l.c is a director of the foreign investments classified as investment in equity measured at cost, with a carrying amount as at year end of €2,076,599 (2021: €1,457,336). This investment is in a start-up fintech company and given the embryonic stage of the company and of the industry itself, the Directors believe that the variability in the range of the reasonable fair value measurement is significant and the probabilities of the various estimates cannot be reasonably assessed. In view of this, the Company has not measured this investment at fair value and is carrying amount is equivalent to price paid at settlement date to acquire this instrument net of any impairment losses. (d) Loans and receivables
| The Group
| 2022 |  | 2021
| € |  | €
Loans secured on policies | 25,529 |  | 36,295
Other loans and receivables | 3,087,047 |  | 3,288,174
| 3,112,576 |  | 3,324,469
| The Group
| 2022 |  | 2021
| € |  | €
Year ended 31 December |  |  |
Balance at 1 January | 3,324,469 |  | 3,123,936
Additions | - |  | 8,354
Disposals | (10,766) |  | -
(Provision for impairment) / reversal of the provision for impairment | (201,127) |  | 192,179
Balance at 31 December | 3,112,576 |  | 3,324,469
Group Loans secured on policies are substantially non-current in nature. They are charged interest at the rate of 12% (2021: 12%) per annum. Other loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those that the Group intends to sell in the short term. (e) Term Deposits Bank term deposits earn average interest of 2.1% per annum (2021: 1.3%). As at year end, their carrying amount approximated to their fair value.
| 2022 |  | 2021
| € |  | €
Year ended 31 December |  |  |
Balance at 1 January | 2,100,000 |  | 3,502,448
Additions | - |  | -
Disposals | (600,000) |  | (1,402,448)
Balance at 31 December | 1,500,000 |  | 2,100,000
17. Technical provisions – insurance contracts and investment contracts
| The Group
| 2022 |  | 2021
| € |  | €
Insurance contracts | 61,712,616 |  | 65,327,606
Investment contracts with DPF | 30,225,737 |  | 30,336,335
| 91,938,353 |  | 95,663,941
Investment contracts without DPF | 33,070,993 |  | 34,395,648
Total gross technical provisions | 125,009,346 |  | 130,059,589
Insurance contracts are further analysed as follows:
| The Group
| 2022 |  | 2021
| € |  | €
Gross technical provisions - insurance contracts |  |  |
Short term insurance contracts |  |  |
- claims outstanding | 79,365 |  | -
- other provisions | 179,693 |  | 182,024
Long term insurance contracts |  |  |
- claims outstanding | 1,631,396 |  | 1,300,966
- long term business provision | 59,822,162 |  | 63,844,616
| 61,712,616 |  | 65,327,606
| The Group
| 2022 |  | 2021
Reinsurers' share of technical provisions - insurance contracts |  |  |
Short term insurance contracts |  |  |
- claims outstanding | (55,555) |  | -
- other provisions | (95,234) |  | (98,652)
Long term insurance contracts |  |  |
- claims outstanding | (510,189) |  | (739,606)
- long term business provision | (18,179,602) |  | (19,166,194)
| (18,840,580) |  | (20,004,452)
| The Group
| 2022 |  | 2021
Net technical provisions - insurance contracts |  |  |
Short term insurance contracts |  |  |
claims outstanding | 23,810 |  | -
other provisions | 84,459 |  | 83,372
Long term insurance contracts |  |  |
claims outstanding | 1,121,207 |  | 561,360
long term business provision | 41,642,560 |  | 44,678,422
| 42,872,036 |  | 45,323,154
The movements in technical provisions relating to insurance contracts and investment contracts with DPF net of reinsurance are analysed below:
| The Group
|  |  | Investment |  |
| Insurance |  | contracts |  |
| contracts |  | with DPF |  | Total
| € |  | € |  | €
Year ended 31 December 2022 |  |  |  |  |
At beginning of year | 45,323,154 |  | 30,336,335 |  | 75,659,489
Charged to technical account |  |  |  |  |
- change in the provision for claims | 583,656 |  | (84,451) |  | 499,205
- change in other technical provisions | (3,034,774) |  | (26,147) |  | (3,060,921)
At end of year | 42,872,036 |  | 30,225,737 |  | 73,097,773
| The Group
|  |  | Investment |  |
| Insurance |  | contracts |  |
| contracts |  | with DPF |  | Total
| € |  | € |  | €
Year ended 31 December 2021 |  |  |  |  |
At beginning of year | 48,628,888 |  | 28,800,396 |  | 77,429,284
Charged to technical account |  |  |  |  |
- change in the provision for claims | (12,116) |  | 16,747 |  | 4,631
- change in other technical provisions | (3,293,618) |  | 1,519,192 |  | (1,774,426)
At end of year | 45,323,154 |  | 30,336,335 |  | 75,659,489
Claims outstanding are further analysed as follows:
| The Group
| 2022 |  | 2021
| € |  | €
Claim outstanding |  |  |
Short term insurance contracts | 79,365 |  | -
Long term insurance contracts | 1,631,396 |  | 1,300,966
Investment contracts with DPF | 38,078 |  | 122,529
| 1,748,839 |  | 1,423,495
Claims outstanding are expected to be settled within 12 months from the balance sheet date and therefore are current in nature. Long term contracts – assumptions, changes in assumptions and sensitivity (a) Assumptions For long term contracts, estimates are determined by reference to a number of variables, including amongst others the expected future deaths (mortality), investment return, policy maintenance expenses, lapse and discount rate. The assumptions that have the greatest effect on the Statement of Financial Position and Statement of Comprehensive Income are Mortality and investment return. Mortality estimates are based on standard mortality tables that reflect recent historical mortality experience, adjusted where appropriate to reflect the Group’s own experience. A weighted average rate of investment return is applied, reflecting current investment yields, adjusted by a margin of contingency. Allowance is made for policy maintenance expenses at a rate determined by reference to the insurance company’s cost base. The calculation assumes the continuation of existing tax legislation and rates. (b) Changes in assumptions The mortality assumption has been revised to incorporate mortality improvements up to the valuation date. This has led to a significant reduction of the mortality assumption which is reflective of the mortality experience of the company over the past 10 years. Sensitivity analysis The following table presents the sensitivity of the value of liabilities variable that will trigger an adjustment and the liability disclosed in this note to movements in the assumptions used in the estimation of liabilities for long term contracts. The table below indicates the level of the respective adjustment that would be required.
| The Group
| 2022 |  | 2021
| € |  | €
10% loading applied to mortality assumptions - Gross | 5,317,307 |  | 5,560,836
10% loading applied to mortality assumptions - Net | 741,466 |  | 786,990
Lowering of investment return by 25 basis points | 451,156 |  | 631,237
The above analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. 18. Trade and other receivables
| The Group |  | The Company
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
Receivables arising out of direct insurance operations: |  |  |  |  |  |  |
- due from policyholders (Note i) | 242,364 |  | 297,858 |  | - |  | -
Other loans and receivables: |  |  |  |  |  |  |
- receivables from parent (Note ii) | 203,382 |  | - |  | 203,382 |  | 116,027
- receivables from other related parties (Note iii) | 3,516 |  | - |  | - |  | -
- receivable from subsidiaries | - |  | - |  | 1,771,438 |  | 1,679,635
- receivable from Shareholder | 47,898 |  | 45,135 |  | 47,898 |  | 45,135
Other receivables (Note iv) | 700,155 |  | 1,281,872 |  | 106,082 |  | 121,217
| 1,197,315 |  | 1,624,865 |  | 2,128,800 |  | 1,962,014
Prepayments and accrued income: |  |  |  |  |  |  |
- prepayments | 341,353 |  | 302,233 |  | 49,760 |  | 69,767
- accrued income | 1,852,981 |  | 2,048,099 |  | - |  | -
| 2,194,334 |  | 2,350,332 |  | 49,760 |  | 69,767
Total Trade and other Receivables | 3,391,649 |  | 3,975,197 |  | 2,178,560 |  | 2,031,781
Note i: Interest bearing automatic premium loans are classified as investments in note 16 to the financial statements. Note ii: Amounts receivable from Parent company are unsecured and interest free. Note iii: Amounts due from subsidiaries are unsecured and interest-free. These balances are payable on demand except for amounts amounting to € 551,230. These are expected to be paid in five years’ time. The carrying amount of such amounts has been adjusted for the time-value of money. Note iv: Other receivables are unsecured, interest-free and repayable on demand. They are stated net of provision for impairment of €8,051 (2021: €8,051). A movement of €18,407 (2021: €3,580) is included in the statement of comprehensive income non-technical. There are no other material past due amounts in trade and other receivables. All of the above amounts are current in nature. 19. Share capital
| 2022 |  | 2021
| € |  | €
Authorised: |  |  |
2022: 200,000,000 (2021: 200,000,000) ordinary shares of €0.291172 each | 58,234,400 |  | 58,234,400
Issued and fully paid: |  |  |
2022: 24,102,049 (2021: 30,000,000) ordinary shares of €0.291172 each | 7,017,842 |  | 8,735,160
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares or additional debt or sell assets to reduce debt. Capital management The Directors consider that capital management is of particular relevance in the areas of the Group that are subject to regulatory supervision. LifeStar Insurance p.l.c., which is authorised by the Malta Financial Services Authority to carry out long term business of insurance, is required to hold regulatory capital to support its long-term insurance business as determined in accordance with Insurance Rule 5 issued by the Malta Financial Services Authority. The capital of GlobalCapital Financial Management Limited is regulated by rules issued under the Investment Services Act and by the Financial Institutions Act. The capital of LifeStar Health Limited is regulated by rules issued under the Insurance Distribution Act. The above regulations set out the required minimum capital that must be maintained at all times throughout the year. Each company monitors capital on a regular basis through detailed reports compiled with management accounts. Such reports are circulated to senior management. Any transactions that may potentially affect a company’s regulatory position are immediately reported to the Directors for resolution prior to notifying the Malta Financial Services Authority. At both year-ends, LifeStar Health Limited satisfied the own funds requirements. Moreover, LifeStar Insurance p.l.c. is sufficiently capitalised and was compliant at all times in line with the Solvency II requirements. With respect to GlobalCapital Financial Management Limited, the company is required to hold capital resource requirements in compliance with the rules issued by the Malta Financial Services Authority. These minimum capital requirements (defined as “the capital resource requirements”) must always be maintained throughout the year. The company monitors its capital level on a quarterly basis through detailed reports compiled with management accounts. Any transactions that may potentially affect the company’s regulatory position are immediately reported to the directors for resolution prior to notifying the Malta Financial Services Authority. During 2020 the shareholder contributed EUR 703,421 by means of a shareholder’s loan and EUR 504,000 by means of a shareholder’s contribution. The shareholder’s loan is unsecured, interest free, repayable at the discretion of the company and has no fixed repayment date. These have not as yet been approved by the Malta Financial Services Authority (MFSA). Non-regulated entities are financed by items presented within equity in the statement of financial position and long-term borrowings. On 4 May 2021 the LifeStar Insurance p.l.c. issued an offer for sale of 18,518,519 of its ordinary shares at an offer price of €0.54 per share (‘the Share Offer’) and the offer of 6,570,000 ordinary shares to its shareholders in exchange for their ordinary shares in LifeStar Holding p.l.c. at an exchange ratio of 1 LifeStar Holding p.l.c. share to 1 of its share (‘the Exchange Offer). Of the Share Offer, 10,854,000 shares (for a total value of €5,861,160) were received by LifeStar Insurance p.l.c, whilst 5,897,951 shares from the Exchange offer (for a total value of €3,184,894) were received by the insurance company. The issued share capital was reduced to 24,102,049 shares due to the cancellation of its own shares which were held in 2021. 20. Other reserves
| Value of in-force business |  | Other unrealised gains |  | Property revaluation reserve |  | Investment compensation scheme |  | Total
| € |  | € |  | € |  | € |  | €
Year ended 31 December 2021 | 9,554,265 |  | 107,947 |  | 938,105 |  | 8,162 |  | 10,608,479
Revaluation of property | - |  | - |  | (75,598) |  | - |  | (75,598)
Net profit on available-for-sale financial assets | - |  | 970,158 |  | - |  | - |  | 970,158
Deferred tax movement on available-for-sale financial assets | - |  | (339,556) |  | - |  | - |  | (339,556)
Year ended 31 December 2022 | 9,554,265 |  | 738,549 |  | 862,507 |  | 8,162 |  | 11,163,483
| The Group
| Value of in-force business |  | Other unrealised gains |  | Property revaluation reserve |  | Investment compensation scheme |  | Total
| € |  | € |  | € |  | € |  | €
Year ended 31 December 2020 | 9,554,265 |  | 106,809 |  | 1,062,461 |  | 8,162 |  | 10,731,697
Deferred tax on the revaluation of property, plant and equipment | - |  | - |  | (124,356) |  | - |  | (124,356)
Net profit on available-for-sale financial assets | - |  | 1,751 |  | - |  | - |  | 1,751
Deferred tax movement on available-for-sale financial assets | - |  | (613) |  | - |  | - |  | (613)
Year ended 31 December 2021 | 9,554,265 |  | 107,947 |  | 938,105 |  | 8,162 |  | 10,608,479
The above reserves are not distributable. The value of in-force business represents the shareholders’ value of the active portfolio of the insurance business as at year-end. The other unrealised gains represent the difference between the fair value of the investments classified as available-for-sale assets and the amortised cost. The property revaluation reserve represents the difference between the carrying amount of the property and its fair value at the date when the Directors has reassessed its used from an owner-occupied one to a property held to earn rentals or for capital appreciation. The Investor Compensation scheme reserve represents to the required amount to be kept by the Group in relation to the Investor Compensation scheme regulations, 2013. Funds in this reserve were deposited in an interest-bearing bank account. 21. Interest-bearing borrowings
| The Group |  | The Company
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
5% bonds 2021 (Note i) | 60,349 |  | 61,099 |  | 60,349 |  | 61,099
4% Unsecured Subordinated Bonds Due 2026 – 2031 (Note iii) | 2,144,949 |  | 2,105,257 |  | - |  | -
Bank loan (Note ii) | 2,008,545 |  | 2,525,633 |  | 2,008,545 |  | 2,525,633
Loan from shareholder | 38,897 |  | 38,597 |  | 38,597 |  | 38,597
Loan from subsidiary | - |  | - |  | 7,139,426 |  | 7,041,697
Total borrowings | 4,252,740 |  | 4,730,586 |  | 9,246,917 |  | 9,667,026
i.) During 2016, by virtue of the offering memorandum dated 12 May 2016, the Company issued for subscription to the general public €10,000,000 bonds. The bonds were unsecured and were effectively issued on 8 June 2016 at the bond offer price of €100 per bond. The bonds were subject to a fixed interest rate of 5.0% per annum payable yearly on 2 June. All bonds were redeemed at par during June 2021. The bond is disclosed at the value of the proceeds less the net book amount of the issue costs as follows:
| The Group and Company
| 2022 |  | 2021
| € |  | €
Proceeds |  |  |
€10,000,000, 5% bonds 2021 | 10,000,000 |  | 10,000,000
Less: |  |  |
Issue cost | 321,519 |  | 321,519
Accumulated amortisation | (321,519) |  | (321,519)
| 10,000,000 |  | 10,000,000
Payment | (9,939,651) |  | (9,938,901)
| 60,349 |  | 61,099
ii.) During 2020, the Company entered into a loan agreement with BOV, pursuant to which it borrowed an amount of €3 million from BOV. This loan benefits from the support of the Malta Development Bank through the provision of a bank guarantee under the COVID-19 Loan Guarantee Scheme. The loan is subject to a fixed rate of 2.5% for the first two years, increasing to 3% over the Base Rate of the Bank for the following six years. The loan is guaranteed by a general hypothec issued by the company, by a personal guarantee issued by Prof Paolo Catalfamo and by a corporate guarantee issued by LifeStar Insurance p.l.c.. The following table sets out a maturity analysis of loan payments, to be paid after the reporting date. 2020 – MDB/BOV loan
| The Group and Company
| 2022 |  | 2021
| € |  | €
Less than one year | 537,755 |  | 524,156
One to two years | 553,996 |  | 537,755
Two to three years | 570,961 |  | 553,996
Three to four years | 345,833 |  | 570,961
Four to six years | - |  | 338,765
| 2,008,545 |  | 2,525,633
iii.) In May 2021, LifeStar Insurance p.l.c. issued 100,000 4% unsecured subordinated bonds of a nominal value of €100 per bond. A total of 24,313 Subordinated Bonds (for a total value of €2,431,300) were received by the Group. The bonds are redeemable at their nominal value on 2 June 2031, unless redeemed early on any interest payment date in the year 2026 and 2031. Interest on the bonds is due and payable annually on 2 June of each year. The bonds are listed on the Official List of the Malta Stock Exchange. The carrying amount of the bonds is net of direct issue costs of €291,593 (2021: €331,285) which are being amortised over the life of the bonds. The market value of debt securities on the last trading day before the statement of financial position date was €2,431,000 (2021: €2,431,000). 22. Trade and other payables
| The Group |  | The Company
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
Payables arising from insurance operations |  |  |  |  |  |  |
- due to reinsurers | 2,793,949 |  | 2,758,942 |  | - |  | -
- other payables | 1,829,371 |  | 1,907,116 |  | - |  | -
| 4,623,320 |  | 4,666,058 |  | - |  | -
Trade payables | 1,123,427 |  | 1,125,339 |  | 1,123,427 |  | 1,125,339
Statutory liabilities | 202,482 |  | 232,839 |  | 202,482 |  | 232,839
Other payables | 371,330 |  | 341,203 |  | - |  | -
Amount owed to group undertakings | - |  | - |  | 616,420 |  | 611,978
| 1,697,239 |  | 1,699,381 |  | 1,942,329 |  | 1,970,156
Accruals and Deferred income |  |  |  |  |  |  |
-Accruals | 734,958 |  | 1,027,209 |  | 99,569 |  | 136,777
- Provisions | 277,522 |  | 431,390 |  | - |  | -
- Interest on related party loan | - |  | - |  | 443,562 |  | 182,104
- Bond interest accrued | 56,220 |  | 115,414 |  | 43,075 |  | 60,797
- Deferred income | 57,599 |  | 49,995 |  | - |  | -
| 1,126,299 |  | 1,624,008 |  | 586,206 |  | 379,678
Total trade and other payables | 7,446,858 |  | 7,989,447 |  | 2,528,535 |  | 2,349,834
All of the above amounts are payable within one year. Trade and other payables include outstanding court and arbitration cases against GlobalCapital Financial Management Limited . The provision as at the end of the reporting period amounts to €675,132 (2021: €826,137 ), which are shown net of amounts deposited at the Courts amounting to €394,747 (2021: €394,747). 23. Cash used in operations Reconciliation of operating loss to cash used in operations:
| Consolidated |  | Separate
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
Cash flows generated from/(used in) operating activities |  |  |  |  |  |  |
Profit/(loss) before tax | (4,931,678) |  | 1,631,669 |  | (664,536) |  | 142,301
Adjustments for: |  |  |  |  |  |  |
Amortisation on computer software | 242,826 |  | 217,492 |  | - |  | -
Amortisation of bond issue costs | 39,692 |  | 46,885 |  | - |  | 27,483
Net fair value & FX movement on FVTPL investments | 3,340,683 |  | (357,041) |  | 653,059 |  | (1,606,701)
Net fair value movement on investment property | 468,140 |  | (840,000) |  | - |  | -
Impairment on other equity measured at cost | 477,846 |  | - |  | - |  | -
Impairment of assets held for sale | - |  | 9,998 |  | - |  | -
Recovery of impairment on intangible assets | (3,993) |  | - |  | - |  | -
Provision for impairment on receivables | (18,407) |  | (3,580) |  | - |  | -
Foreign exchange movement on AFS | - |  | 12,108 |  | - |  | -
Foreign exchange movement on other equity measured at cost | 97,264 |  | (95,234) |  | - |  | -
Provision for impairment – Loans and receivables | 201,127 |  | (192,179) |  | - |  | -
Increase in net technical provisions | (3,886,372) |  | 6,378,215 |  | - |  | -
Depreciation | 89,909 |  | 117,783 |  | 427 |  | 707
Interest on finance lease | 10,294 |  | 25,679 |  | 10,294 |  | 25,679
Lease payments | (116,380) |  | (124,877) |  | - |  | -
Depreciation right of use | 116,349 |  | 112,199 |  | 110,229 |  | 106,080
Loss on sale of LSI shares | - |  | - |  | - |  | 234,794
Dividend income | (697,214) |  | (434,815) |  | - |  | -
Interest income | (1,445,177) |  | (1,618,362) |  | - |  | -
Interest expense | 96,962 |  | 319,466 |  | - |  | 264,845
Finance costs | - |  | 232,818 |  | 261,458 |  | 232,818
Net movement in provisions | (153,868) |  | 13,974 |  | - |  | -
Other fair value movements | - |  | 1,751 |  | - |  | -
Gain on lease modifications | - |  | (73,901) |  | - |  | (73,901)
Operating profit/(loss) before working capital movements | (6,071,997) |  | 5,380,048 |  | 370,931 |  | (645,895)
Movement in trade and other receivables | 862,731 |  | 1,202,438 |  | (153,779) |  | (676,963)
Movement in trade and other payables | (1,583,605) |  | 170,665 |  | (98,717) |  | 4,803,094
Net cash flow generated from/ (used in) operating activities | (6,792,871) |  | 6,753,151 |  | 118,435 |  | 3,480,236
24. Cash and cash equivalents For the purposes of the consolidated statement of cash flows, the year-end cash and cash equivalents comprise the following:
| The Group |  | The Company
| 2022 |  | 2021 |  | 2022 |  | 2021
| € |  | € |  | € |  | €
Cash at bank and in hand | 6,645,133 |  | 12,625,645 |  | 454,612 |  | 860,287
Cash at bank earns interest on current deposits at floating rates. 25. Fair values The following table presents the assets measured in the consolidated statement of financial position at fair value by level of the following fair value measurement hierarchy at 31 December 2022 and 31 December 2021:
• | Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
• | Inputs other than quoted prices included within Level 1 that are observable for the asset or liabilities, either directly (that is, as prices) or indirectly (that is, derived from prices (Level 2)
• | Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs (Level 3)
| Fair value measurement at end of the reporting period using:
| Level 1 |  | Level 2 |  | Total
| € |  | € |  | €
2022 |  |  |  |  |
Assets |  |  |  |  |
Other Investments: |  |  |  |  |
Financial assets at fair value through profit or loss | 45,938,455 |  | 32,042,439 |  | 77,980,894
Available-for-sale investments | 2,759,131 |  | - |  | 2,759,131
Total | 48,697,587 |  | 32,042,439 |  | 80,740,025
Liabilities |  |  |  |  |
Financial liabilities at amortised cost |  |  |  |  |
- Other payables | - |  | 877,245 |  | 877,245
- MDB-BOV loan | - |  | 2,008,545 |  | 2,008,545
- 4% Unsecured Subordinated Bonds Due 2026 - 2031 | - |  | 2,431,300 |  | 2,431,300
Unit linked financial instruments | - |  | 33,070,993 |  | 33,070,993
Total | - |  | 38,388,083 |  | 38,388,083
| Fair value measurement at end of the reporting period using:
| Level 1 |  | Level 2 |  | Total
| € |  | € |  | €
2021 |  |  |  |  |
Assets |  |  |  |  |
Other Investments: |  |  |  |  |
Financial assets at fair value through profit or loss | 49,031,298 |  | 33,468,514 |  | 82,499,812
Available-for-sale investments | 1,838,107 |  | - |  | 1,838,107
Total | 50,869,405 |  | 33,468,514 |  | 84,337,919
Liabilities |  |  |  |  |
Financial liabilities at amortised cost |  |  |  |  |
- Other payables | - |  | 574,025 |  | 574,025
2,525,633- MDB-BOV loan | - |  | 2,525,633 |  | 2,525,633
- 4% Unsecured Subordinated Bonds Due 2026 - 2031 |  |  | 2,431,300 |  | 2,431,300
Unit linked financial instruments | - |  | 34,395,648 |  | 34,395,648
Total | - |  | 39,926,606 |  | 39,926,606
26. Related party transactions Group Transactions during the year with other related parties were as follows:
| The Group
| 2022 |  | 2021
| € |  | €
Loan to/ (from) shareholder | 47,899 |  | 45,135
Advances to parent company | 203,382 |  | -
GlobalCapital Financial Management Limited, a group undertaking, acts as Investment Advisor and Fund Manager to Global Funds SICAV p.l.c. The advisory fees earned by this group undertaking from its activity as Investment Advisor and Fund Manager are included in turnover, and during the year amounted to €Nil (2021: €Nil). Global Funds SICAV p.l.c. is considered to be a related party by way of key management. Interest payable from and to related parties is disclosed in Note 5. Amounts owed by or to related parties are disclosed in Notes 18 and 22 to these financial statements. No impairment loss has been recognised in 2022 and 2021 in respect of receivables from related parties. The terms and conditions of the related party balances do not specify the nature of the consideration to be provided in settlement. No guarantees have been given or received in relation to these balances. Key management personnel during 2022 and 2021 comprised of the Board of Directors and the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Technical Officer, Chief Compliance Office, Chief of Human Resources and Managing Directors of the Group. Total remuneration paid by the Group to its key management personnel amounted to €385,475 (2021: €468,848). Also, the Group did not purchase any investment in which the main shareholder of LifeStar Insurance p.l.c. is also a director. The following financial assets were held by the Group in related entities as at 31 December:
| The Group
| 2022 |  | 2021
| € |  | €
Taliti Sub Funds - SICAV PLC | - |  | 2,000,000
Company Transactions during the year with other related parties were as follows:
| The Company
| 2022 |  | 2021
| € |  | €
Amounts recharged to subsidiaries | 583,835 |  | -
Amounts due from subsidiaries | 1,771,438 |  | 1,679,635
Amounts due from parent company | 203,382 |  | 128,124
Amounts due from shareholder | 47,899 |  | 45,135
Amounts due to subsidiaries | 616,420 |  | 611,977
Loans from subsidiary | 7,139,426 |  | 7,041,695
Interest on loans | 261,458 |  | 182,104
In 2021, the Company obtained loans from LifeStar Insurance p.l.c. bearing a 3% interest. 27. Leases Group (a) Leases as the lessee (IFRS 16) The Group leases property which generally run for a period of two to five years with the option to renew, and leases motor vehicles for a period of three years. Lease payments are subsequently renegotiated to reflect market rates. (i) Right-of-use assets Right-of-use asset related to leased properties that do not meet the definition of investment property are presented as a separate line item on the face of the Statement of Financial Position.
| The Group
| Property |  | Motor Vehicles |  | Total
| € |  | € |  | €
2022 |  |  |  |  |
Balance on 1 January | 266,510 |  | 17,370 |  | 283,880
Accumulated Depreciation | (98,979) |  | (17,370) |  | (116,349)
Balance on 31 December | 167,531 |  | - |  | 167,531
| The Group
| Property |  | Motor Vehicles |  | Total
| € |  | € |  | €
2021 |  |  |  |  |
Balance on 1 January | 488,570 |  | 44,600 |  | 533,170
Accumulated Depreciation | (84,969) |  | (27,230) |  | (112,199)
Balance on 31 December, pre-modification | 403,601 |  | 17,370 |  | 420,971
Reduction on right-of-use assets | (137,091) |  | - |  | (137,091)
Balance on 31 December | 266,510 |  | 17,370 |  | 283,880
(ii) Amounts recognized in profit or loss
| The Group
| Property |  | Motor Vehicles |  | Total
| € |  | € |  | €
2022 |  |  |  |  |
Depreciation of right-of-use asset | 98,979 |  | 17,370 |  | 116,350
Interest expense on lease liabilities | 10,425 |  | 637 |  | 11,062
Gain on lease modification | - |  | - |  | -
| The Group
| Property |  | Motor Vehicles |  | Total
| € |  | € |  | €
2021 |  |  |  |  |
Depreciation of right-of-use asset | 84,969 |  | 27,230 |  | 112,199
Interest expense on lease liabilities | 24,027 |  | 1,775 |  | 25,802
Gain on lease modification | 73,901 |  | - |  | 73,901
(iii) Amounts recognized in statement of cash flows
| The Group
| 2022 |  | 2021
| € |  | €
Year ended 31 December |  |  |
Total cash outflows for leases | 132,210 |  | 131,933
Leases as the lessor (IFRS 16) The Group lease out certain property. Note 12 sets out information about investment property. The Group has classified these leases as operating leases because they do not transfer substantially all the risks and rewards incidental to the ownership of the assets. The following table sets out a maturity analysis of lease payments receivable, showing the undiscounted lease payments to be received after the reporting date. 2020 – Operating leases under IFRS 16
| The Group
| 2022 |  | 2021
| € |  | €
Less than one year | 220,450 |  | 292,227
One to two years | 127,306 |  | -
Two to three years | 100,000 |  | -
Three to four years | - |  | -
| 447,756 |  | 292,227
Company
| The Company
| Property | Motor Vehicles | Total
| € | € | €
2022 |  |  |
Balance on 1 January | 258,860 | 17,370 | 276,230
Accumulated Depreciation | (92,859) | (17,370) | (110,229)
Balance on 31 December | 166,001 | - | 166,001
| The Company
| Property | Motor Vehicles | Total
| € | € | €
2021 |  |  |
Balance on 1 January | 474,801 | 44,600 | 519,401
Accumulated Depreciation | (78,850) | (27,230) | (106,080)
Balance on 31 December, pre-modification | 395,951 | 17,370 | 413,321
Reduction on right-of-use assets | (137,091) | - | (137,091)
Balance on 31 December | 258,860 | 17,370 | 276,230
(iv) Amounts recognized in profit or loss
| The Company
| Property | Motor Vehicles | Total
| € | € | €
2022 |  |  |
Depreciation of right-of-use asset | 92,859 | 17,370 | 110,229
Interest expense on lease liabilities | 9,657 | 637 | 10,294
| The Company
| Property | Motor Vehicles | Total
| € | € | €
2021 |  |  |
Depreciation of right-of-use asset | 78,850 | 27,230 | 106,080
Interest expense on lease liabilities | 23,904 | 1,775 | 25,679
Gain on lease modification | 73,901 | - | 73,901
There were no operating lease agreements considered as short-term leases. (v) Amounts recognized in statement of cash flows (a) Operating lease as the lessee (IAS 17)
| The Company
| 2022 |  | 2021
| € |  | €
Year ended 31 December |  |  |
Total cash outflows for leases | 104,000 |  | 125,000
(b) Lease liabilities
| The Company
| Property | Motor Vehicles | Total
| € | € | €
2022 |  |  |
Balance on 1 January | 222,439 | 23,362 | 245,801
Interest on finance lease liability | 9,655 | 638 | 10,293
Repayment of lease liabilities | (80,000) | (24,000) | (104,000)
Balance on 31 December | 152,094 | - | 152,094
| The Company
| Property | Motor Vehicles | Total
| € | € | €
2021 |  |  |
Balance on 1 January | 510,224 | 42,323 | 552,547
Interest on finance lease liability | 23,904 | 1,775 | 25,679
Repayment of lease liabilities | (104,264) | (20,736) | (125,000)
Balance on 31 December, pre-modification | 429,864 | 23,362 | 453,226
Lease modification | 207,425 | - | 207,425
Balance on 31 December | 222,439 | 23,362 | 245,801
28. Segmental analysis The following is an analysis of the Group’s revenue and result by reportable segment, assets, liabilities, and other information for 2022.

| Investment and |  |  |  |  |  |  |  |  |  |
| advisory |  | Business |  | Agency |  | Property |  |  |  |
| services |  | of insurance |  | services |  | services |  | Eliminations |  | Group
| € |  | € |  | € |  | € |  | € |  | €
Year ended 31 December 2022 |  |  |  |  |  |  |  |  |  |  |
Segment income |  |  |  |  |  |  |  |  |  |  |
Earned premiums, net of reinsurance | - |  | 11,007,220 |  | - |  | - |  |  |  | 11,007,220
Commission and other fees receivable | 290,853 |  | 336,304 |  | 1,831,537 |  | - |  | 331,649 |  | 2,790,343
Increment in the value of in-force business | - |  | 760,006 |  | - |  | - |  | (760,006) |  | -
Investment and other income | 612,009 |  | 3,916,899 |  | 22,193 |  | - |  | (128,823) |  | 4,422,278
Net gains on investments at FVTPL | - |  | (4,352,716) |  | - |  | - |  | - |  | (4,352,716)
Net gains on investment property | - |  | (334,403) |  | - |  | 8,540 |  | - |  | (325,863)
Total revenue | 902,862 |  | 11,333,310 |  | 1,853,730 |  | 8,540 |  | (557,180) |  | 13,541,262
Revenue from external customers | 290,853 |  | 12,926,107 |  | 1,831,537 |  | - |  | - |  | 15,048,497
Intersegment revenues | 442,000 |  | 83,104 |  | - |  | - |  | (525,104) |  | -
Segment expenses |  |  |  |  |  |  |  |  |  |  |
Net claims incurred | - |  | 13,047,114 |  | - |  | - |  | - |  | 13,047,114
Net change in technical provisions | - |  | (2,959,502) |  | - |  | - |  | - |  | (2,959,502)
Net operating expenses | 880,056 |  | 5,745,949 |  | 1,484,242 |  | 725,364 |  | (784,136) |  | 8,051,475
Total expenses | 880,056 |  | 15,833,561 |  | 1,484,242 |  | 725,364 |  | (784,136) |  | 18,139,087
Segment profit/ (loss) | 22,806 |  | (4,500,251) |  | 369,488 |  | (716,824) |  | 226,956 |  | (4,597,825)
Unallocated items |  |  |  |  |  |  |  |  |  |  |
Finance income | - |  | - |  | - |  | - |  |  |  | 4,979
Administrative income | - |  | - |  | - |  | - |  |  |  | (338,832)
Total unallocated items | - |  | - |  | - |  | - |  | - |  | (333,853)
Group profit |  |  |  |  |  |  |  |  |  |  | (4,931,678)
Tax expense |  |  |  |  |  |  |  |  |  |  | 1,797,867
Profit after tax |  |  |  |  |  |  |  |  |  |  | (3,133,811)
Segment assets | 1,291,610 |  | 163,317,991 |  | 2,008,207 |  | 8,579,688 |  | (15,917,147) |  | 159,280,349
Unallocated assets |  |  |  |  |  |  |  |  |  |  | 1,746,067
|  |  |  |  |  |  |  |  |  |  | 161,026,416
Segment liabilities | 964,395 |  | 133,256,529 |  | 839,275 |  | 8,321,749 |  | (8,492,374) |  | 134,889,574
Unallocated liabilities |  |  |  |  |  |  |  |  |  |  | 3,781,838
|  |  |  |  |  |  |  |  |  |  | 138,671,412
Other segment items |  |  |  |  |  |  |  |  |  |  |
Capital expenditure | 9,373 |  | 155,014 |  | 17,802 |  | 85,037 |  | - |  |
Amortisation |  |  | 242,829 |  |  |  |  |  | - |  |
Depreciation | 292 |  | 88,445 |  | 646 |  | 133,836 |  | - |  |
The following is an analysis of the Group’s revenue and result by reportable segment, assets, liabilities, and other information for 2021.
| Investment and |  |  |  |  |  |  |  |  |  |
| advisory |  | Business |  | Agency |  | Property |  |  |  |
| services |  | of insurance |  | services |  | services |  | Eliminations |  | Group
| € |  | € |  | € |  | € |  | € |  | €
Year ended 31 December 2021 |  |  |  |  |  |  |  |  |  |  |
Segment income |  |  |  |  |  |  |  |  |  |  |
Earned premiums, net of reinsurance | - |  | 10,972,025 |  | - |  | - |  | - |  | 10,972,025
Commission and other fees receivable | 387,439 |  | 320,289 |  | 1,810,815 |  | - |  | (83,889) |  | 2,434,654
Increment in the value of in-force business | - |  | 1,387,795 |  | - |  | - |  | (1,387,795) |  | -
Investment and other income | 506,076 |  | 4,401,607 |  | 18,150 |  | - |  | 1,088,185 |  | 6,014,018
Net gains on investments at FVTPL | - |  | (2,055,216) |  | - |  | - |  | - |  | (2,055,216)
Net gains on investment property | - |  | (10,000) |  | - |  | 840,000 |  | - |  | 830,000
Total revenue | 893,515 |  | 15,016,500 |  | 1,828,965 |  | 840,000 |  | (383,499) |  | 18,195,481
Revenue from external customers | 387,439 |  | 12,757,784 |  | 1,810,815 |  | - |  | - |  | 14,956,038
Intersegment revenues | 310,000 |  | 83,889 |  | - |  | - |  | (310,000) |  | 83,889
Segment expenses |  |  |  |  |  |  |  |  |  |  |
Net claims incurred | - |  | 10,151,812 |  | - |  | - |  | - |  | 10,151,812
Net change in technical provisions | - |  | (1,695,417) |  | - |  | - |  | - |  | (1,695,417)
Net operating expenses | 1,125,659 |  | 5,111,652 |  | 1,256,119 |  | 615,141 |  | (62,334) |  | 8,046,237
Total expenses | 1,125,659 |  | 13,568,047 |  | 1,256,119 |  | 615,141 |  | (62,334) |  | 16,502,632
Segment (loss)/profit | (232,144) |  | 448,453 |  | 572,846 |  | 224,859 |  | (321,165) |  | 1,692,849
Unallocated items |  |  |  |  |  |  |  |  |  |  |
Finance costs | - |  | - |  | - |  | - |  | - |  | 600,558
Administrative expenses | - |  | - |  | - |  | - |  | - |  | (661,738)
Total unallocated items | - |  | - |  | - |  | - |  | - |  | (61,180)
Group profit |  |  |  |  |  |  |  |  |  |  | 1,631,669
Tax expense |  |  |  |  |  |  |  |  |  |  | (924,340)
Profit after tax |  |  |  |  |  |  |  |  |  |  | 707,329
Segment assets | 1,587,028 |  | 170,940,608 |  | 2,561,760 |  | 8,619,937 |  | (14,638,799) |  | 169,070,534
Unallocated assets |  |  |  |  |  |  |  |  |  |  | 1,489,090
|  |  |  |  |  |  |  |  |  |  | 170,559,624
Segment liabilities | 1,323,553 |  | 139,314,727 |  | 1,127,506 |  | 7,645,175 |  | (5,822,209) |  | 143,588,752
Unallocated liabilities |  |  |  |  |  |  |  |  |  |  | 2,037,058
|  |  |  |  |  |  |  |  |  |  | 145,625,810
Other segment items |  |  |  |  |  |  |  |  |  |  |
Capital expenditure | 11,712 |  | 73,705 |  | 22,321 |  | - |  | - |  |
Amortisation | - |  | 217,492 |  | - |  | - |  | - |  |
Depreciation | 666 |  | 112,828 |  | 3,583 |  | - |  | - |  |

29. Contingent liabilities As explained in note 22, the Group has deposited amounts in court and made provisions for possible settlement of court cases instituted against it. The exact amount that would need to be paid to settle claims which would have been decided by the courts against the company can only be determined once the court cases are decided. Consequently, the company may have to settle amounts which exceed the amounts described in note 22. 30. Litigation and regulatory matters On 4 April 2022, the Group instituted a lawsuit before the First Hall Civil Court again the Malta F inancial Services Authority (the “Authority”), Mazars Consulting Limited (“Mazars”) and Mr Keith Cutajar, a sub-contractor of Mazars. The Group has taken such judicial action to safeguard its legal right to communications which are privileged at law. This action follows the appointment of Mazars, on 26 November 2021, as an inspector in connection with an investigation by the Authority relating to the Company’s business and operations, and, inter alia, the powers conferred on Mazars by the Authority, on 25 January 2022, in relation to the Company's information and documents, including its privileged communications. While the Company continues to co-operate with the Authority and Mazars in relation to the investigation of the Company, based on legal advice, it considers its right to privileged communications to be significantly prejudiced by the Authority’s actions. Accordingl y, the Company intends to pursue all remedies available to it at law in this regard. The Authority’s investigation is still on-going and no findings have as yet been communicated to the Company. The Company considers that it has acted in compliance with its legal and regulatory obligations at all times and contests any inference of material breach of its compliance obligations. Nevertheless, it remains inherently difficult to predict the outcome of any such judicial proceedings and regulatory investigation. There are many factors that may affect the range of outcomes, and the resulting impact, of these matters. As a result, it is not possible to predict or quantify a range of possible outcomes, or the timing thereof, at this stage. The Directors recognise the fact that the Company may be subject to reputational, legal and compliance risk due to the extent and complexity of its operations and its regulatory obligations. Given the increased levels of regulatory scrutiny experienced in recent years across the financial services industry, the level of inherent legal and compliance risk faced by the Company is expected to continue to remain high for the foreseeable future. The Company employs a range of policies and practices to mitigate such inherent risks and ensure they remain within its risk tolerance limits. Furthermore, the Company remains committed to adhere to it legal and regulatory obligations to meet its compliance requirement on an on-going basis at all times. 31. Statutory information LifeStar Holding p.l.c. is a limited liability company incorporated in Malta with registration number C19526. The registered address of the company is Testaferrata Street, Ta’ Xbiex. On 3 November 2020, GlobalCapital p.l.c. was renamed and rebranded as LifeStar Holding p.l.c. Consolidated financial statements prepared by LifeStar Holding p.l.c. may be obtained from the Company’s registered office. ## Independent auditor’s report To the shareholders of Lifestar Holding p.l.c. Report on the audit of the financial statements Opinion We have audited the financial statements Lifestar Holding p.l.c. (the “Company”) and of the Group of which it is the parent, which comprise the statements of financial position as at 31 December 2022, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company and Group as at 31 December 2022, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) , and have been properly prepared in accordance with the requirements of the Companies Act, Cap. 386 (the “Act”). Our opinion is consistent with our additional report to the audit committee. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements of the Accountancy Profession (Code of Ethics for Warrant Holders) Directive issued in terms of the Accountancy Profession Act, Cap. 281 that are relevant to our audit of the financial statements in Malta. We have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. In conducting our audit we have remained independent of the Company and the Group and have not provided any of the non-audit services prohibited by article 18A of the Accountancy Profession Act, Cap. 281. The non-audit services that we have provided to the Group during the year ended 31 December 2022 are disclosed in note 4 to the financial statements. Emphasis of matter We draw attention to note 30 of the financial statements, which makes reference to an ongoing investigation by the Malta Financial Services Authority relating to the business and operations of the Company and two subsidiaries. The outcome of the regulatory investigation cannot be predicted at this stage and there are many factors that may affect the range of outcomes, and the resulting impact, of these matters. Our opinion is not modified in respect of this matter. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We summarise below the key audit matters, together with our response by way of the audit procedures we performed to address those matters in our audit. Valuation of technical provisions and value of in-force business in the consolidated financial statements Key audit matter At 31 December 2022, the Group’s technical provisions on insurance and investment contracts underwritten, amounted to € 125 million and represented 90% of total liabilities at that date. These are described and disclosed in section 12 of the accounting policies and notes 2 and 17 to the financial statements. The technical provisions comprise the sum of the expected discounted value of the benefit payments and the future administration expenses that are directly related to the contract, less the expected discounted value of the theoretical premiums that would be required to meet the benefits and administration expenses based on the valuation assumptions used. These technical provisions are mainly based on assumptions with respect to mortality, maintenance expenses and investment income. The Group’s value of in-force business (VOIFB), detailed in section 3 of the accounting policies and notes 2 and 17 to the financial statements, amounted to € 12.7 million at balance sheet date. The VOIFB represents the discounted value of projected future shareholders’ profits expected from policies in force at the end of the reporting period, after providing for taxation, and is based on assumptions as to mortality, maintenance expenses and investment income. The valuation of the technical provisions and VOIFB is determined by the Group’s appointed actuary on an annual basis and is approved by the board of directors. We focused on these areas because of the significance of the balances of technical provisions and VOIFB recognised at balance sheet date. Moreover, the measurement of these items is complex and involves significant judgement. How the key audit matter was addressed in our audit As part of our audit procedures over the valuation of technical provisions and VOIFB we obtained an understanding of the design and operation of the key controls over the Group’s valuation of technical provisions and VOIFB and inspected relevant documentation including the actuarial function report. We assessed the competence, capability and objectivity of the actuaries appointed by the Group and obtained an understanding the work performed by the actuaries. We reconciled the balances of technical provisions and VOIFB calculated by the actuaries to the respective amounts disclosed in the financial statements and performed test of details to assess the completeness and integrity of the data provided to the appointed actuary for the purpose of determining technical provisions and VOIFB by reconciling to the premiums and claims lists as extracted from the insurance system, and by inspecting a sample of underlying policy documentation. We also involved our actuarial specialist team to assist with evaluating the appropriateness of the assumptions applied by the Group’s appointed actuary in the calculation of the VOIFB and independently recalculated the technical provisions as at year end with the assistance of our actuarial specialists to assess the reasonableness and adequacy of the balance of the reserves as at year end. We have also assessed the relevance and adequacy of disclosures relating to the Group’s valuation of technical provisions and VOIFB presented in notes 11 and 17 to the financial statements respectively. We have no key observations to report, specific to this matter. Fair value of investment properties in the consolidated financial statements Key audit matter The carrying amounts of the Group’s investment properties carried at fair value as at 31 December 2022 amounts to € 24 million. Management determined the fair values through internal assessments made by the directors by reference to external independent valuations made during the period. The fair value of investment properties was significant in our audit because the amounts are material to the financial statements of the Group. The method used to determine the fair value of investment properties is fully described in note 14 to the financial statements. How the key audit matter was addressed in our audit We evaluated the suitability and appropriateness of the valuation methodology applied by management and reviewed and challenged the methodology applied and the underlying assumptions used by the independent valuation expert. We also assessed the competency and objectivity of the independent valuation experts appointed by the directors. We also communicated with management and those charged with governance and noted that they were able to provide satisfactory responses to our questions. We also assessed the adequacy of the disclosures made in note 14 to the financial statements relating to these properties. We have no key observations to report, specific to this matter. Valuation of investments in the consolidated financial statements Key audit matter The carrying amounts of the Group’s investments at 31 December 2022 amounted to € 87.4 million. These are described and disclosed in section 9 of the accounting policies and note 16 to the financial statements. These investments represent 54.3% of the total assets of the Group, and include a number of holdings which are unlisted and which therefore require a degree of judgement to be exercised when assessing their valuation. How the key audit matter was addressed in our audit We ensured that the value of listed investments is based on quoted prices obtained from independent sources. For unlisted investments we evaluated the appropriateness of the valuation methodology applied by management and reviewed and challenged the methodology applied and the underlying assumptions. Where applicable we also assessed the values of any assets underlying the investments. We also communicated with management and those charged with governance and noted that they were able to provide satisfactory responses to our questions. We also assessed the adequacy of the disclosures made in note 16 to the financial statements relating to these investments. We have no key observations to report, specific to this matter. Going concern in the financial statement of the Company Key audit matter At balance sheet date the Company had total liabilities amounting to € 11.98 million including loans of € 7.1 million due to related parties and a bank loan amounting to € 2 million. The repayment of these liabilities over the agreed term with the lenders warrants specific audit focus since the Company has no operations and consequently the repayment of these liabilities depends on possible future dividend income and proceeds from disposal of assets. The directors are continuing to monitor the situation closely to ensure that the Company will continue to have adequate levels of cash to sustain its operations and to meet its obligations as they fall due. How the key audit matter was addressed in our audit We reviewed the plans prepared by management showing how the Company intends to settle its liabilities as they fall due. As part of this process, we reviewed cash flow projections prepared by management. We attended meetings with management and those charged with governance and noted that they were able to provide satisfactory responses to our questions relating to the Company’s plans. We also assessed the adequacy of the disclosures made in Note 1, Appropriateness of going concern assumption in the preparation of the financial statements. Based on the audit work done, we concluded that management’s use of the going concern assumption in the preparation of the financial statements is appropriate. Fair valuation of investments in subsidiaries in the financial statements of the Company Key audit matter The carrying amount of the Company’s investments in subsidiaries at 31 December 2022 amounted to € 24.6 million. These are described and disclosed in section 8 of the accounting policies and note 15 to the financial statements. These investments represent 90% of the total assets of the Company and are therefore very material to these financial statements. How the key audit matter was addressed in our audit We ensured that the value of listed investments is based on quoted prices obtained from independent sources. For unlisted investments we evaluated the appropriateness of the valuation methodology applied by management and reviewed and challenged the methodology applied and the underlying assumptions. Where applicable we also assessed the values of any assets underlying the investments. We also communicated with management and those charged with governance and noted that they were able to provide satisfactory responses to our questions. We also assessed the adequacy of the disclosures in the financial statements relating to these investments. We have no key observations to report, specific to this matter. Other information The directors are responsible for the other information. The other information comprises (i) the Director’s Report, (ii) Statement of Directors’ Responsibilities (iii) Corporate Governance – Statement of Compliance and (iv) the Remuneration Report, which we obtained prior to the date of this auditor’s report, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information, including the Directors’ report. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the Directors’ report, we also considered whether the Directors’ report includes the disclosures required by Article 177 of the Act, and in the case of the Remuneration report, whether this has been prepared in accordance with Chapter 12 of the Capital Market Rules issued by the Malta Financial Services Authority (the “Capital Market Rules”). Based on the work we have performed, in our opinion:
• | The information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements, and the Directors’ report has been prepared in accordance with the Act, and
• | The Remuneration report has been properly prepared in accordance with the requirements of the Capital Markets Rules.
In addition, in light of the knowledge and understanding of the Company and the Group and their environment obtained in the course of the audit, we are required to report if we have identified material misstatements in the Directors’ report and other information that we obtained prior to the date of this auditor’s report. We have nothing to report in this regard. Responsibilities of the directors those charged with governance for the financial statements The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with IFRS as adopted by the EU and are properly prepared in accordance with the provisions of the Act and the Insurance Business Act, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s and the Group’s financial reporting process. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with the ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
- | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s and the Group’s internal control.
- | Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- | Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s and the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Company’s and the Group’s ability to continue as a going concern.
- | Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
- | Obtain sufficient appropriate evidence regarding the financial information of the entities or business activities within the Company and the Group to express and opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Company and the Group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with the relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefit of such communication. Reports on other legal and regulatory requirements Report on compliance with the requirements of the European Single Electronic Format Regulatory Technical Standard (the “ESEF RTS”), by reference to Capital Markets Rule 5.55.6 We have undertaken a reasonable assurance engagement in accordance with the requirements of Directive 6 issued by the Accountancy Board in terms of the Accountancy Profession Act (Cap. 281) - the Accountancy Profession (European Single Electronic Format) Assurance Directive (the “ESEF Directive 6”) on the Report and Consolidated Financial Statements of Harvest Technology p.l.c. for the year ended 31 December 2022, entirely prepared in a single electronic reporting format. Responsibilities of the directors The directors are responsible for the preparation of the Report and Consolidated Financial Statements and the relevant mark-up requirements therein, by reference to Capital Markets Rule 5.56A, in accordance with the requirements of the ESEF RTS. Our responsibilities Our responsibility is to obtain reasonable assurance about whether the Report and Consolidated Financial Statements and the relevant electronic tagging therein, complies in all material respects with the ESEF RTS based on the evidence we have obtained. We conducted our reasonable assurance engagement in accordance with the requirements of ESEF Directive 6. Our procedures included:
- | Obtaining an understanding of the entity's financial reporting process, including the preparation of the Annual Report and Consolidated Financial Statements, in accordance with the requirements of the ESEF RTS.
- | Obtaining the Annual Report and Consolidated Financial Statements and performing validations to determine whether the Annual Report and Consolidated Financial Statements have been prepared in accordance with the requirements of the technical specifications of the ESEF RTS.
- | Examining the information in the Annual Report and Consolidated Financial Statements to determine whether all the required taggings therein have been applied and whether, in all material respects, they are in accordance with the requirements of the ESEF RTS.
- | We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion In our opinion, the Annual Report and Consolidated Financial Statements for the year ended 31 December 2022 has been prepared, in all material respects, in accordance with the requirements of the ESEF RTS. Report on the Statement of Compliance with the Principles of Good Corporate Governance The Capital Market Rules require the directors to prepare and include in their Annual Report a Statement of Compliance providing an explanation of the extent to which they have adopted the Code of Principles of Good Corporate Governance and the effective measures that they have taken to ensure compliance throughout the accounting period with those Principles. The Capital Market Rules also require us, as the auditor of the Company and the Group, to include a report on the Statement of Compliance prepared by the directors. We read the Statement of Compliance with the Code of Principles of Good Corporate Governance and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements included in the Annual Report. Our responsibilities do not extend to considering whether this statement is consistent with any other information included in the Annual Report. We are not required to, and we do not, consider whether the Board’s statements on internal control included in the Statement of Compliance with the Code of Principles of Good Corporate Governance cover all risks and controls, or form an opinion on the effectiveness of the Company’s and the Group’s corporate governance procedures or its risk and control procedures. In our opinion, the Corporate governance statement has been properly prepared in accordance with the requirements of the Capital Market Rules. Other matters on which we are required to report by exception We also have responsibilities
• | under the Companies Act, Cap 386 to report to you if, in our opinion:
- | adequate accounting records have not been kept, or that returns adequate for our audit have not been received from branches not visited by us
- | the financial statements are not in agreement with the accounting records and returns
- | we have not received all the information and explanations we require for our audit
- | certain disclosures of directors’ remuneration specified by law are not made in the financial statements, giving the required particulars in our report.
• | in terms of Capital Market Rules to review the statement made by the Directors that the business is a going concern together with supporting assumptions or qualifications as necessary.
We have nothing to report to you in respect of these responsibilities. Auditor tenure We were first appointed as auditors of the Company on 9 October 2020. Our appointment has been renewed annually by a shareholders’ resolution representing a total period of uninterrupted engagement appointment of three years. The engagement partner on the audit resulting in this independent auditor’s report is Mark Bugeja. GRANT THORNTON Fort Business Centre Triq L-Intornjatur, Zone 1 Central Business District Birkirkara CBD 1050 Malta Mark Bugeja Partner 27 April 2023