CORNERSTONE INSURANCE : QUARTER 1 - FINANCIAL STATEMENT FOR 2023 - Marketscreener.com
Company information and statement of accounting policies
- Reporting entity
Cornerstone Insurance Plc (the Company) was incorporated on 26 July 1991 as a private limited liability company and converted to a public limited liability company on 17 June 1997. The Company's principal activity continues to be the provision of risk underwriting and related financial services to its customers. Such service includes the provision of Life and Non-life insurance services for both corporate and individual customers.
The Company has three subsidiaries - Fin Insurance Company Limited, Hilal Takaful Nigeria Limited previously called Cornerstone Takaful Nigeria Limited and Cornerstone Leasing & Investment Limited. Cornerstone Leasing and Investment Limited commenced operations on 1 July 2004 and provides convenient asset acquisition options to both corporate organisations and individuals. Fin Insurance Company Limited was incorporated in 1981 as Yankari Insurance Company Limited. The name was changed to Fin Insurance Company Limited in 2008. The main activity of the subsidiary is the provision of General Insurance business. This includes Marine Insurance, Motor Insurance, Accident Insurance, Fire Insurance and other Non-life insurance services. Hilal Takaful Nigeria Limited previously called Cornerstone Takaful Nigeria Limited is a company incorporated in Nigeria and its primary activity is the provision of Takaful insurance business. Cornerstone Takaful Nigeria Limited commenced operation on 1 April 2020. Cornerstone Insurance Plc has 99.99% equity interest in Hilal Takaful Nigeria Limited.
The Company currently has authorized share capital of ₦9.25 billion divided into 18.5 billion units of ordinary shares of 50k each with a fully paid up capital of ₦9.083 billion. The Company currently has its corporate head office at Victoria Island, Lagos with branches spread across major cities and commercial centres in Nigeria. These consolidated financial statements comprise the financial records of Company and its subsidiaries (together referred to as "the Group").
The Company and group is domiciled in Nigeria with registered address at 136, Lewis street, Lagos Island, Lagos and Corporate head office at 21 Water Corporation drive, Victoria Island Lagos. - Principal activities
The Group is engaged in various business lines ranging from property-casualty insurance, life/ health insurance and leasing. The Group's products are classified at inception, for accounting purposes, as either Insurance contracts or Investment contracts.
A contract that is classified as insurance contract remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period; unless all rights and obligations are extinguished or expire. Investment contracts can, however, be reclassified as insurance contracts after inception if insurance risk becomes significant. - Going concern
This consolidated and separate financial statements have been prepared using appropriate accounting policies, supported by reasonable judgments and estimates. The Directors have a reasonable expectation, based on an appropriate assessment of a comprehensive range of factors, that the Group has adequate resources to continue as going concern for the foreseeable future and has no intention or need to reduce substantially its business operations. Liquidity ratio, compliance with regulatory requirements, maintaining a net asset position and continuous evaluation of current ratio of the Group is carried out to ensure that there are no going concern threats to the operation of the Group.
- Basis of accounting Statement of compliance
The consolidated and separate financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS Standard) as issued by the International Accounting Standards Board (IASB) and in the manner required by the Companies and Allied Matters Act (CAMA), 2020, the Financial Reporting Act, 2011, the Insurance Act 2003 and relevant National Insurance Commission (NAICOM) circulars. The financial statements were authorised by the Board of directors on 21 February 2023. - Functional and presentation currency
These consolidated and separate financial statements are presented in Nigerian Naira, which is the Group's and Company's functional and presentation currency. Except as indicated, financial information presented in Naira has been rounded to the nearest thousand. - Basis of measurement
These consolidated and separate financial statements have been prepared under the historical cost basis except for the following items which are measured on an alternative basis on each reporting date: -
- financial instruments at fair value through profit or loss
- available-for-salefinancial instruments measured at fair value through OCI
- insurance contract liabilities measured at present value of projected cash flows
- investment properties measured at fair value
- Use of estimates and judgements
The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.
Information about significant areas of estimation uncertainties and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated and separate financial statements are described in note 4. - Reporting period
The financial statements have been prepared for a 12-month period from 1 January 2022 to 31 December 2022. - Changes in significant accounting policies
The Group has consistently applied the accounting policies as set out in note 3 to all periods presented in these financial statements. The effective standards that have been adopted for financial year ended 31 December 2022 which had no material impact on the disclosures or on the amounts reported in the financial statements are as follows:
The Company has not early adopted any other Standards, interpretations or amendments that has been issued but not yet effective. -
- Amendments to IFRS 1 first-time adoption of international financial reporting standards. The amendments address annual improvements to IFRS standards 2018 - 2020.
- Amendment to IFRS 3 Business Combinations.
-
The amendment addresses reference to the Conceptual Framework.
(iii Amendment to IFRS 16 Property, Plant and Equipment.
The amendment addresses property, plant and equipment - proceeds before intended use.
(iv Amendment to IAS 37 provisions, contingent liabilities and contingent assets.
The amendment addresses onerous contracts - cost of fulfilling a contract.
2.7 Standards issued and effective not yet adopted by the Group
IFRS 9 Financial Instruments
IFRS 9 became effective for financial year commencing on or after 1 January 2018 but the standard has not been adopted in preparing these financial statements as the Group elected to adopt the deferral approach available to insurance companies.
IFRS 9 is part of the IASB's project to replace IAS 39 Financial Instruments: Recognition and Measurement . IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and de-recognition of financial instruments from IAS 39.
IFRS 9 replaces the multiple classification and measurement models in IAS 39 with a single model that has only three classification categories: amortised cost, fair value through OCI and fair value through profit or loss.
Furthermore for non-derivative financial liabilities designated at fair value through profit or loss, it requires that the credit risk component of fair value gains and losses be separated and included in OCI rather than Classification and Measurement
The standard uses one primary approach to determine whether to measure a financial asset at amortised cost, fair value through other comprehensive income (FVTOCI), or fair value through profit or loss (FVTPL) as against the IAS 39 classifications of FVTPL, Available-for-Sale (AFS) financial assets, Loans and Receivables and Held-to-Maturity (HTM) investments. The Group's business model is the determining factor for classifying its financial assets. Financial assets are measured at amortised cost if the business objective is to hold the asset in order to collect contractual cash flows that are solely payments of principal and interest (SPPI). Financial assets are measured at fair value through OCI if the business's objective is to collect contractual cash flows as well as cash flows from selling the asset.
The final category of financial assets are those assets where the business model is neither to hold for solely to collect the contractual cashflows nor selling to collect the cashflows and therefore classified as at fair value through profit or loss. These are financial assets that are held with the objective of trade and to realize fair value changes. The Group can also designate some of its financial assets at fair value through profit or loss if this helps to eliminate an accounting mismatch.
The table below provides the expected changes in classification on adoption of IFRS 9:
| IAS 39 | Group | Company | ||
| FINANCIAL ASSETS | IFRS 9 classification | Carrying Amount | Carrying Amount | |
| classification | ||||
| 31 December 2022 | 31 Dec 2022 | 31 Dec 2022 | ||
| Cash and cash equivalents | Loans and | Amortised cost | 10,885,696 | 5,957,724 | |
| receivables | |||||
| Financial assets at fair value through profit or loss | FVTPL | FVTPL | 7,984,599 | 7,984,599 | |
| Available-for-sale financial assets: | |||||
| - Government & corporate bonds | AFS | FVTOCI | 7,967,490 | 7,967,490 | |
| - | Unquoted equity securities | AFS | FVTOCI | 269,983 | 225,540 |
| - | Quoted equity securities | AFS | FVTPL | 1,501,395 | 726,380 |
| Loans and receivables | Loans and | Amortised cost | 295,712 | 295,712 | |
| receivables | |||||
| Held-to-Maturity investments | Held to maturity | Amortised cost | 3,975,824 | - | |
| Trade receivables | Loans and | Amortised cost | 607,342 | 545,407 | |
| receivables | |||||
| Other receivables (less prepayments and other assets) | Loans and | Amortised cost | 191,455 | 398,479 | |
| receivables | |||||
| Reinsurance assets (less prepaid reinsurance, outstanding claims and IBNR) | Loans and | Amortised cost | 454,679 | 336,395 | |
| receivables | |||||
| IAS 39 | Group | Company | |||
| FINANCIAL ASSETS | IFRS 9 classification | Carrying Amount | Carrying Amount | ||
| classification | |||||
| 31 December 2021 | 31 Dec 2021 | 31 Dec 2021 | |||
| Cash and cash equivalents | Loans and | Amortised cost | 14,402,330 | 9,732,527 | |
| receivables | |||||
| Financial assets designated at fair value | FVTPL | FVTPL | 9,065,439 | 9,065,439 | |
| - Available-for-sale assets | |||||
| - Government & corporate bonds | AFS | FVTOCI | 2,972,220 | 2,972,220 | |
| - | Unquoted equity securities | AFS | FVTOCI | 127,885 | 87,500 |
| - | Quoted equity securities | AFS | FVTPL | 1,319,822 | 618,366 |
| Loans and receivables | Loans and | Amortised cost | 293,283 | 293,283 | |
| receivables | |||||
| Held-to-Maturity investments | Loans and | Amortised cost | 3,317,585 | - | |
| receivables | |||||
| Trade receivables | Loans and | Amortised cost | 300,788 | 255,793 | |
| receivables | |||||
| Other receivables (less prepayments and other assets) | Loans and | Amortised cost | 571,190 | 566,802 | |
| receivables | |||||
| Reinsurance assets (less prepaid reinsurance, outstanding claims and IBNR) | Loans and | Amortised cost | 1,305,181 | 1,244,759 | |
| receivables | |||||
Impairment
IFRS 9 also requires that credit losses expected at the reporting date (rather than those incurred as at year-end) are reflected at the date of reporting on all financial assets. This approach is an expected credit loss (ECL) model which has replaced the incurred credit loss model under IAS 39. This approach does not require a credit loss event to have occurred before the recognition of the loss at the reporting date. The amount of the expected credit losses is expected to be updated at each reporting date to reflect changes in credit risks since initial recognition.
ECL is determined by multiplying the Exposure At Default (EAD) by the Probability of Default (PD) and the Loss Given Default (LGD).
The Group and Company do not currently have an Expected Credit Loss (ECL) model for financial assets; hence the potential impact of the ECL impairment on profit or loss and equity has not been estimated. However, it is not expected that the impact would be significant due to the nature and volume of the financial assets in the Group and Company.
Amendments to IFRS 4 Applying IFRS 9 financial instruments with IFRS 4 insurance contracts
In September 2016, the IASB published an amendment to IFRS 4 which addresses the concerns of insurance companies about the different effective dates of IFRS 9 Financial instruments and the forth-coming new insurance contracts standard, IFRS 17. The amendment provides two different solutions for insurance companies: a temporary exemption from IFRS 9 (i.e. The deferral approach') for entities that meet specific requirements (applied at the reporting entity level), and the 'overlay approach'. Both approaches are optional. The effective date is 1 January 2018 or when the entity first applies IFRS 9. IFRS 4 (including the amendments) will be superseded by the forth-coming new insurance contracts standard, IFRS 17. Accordingly, both the temporary exemption and the 'overlay approach' are expected to cease to be applicable when the new insurance standard becomes effective.
In response to concerns regarding temporary accounting mismatches and volatility, and increased costs and complexity, the IASB issued amendments to IFRS 4 Insurance Contracts .
The amendments reduce the impacts, but companies need to carefully consider their IFRS 9 implementation approach to decide if and how to use them. The two optional solutions raise some considerations which require detailed analysis and management judgement.
The optional solutions are:
1. Temporary exemption from IFRS 9 - Some Companies will be permitted to continue to apply IAS 39 Financial Instruments: Recognition and Measurement . To qualify for this exemption the company's activities need to be predominantly connected with insurance. A company's activities are predominantly connected with insurance if, and only if:
(a) the amount of its insurance liabilities is significant compared with its total amount of liabilities; and
(b) the percentage of its liabilities connected with insurance relative to its total amount of liabilities is:
(i) greater than 90 percent; or
(ii) less than or equal to 90 percent but greater than 80 percent, and the Company does not engage in a significant activity unconnected with insurance.
Liabilities connected with insurance include investment contracts measured at FVTPL, and liabilities that arise because the insurer issues, or fulfils obligations arising from these contracts (such as deferred tax liabilities arising on its insurance contracts).
2. Overlay approach - This solution provides an overlay approach to alleviate temporary accounting mismatches and volatility. For designated financial assets, a company is permitted to reclassify between profit or loss and other comprehensive income (OCI), the difference between the amounts recognised in profit or loss under IFRS 9 and those that would have been reported under IAS 39.
With respect to IFRS 9 above, the Group is eligible to apply IFRS 9 deferral approach since IFRS 9 has not been previously applied by the Group and the activities of the Group are predominantly connected with insurance. To determine if the Group's activities are predominantly connected with insurance, The Group has assessed the ratio of the Group's liabilities connected with insurance - including investment contracts liabilities - compared with it's total liabilities. See the assessment below:
| LIABILITIES | AS REPORTED | Admissible | for | AS REPORTED | Admissible for Predominance Test | |
| (A) | Predominance Test | (A) | (B) | |||
| (B) | ||||||
| Group | Group | Company | Company | |||
| 31-Dec-15 | 31-Dec-15 | 31-Dec-15 | 31-Dec-15 | |||
| Investment contract liabilities | 1,712,048 | 1,712,048 | 1,712,048 | 1,712,048 | ||
| Insurance contract liabilities | 5,619,756 | 5,619,756 | 4,862,365 | 4,862,365 | ||
| Trade payables | 384,017 | 384,017 | 331,222 | 331,222 | ||
| Other payables and accruals | 826,647 | - | 616,758 | - | ||
| Current tax liabilities | 340,539 | - | 246,725 | - | ||
| Employees benefit obligations | 7,523 | - | 7,523 | - | ||
| Liabilities directly associated with assets | ||||||
| classified as held-for-sale | 5,497 | - | - | - | ||
| 8,896,027 | 7,715,821 | 7,776,641 | 6,905,635 | |||
| Score = (B/A)% | 86.7% | 88.8% |
The Group has elected to apply the temporary exemption from IFRS 9 (deferral approach) and qualifies for the temporary exemption based on the following:
- Its activities are predominantly connected with insurance contracts;
- As at 31 December 2015, which is the reporting date that immediately precedes 1 April 2016, the carrying amount of its liabilities arising from insurance contracts was ₦7.715b (Company: ₦6.91b) which was 86.7% (Company: 88.8%) of the total carrying amount of all its liabilities as at that date.
- The Group's activities have remained the same and are predominantly connected with insurance contracts. The majority of the activities from which the Group earns income and incur expenses are insurance- related.
Based on the above, the Group will apply IFRS 9 together with IFRS 17 in 2023.
Classification of financial assets based on the Solely Payment of Principal and Interest basis
i) Financial assets with contractual terms that give rise to cash flows that are solely payments of principal and interest (SPPI)
The Group's financial assets with contractual terms that give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding are as follows:
- Cash and cash equivalents
- Available-for-salefinancial assets (Bonds)
- Loans and receivables
- Held-to-Maturityfinancial assets
- Trade receivables
- Reinsurance assets (less prepaid reinsurance and reinsurers' share of outstanding claims and IBNR)
- Other receivables (only financial receivables)
- Fair value through profit or loss (Bonds)
ii) Financial assets with contractual terms that do not give rise to cash flows that are solely payments of principal and interest.
These are financial assets that meet the definition of financial assets designated at fair value through profit or loss in line with IFRS 9; or that are managed and whose performance is evaluated on a fair value basis. These are:
- Financial assets measured though profit and loss (Investment in MTN shares)
- Equity securities and Investment funds
The expected fair value changes from the adoption of IFRS 9 are disclosed below.
Group - 31 December 2022
| Financial assets that meet the SPPI criteria | All other financial assets | ||||||||
| IAS 39 | IFRS 9 Fair Value | Fair Value | IAS 39 Carrying | IFRS 9 Fair Value | Fair Value Change | ||||
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