42 2023 PROTECTOR FORSIKRING ANNUAL REPORT 432023 PROTECTOR FORSIKRING ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING PRINCIPLES
General
The company’s financial statements are prepared in accordance with
the Financial Statement Regulation for Non-life Insurance Companies
(Forskrift om årsregnskap for Skadeforsikringsselskaper) and IFRS®
Accounting Standards as adopted by the EU.
Changes in accounting principles
The Ministry of Finance has adopted changes to the accounting rules
for insurance companies as a result of IFRS 17. The changes came into
force with eect for accounting years starting from January 1st 2023.
This means that Protector reported according to full IFRS from
January 1st 2023. Comparable figures for 2022 have been restated
to IFRS. The main change to full IFRS is related to IFRS 17 Insurance
contracts. This new standard replaces IFRS 4 Insurance contracts and
introduces new requirements for recognition, measurement,
presentation and information about issued insurance contracts and
reinsurance contracts held. The purpose of the new standard is to
establish a uniform practice for accounting for insurance contracts
other standards that was implemented in 2023, as a result of the
transition to full IFRS, are IFRS 9 Financial Instruments and IFRS 16
Leases.
IFRS 17 Insurance Contracts
IFRS 17 establishes principles for the recognition, measurement,
presentation and disclosure of issued insurance contracts and
reinsurance contracts held.
Measurement model
Protector has implemented the simplified method, Premium Allocati-
on Approach (PAA) to measure the insurance contracts and the rein-
surance contracts held. Most of Protector’s contracts have a coverage
period of one year or less. For the contracts where the coverage pe-
riod is more than one year, Protector has estimated that the liability
for remaining coverage will not dier materially from the liability by
applying the general measurement model (Building Block Approach)
and will therefore also use PAA for those contracts.
Liabilities for insurance contracts consist of liability for remaining co-
verage (LRC) and liability for incurred claims (LIC). LRC represents
liabilities for remaining coverage and replaces premium reserves and
provision for unearned premiums, while LIC represents liabilities for
claims that have already incurred and replaces claims provisions. Asset
for reinsurance contracts consist of the assets for remaining covera-
ge (ARC) and the asset for incurred claims (AIC), reinsurers’ share of
claims that have already incurred.
Applying the PAA model, Protector will measure the LRC on initial
recognition. The main principles under the PAA are to accrue
premium received over the coverage period. The LRC at initial
recognition comprises the premium received upon initial
recognition. At the end of each reporting period, the carrying amount
of the LRC is the carrying amount at the start of the period including
the premium received during the period, less the amount recognized
as insurance revenue for services provided in that period. LRC corre-
sponds to the provision for unearned premium including deductions
for premium receivables. Insurance acquisition cash flows are directly
expensed for contracts with a coverage period of one year or less, or
when they are deemed to be immaterial.
The LIC, comprising the fulfilment cash flows related to past services,
is measured according to best estimate of future payments for
incurred claims, claims expenses and other costs directly attributable
to the underlying insurance contracts, adjusted for time value of mo-
ney, the financial risks related to the future cash flows and with a risk
adjustment for non-financial risk.
Reinsurance contracts held will be presented separately from
insurance contracts issued.
Contracts discounting
Protector discount LIC for all products. Swap rates are used in
discounting for the respective currencies.
LRC can also be discounted to reflect the time value of money. This
adjustment is not mandatory under PAA. For LRC, most of the pre-
mium are received less than a year after coverage is provided. In ad-
dition, a substantial part of the premium is paid monthly or quarterly.
This means that the financing component of LRC is not significant, and
therefore the LRC is not adjusted for time value for money and the
eect of financial risk.
Risk adjustment
Risk adjustment for non-financial risk (RA) is the compensation an
entity requires for bearing the uncertainty about the amount and ti-
ming of the cash flows that arises from non-financial risk as the entity
fulfils insurance contracts. A percentile approach is applied, where the
level of risk adjustment represents the 85 percentile of the ultimate
probability distribution for the liability for incurred claims. Risk adjust-
ment is estimated excluding discounting eects. A simulation-based
model is used to simulate outcomes of undiscounted liability for in-
curred claims, where undiscounted liability for incurred claims defines
the expected value of estimated run o scenarios. The 85 percentile
is applied on company level, meaning that undiscounted liability for
incurred claims including RA would suce to cover 85% of the estima-
ted run o scenarios until all claims are expected value of estimated
run o. Changes in RA are recognised in insurance service result.
The reinsurance result is presented separately from the result from
issued insurance contracts in the financial statement. Insurance
finance income or expenses is fully presented in profit & loss.
Financial assets and liabilities
Recognition and derecognition
Financial assets and liabilities are recognised in the statement of
financial position from the time Protector becomes party to the in-
strument’s contractual terms and conditions. Regular way purchases
or sales are recognised on the transaction date. When a financial asset
or a financial liability is initially recognised in the financial
statements, it is measured at fair value.
Financial assets are derecognised when the contractual right to the
cash flow from the financial asset expires, or when the company trans-
fers the financial asset to another party in a transaction by which all, or
substantially all, the risk and reward associated with ownership of the
asset is transferred.
Financial liabilities are derecognised in the statement of financial po-
sition when they cease to exist, i.e. once the contractual liability has
been fulfilled, cancelled or has expired.
Financial assets at fair value through profit or loss
Financial assets and liabilities are classified at fair value through profit
& loss if they are included in a portfolio that is measured and
evaluated regularly at fair value. The investment portfolio is managed
and evaluated regularly on a fair value basis and thus measured at FVT-
PL. This is according to the Board of Directors’ approved risk manage-
ment and investment strategy. Financial assets that are measured to
fair value through profit & loss are recognised at fair value when ac-
quired, and transaction costs are recognised profit & loss immediately.
Financial assets and liabilities at amortised cost
Financial assets which have a contractual cash flow held to collect and
that are only payment of principal and interest are classified and mea-
sured at amortised cost. Financial assets and liabilities are measured at
amortised cost using an eective interest method. Transaction costs
that are directly attributable to the issue of the loan are included in the
amortised cost. Financial assets and liabilities at amortised cost consist
respectively of loans to other external parties and subordinated loan
capital.
Impairment for expected credit losses
Impairment on assets measured at amortised cost is based on expe-
cted credit losses (ECL). This will also cover any ECL at the time of
granting (stage 1) arising from default within 12 months. ECL are a pro-
bability-weighted estimate of credit losses. Credit losses are measured
as the present value of all cash shortfalls. At each reporting date, Pro-
tector assesses whether financial assets measured at
amortised cost are credit impaired. A financial asset is credit impaired
when one or more events that have a detrimental impact on the
estimated future cash flows of the financial asset have occurred.
IFRS 16 Leases
IFRS 16 introduces a single lessee accounting model and requires a
lessee to recognize assets and liabilities for all leases with a term of
more than 12 months, unless the underlying asset is of low value. IFRS
16 requires that the lease liability should initially be measured at the
present value of the lease payments that are not paid at the
commencement date. The implementation of IFRS 16 do not aect
the profit & loss significant, but will have some eect on the balance
sheet and classification in the income statement. The rent is divided
into depreciation on the leasing asset and interest on the leasing debt.
Foreign Currency
The company and the branches have Norwegian, Swedish and Danish
kroner, British Pounds and Euro respectively as functional currency.
All financial information is presented in NOK unless otherwise stated.
Transactions in foreign currency are translated into functional curren-
cy at the exchange rate at the transaction date. Profit & loss items
related to Sweden, Denmark, Finland and UK are translated into NOK
at average rate, unless exchange rates fluctuate significantly. Assets
and liabilities are translated at the exchange rate at the reporting date.
Exchange dierences arising on currency translations are recognised
in other comprehensive income.
Natural perils capital
Operating surplus from the mandatory Norwegian Natural Perils Pool
must be allocated to a separate Natural Perils capital. These funds may
only be drawn upon in respect of claims related to losses caused by
natural perils. The fund is restricted equity.
Guarantee scheme provision
The purpose of the guarantee scheme provision is to guarantee that
claims submitted under direct non-life insurance contracts entered
into in Norway are settled in full. The fund is restricted equity.
Fixed assets and intangible assets
Fixed assets and intangible assets are recognised at acquisition
cost, and written down to actual value when the depreciation in
value is not expected to be temporary. Depreciations are deduc-
ted from the durable business assets and intangible assets. Poten-
tial expenditures or improvements are added to the business as-
sets acquisition cost and depreciate in line with the business asset.
Dividend
Dividend from investments is recognised when the company has an
unconditional right to receive the dividend. Dividend payments is
recognised as a liability at the time when the General Meeting, or the
Board of Directors by power of attorney, approves the payment of
the dividend.
Provisions
Provisions are recognised when the company has a legal or
constructive obligation as a result of a past event, where it is
probable that this will result in the payment or transfer of other assets
to settle the obligation, and where a reliable estimate can be made of
the amount of the obligation.
Information about contingent assets are disclosed where an inflow of
economic benefits is probable. Information about a contingent
liability is disclosed unless the possibility of a capital outflow is
remote.
Pensions
Protector has country-specific defined contribution pension
schemes. A defined contribution pension scheme means that the
company pays an annual contribution to the employees’ collective
pension savings. The future pension will depend on the size of the con-
tribution and the annual return on the pension savings. As
Protector has no further obligations other than payment of
contributions, no provisions are required. Defined contribution pensi-
on plans are expensed directly.
Tax
The tax expense in the income statement consists of tax payable for
the accounting period, and the period’s changes in deferred tax. The
rate of corporation tax applied in the accounting periodwas 25% on
deferred tax and on payable tax.
Deferred tax the tax expected to be payable or recoverable in the
future arising from temporary dierences between the tax bases of
assets and liabilities and their carrying amounts in the financial
statements, together with tax losses carried forward at the end of the
fiscal year. Temporary tax increases or decreases, which are reversed
or may reverse within the same period, are balanced.
Deferred tax assets are recorded in the statement of financial position
when it is more likely than not that the tax assets will be utilised.
Tax is recognised in the income statement, except when it relates to
items recognised in other comprehensive income or directly to equity,
in which case it is recognised in other comprehensive income or in
equity.
Discontinued operations
Protector presents discontinued operations on separate lines in the
income statement and balance sheet when the relevant
business on the reporting date has been decided to sell or liquidate.
The comparative figures are restated accordingly. Specification of the
individual items are included in a separate note.
Cash flow statement
Cash flows from operating activities are presented according to the
direct method, which gives information about material classes and
payments.