5.2 Estimates and assumptions

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Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the consolidated financial statements when they occur.

i.  Fair value of investment properties

The Group engaged an independent valuation specialist to assess fair value for its investment properties using a valuation methodology based on the ‘income method’. The key assumptions used to determine the fair value of investment properties and sensitivity analyses are disclosed in Notes 7 and 27.

ii.  Fair value of unquoted investments

As described in Note 7, management uses their judgment in selecting an appropriate valuation technique for financial instruments not quoted in an active market. Valuation techniques commonly used by market practitioners are applied. Such financial instruments are valued using discounted cash flow and capitalization of sustainable earnings analysis based on assumptions supported, where possible, by observable market prices or rates. The estimation of fair value of unquoted shares includes some assumptions not supported by observable market prices or rates. Details of assumptions used and of the results of sensitivity analyses regarding these assumptions are provided in Note 7.

iii.  Measurement of the expected credit loss allowance

The measurement of the expected credit loss allowance for financial assets measured at amortized cost and FVTOCI is an area that requires the use of complex models and significant assumptions about future economic conditions and credit behavior (e.g. the likelihood of customers defaulting and the resulting losses). Explanation of the inputs, assumptions and estimation techniques used in measuring ECL is further detailed in Note 6(b).
A number of significant judgements are also required in applying the accounting requirements for measuring ECL, such as:

  • Determining the criteria for significant increase in credit risk;
  • Determining the criteria and definition of default
  • Choosing appropriate models and assumptions for the measurement of ECL;
  • Establishing the number and relative weightings of forward-looking scenarios for each type of product/market and the associated ECL; and
  • Establishing groups of similar financial assets for the purposes of measuring ECL

iv.  Provision for outstanding claims

Considerable judgement by management is required in the estimation of amounts due to contract holders arising from claims made under insurance contracts. Such estimates are necessarily based on significant assumptions about several factors involving varying, and possible significant, degrees of judgement and uncertainty and actual results may differ from management’s estimates resulting in future changes in estimated liabilities. The Group generally estimates its claims based on previous experience. Claims requiring court or arbitration decisions are estimated individually. Independent loss adjusters along with the Group’s internal legal counsel normally estimate such claims. Management reviews its provisions for claims incurred on a quarterly basis.

v.  Impairment of goodwill

The impairment of goodwill is performed by firstly identifying the reporting units and how the goodwill is assigned to these units. The fair value of each reporting unit is estimated using the significant assumptions and estimates along with the impact of the events and circumstances that may affect these judgements. The key assumptions used in testing for impairment are based on management’s expectations for operational development and growth, which are partly based on past experience. The calculation used risk-adjusted cashflow projections based on financial budgets and business plans approved by the management covering a budget period of 5 years. Cashflows beyond the 5-year budget period are extrapolated using an estimated growth rate of 3%. This growth rate does not exceed the long-term average growth rate for the markets in which the reporting segments operates. A WACC of 11% has been used to calculate the discounted cashflows for the Group.




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