SBN HOLDINGS LIMITED Annual Report 2022

ANNEXURE D - DETAILED ACCOUNTING POLICIES continued 174 SBN HOLDINGS LIMITED Annual report 2022 14. 15. Other significant accounting policies Segment reporting An operating segment is a component of the group engaged in business activities, whose operating results are reviewed regularly by management in order to make decisions about resources to be allocated to segments and assessing segment performance. The group's identification of segments and the measurement of segment results is based on the group's internal reporting to the chief operating decision maker. Fiduciary activities The group commonly engages in trust or other fiduciary activities that result in the holding or placing of assets on behalf of individuals, trusts, post- employment benefit plans and other institutions. These assets and the income arising directly thereon are excluded from these annual financial statements as they are not assets of the group. However, fee income earned and fee expenses incurred by the group relating to the group's responsibilities from fiduciary activities are recognised in profit or loss. Statutory credit risk reserve The statutory credit risk reserve represents the amount which BoN requires in addition to the IFRS impairment provision. Changes in this reserve are accounted for as transfers to and from retained earnings as appropriate. Non-trading and capital related items Non-trading and capital related items primarily include the following: ■gains and losses on disposal of subsidiaries, joint ventures and associates (including foreign exchange translation gains and losses) ■ gains and losses on the disposal of property and equipment and intangible assets ■ Impairment and reversals of impairments of joint ventures and associates ■impairment of investments in subsidiaries, property and equipment, and intangible assets ■ other items of a capital related nature. New standards and interpretations not yet adopted The following new standards, and amendments are not yet effective for the year ended 31 December 2022 and have not been applied in preparing these annual financial statements. Title: IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (amendments) Effective date: deferred the effective date for these amendments indefinitely The amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The amendments will be applied prospectively and are not expected to have a material impact on the group's financial statements. Title: IFRS 17 Insurance Contracts Effective date: 1 January 2023 Background IFRS 4 Insurance Contracts (IFRS 4), the existing standard dealing with the accounting treatment for insurance contracts will be replaced by IFRS 17 for the group's 2023 financial year (with comparative information restated as required by the standard). IFRS 17 provides the basis of measurement for defined insurance contracts, including investment contracts with discretionary participation features. The difference between IFRS 4 (existing measurement standard) and IFRS 17 carrying values (including any related tax impacts) will be recognised in opening retained earnings on 1 January 2022. The main principle that IFRS 17 adopts is to recognise revenue (and profit or loss) over the duration of the applicable policyholder contracts that best reflects the delivery of contracted obligations in the specific reporting period. IFRS 17 also distinguishes the sources of income splitting between insurance services and financing activities. As such, the standard does not allow for profit to emerge on "day one", being the initial recognition of the contract but does require contracted losses (onerous contracts) to be recognised immediately to the extent onerous. These revenue recognition principles are aligned to IFRS 15 Revenue from Contracts with Customers. Under IFRS 17, a general measurement model (GMM) is applicable to long-term insurance contracts and is based on a fulfilment objective (risk-adjusted present value of probability-weighted estimates of future cash flows). It requires the use of current estimates, which are those informed by actual trends and investment markets. IFRS 17 establishes a contractual service margin (CSM) at the initial measurement of the liability. The CSM represents the unearned profit on the contract and results in no gain at initial recognition. The CSM is released over the life of the contract in line with the level of service provided in each period. The interest rate used to discount cash flows and determine the initial CSM is locked in at the rate at inception in regard to future CSM movements. All other probability-weighted estimates of cash flows contained in the measurement of insurance assets or liabilities are however measured at current values. The GMM is modified for contracts that are substantially investment-related contracts, in which case the variable fee measurement approach (VFA) is used to measure the contract. This approach effectively amortises the future participation in changes in investment values over the remaining life of the contract. An optional simplified premium allocation approach (PAA) is available for contracts that have a coverage period of 12 months or less, or if it is reasonably expected that the PAA would produce a measurement of the liability for remaining coverage (LRC) that would not materially differ from the one produced applying the GMM. The PAA is similar to the current unearned premium reserve profile recognised over time. Title: IFRS 17 Insurance Contracts continued Effective date: 1 January 2023 continued Quantitative impact Management has developed a better understanding of the transition statement of financial position to be presented as at 1 January 2022, although this is still a work in progress and subject to certain assumptions and estimates being finalised. The impact of IFRS 17 can only be reliably determined on the date of transition of IFRS 17. This impact is primarily dependent on the finalisation of the group's methodologies, assumptions and estimates, conclusion of audit procedures by the group's external auditors as well as the group's internal reviews and validations. Transition approaches The standard requires retrospective application of IFRS 17 prior to the transition date, which is 1 January 2022, unless it is impracticable to do so. If it is impracticable, an entity can choose either between the modified retrospective or a fair value approach to measure the initial IFRS 17 balances on the transition date. The group intends to use a combination of all three transition approaches (namely, full retrospective, modified retrospective, and fair value) depending on the historical data (including assumptions, methodologies and particularly, availability of risk adjustment data for certain years prior to the adoption of IFRS 17) that is available per the IFRS 17 defined groups IFRS 9 Financial Instruments The group applied IFRS 9 for years commencing 1 January 2018. At this stage, there is no expected change to previously applied classification and designation of financial assets that back policyholder liabilities as a result of IFRS 17. Tax implications Within Namibia, no specific tax legislation has been announced or introduced relating to the introduction of the IFRS17 accounting statement. Current tax principles will apply. Regulatory capital/capital implications At this stage, IFRS 17 should not impact any aspect of the regulatory capital assessment. Title: IAS 1 Presentation of Financial Statements (amendments) Effective date: 1 January 2024 The first amendment clarifies how to classify debt and other liabilities as current or non-current. The objective of the amendment is aimed to promote consistency in applying the requirements by helping entities determine whether, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The amendment also includes clarifying the classification requirements for debt an entity might settle by converting it into equity. These are clarifications, not changes, to the existing requirements, and so are not expected to affect entities' financial statements significantly. The impact on the annual financial statements has not yet been fully determined, however not expected to have a significant impact on the group. The second amendment to IAS 1 requires a company to classify debt as non-current only if the company can avoid settling the debt in the 12 months after the reporting date. However, a company's ability to do so is often subject to complying with covenants. For example, a company might have long-term debt that could become repayable within 12 months if the company fails to comply with covenants in that 12-month period. The amendments specify that covenants to be complied with after the reporting date do not affect the classification of debt as current or non-current at the reporting date. Instead, the amendments require a company to disclose information about these covenants in the notes to the financial statements and the aim of the amendments therefore is to improve the information companies provide about long-term debt with covenants. The amendments will be applied retrospectively and are not expected to have a material impact on the group's financial statements. Title: IFRS 16 Leases (narrow scope amendments) Effective date: 1 January 2024 The amendments add to requirements explaining how a company accounts for a sale and leaseback after the date of the transaction. IFRS 16 had not previously specified how to measure the transaction when reporting after that date. The amendments add to the sale and leaseback requirements in IFRS 16, thereby supporting the consistent application of the standard. These amendments will not change the accounting for leases other than those arising in a sale and leaseback transaction. The amendments will be applied retrospectively and are not expected to have a material impact on the group's financial statements. 175