ZB Financial Holdings (ZB) accrued insurance obligations and life assurance funds totalling $15,9 billion during the financial year 2022, according to the firm’s auditors who flagged this as a crucial audit problem.
Insurance liabilities are part of the general insurance system of risk financing to protect the insured from the risks of liabilities imposed by lawsuits and similar claims. It also protects the insured if the purchaser is sued for claims that come within the coverage of the insurance policy.
Discussing key audit matters for the group for its 2022 financial year, professional services firm KPMG said the group had incurred the liabilities, but had not reported on them as at the audit period.
“The group holds insurance liabilities which, on an inflation adjusted basis comprise incurred but not yet reported claims reserve (IBNR) of $841 million and life assurance funds amounting to $15,1 billion,” KMPG said.
“The directors engaged two actuarial experts (one for the reinsurance subsidiary and another for the life assurance subsidiary) to assess the appropriateness of the valuation of the IBNR [incurred but not reported] and the life assurance funds.”
The auditors said due to the inherent susceptibility of the IBNR and life assurance funds to the estimation uncertainty as well as their quantitative impact, it considered the valuation of these insurance liabilities to be a key audit matter.
IBNR is a reserve account used by insurance companies to compensate for claims that have not yet been reported.
The determination of the insurance liabilities is an area that makes use of significant qualitative and quantitative judgements. This is done due to the level of subjectivity inherent in the estimation of the occurrence and severity of insurable events that have occurred as at the end of the reporting year.
“We assessed the reasonability and accuracy of the insurance liabilities by comparing the prior year claims recognised against the results of key audit matters,” KPMG said.
“We engaged our own to interrogate the methodology and assumptions used in the determination of the insurance liabilities by testing the principles and integrity of the data and models used by management and their actuaries based on their industry knowledge and experience.”
During the period under review, the groups’ net insurance-related earnings for 2022 increased by 36% to $3,88 billion from $2,85 billion in 2021 on the back of a 120% rise in gross premiums.
This was, however, partially off-set by a rise in insurance-related expenses by 181% to $11,12 billion.
For the year under review, ZB Reinsurance posted a profit after tax of $1,95 billion compared to $1,53 billion in the prior period.
ZB Life Assurance posted a profit of $2,32 billion, compared to a loss of $0,09 billion in 2021 and its total assets increased in real terms from $20,24 billion as at December 31, 2021 to $28,09 billion as at December 31, 2022. Newsday