Page 49 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Subsequent to initial recognition, for financial instruments traded in active markets, the determination of
fair values of financial assets and financial liabilities is based on quoted market prices or dealer price
quotations. This includes listed equity securities and quoted debt instruments on major exchanges (for
example, Nigerian Stock Exchange (NSE) and Financial Markets Dealers Quotation (FMDQ)).
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry Company, pricing service or regulatory agency, and
those prices represent actual and regularly occurring market transactions on an arm's length basis. If the
above criteria are not met, the market is regarded as being inactive. Indications that a market is inactive are
when there is a wide bid-offer spread or significant increase in the bid-offer spread or there are few recent
transactions.
For all other financial instruments, fair value is determined using valuation techniques. In these techniques,
fair values are estimated from observable data in respect of similar financial instruments, using models to
estimate the present value of expected future cash flows or other valuation techniques, using inputs existing
at the dates of the statement of financial position.
Forward-Looking Information
In the context of IFRS 9, is an enhanced information set that includes credit information pertaining to
future developments (including for example macroeconomic developments). The inclusion of forward-
looking information along with traditional past due (realized, historical) information is considered to
produce comprehensive credit risk information.
The inclusion of forward-looking information is a distinctive feature of an IFRS 9 ECL model.
Incorporating economically stressed states of the world and their potential impact on credit performance is
critical for the timely recognition of credit losses.
Financial Liabilities at amortized cost
The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is
measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation
using the effective interest method of any difference between the initial amount recognised and the
maturity amount, minus any reduction for impairment.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financial position
only when there is a legally enforceable right to offset the recognised amounts and there is an intention to
settle on a net basis, or to realise the asset and settle the liability simultaneously.
(t) Intangible assets
Software
Software acquired by the Company is measured at cost less accumulated amortisation and any accumulated
impairment losses.
Recognition of software acquired is only allowed if it is probable that future economic benefits to this intangible
asset are attributable and will flow to the Company.
Software acquired is initially measured at cost. The cost of acquired software comprises its purchase price,
including any import duties and non-refundable purchase taxes, and any directly attributable expenditure on
Statement of Significant Accounting Policies
Page 50 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
preparing the asset for its intended use. After initial recognition, software acquired is carried at its cost less any
accumulated amortisation and any accumulated impairment losses. Maintenance costs is not included.
Internally developed software is capitalized when the Company has the intention and demonstrates the ability to
complete the development of the software and to use it in a manner that will generate future economic benefits,
and can reliably measure the costs to complete the development. The capitalised costs include all costs directly
attributable to the development of the software. Internally developed software is stated at capitalised cost less
accumulated amortisation and impairment.
Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other expenditures are expensed as incurred. Amortisation is
recognised in profit or loss on a straight-line basis over the estimated useful life of the software, from the date that it
is available for use. The estimated useful life of software is three years subject to annual reassessment.
(u) Property and equipment
(i) Recognition & Measurement
All items of property and equipment are initially recognized once they are available for use, at cost and
subsequently measured at cost less accumulated depreciation and impairment losses. Cost includes
expenditures that are directly attributable to the acquisition of the asset.
When parts of an item of property or equipment have different useful lives, they are accounted for as
separate items (major components) of property and equipment.
(ii) Subsequent Costs
Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to the
Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are
charged to profit or loss during the financial period in which they are incurred.
Subsequent costs on replacement parts on an item of property are recognized in the carrying amount of the
asset and the carrying amount of the replaced or renewed component is derecognized.
Derecognition
An intangible asset is derecognised when no future economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising from the retirement of the intangible asset is recognised
in profit or loss of the year that the asset is derecognised.
(iii) Depreciation
Depreciation is calculated on property and equipment on the straight line basis to write down the cost of
each asset to its residual value over its estimated useful life. No depreciation is charged on item of property
and equipment until they are brought into use.
Depreciation begins when an asset is available for use and ceases at the earlier of the date that the asset is
derecognised or classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations.
Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably
certain that the Company will obtain ownership by the end of the lease term. Freehold land is not
Statement of Significant Accounting Policies
Page 51 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
depreciated.
Depreciation reduces an asset's carrying value to its residual value at the end of its useful life, and is
allocated on a straight line basis over the estimated annual rates, as follows:
Leasehold Land Not depreciated
Building 50 years
Leasehold improvements 5 years(or period of primary lease where shorter)
Furniture & Fittings 6 years
Office equipment 6 years
Computer equipment 5 years
Plant & Machinery 5 years
Motor vehicles 4 years
Depreciation method, useful lives and residual values are reviewed at each reporting date and adjusted if
appropriate.
(iv) De-recognition
Upon disposal of any item of property and equipment or when no future economic benefits are expected to
flow from its use, such items are derecognized from the books. Gains and losses on disposal of assets are
determined by comparing proceeds with their carrying amounts and are recognized in profit or loss in the
year of de-recognition.
(v) Reclassification to investment property
When the use of a property changes from owner-occupied to investment property, the property is
remeasured to fair value and reclassified accordingly. Any gain arising on this remeasurement is recognised
in profit or loss to the extent that it reverses a previous impairment loss on the specific property, with any
remaining gain recognised in other comprehensive income (OCI) and presented in the revaluation reserve.
Any loss is recognised in profit or loss.
(v) Investment Property
Investment property is property held either to earn rental income or for capital appreciation or for both, but not for
sale in the ordinary course of business, use in the production of goods and services or for administrative purposes.
Investment property is measured at fair value with any change therein recognised in profit or loss. Fair values are
determined individually, on a basis appropriate to the purpose for which the property is intended and with regard
to recent market transactions for similar properties in the same location.
An investment property shall be derecognized on disposal or when the investment property is permanently
withdrawn from use and no future economic benefits are expected from its disposal."
In an active market, an independent valuer, holding a recognized and relevant professional qualification and with
recent experience in the location and category of investment property being valued, values the portfolio annually.
When the use of a property changes such that it is reclassified as property and equipment, its fair value at the date
of reclassification becomes its cost for subsequent measurement.
Any gain or loss on disposal of investment property (calculated as the difference between the net proceeds from
disposal and the carrying amount of the item) is recognized in profit or loss.
Statement of Significant Accounting Policies
Page 52 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
(w) Statutory deposit
Statutory deposit represents 10% of the required minimum paid-up capital of the Company deposited with and
held by the Central Bank of Nigeria (CBN) in pursuant to Section 10(3) of the Insurance Act 2003. Statutory
deposit is measured at amortised cost.
(x) Impairment of non-financial assets
The carrying amounts of the Company's non-financial assets, other than investment property and deferred tax
assets, are considered to be impaired when there exists any indication that the asset's recoverable amount is less
than the carrying amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in
use. For the purposes of assessing impairment, assets are carried at the lowest levels for which there are separately
identifiable cash flows (cash generating units). Impairment losses are recognised in profit or loss.
The carrying amount of these non-financial assets are reviewed at each reporting date to determine whether there
is any indication of impairment.
Impairment losses of non-financial assets, related claims for or payments of compensation from third parties and
any subsequent purchase or construction of replacement assets are separate economic events and are accounted
for separately.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss
has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised. Reversals of impairment losses are recognised in profit
or loss.
(y) Trade receivables
Trade receivables arising from insurance contracts represent premium debtors with determinable payments that
are not quoted in an active market and the Company has no intention to sell.
Trade receivables consist of premium debtors, due from reinsurers and other receivables. These are managed in
accordance with a documented policy.
Receivables are stated net of impairment determined in line with the specific and incurred loss model.
(z) Other receivables and prepayments
Other receivables are carried at amortised cost less accumulated impairment losses. Prepayments are amortised on
a straight line basis to the profit or loss account.
(aa) Trade and other payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method. The fair value of a non-interest bearing liability is its discounted repayment amount.
Where the effect of time value of money is not material, the amount is not discounted.
(ab) Reinsurance liabilities
Reinsurance liabilities are primarily premiums payable for the reinsurance contracts entered into by the Company
and are recognised as a payable when incurred. The Company has the right to set-off re-insurance payables
against the amount due from re-insurers in line with the agreed arrangement between both parties.
Statement of Significant Accounting Policies
Page 53 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
(ac) Group life business
An unexpired premium reserve is included for group life business, with an allowance for acquisition expenses as a
percentage of premium. An allowance is made for IBNR (Incurred But Not Reported) claims in Group Life to take
care of the delay in reporting claims.
(ad) Investment contract liabilities
(i) Deposit Administration
Investment contracts are those contracts that transfer financial risks with no significant insurance risk.
Financial risk is the risk of a possible future change in one or more of a specified interest rate, security price,
commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other
variable, provided in the case of a non-financial variable that the variable is not specific to a party to the
contract.
The Company enters into investment contracts with guarantee returns and other businesses of savings
nature. Those contracts are recognised as liabilities and are measured at amount payable at each reporting
date.
The Company does not have contracts with discretionary participating features.
Guaranteed interest on investment contract liabilities is recognised as an expense in the profit or loss.
(ii) Unbundling of deposit components
Investment contracts that contain both an insurance component and a deposit component are unbundled
to the extent that the insurer can measure the deposit component (including any embedded surrender
options) separately (i.e without considering the insurance component).
(ae) Life insurance contract liabilities
The life insurance contract liabilities represents the liability due to policy holders at the end of every reporting
period. The liability in the life fund account is determined by an actuarial valuation using a liability adequacy test
model.
(af) Individual business
Individual risk business comprises term assurance and mortgage protection policies, for which a gross premium
method of valuation is adopted.
Reserves are calculated via a cash flow perfected approach taking into account future office premiums, expenses
and benefit payments (death). Future cash flows are discounted back to the valuation date at the valuation interest
rate.
(ag) Provisions for other liabilities and charges
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation
that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the
obligation.
Provisions are determined by discounting the expected future cash flows at a rate that reflects current market
assessments of the time value of money and the risks specific to the obligation. The unwinding of the amount is
recognised as a finance cost.
Statement of Significant Accounting Policies
Page 54 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
(ah) Share capital & reserves
Share Capital
The Company classifies ordinary shares and share premium as equity when there is no obligation to transfer cash
or other assets.
Incremental costs directly attributable to issue of shares are recognized as deductions from equity net of any tax
effects.
(ai) Fair value reserves
Fair value reserves represent the mark to market gains/loss on available-for-sale financial assets.
(aj) Revaluation reserves
The revaluation reserves relates to the revaluation of property and equipment immediately prior to its
reclassification as investment property. Investment property transferred from property and equipment is
recognized at fair value on transfer. Any difference at the date of the change in use between the carrying amount of
the property and its fair value is recognised as a revaluation of property and equipment in accordance with IAS 16,
even if the property was measured previously using the cost model under IAS 16. Any existing or arising
revaluation surplus previously recognised in other comprehensive income is not transferred to profit or loss at the
date of transfer or on subsequent disposal of the investment property. However, on subsequent disposal of the
investment property, any existing revaluation surplus that was recognised when the entity applied the IAS 16
revaluation model to the property may be transferred to retained earnings.
(ak) Dividends
Dividend distribution to the Company's shareholders is recognized as a liability in the financial statements in the
period in which the dividends are approved by the Company's shareholders. Dividends that are proposed but not
yet declared are disclosed in the notes to the financial statements.
Dividends on the Company's ordinary shares are recognised in equity in the period in which they are paid or, if
earlier, the period approved by the Company's shareholders.
(al) Contingent liabilities
A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of
the Company or the Company has a present obligation as a result of past events which is not recognised because it
is not probable that an outflow of resources will be required to settle the obligation; or the amount cannot be
reliably estimated. Contingent liabilities normally comprise of legal claims under arbitration or court process in
respect of which a liability is not likely to crystallise.
(am) Actuarial valuation
Actuarial valuation of the insurance contract liabilities is conducted annually to determine the net liabilities on the
existing policies and the adequacy of the assets representing the liabilities as at the date of valuation. All deficits
and surpluses therefrom arising therefrom are charged to profit or loss.
(an) Investment property rental income
Rental income from investment property is recognized as revenue on a straight-line basis over the term of the lease.
Statement of Significant Accounting Policies
Page 55 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
VI Required technical and other reserves by NAICOM
(a) Contingency reserve
Contingency reserve is credited with the greater of 1% of gross premiums, or 10% of the profits. This shall
accumulate until it reaches the amount of greater of minimum paid-up capital or 50 percent of net
premium.
(b) Technical reserves
These are computed in compliance with the provisions of the Insurance Act 2003 as follows:
i Reserve for unearned premiums
In accordance with Section 20 (1) (a) of Insurance Act 2003, the reserve for unexpired risks is
calculated on a time apportionment basis in respect of the risks accepted during the year. A
provision for the additional unexpired risk reserve is recognised for an underwriting year where it is
envisaged that the estimated cost of claims and expenses would exceed the unearned premium
reserved.
ii Reserve for outstanding claims
The reserve for outstanding claims is maintained at the total amount of outstanding claims incurred
and reported plus claims incurred but not reported (IBNR) at the reporting date.
iii Reserve for unexpired risk
A provision for additional unexpired risk reserve (AURR) is recognized for an underwriting year
where it is envisaged that the estimated cost of claims and expenses would exceed the unearned
premium reserve (UPR).
iv General reserve fund
This is made up of net liabilities on policies in force as computed by the actuaries at the time of the
actuarial valuation.
Statement of Significant Accounting Policies
Page 56 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
STATEMENT OF
FINANCIAL POSITION
as at 31 December 2019
Assets Note 31-Dec-19 31-Dec-18
Cash and cash equivalents N'000 N'000
Financial assets: 16
2,881,514 829,073
- Fair value through profit or loss 17(a)
- Amortised cost 17(b) 24,940,711 435,928
- Fair value through Other Comprehensive Income (OCI) 17(c) 1,929,0481 6,727,454
Loans and receivables
Trade receivables 18 - 127,369
Reinsurance assets 19 430 255
Deferred acquisition cost 20 2,087
Other receivables and prepayment 21 337,595 10,438
Investment properties 22 28,467 374,874
Intangible assets 23 233,944 29,776
Property and equipment 24 2,218,000 175,462
Statutory deposit 25 15,313 2,036,000
26 138,739 24,063
200,000 118,487
200,000
Total assets 32,925,848 21,089,178
Liabilities 27 22,461,255 12,990,301
Insurance contract liabilities
Investment contract liabilities 28 4,134,889 3,086,961
Trade payables
Other payables 29 39,548 37,598
Current income tax liabilities
Deferred tax liability 30 1,033,256 850,439
31 42,270 27,030
32 106,200 86,900
Total liabilities 27,817,417 17,079,229
Net assets 5,108,431 4,009,949
Equity 33 4,786,960 4,786,960
Share capital
Share premium 34 800,094 800,094
Retained earnings
Fair value reserves 35 (1,579,698) (2,562,502)
Revaluation reserve
Statutory contingency reserve 36 218,765 214,988
37 384,806 384,806
38 497,504 385,603
Total equity 5,108,431 4,009,949
These financial statements were approved by the Board of Directors on 04 March, 2020 and signed on its behalf by:
Stephen Alangbo Dapo Oshinusi Olawale Bakir
Managing Director Chairman Chief Financial Officer
FRC/2017/CIIN/00000016217 FRC/2013/IODN/00000004529 FRC/2013/ICAN/00000002055
The accompanying notes are an integral part of these financial statements.
Page 57 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
STATEMENT OF PROFIT OR LOSS
and Other Comprehensive Income
for the year ended 31 December 2019
Notes 31-Dec-19 31-Dec-18
N'000 N'000
Gross premium written 5.
Unearned premium 9,569,464 5,835,987
Gross premium income (48,422) (136,872)
5,699,115
Reinsurance expenses 6. 9,521,042
Net premium income (320,751)
(397,422) 5,378,364
Fees and commission income 7. 9,123,620
Net underwriting income 72,125
89,537 5,450,489
Claims expenses 8. 9,213,157
Underwriting expenses 9. (502,192)
Increase on annuity contract liabilities 27(f(iv)) (981,750) (256,040)
Underwriting profit/(loss) (569,096) (4,632,403)
(11,194,237)
Investment income 10. (3,531,926) 59,854
Other operating income 11.
Net trading profit/(loss) on financial assets 12. 3,532,546 1,840,570
Impairment loss allowance 13. 53,590 38,572
Profit on investment contracts 14.
Fair value gain on investment properties 23. 2,256,232 (120,190)
(46,866) (41,342)
Net income 288,371 318,638
193,000 30,000
Management expenses 15.
2,744,947 2,126,101
Profit before tax
(1,613,685) (1,367,039)
Minimum tax 31(a)
Income taxes 31(b) 1,131,262 759,062
Profit for the year (42,753) (27,030)
(19,300) (6,285)
Other comprehensive income:
Items that will never be reclassified to profit or loss 1,069,209 725,747
Revaluation of property and equipment
28,444 (11,828)
Items that are or may be reclassified to profit or loss
- -
Net gains on equities classified as FVOCI 17(c(ii))
26,802 94,477
Realised gains on disposal of AFS financial assets transfer to income - -
statement 17(c(ii)) 55,246 82,649
Net gain on debt instruments classified at Fair Value through 1,124,455 808,396
Other Comprehensive Income 13. 11 8
Income tax relating to items that may be reclassified
Other comprehensive income, net of tax
Total comprehensive income for the year 39.
Earnings per share for profit attributable to the equity holders
of the Company during the year (expressed in kobo per share):
– Basic & Diluted (in kobo)
The accompanying notes are an integral part of these financial statements.
Note Share Share Retained Prepaid Fair value Revaluation Statutory Total Page 58
capital Premium earnings capital reserves reserve contingency
N'000 STATEMENT OF
N'000 N'000 N'000 contributions N'000 N'000 reserve CHANGES IN EQUITY
4,009,949
N'000 214,988 384,806 N'000 as at 31 December 2018
As at 1 January 2019 4,786,960 800,094 (2,562,502) 0 26,802 - 385,603
Effect of change in accounting policy for:
28,444 -
Profit for the year - - 1,069,209 - 55,246 - - 1,096,011
Other comprehensive income (25,496) -
- -
Net change in fair value 17(c )(ii) - -- - - - 28,444
- - 1,069,209 - (25,973) - - 1,124,455
Total comprehensive income for the year - -
- -
Transactions with owners, recorded directly in equity 384,806
(51,469)
IFRS 9 adjustment - - 25,496 - 218,765 Revaluation - -
-- - reserve - -
Increase in share capital (Reclassification) - -- - Fair value - (25,973)
- (111,901) - reserves N'000 111,901 -
Disposal of financial asset FVOCI - -- - - -
- (86,405) - N'000 384,806 111,901 (25,973)
Transfer to contingency reserve - 800,094 (1,579,698) - 497,504 5,108,431
35,049 97,290
Dividend paid -
- -
-
94,477 -
As at 31 December 2019 4,786,960 -
(11,828)
December 2018 179,939 -
-
Note Share Share Retained Prepaid - - Statutory Total
capital Premium earnings capital - - contingency
- - N'000
N'000 N'000 N'000 contributions - reserve
- 384,806 3,233,939
N'000 N'000
214,988 --
As at 1 January 2018 3,857,115 795,325 (3,133,968) 967,000 328,612
-- (97,290) 820,224
Effect of change in accounting policy for: -
IFRS 9 Opening transition adjustment (Day 1) -
Profit for the year - - 725,747 -
Other comprehensive income ARM Life Plc
Annual Report & Financial Statements
Net change in fair value 17(c )(ii) - -- - - (11,828) For the year ended 31 December 2019
- - 628,457 - - 808,396
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Proceeds from issue of shares - - - 39 - 39
37,194 - (967,039) - -
Increase in share capital (Reclassification) 929,845 (32,425) - -
(56,991) - 56,991 (32,425)
Share issue cost - - (56,991) - 56,991 -
4,769 (967,000)
Transfer to contingency reserve - 385,603 (32,386)
929,845 4,009,949
As at 31 December 2018 4,786,960 800,094 (2,562,502) -
Page 59 ARM Life Plc
Annual Report & Financial Statements
STATEMENT OF For the year ended 31 December 2019
CASH FLOWS
for the year ended 31 December 2019
Cash flows from operating activities: Note 2019 2018
Total premium received from policy holders N’000 N’000
Re-insurance receipt in respect of claims 28(a)
Interest received on placements 28(a) 9,579,641 5,843,308
Dividend received 29(a),(b),(c ) 284,188 551,858
Other income received 27(c )(ii) 336,681 116,816
Payments to customers on investment contract liabilities 27(f )(iii) 37,399 30,083
Receipts from customers on investment contract liabilities - 72,125
Reinsurance premium paid 18. (913,093) (767,714)
Claims paid 31(a)
Annuity claims payment 1,620,594 1,203,605
Commission paid (288,886) (49,224)
Payments to employees (627,161)
Cash receipts/(payments) in respect of staff loans (2,277,558) (706,140)
Cash payments for operating expenses (562,451) (1,460,398)
Income tax paid (717,314)
VAT paid (265,356)
(175) (606,101)
Net cash from operating activities (1,037,469)
20
Cash flows from investing activities: (27,513) (1,100,191)
(4,642)
Purchase of financial assets at fair value through profit or loss 17(a)(iii) (26,197)
5,402,241 (8,844)
Redemption of financial assets at fair value through profit or loss 17(a)(iii)
(8,093,159) 2,827,650
Coupon received on investment securities 300,000
12,435
Purchase of financial assets at amortised cost 2,525,937 -
(4,712,818)
Redemption of financial assets at amortised cost 6,530,548 1,487,975
(9,291,091)
Proceeds on disposal of financial assets at fair value through profit or loss 109,922 4,102,725
45,400
Rental Income 10. (78,888) -
88,090
Purchase of property, plant and equipment 25. - (92,526)
3,258 (26,250)
Purchase of intangible assets 20,000 1,599
40,000
Proceeds from disposal of property and equipment (3,349,800)
(3,677,043)
Proceeds from disposal of asset 30(v)(ii) -
39
Net cash used in investing activities -
39
Cash flows from financing activities: 2,052,441
Net proceeds from the Rights Issue 829,073 (849,354)
1,678,427
Net cash used in financing activities 2,881,514
829,073
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents At 31 December 16(a)
Page 60 ARM Life Plc
Annual Report & Financial Statements
NOTES TO THE For the year ended 31 December 2019
FINANCIAL STATEMENTS
1 Introduction and Overview
As a Life insurance Firm that provides a range of pure life and investment-linked protection products to retail and
corporate clients, ARM Life Plc (“the Company”) is exposed to a number of risks within its business operations. We have
therefore built our business around sound risk management practices, so that as we actively seek opportunities to create
value for our policyholders, Shareholders and other stakeholders, we equally take a deliberate and concerted effort to
preserve value.
This risk management culture permeates all that we do and is applied in all functions. A disciplined approach to risk taking
ensures that we only engage in products and markets where we understand the risks inherent therein and can objectively
measure and manage associated risks. The risk management framework defines the methodology with which the business
manages its identified risks across the enterprise in line with its risk appetite. In addition, business decisions go through
defined approval processes, including a thorough assessment of the risk-return trade-off, which must be maintained at
acceptable levels always, that is, regardless of the possibility of upside that might be seen, business risk exposures are taken
and maintained within acceptable limits.
We continue to improve our risk practices in order to steer sustainable growth, and we believe that with our strong risk
management culture, we are building an enduring organization.
2 Objectives of Risk Management
The primary objective of our Risk Management function is to ensure efficient risk/return decision-making, reduce
volatility in operating performance, improve operational efficiency as well as the quality of service delivery and ensure
that the Company's risk profile is transparent to Senior Management, the Board of Directors and other relevant
stakeholders.
Risk Management practices at ARM Life centre around building a sustainable business where acceptable risk profile is
consistently maintained, given risk capacity and tolerance levels per time. Therefore, the following key objectives drive our
approach:
Business Sustainability: This represents resiliency over time. It involves our organisation's ability to survive
significant internal and external shocks.
Accountability: This represents our organisation's and business manager's obligations to account for our activities,
accept responsibility for them, and to disclose the results in a transparent manner.
Operational Efficiency: This represents our ability to deliver services in the most cost-effective manner possible while
maintaining the highest feasible quality standards.
Risk/Reward Alignment: This is an optimization concept that seeks to achieve the maximum possible return for each
unit of risk taken.
3 Key & Emerging Risk Factors
While the Firm continues to strengthen its risk management practices in order to manage risk exposures within
acceptable limits, the following key risks could adversely affect its operations and reputation. This summary should not be
regarded as a complete and comprehensive statement of all potential risks and uncertainties:
1 Failure to comply with the implementation of the new paid-up capital requirement by the regulators could impede
the Firms objective of remaining a going-concern.
2 Unfavourable market conditions such as the yield decline of fixed income securities and poor performance of the
Page 61 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
equity market could negatively affect the firm's strategic performance.
3 Implementation of the new financial reporting standard (IFRS 9) for the Industry might lead to changes in the way
the Company recognises its insurance contracts and accounts for its business activities.
4 Entrants of foreign companies into the Industry has upgraded the standard with which business is conducted.
Failure of the Company to constantly evolve and adopt global trends and product lines (in line with regulation)
could result in loss of market share.
5 ARM Life's ability to introduce relevant products, from time to time, that are targeted at meeting clients' needs is a
critical condition for success. Failure to provide new products that are relevant to the market from time to time
could make the Firm less attractive to clients and could affect its ability to achieve projected GPW growth.
6 The Firm is exposed to various operational risks such as failed or inadequate processes, controls, systems, and the
risk that its staff, vendors or other third party business partners may deliberately seek to breach established controls
or to act in ways that are inconsistent with the Company's guidelines. In the event that any of the major risks should
crystallize, it could adversely impact its reputation and, hence, customer loyalty.
7 Failure of the Company to comply with extant laws could result in a loss of market share, suspension or
termination of the Company's license.
8 Lack of a prompt adoption of and response to market and industry changes could result in a loss of market share
of the Company.
9 Loss of talents could result in an inability to operate efficiently and to deliver the required level of service that is
promised to our clients. The Company continues to adopt different strategies to attract and retain quality
personnel.
The Firm reviews its strategic business risks on a continuous basis. The key risks are monitored and presented to
Management and the Board of Directors through the Enterprise Risk Management and Governance Committee on a
quarterly basis. This process assists business managers in understanding the possible impact of each risk event and in
defining mitigating actions relevant to each.
Risk Management Framework
Our risk management framework is built around core components such as governance, strategy, systems and people.
These risks are managed within clearly defined guidelines applicable to each using tools and systems that meet our
business requirements per time.
However, to sufficiently capture the interrelationships among these different risk exposures, our risk management
approach, therefore, fits in an encompassing Enterprise Risk Management (ERM) framework which addresses the risks
we assume while conducting our businesses in broad risk categories as summarized below:
Risk Type Description Loss Characteristics
Market & The risk of loss due to unfavourable movements This could result in loss of value to the
Investment in the prices of assets and/or liabilities. Factors Company's investment portfolios or
Risk include: interest rate, equities and FX rate. increase in future insurance claims; and
invariably affect capacity to meet
obligations when they fall due.
Notes to the Financial Statements
Page 62 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Risk Type Description Loss Characteristics
Credit and
Counterparty Credit risk arises from counterparty's inability This could result in impairment in the
Risk or unwillingness to fulfil contractual Company's credit assets and could
obligations to the Company. invariably affect its short to long-run
Liquidity Risk liquidity needs.
The risk that the Company will not be able to
Operational meet its financial obligations as they fall due. This could result in significant business
Risk disruption or could hinder normal
The risk of loss arising from inadequate or operations of the Company.
Reputational failed internal processes, people, systems and
Risk external events. This could result in business disruption,
litigation costs and/or regulatory
Strategic penalties
Risk
The risk of brand damage due to the failure to This could result in a significant loss of
Underwriting meet stakeholders' expectations with respect to market share; loss of key employees
Risk the Company's performance and behaviour. and costly litigation.
Re-Insurance The risk of loss due to adverse or improper This could result in a significant loss of
Risk implementation of business decisions, or lack market share.
of responsiveness to industry changes.
Claims
Management Underwriting risk is the risk of loss due to an This could result in a significant loss to
Risk increase in the rate of occurring policy claims the Company and insolvency in
contrary to the forecast made when the extreme cases.
Compliance premium was priced.
Risk Failure to adequately and sufficiently
This is the risk of loss due to failure of the cede businesses to the reinsurer increases
Legal Risk Firm to take sufficient and adequate the Firm's exposure should claims occur.
re-insurance cover on its written risk businesses.
This could result in a significant loss
This is the risk that the insurer may be unable to the Company if the claims process
to manage the settlement process by which is exposed to fraudulent activities.
insurers fulfil their contractual obligations to There is also the risk of reputational
policyholders. damage where the claims management
process is inadequate.
The risk of loss arising from violations of, or
non-compliance with laws & regulations. This could result in adverse reputational
impact, significant financial losses arising
from regulatory penalties; and in severe
cases, loss of business license.
This arises from the potential that unenforceable This could result in significant losses,
contracts, litigations, or adverse judgments can litigation cost and reputational damage
disrupt or negatively affect the operations or to the company and insolvency in
condition of the company. extreme cases.
Notes to the Financial Statements
Page 63 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Risk Type Description Loss Characteristics
Regulatory Risk
The risk of loss that could arise as a result of the This could negatively impact on the
actions/inactions and decisions of the regulators business' strategy and affect business
on the business environment. operations
5 Governance Structure
The Company's Board of Directors has ultimate responsibility for Risk Management oversight, playing an important role
in defining and reviewing its overall risk appetite; and in approving policies and methodologies, either directly or through
its Board Enterprise Risk Management and Governance Committee (ERMGC).
The ERMGC receives quarterly reports on the Company's risks and Risk Management activities from the Enterprise
Risk Management unit. In addition, the Company's Senior Management team has responsibility for providing oversight
on the ongoing development and implementation of the policies, framework and methodologies for the management of
the various risk areas. They also monitor the effectiveness of the Firm's risk management practices. The Senior
Management team receives monthly reports of Company's Risks and Risk management activities from the Enterprise
Risk Management unit.
The Risk management function has responsibility for the day-to-day execution of risk management activities and
practices. The Risk management team assists line managers in the timely identification, measurement and control of all
risks inherent within the business.
The Risk Management Governance Structure can be seen below:
Managing Board Enterprise
Director Risk Management
& Governance
Head of Committee
Risk
Marketing &
Corporate
Communications
Notes to the Financial Statements
Page 64 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
6 Risk Factors
6.1 Underwriting risk
Underwriting Risk is the risk of loss due to an increase in the rate of occurring policy claims contrary to the forecast
made when the premium was priced. The Company's exposure to underwriting risk can be driven by any of the
following factors:
Ÿ Mortality risk: The risk that actual policyholder death experience on life insurance policies vary from expected.
Ÿ Longevity risk: The risk that the firm will experience higher than expected pay-out ratio on products such as its
annuity products.
Ÿ Morbidity risk: The risk that policyholder health-related claims are higher than expected.
Ÿ Policyholder behavior risk: The risk that policyholders' behaviour in discontinuing and reducing premiums or
surrendering is higher than expected.
Ÿ Expense risk: The risk that expenses incurred in acquiring and administering policies are higher than expected.
In managing this risk category, the Firm has put in place an underwriting guideline that guides pricing processes and
methodologies. In all cases, product pricing is developed and/or confirmed by qualified Actuaries. Defined processes
also guide our underwriting and claims management activities. Furthermore, our reserving process seeks to ensure that
the provision for insurance liabilities is, at all times, sufficient to cover liabilities that have been incurred, or are yet to be
incurred on insurance contracts sold.
In addition to the above, the Company has in place reinsurance plans that assist not only to increase its underwriting
capacity, but also to reduce undue exposures by helping to spread its risks. Sum assured above the Firm's retention limit
(the maximum amount of risk retained by an insurer per life) are transferred using re-insurance arrangements.
6.2 Annuity Risk
The Annuity business which is Company's major retirement plan products is exposed to market related risks. This is
primarily because it is a life time product with a lumpsum payment at the beginning of the plan and has a guarantee
period of 10 years. The nature of the product invariably exposes it to interest rate (reinvestment risk) and Longevity risk.
Interest rate risk arises because the annuitant is given a fixed interest rate with which the periodic payout is calculated.
The Company therefore needs to ensure that assets match liabilities at all times by seeking investments with good returns
to match the liability. There are also limited investments with long dated maturities which therefore opens such funds to
reinvestment risk. In managing these risks however, the firm leverages on its technical partners to form a robust asset and
liability management process that ensures liabilities are matched (as far as possible into future) with assets, mostly
interest-bearing, both in terms of liquidity and as well as interest rate.
Also, since annuity offers life time cash flow to retirees, the firm is also exposed to longevity risk where annuitants live
longer than projected life span. In managing this risk exposure, we always take a very conservative stance when pricing
our liabilities by considering a close to stressed life expectancy for our annuitants and sufficient reserves are also created
to meet the need of such scenarios. On the asset side, the impact of changes in interest rates (or other market risk factors)
is continuously tested, while on the liability side we also assess possible impact of changes in underlying assumptions
such as mortality rate.
As at the close of book on 31 December 2019, the Company has a total number of 3,723 (2018: 2,629) annuitants on its
book with annual pay out of about N2.59 billion (2018: N1.46 billion) to annuitants. The actuarial valuation puts the
Company's liability/obligation in respect of its annuity portfolio as at 31 December 2019 at N20.146 billion. (2018:
N11.229 billion)
The following table outline the general form of terms and conditions that apply to contracts sold in each category of business, and
the nature of the risk incurred by the Company.
Notes to the Financial Statements
Page 65 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Name Description Features
i Education Plan This is an education savings plan intended to Minimum Sum Assured – N500,000.00
accumulate funds for the sole purpose of funding while the Maximum Sum Assured is 4 times
ii Memorial Benefit the education of the assured's children at an Annual Contribution.
Plan appointed time and thereafter. Scope of Life Cover – Death, Permanent
Disability, Critical Illness, Double Accident
iii Savings + Benefit Benefit, Family Income Benefit.
Plan
This comprises of Term and Whole Life assurance Sum Assured Levels– N250,000;
iv Protection Benefit plans, the benefits of which will be applied towards N500,000; N1,000,000; N2,000,000.
Plan alleviating the funeral costs of policyholders, their Scope – Death, Double Accident
spouse(s) and named parents/parents-in-law. Benefit.
v Educate Easy
This is an Individual Life savings plan which has both Sum Assured Bands – N500,000;
vi Consolidated investment and protection elements. Part of the N1,000,000 and N2,000,000.
Financial Plan - CFP premium being paid by the policyholder is used to buy Scope – Death or maturity benefit.
a term assurance cover on his/her life, while the
vii Annuities (Deferred) balance of the premium is put in his/her
investment/allocation account.
viii Mortgage Protection
Plan Term Assurance is a protection life assurance policy This Policy guarantees the deceased
only that guarantees the payment of a predetermined payment of the sum assured at the death
Sum Assured to a named Beneficiary in the event of of the Life Assured before the Policy
death of the life/lives assured at inception of the Expiration date.
policy. Scope of Life Cover- Death, Critical
Illness, Permanent Disability.
This product makes available fund for the Duration of the plan must be divisible
policyholder to sponsor his/her child's education by three (3) (beginning from 6years to a
and it ensures the payment of the school fees of maximum of 21years).
the child in event of the unfortunate death of the It can be arranged for more than one
parent/guardian. child.
This is an improved form of the traditional Guarantees Reversionary Bonus at
Endowment policy which allows payment of Maturity
the sum assured in three equal instalments and Cash surrender can be made after two
also guarantees payment of the full sum assured years of contribution.
whenever death occurs during the policy period
no matter what has been paid out.
In the deferred/Immediate Annuity, the client The guaranteed period here is either
will contribute a minimum of N5,000.00 a 5 or 10years and with about 8 annuity
month over say 5years (Accumulation Stage) payment options ranging from flat
and the lump sum will be used to purchase annuity with or without guarantee
immediate annuity for payment of annuity period, increasing with or without
(pay out stage). guarantee period to spouse annuity.
This is a life assurance plan that provides
mortgage protection against loss of house
ownership in the event of the untimely death
of the breadwinner before the full repayment of
the mortgage loan or serves as security in support
of mortgage loan/facility repayment from Banks.
Notes to the Financial Statements
Page 66 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
ix Secured It is an investment-linked product with high There is additional death benefit up to
Investment Plan yield returns on investment and at the same N100,000 in event of death by accident
time it provides life cover throughout the under Secured Investment Plan. Loan
x Retire Rich Plan duration of the policy. is obtainable on the plan.
Retire Rich Plan provides a continuous source Guarantees a regular monthly pension
of income in later years when the life assured for life after age 60years or any age that
would no longer be in regular employment and the assured specifies. If death occurs
he is too old for the normal business activities. before retirement, a lump sum death
benefit will be paid to your dependants.
xi Family Welfare This is a protection plan that pays benefit in the If death occurs within the retirement
Plan event of death of the policyholder during the period the remaining balance of the
policy term. Annuity guaranteed for five years will be
paid to the beneficiaries or assured's estate.
xii Savings Plus Plan This is a deposit based policy with life assurance
cover. The product evolved out of the company's This Policy guarantees the deceased
desire to introduce a short term savings plan that payment of the sum assured at the death
meets the liquidity preference of its potential of the Life Assured before the Policy
clients. Expiration date.
Scope of Life Cover- Death Only.
xiii Triple Plan This is an anticipated endowment plan that pays Sum Assured Bands - N250,000;
out benefits at 1/3, 2/3 and at the end of the N500,000; N1,000,000; N2,000,000.
policy term in the ratio of 25%, 25% and 100% Premium Bands - N2,500; N4,000;
of the sum assured. The final benefit is payable N8,000; N15,000.
along with the cumulative annual accrued bonus
of 3% of sum assured. Sum Assured Bands – N100,000 up to
N2,000,000.
xiv Flexi Cash Plan SIP Flexi Cash Plan is an adaptation of our Risk Premium – 1% of Sum Assured
secured investment plan (SIP), specially designed Scope – Death or maturity benefit.
for the market Traders, Artisans, Corporate Tenure – 3 years
workers, professionals, okada riders and so on.
The product is available at policy
durations of 6, 9 and 12 years only.
The minimum sum assured is
N1,000,000 and there is no maximum
limit. The plan includes a guaranteed
simple bonus of 3% pa, which begins
to accrue from the second year of the
policy. The policy has, as a stand-alone
to the basic cover, a critical illness and
Permanent Disability Covers. The Policy
also has a waiver of premium option in
the event of the policyholder being
diagnosed with a defined critical illness
or permanent disability.
Guaranteed minimum of 3% interest
rate per annum.
Free life cover up to maximum of
N500,000.00 based on daily contribution
chosen.
Availability of lump sum, plus accrued
interest at the end of the period.
Notes to the Financial Statements
Page 67 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Sources of uncertainty in the estimation of future benefit payments and premium receipts:
Uncertainty in the estimation of future benefit payments and premium receipts for long-term insurance contracts arises
from the unpredictability of long-term changes in overall levels of mortality and the variability in contract holder
behaviour.
The Company uses appropriate base tables of standard mortality according to the type of contract being written. The
base tables are the UK A6770 (without adjustment) and PA90 (with an age rating of -2) for individual risk and annuity
business respectively; in line with the industry practice in Nigeria.
(a) Process used to decide on assumptions
The Company determines assumptions in relation to future deaths, withdrawals (both voluntary (surrenders) and
involuntary (lapses), valuation interest rates and administration expenses. These assumptions are used for
calculating the liabilities during the life of the contract. A margin for risk is added to these assumptions as
determined necessary. These assumptions are updated at each reporting date to reflect the latest estimates.
The assumptions used for the insurance contracts are as follows:
(i) Mortality
The mortality tables for the current and prior years remain A6770 (without adjustment) and PA90 (with an
age rating of -1) for individual risk and annuity business respectively. For annuities, no allowance was made
for future mortality improvements. This is because there is only a small portfolio of annuity business which
is exposed to longevity risk. In any case, longevity risk is not currently of great concern in Nigeria, given the
relatively low life expectancy. General market experience to date indicates the base mortality assumptions
are prudent, without making further adjustments.
(ii) Valuation interest rates
The use of a risk free rate also implies that future investment margins (in excess of the risk-free return) will
not be capitalised upon, which satisfies paragraph 27 of IFRS 4. Further the result is a "fair value" liability
calculation which aids the comparability of accounts between insurers. We propose to adopt net valuation
interest rates of 11.42% pa for all long term business except Annuity and 11.90% pa of Annuity business.
These rates are to be applied as single long term rates of return. The VIR is calculated based on the
weighted average of Gross Redemption Yield (GRY) on Long term FGN Bond (reference: FMDQ Daily
Quotations List as at 31st December 2019). For the purpose of determining the valuation interest rate we
have considered a 0.25% deduction from the long term yield to arrive at a gross valuation interest rate of
15.12%p.a. This makes some allowance for the volatility of the "risk free" yields. A Life Assurance
company pays tax at 30% of Income minus Expenses (the "I minus E" basis) on non-annuity business, with
some specific investment income being exempt from tax. However, this calculation is subjected to a
minimum tax, which is payable on 20% of gross incomes, with no exemptions or deductions. This is
equivalent to tax payable of 6% of gross investment income. The minimum tax test implies that tax will
always be payable, and as such the payment of future tax needs to be allowed for. We propose to do so
implicitly by deducting 6% of the gross valuation interest rate, to arrive at net rates to adopt for valuation of
non-annuity business.
When setting the valuation interest rate for annuity business we have taken into account that the annuity
liability duration is longer than the duration of the longest available Government bonds. The longer term
introduces uncertainty – which typically will be reflected in higher yield/reward demand by investors. The
duration mismatch between available bonds and the liabilities also implies there is a reinvestment risk. We
have made a provision for this by deducting a margin of 0.25% of the gross yield.
Notes to the Financial Statements
Page 68 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
(iii) Expenses
Provisions for expenses must be made, either explicitly or implicitly, in mathematical reserves of an amount
which is not less than the amount expected to be incurred in fulfilling our long term insurance contracts.
IFRS 4 explicitly requires the consideration of claims handling expenses. The best estimate of
maintenance expenses were calculated as the sum of per policy maintenance charges and the allocated
operating expenses. The regulatory maintenance expense assumptions are derived by adding an additional
prudence margin to the best estimate maintenance expenses to give the required assumption.
An expense analysis was carried out, which indicated that the actual maintenance per policy in 2019 was
much higher than N16,264 (estimated around N28,640 per policy).
The 2019 estimate assume that there was an expense overrun which would continue to rise until the retail
book expand to a more optimal level. A provision of N123 million (2018: N211 million) for expense overrun
on a three year run off was therefore made. The expense assumptions are as shown below:
Individual life N16,264pp
Group Life 20% of Gross premium
Annuity business N16,264pp
Expense Overrun Reserve N123,000,000
(iv) Expense inflation and other inflation measures
We have assumed an inflation rate of 11% pa. (2018: 11% pa.)
Consumer Price Inflation as at December 2019 was 12%. (2018: 11.28%)
(v) Tax
It has been assumed that current tax legislation and rates continue unaltered.
Liability Adequacy Test - Methodology
The Company adopt the following methodology for valuing its insurance contracts under various product type:
Product Type Methodology Description
Gross premium
(i) Individual Risk A gross premium method is proposed for individual risk
Business business. This is a monthly cashflow approach taking into
account the incidence of all expected future cashflows
(ii) Individual Deposit (a) Deposit reserve: including office premiums, expenses and benefit payments,
Based Business Account balance at satisfying the Liability Adequacy Test.
valuation date
A reserve for the Individual and group deposit-based business
(b) Risk reserve: Gross will be maintained being the amount standing to the credit of
premium the policyholders (account balance) at the valuation date.
Reserves for the supplementary life cover and expenses for
individual deposit based business will be calculated using a
gross premium cashflow approach.
Notes to the Financial Statements
Page 69 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Product Type Methodology Description
(iii) Annuities Discounted cashflow
Annuities will be reserved for using a discounted cashflow
(iv) Group Deposit Deposit reserve: approach. Here reserves are set equal to the present value of
Business Account balance at future annuity payments plus expenses, with allowance being
valuation date made for any guaranteed periods as required.
(v) Group Life and UPR + IBNR
Credit Life As Above (ii) a
Reserves for Group Life and Credit Life business will comprise
an unexpired premium reserve (UPR) and where necessary, a
reserve for Incurred But Not Reported Claims (IBNR) to make
an allowance for the delay in reporting of claims.
Claims development table
The following table shows the estimates of cumulative incurred claims, including both claims notified and IBNR for
each successive year at each reporting date, together with cumulative payments to date. The Company has taken
advantage of the transitional rules of IFRS 4 that permit only five years of information to be disclosed upon adoption
of IFRS.
In general, the uncertainty associated with the ultimate claims experience in a year is greatest when the year is at an
early stage of development and the margin necessary to provide the necessary confidence in the provisions adequacy
is relatively at its highest. As claims develop, and the ultimate cost of claims becomes more certain, the relative level of
margin maintained should decrease. However, due to the uncertainty inherited in the estimation process, the actual
overall claim provision may not always be in surplus.
Year 0 1 2 3 4 5 6 7 8 9
N'000 N'000 N'000 N'000 N'000 N'000 N'000 N'000 N'000 N'000
2010 378,241 207,918 31,429 24,425 28,085 7,226 20,768 14,589
2011 483,558 332,496 101,566 63,617 15,128 - - 3,215 7,405
2012 1,107,056 553,796 182,812 28,765 120,363 - 41,723 5,219
2013 783,329 353,129 114,189 35,396 6,477 30,601 9,403
2014 345,019 180,480 150,252 82,533 6,269 3,574 10,977
2015 320,173 208,044 55,631 34,626 12,112 2,437
2016 196,256 409,863 110,582 7,571
2017 209,794 255,602 182,918
2018 262,099 262,805
2019 154,672
Notes to the Financial Statements
Page 70 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Sensitivity of liabilities to changes in long term valuation assumptions (31 December 2019 actuarial
valuation)
The following table presents the sensitivity of the value of insurance liabilities to movements in the long term valuation
assumptions used in the estimation of insurance liabilities. For liabilities under long-term insurance contracts with fixed
guarantees, changes in assumptions will not cause a change to the amount of liability, unless the change is severe enough to trigger
a liability adequacy test adjustment.
Expense Expense
Expenses Expenses inflation inflation Mortality Mortality
N'000 Base VIR* +1% VIR* -1% +10% -10% +2% -2% +5% -5%
Individual Risk Reserves 770,950 743,256 800,881 805,759 736,258 783,925 758,852 773,144 768,755
(Excluding Annuity)
Annuity 20,146,065 19,110,818 21,306,922 20,253,475 20,042,643 20,393,940 19,965,211 20,290,765 20,001,365
Investment Linked Products 3,484,189 3,484,189 3,484,189 3,484,189 3,484,189 3,484,189 3,484,189 3,484,189 3,484,189
Group DA** 650,700 650,700 650,700 650,700 650,700 650,700 650,700 650,700 650,700
Group Life - UPR*** 332,457 332,457 332,457 332,457 332,457 332,457 332,457 332,457 332,457
Group Life - AURR**** 6,620 6,620 6,620 6,620 6,620 6,620 6,620 6,620 6,620
Group Life - IBNR 383,998 383,998 383,998 383,998 383,998 383,998 383,998 383,998 383,998
Credit Life 20,203 20,203 20,203 20,203 20,203 20,203 20,203 20,203 20,203
Additional reserves 152,119 152,119 152,119 152,119 152,119 152,119 152,119 152,119 152,119
Reinsurance (153,705) (153,705) (153,705) (153,705) (153,705) (153,705) (153,705) (153,705) (153,705)
Net liability 25,793,598 24,730,655 26,984,386 25,935,816 25,655,483 26,054,447 25,600,645 25,940,491 25,646,702
% change in Net Liability - -4.1% 4.6% 0.6% -0.5% 1.0% -0.7% 0.6% -0.6%
Interest Interest Expense Expense
rate Inflation Inflation
Base rate - Expenses Expenses Mortality Mortality
+10% -10% +2% -2% +5%
Summary +1% 1% 5%
Individual
Group 24,401,205 23,338,263 25,591,993 24,543,423 24,263,090 24,662,055 24,208,252 24,548,098 24,254,309
Net liability
% change in liability 1,546,098 1,546,098 1,546,098 1,546,098 1,546,098 1,546,098 1,546,098 1,546,098 1,546,098
25,947,303 24,884,360 27,138,091 26,089,521 25,809,188 26,208,153 25,754,350 26,094,196 25,800,407
- -4.1% 4.6% 0.5% -0.5% 1.0% -0.7% 0.6% -0.6%
All stresses were applied independently. Stresses not applied to individual reinsurance asset due to immateriality. The mortality
stress has been applied in the opposite direction for annuities. For example the 5% strengthening of the mortality assumption was
modelled as 5% lighter mortality for annuitants.
Source: 2019 Actuarial Valuation report
NB:
*VIR - Valuation interest rate
**DA - Deposit Administration
***UPR - Unexpired Premium Risk
****AURR - Additional Unexipred Risk Reserve
Notes to the Financial Statements
Page 71 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Liquidity risk management
Liquidity Risk is the risk that the Company will be unable to efficiently meet both expected and unexpected current and future
cash flow and collateral obligations as they fall due.
As sufficiency of liquidity is of critical importance to financial institutions, the principal objective of the Company's liquidity
management beyond ensuring consistent access to external financing options, is to continue to generate revenues form available
funds, even under adverse circumstances to meet liability obligations.
The Company has in place comprehensive liquidity management policy and processes, executed by the Finance unit, and
monitored by the Management Committee. The Company's Liquidity Management Framework is designed to ensure that the
firm always has sufficient liquidity to meet its obligations when these fall due, under normal and stressed conditions without
incurring excessive finance costs. Liquidity management activities ensure that the Company has sufficient access to funds
necessary to cover insurance claims, withdrawals and maturing liabilities. The Company's assets contain marketable securities
which can be converted to cash when required.
Liquidity risk profile
The key measure used in monitoring liquidity risk is the Maturity Gap, which is the difference between maturing assets and
maturing liabilities within a given maturity band. The Maturity Gap Ratio displays the extent of mismatch between maturing
assets and maturing liabilities.
The tables below shows gross undiscounted cash flow on the basis of the earliest possible contractual maturity of financial
liabilities and financial assets:
31-Dec-19 Carrying Gross 1-3 3- 6 6 - 12 1- 5 Above 5
amount Nominal months months months years years
Note N’000 Total
N’000 value N’000 N’000 N’000 N’000 N’000
N’000
Financial and insurance liabilities
Investment contract liabilities 28 4,134,889 4,134,889 32,259 128,785 103,503 3,546,356 323,986 4,134,889
Insurance contract liabilities 27 22,461,255 22,461,255 175,237 699,575 562,242 4,757,769 16,266,433 22,461,255
Company Income Tax 42,270 42,270 42,270 - - - - 42,270
Trade payables 29 39,548 39,548 21,785 17,763 - - - 39,528
Other Payables 30 1,033,255 1,033,256 703,171 11,625 - 318,383 - 1,033,255
Total Financial Liabilities 27,711,217 27,711,217 974,722 857,747 665,745 8,622,508 16,590,419 27,711,217
Assets held for managing liquidity risk
Cash and cash equivalents
(excluding assets reserved for payable
to employees) 16 2,881,278 2,881,278 2,793,703 - 87,574 - - 2,881,278
726,801 65,083,249
Financial assets (excluding assets 17 65,083,249 65,083,249 1,940,528 2,289,119 13,183,971 46,942,830
reserved for payable to employees) - 2,087
- 200,000
Trade receivables & Loans 19 2,087 2,087 34,665 311,958 (344,536) -
- 337,595
Statutory deposit 26 200,000 200,000 - - - 200,000
71,847 233,944
Reinsurance assets 798,648 68,738,152
(excluding prepaid re-insurance) 20 337,595 337,595 279,334 - 58,261 -
Other receivables
(excluding prepayment) 22 233,944 233,944 57,923 90,454 13,720 -
68,738,152 5,106,153
Total assets held for managing 68,738,152 2,779,105 12,911,416 47,142,830
liquidity risk
Net Liquidity (Gap)/Surplus 41,026,935 41,027,011 4,131,432 (59,098) 2,113,361 4,288,908 30,552,411 41,027,011
Cumulative Liquidity Surplus 4,134,432 4,072,334 6,185,695 10,474,603 41,027,014
Notes to the Financial Statements
Page 72 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
31-Dec-18 Carrying Gross 1-3 3- 6 6 - 12 1- 5 Above 5
amount Nominal months years years
Note months months N’000 Total
N’000 value N’000 N’000 N’000
N’000 N’000
N’000 1,404
28
Financial and Insurance Liabilities
37,598
Investment contract liabilities 28 3,086,961 3,086,961 599,859 5,604 4,504 2,833,573 241,876 3,086,961
638,889 - 446 2,969,268 10,020,559 12,990,301
Insurance contract liabilities 27 12,990,301 12,990,301 - - - - 37,598
Trade payables 29 37,598 37,598 (0) 250,580 - - 850,439
5,604 255,530 5,802,841 10,262,435 16,965,299
Other Payables 30 850,439 850,439
Total Financial Liabilities 16,965,299 16,965,299
Assets held for managing liquidity risk
Cash and cash equivalents
(excluding assets reserved for payable
to employees) 16 829,073 829,073 775,925 - 53,148 - - 829,073
Financial assets (excluding assets 17 42,010,682 42,010,682 2,222,311 1,020,262 2,196,121 8,889,997 27,681,990 42,010,682
reserved for payable to employees)
Trade receivables & Loans 19 10,693 10,693 - - - 10,693 - 10,693
Statutory deposit 26 200,000 200,000 - - - - 200,000 200,000
Reinsurance assets 20
(excluding prepaid re-insurance) 256,409 256,409 71,907 - - - 184,502 256,409
Other receivables 22
(excluding prepayment) 22 120,970 120,970 145,264 5,943 1,669 33,356 (65,261) 120,970
Total assets held for managing 43,427,827 43,427,827 3,215,407 1,026,205 2,250,939 8,934,046 28,001,231 43,427,827
liquidity risk
Net Liquidity (Gap)/Surplus 26,462,528 26,462,528 2,576,518 1,020,601 1,995,409 3,131,205 17,738,796 26,462,528
Cumulative liquidity surplus 2,576,518 3,597,119 5,592,528 8,723,733 26,462,528
The Company expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets.
Credit Risk is the risk of loss arising from counterparty's inability or unwillingness to fulfil contractual obligations to
the Company. The Company has an effective internal control and risk management system that ensures that all
applicable guidelines and laws as regards credit risk are adhered to.
"The key areas where ARM Life is exposed to credit risk are:
* Receivables arising out of direct insurance arrangements
* Receivables arising from reinsurance arrangements and
* Reinsurance share of insurance liabilities"
Other areas where credit risk arises include cash and cash equivalents, Company's investment in debt securities as
well as money market investing activities and other receivables.
Reinsurance could be a source of credit risk where the counterparty in the reinsurance contract cannot fulfil its
obligations as they fall due, to enable us maintain solvency and our reputation.
Reinsurance is used to manage insurance risk. This does not, however, discharge the Company's liability as the
primary insurer. If a reinsurer fails to pay a claim for any reason, the Company remains liable for the payment to the
Notes to the Financial Statements
Page 73 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
policyholders. The credit worthiness of reinsurers is considered on an annual basis by reviewing their financial
strength prior to renewal of the treaty.
The exposure to individual counterparties is also managed by other mechanisms, such as the right to offset where
counterparties are both debtors and creditors of the Company. Management information reported to the Company
include details of provisions for impairment on loans and receivables and subsequent write-offs. The Internal Audit
function carries out regular reviews to assess the degree of compliance with the Company's procedure with regards to
credit risk.
The amount that best represents the Company's maximum exposure to credit risk at 31 December 2019 is made
up as follows:
Maximum exposure to credit risk
Note 2019 % 2018 %
N'000 N'000
Cash and cash equivalents (excluding cash and bank balances) 16. 2,539,436 9 829,063 5
Investment securities (Bonds and Treasury Bills) 17 26,406,374
Trade Receivables 19 3,488 88 16,727,454 92
Other receivables (excluding Prepayment) 22 176,706
Reinsurance Assets (excluding pre-paid reinsurance) 20 279,334 0 10,438 0
Statutory deposits 26 200,000
Totals 1 120,970 1
29,605,338
1 256,409 1
1 200,000 1
100 18,144,334 100
The Company does not have any assets that were past due but not impaired.
Receivables arising out of direct insurance and re-insurance arrangements are summarized as follows:
Reinsurance
Direct Insurance Arrangements
Arrangements (excluding prepaid
reinsurance)
2019 2018 2019 2018
N'000 N'000
N'000 N'000
2,087 10,438
Neither past due nor impaired 344,536 342,710 279,334 256,409
Impaired 346,623 353,148
Gross (344,536) (342,710) 16,086 16,086
Less allowance for impairment - specific 10,438
Net 2,087 295,420 272,495
(16,086) (16,086)
279,334 256,409
Reinsurance Arrangements
Direct Insurance Arrangements (excluding prepaid reinsurance)
2019 2018 2019 2018
N'000 N'000 N'000 N'000
At 1 January 342,710 338,045 16,086 16,086
Increase/(decrease) in the year
Reclassification from trade receivables 1,826 4,665 --
At 31 December
-- --
344,536 342,710 16,086 16,086
Notes to the Financial Statements
Page 74 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Credit quality of assets not impaired
Cash and cash equivalent and statutory deposit - The Company's cash and cash equivalent and statutory deposit are
held by reputable financial institutions
Investment securities (Held-To-Maturity) - The Company limits its exposure to credit risk by investing only in liquid
debt securities (bonds and treasury bills) and only with counterparties that have a very high credit rating
Reinsurance Assets - The Company insures its liabilities with reputable reinsurance companies with which it has a
right of set-off.
Other receivable (excluding prepayment) - The Company's other receivable comprises receivable from agents and
others. There was no impairment charge on these receivables as at 31 December 2019
Concentration of credit risk
(a) The credit risk are concentrated in the south-west region of Nigeria
(b) The Company's credit exposure by the industry sectors of the Company's counterparties is as follows:
Industry sector
Trade receivables - net 2019 2018
N'000 N'000
Financial services 4,559
Consumer goods 277 1,010
Services 612 2,329
Energy & Natural Resources 1,162
Others 944
- 1,597
36 10,438
2,087
Other receivables -net (excluding prepayment) 156,380 100,682
Financial services 20,326 20,326
Others 176,706 121,008
Market risk management
Market risk is the risk of loss occurring as a result of unfavorable changes in market rates, such as equity prices, interest rates and
foreign exchange rates. This could result in loss of value to the Company's proprietary investment portfolio (shareholders' fund)
or fund set aside to meet future insurance and investment liabilities (policy holders' fund).
The Company's Market and Investment Risk Management practice seeks to achieve an appropriate balance between risk and
return in its investment decisions thereby reducing volatility to the Company's earnings and capital. The Company manages
market risk by actively monitoring investment activities and ensuring that positions are taken in accordance approved investment
objectives. The Firm's investment policy outlines permissible investments, asset allocation limits and other position limits
according to the Company's risk appetite. In addition, investment decisions go through the appropriate level of authorization
before they are implemented. Breaches to the limits as well as the other market and investment risks are reported to the
Notes to the Financial Statements
Page 75 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Investment Committee on a monthly basis and to the relevant Board Committees on a quarterly basis. Also, bi-weekly review of
Investment positions are carried out and reported to Executive Management accordingly.
The following risk areas are considered under the broad spectrum of Market and Investment risk;
Traded Assets
Traded assets are carried at fair value using publicly available market prices for traded securities. Positions are monitored
regularly and performance measured to relevant benchmarks.
Non-traded assets
Key performance measures are set and a robust monitoring and reporting framework is put in place to monitor performance of
the Company's investment in alternative securities such as real estate.
Foreign Exchange Risk
Foreign exchange risks arise from unquoted equity investment and group life policies which are denominated in a currency other
than the Company's functional currency, Naira. Given the directive of the CBN, the firm no longer engages in businesses
denominated in foreign currency and as such exposure to foreign exchange risk is minimal.
Interest risk management
Interest rate risk is the risk of loss to earnings arising from adverse changes in market interest rates on rate sensitive assets and
liabilities. Most of the Company's assets are in interest rate sensitive instruments which are priced with fixed rates at varying
frequencies, and is therefore a major focus area under Market and Investment risk.
Earnings sensitivity
The Company measures its exposure to changes in earnings resulting from changes in prevailing interest rates using the
anticipated impact of at least three (3) different hypothetical, but plausible, interest rate scenarios for periods of up to 12 months.
These scenarios reflect best estimate, the most likely and worst-case conditions.
ARM Life portfolio analysis
2019: Table I Portfolio concentration analysis on ARM Life
Assets type Exposure %
Money market (treasury bills and short term placements) (N'000) 14
Equities & Funds 1
Bonds 4,467,573 77
Real Estate 468,244 7
24,478,777
2,218,000
2018: Table I Portfolio concentration analysis on ARM Life Exposure %
(N'000) 19
Assets type 3
Money market (treasury bills and short term placements) 3,770,148 68
Equities & Funds 563,297 10
Bonds
Real Estate 13,593,370
2,006,000
Notes to the Financial Statements
Page 76 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
The Company's exposure to market risk at 31 December 2019 is analyzed as follows:
Interest rate risk Carrying 3months 6months 12 Months Over 1year
amount N'000
2019 N'000 N'000 N'000 N'000
2,881,514
Cash and cash equivalents 2,881,514 2,881,514 - - -
(excluding cash and bank balances) 2,881,514 - - -
4,134,889 32,259 128,785 103,503 3,870,342
Investment contract liabilities (1,253,375) 2,849,255 (128,785) (103,503) (3,870,342)
Gap 2,849,255 2,720,470 2,616,967 (1,253,375)
Cumulative Gap
Interest rate shock Impact on profit or loss and equity
+1%
+2% 28,493 27,205 26,170 (12,534)
+4%
-1% 56,985 54,409 52,339 (25,067)
-2%
-4% 113,970 108,819 104,679 (50,135)
(28,493) (27,205) (26,170) 12,534
(56,985) (54,409) (52,339) 25,067
(113,970) (108,819) (104,679) 50,135
2018 Carrying 3months 6months 12 Months Over 1year
amount N'000
N'000 N'000 N'000
Cash and cash equivalents 675,184 675,184 - - -
(excluding cash and bank balances) 675,184 675,184 - - -
3,086,961 - - -
Investment contract liabilities (2,411,777) - - - -
Gap 675,184 675,184 675,184 675,184
Cumulative Gap 675,184
Interest rate shock Impact on profit or loss and equity
+1%
+2% 6,752 6,752 6,752 6,752
+4%
-1% 13,504 13,504 13,504 13,504
-2%
-4% 27,007 27,007 27,007 27,007
(6,752) (6,752) (6,752) (6,752)
(13,504) (13,504) (13,504) (13,504)
(27,007) (27,007) (27,007) (27,007)
Equity price risk
The table below shows the sensitivity of the Company's investment portfolio to changes in equity prices:
Financial assets at fair value through profit or loss 2019 2018
Available for sale financial assets N'000 N'000
24,940,711 435,928
127,369
- 563,297
24,940,711
Equity price shock Impact on profit or loss and equity
+20%
+10% 4,988,142 112,659
+5%
-5% 2,494,071 56,330
-10%
-20% 1,247,036 28,165
(1,247,036) (28,165)
(2,494,071) (56,330)
(4,988,142) (112,659)
Notes to the Financial Statements
Page 77 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Operational Risk Management
Operational Risk is the risk of loss arising from inadequate or failed internal processes, people, systems and/or external events.
Operational risk is inherent in the Company's business and support activities and could result from erroneous transactions,
fraudulent acts, performance failure of vendors, business disruption, poor customer service delivery etc. These events could result
in financial losses, regulatory sanctions and/or reputational damage to the Company. ARM Life Plc has also established
procedures and controls to manage market, counterparty credit, reputational and strategic risks. The potential of failure or
inadequacy in these procedures and controls would result in an operational risk.
Operational risk management forms part of the day-to-day responsibilities of managers at all levels. Each unit is responsible for
the daily monitoring of operational risks and for reducing and preventing losses resulting from exposures to operational risks.
Qualitative and quantitative methodologies and tools are applied to identify and assess operational risks and to provide Executive
Management with information for determining appropriate mitigating measures. Independent monitoring of operational risk
occurs through a number of activities within the Company's Risk Management function.
The Company applies the following tools in managing operational risk:
I. Risk and Control Self Assessment (RCSA): A forward looking evaluation of both current and potential risks faced by the
various units within the organization on a daily basis. It also involves assessing the controls implemented to prevent, detect
or mitigate the occurrence of the risks; as well as recommending actions for improving deficiencies, or designing new
controls within the process. It is conducted in a workshop attended by experts within the business."
II. Issues Management: Like the RCSA, the issues management is a forward looking approach to managing operational risk
issues before they metamorphose into loss events. While RCSA is a yearly activity where potential and actual risk events
are identified and such risks are monitored through the year; the issues management log is maintained to keep track of risk
issues that are spotted during the course of the year, but which have not crystalised into loss events. Such identified issues
are recorded on the log and mitigating/preventive actions are proffered and such actions are also tracked and monitored
till completion.
III. Internal Loss Data Collection (LDC): This represents the process with which the Company collects data on operational
risk events immediately after they occur, whether or not there were financial losses. This data collection is facilitated with
the use of a bespoke operational risk system, The OpRisk Manager. With this system, risk events can be identified by any
member of staff at any location within the Company, and such events are thereafter assigned to a member of staff with
sufficient knowledge and authority to perform a causal analysis, as well as recommend remedial actions.
IV. Whistleblowing: Our Whistleblowing system enables anonymous as well as confidential reporting of observed
misconduct. Stakeholders such as vendors, shareholders, clients and staff alike can make use of the Whistleblowing portal
on the corporate website or call the Whistleblowing hotline for seamless reporting of misconducts. All information
obtained via the Whistleblowing channels are thoroughly investigated, and disciplinary actions are applied when
necessary. In addition to the benefit of early identification of misconduct, the Whistleblowing system serves as a
preventive control for fraud, bribery and other forms of misconduct within the Company.
Strategic & Reputational Risk Management
Strategic risk is the risk of loss to earnings or capital arising from adverse business decisions, improper implementation of
decisions, or lack of responsiveness to industry changes. Some strategic risk factors with which the Company is faced includes:
activities of competitors, political terrain, social mores, the economy, laws and regulations, strategic business decisions (e.g. talent
structure, remuneration, technology, business initiatives etc.), as well as actions of the regulators.
Reputational Risk on the other hand, is the risk of loss to earnings or capital arising from damage to the Company's reputation.
This damage could be as a result of poor communication & crisis mismanagement, regulatory non-compliance, poor financial
performance, corporate governance & leadership, inadequate Corporate Social Responsibility, workplace culture and poor
service delivery.
Notes to the Financial Statements
Page 78 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
The Company's Strategic & Reputational Risk is managed within the Corporate Strategy Unit and the Marketing & Corporate
Communications Unit respectively. In addition, strategic risk sessions are held with Executive Management on a quarterly basis
to review strategic risks and performance of the solutions proffered to address such risks.
Reports generated from data collected from these operational risk management tools provide line managers, the Senior
Management and the Board/ Board Committees with information to help monitor operational risk at appropriate levels within
each business line.
Operational risk is recognized as a distinct risk category which the company manages within acceptable levels through sound
operational risk management practices. The ultimate aim of the Company's operational risk management activities is to improve
operational efficiency as well as the quality of service delivery to clients through:
Ÿ Improved processes and operational guidelines;
Ÿ Minimising occurrence of avoidable risk events;
Ÿ Creating company-wide risk awareness that guides behaviours and creates a careful approach to transaction handling and
execution."
Capital management
The Company's business strategy is to establish a strong presence in the retail space, thus creating sustainable value for its
stakeholders as the business grows. To achieve this, our capital management objective is to continue to maintain a strong capital
base that is backed with high quality assets that would comply with regulatory requirements, support strategy implementation
and sustain future development of business activities.
In furtherance of the recapitalization plan to achieve the new Minimum Regulatory Capital of N8 billion (for Life Underwriting
companies), Tangerine Life Insurance Limited acquired 77.22% controlling stake in ARM Life (taking over 75.16% of ARM
HoldCo and 2.06% of Continental Reinsurance Limited). This acquisition and proposed eventual merger of the two entities is
geared towards ensuring that ARM Life Plc continues to provide top-notch specialist life insurance services to its teeming
customer base under a new ownership structure.
Regulatory minimum capital requirement
As a Life Insurance Firm, the National Insurance Commission (NAICOM) requires the Firm to maintain a minimum capital
level (i.e. minimum Shareholders' fund) of N2,000,000,000.00 (Two Billion Naira).
In comparison to the minimum regulatory capital requirement stated above, the Company had shareholders' fund of N5.11
billion as at 31 December, 2019:
Capital Requirement
in thousands of Naira 31 Dec 2019 31 Dec 2018
Minimum Regulatory Capital 2,000,000 2,000,000
Shareholders' Fund 5,108,431 4,009,949
Solvency margin
The solvency margin is total admissible assets less total liabilities, and this should not be less than either 15% of net premium or
the amount of minimum capital requirement whichever is higher. This is reported to Management, at least on a monthly basis.
The solvency margin is as calculated by the actuary and the percentage determined as at year end was 101.5% (2018: 101.5%).
That is, assets representing the Life and Deposit Administration Funds on the Company's balance sheet were sufficient to cover
the value of actuarially calculated net liabilities.
Notes to the Financial Statements
Page 79 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Assets/Fund hypothecation Insurance Investment Annuity Share- 2019 2018
contract contract funds holders Total Total
Cash and cash equivalents (including N'000 N'000 N'000
short term investment) liabilities liabilities funds
Financial Assets: N'000
Quoted securities N'000 N'000
Bonds
Treasury Bills 126,494 1,643,033 789,388 322,600 2,881,514 829,073
Unquoted securities
Placement with financial institutions 171,792 - 215,994 72,770 460,556 435,928
Trade receivables 34,696 1,195,474 23,067,099 180,058 24,477,327 13,593,369
Reinsurance assets 334,479 1,504,806 92,591 1,931,876 3,134,085
Deferred acquisition cost -
Investment properties - - - - - 127,369
Intangible Assets - - - 430 430 255
Property plant and equipment 2,087 - - 2,087
Statutory deposit 337,595 - - - 337,595 10,438
Total 28,467 - - - 28,467 374,874
366,450 - 168,000 - 1,201,117
- - - 666,667 15,313 -
- - - 15,313 138,739 2,036,000
- - - 138,739 200,000
1,402,059 4,343,313 24,240,480 200,000 31,675,020 24,063
1,689,166 118,487
200,000
20,883,940
Notes to the Financial Statements
Page 80 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Solvency margin declaration Total Inadmissible 2019 2018
Admissible Total
as at 31 December Note N’000 N’000 N’000
N’000
Asset 16
Cash and cash equivalents 2,881,514 - 2,881,514 829,073
Investment securities: 17(a) --
- Investment securities-fair value 17(b)
17(c) 24,940,711 - 24,940,711 435,928
through profit or loss 1,929,048 - 1,929,048 16,727,454
- Investment securities-held to maturity 18 -
- Investment securities-available for sale 19 - - - 127,369
Loans and receivables 20 430 - 430 255
Trade receivables 21 2,087 - 2,087
Reinsurance assets 22 337,595 - 337,595 10,438
Deferred acquisition costs 23 28,467 (233,944) 28,467 374,874
Other receivables and prepayment 24 233,944 (1,016,883) 29,776
Investment properties 25 2,218,000 - -
Intangible assets 26 15,313 - 1,201,117 -
Property and equipment 138,739 - 666,667
Statutory deposits 200,000 15,313 24,063
138,739 118,487
200,000 200,000
TOTAL ADMISSIBLE ASSETS 32,925,849 (1,250,827) 31,675,020 19,544,384
Liabilities 27 22,461,255 - 22,461,255 12,990,301
Insurance contract liabilities 28 4,134,889 - 4,134,889 3,086,961
Investment contract liabilities 29 -
Trade payables 30 39,548 - 39,548 37,598
Other payables 31 1,033,255 - 1,033,255 850,439
Current income tax liabilities 32 (106,200) 27,030
Deferred tax liability 42,270 42,270
106,200 (106,200) - -
TOTAL ADMISSIBLE LIABILITIES 27,817,417 27,711,217 16,992,329
SOLVENCY MARGIN (Admissible Assets 5,108,431 (1,144,627) 3,963,803 2,552,055
minus Admissible Liabilities)
1,368,543
Subject to the Higher of: 15% of Net Premium 2,000,000 2,000,000 2,000,000
or Minimum capital base 1,963,803 552,055
EXCESS SOLVENCY MARGIN
Notes to the Financial Statements
Page 81 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
2. Operating segments
The Company has three reportable segments, as described below, which are the Company's strategic business units. The
strategic business units offer different products and services, and are managed separately. The following summary
describes the operations in each of the Company's reportable segments:
Ÿ Institutional business: This segment offers Group life scheme and other life products to corporate organizations,
governments and other public sector parastatals.
Ÿ Retail business: This segment offers savings, protections and whole life products to individuals.
Ÿ Annuity business: This segment offers products that guarantees streams of income to the policy holders
Information regarding the results of each reportable segment is included below. Performance is measured based on
segment profit before income tax, as included in the internal management reports that are reviewed by the Board of
Directors. Segment profit is used to measure performance as management believes that such information is the most
relevant in evaluating the results of certain segments relative to other entities that operate within these industries.
31 December 2019 Institutional Retail Annuity Company
business business
External revenues N'000 business summary
Gross premium written N'000
Unearned premium N'000 N'000
Gross premium income
Reinsurance expenses 1,461,025 700,660 7,407,779 9,569,464
Net premium income (48,422)
Fees and commission income - - (48,422)
Net underwriting income 1,412,603
Claims expenses (362,573) 700,660 7,407,779 9,617,886
Underwriting expenses
Increase on annuity contract liabilities 1,050,030 (34,849) (397,422)
Underwriting profit/(loss) 88,600
Investment income 665,811 7,407,779 9,123,620
Other operating income 1,138,630
Net trading profit/(loss) on financial assets (965,627) 937 89,537
Impairment loss allowance (179,761)
Profit on investment contracts - 666,748 7,407,779 9,213,157
Fair value gain on investment properties (6,757)
Impairment loss allowance (ECL) 177,762 (16,214) - (981,841)
5,501
Net income 11,002 (159,452) (229,883) (569,096)
(18,689)
Management expenses - - (11,194,146) (11,194,146)
96,500
Results of operating activities/Profit before tax (46,866) 491,081 (4,016,250) (3,531,926)
Profit before tax
Income taxes 220,431 3,134,253 3,532,546
Profit for the year 18,646 29,444 53,496
Assets & liabilities - 2,245,230 2,256,233
Reportable segment assets
Reportable segment liabilities - - (18,689)
288,371 - 288,371
48,250 48,250 193,000
- - (46,866)
237,241 1,066,780 1,440,927 2,744,947
(710,129) (645,397) (258,159) (1,613,685)
(472,888) 421,383 1,182,768 1,132,262
(9,474) -
(4,543) (48,036) (62,053)
(482,362) 416,839 1,134,733 1,069,209
3,960,279 4,343,313 24,622,256 32,925,848
3,536,362 4,134,889 20,146,165 27,817,317
Notes to the Financial Statements
Page 82 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
31 December 2018 Institutional Retail Annuity Company
business
External revenues N'000 business business summary
Gross premium written
Unearned premium N'000 N'000 N'000
Gross premium income
Reinsurance expenses 1,214,007 111,944 4,510,036 5,835,987
Net premium income (136,872) - - (136,872)
Fees and commission income 1,077,135 5,972,859
Net underwriting income (305,654) 111,944 4,510,036 (320,751)
Claims expenses 771,481 (15,097) - 5,378,364
Underwriting expenses 96,847
Increase on annuity contract liabilities 61,306 4,510,036 72,125
Underwriting profit/(loss) 832,787 10,819 5,450,489
Investment income (501,136) 107,666 4,510,036 (517,003)
Other operating income (145,770) (15,867) - (360,937)
Net trading profit/(loss) on financial assets (87,904) (4,632,403)
Profit on investment contracts - (127,262)
Fair value gain on investment properties 185,881 - (4,632,403) (59,854)
Impairment loss allowance (ECL) 3,894 (249,629) 1,683,081
Net income 71,657 111,293 1,500,131
112,165 45,324 157,489
Management expenses (36,350) (83,839) - (82,948)
439,676 37,241 439,676
Results of operating activities/Profit before tax 15,000 7,500 30,000
Profit before tax (41,342) 7,500 (41,342)
Income taxes 307,010 - - 2,126,101
523,848
Profit for the year 1,295,243
Assets & liabilities (615,168) (273,408) (478,463) (1,367,039)
Reportable segment assets
Reportable segment liabilities (308,158) 250,440 816,780 759,062
(6,930) (639) (25,746) (33,315)
(315,088) 249,801 791,034 725,747
4,294,074 3,112,696 13,682,408 21,089,178
2,762,882 3,086,961 11,229,386 17,079,229
Geographical Segment
Nigeria is the Company's primary geographical segment as all the Company's income is derived in Nigeria. Accordingly, no
geographical segments information is reported.
Notes to the Financial Statements
Page 83 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
3. Financial and insurance assets and liabilities
Accounting classification and measurement basis
The table below sets out the Company's classification of each class of financial assets and liabilities.
31 December 2019 Fair value Fair value Other Total
through financial carrying
Cash and cash equivalents Loans and through OCI Amortised liabilities amount
Financial assets: N'000 Cost
Fair value through profit or loss Note receivables profit or loss N'000 N'000
At amortised cost - N'000
Fair value through OCI N'000 N'000 - 2,881,514
Loan and receivables -
Trade receivables 16. 2,881,514 -
Reinsurance assets
Other receivables (excluding 17(a) - 24,940,711 -- - 24,940,711
17(b) - - - 1,929,048 - 1,929,048
prepayments) 17(c) - - -- --
Statutory deposit 430 - -- - 430
18 2,087 - -- - 2,087
Insurance contract liabilities 19 337,595 - -- - 337,595
Investment contract liabilities 20
Trade payables 176,707 - -- - 176,707
Other payables 22 200,000 - -- - 200,000
26
31 December 2018
3,598,333 24,940,711 - 1,929,048 30,468,092
Cash and cash equivalents
Financial Assets: 27 - -- - 22,461,255 22,461,255
Fair value through profit or loss 28 - -- - 4,134,889 4,134,889
At amortised cost 29 - -- - 39,548 39,548
Fair value through OCI 30 - -- - 1,004,172 1,004,172
Loan and receivables
Trade receivables - -- - 27,639,864 27,639,864
Reinsurance assets
Other receivables (excluding Fair value Fair value At Other Total
prepayments) through amortised financial carrying
Statutory deposit Loans and through OCI liabilities amount
N'000 cost
Insurance contract liabilities Note receivables profit or loss - N'000 N'000 N'000
Investment contract liabilities - 829,073
Trade payables N'000 N'000 -
Other payables
16. 829,073 -
17(a) - 435,928 - - - 435,928
17(b) - - - 16,727,454 - 16,727,454
17(c) - - 127,369 - 127,369
255 - - - - 255
18 10,438 - - - - 10,438
19 374,874 - - - - 374,874
20 -
22 121,008 -- - - 121,008
26 200,000 -- - - 200,000
1,535,648 435,928 127,369 16,727,454 - 18,826,399
27 - -- - 12,990,301 12,990,301
28 - -- - 3,086,961 3,086,961
29 - -- - 37,598 37,598
30 - -- - 819,929 819,929
-- - 16,934,789 16,934,789
-
Notes to the Financial Statements
Page 84 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Fair value of financial assets and liabilities
The Company's accounting policy on fair value measurements is discussed under note 17(a)
The Company measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in
making the measurements.
Level 1: Fair value measurements classified as level 1 include exchange-traded prices of equity securities and government
securities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e as prices) or indirectly
(i.e derived from prices). This category includes instruments valued using: quoted prices for similar instruments in
markets that are considered less than active; or other valuation techniques where all significant inputs are directly
or indirectly observable from market data.
Level 3: This includes financial instruments, for which fair value could not be determined and which are therefore carried at
cost.
(i) Financial instruments measured at fair value - fair value hierarchy
The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the
fair value hierarchy into which the fair value measurement is categorized. The amounts are based on the values
recognised in the statement of financial position.
31 December 2019 Carrying
Note amount Level 1 Level 2 Level 3 Total
N'000
N'000 N'000 - N'000 N'000
-
Financial assets at fair value through profit or loss17(a) 24,940,711 24,940,711 - - 24,940,711
Financial assets fair value through OCI 17(c) -- --
24,940,711 24,940,711 - 24,940,711
31 December 2018 Carrying
Note amount Level 1 Level 2 Level 3 Total
N'000 N'000 N'000 N'000
N'000 - - 435,928
435,928 - - 127,369
Financial assets at fair value through profit or loss17(a) 435,928 127,369 - - 563,297
563,297
Financial assets fair value through OCI 17(c) 127,369
563,297
Level 3 fair value represents unquoted equity investments available for sale, for which fair value could not be determined
reliably overtime and are therefore carried at cost. There was no movement in respect of these securities during the year
(2018: nil). Impairment loss totaling N7.69 million has been previously recognised in respect of these financial assets fair
value through OCI.
(ii) Financial instruments not measured at fair value
The following table sets out the fair value of financial instruments not measured at fair value and analyses them by the level
in fair value hierarchy into which each fair value measurement is categorised. It does not include fair value information for
financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of
fair value.
Notes to the Financial Statements
Page 85 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
31 December 2019 Total
carrying
amount Level 1 Total fair
N'000 value
N'000 N'000
Assets 16. 2,881,514 - -
Cash and cash equivalents 17 1,929,048 1,929,048 1,929,048
Financial assets at amortised cost 18
Loans and receivables 19 430 - -
Trade receivables 20 2,087 - -
Reinsurance assets 22 337,595 - -
Other receivables (excluding prepayments) 26 176,707 - -
Statutory deposit 200,000 - -
28 5,527,381 1,929,048 1,929,048
Liabilities 29
Investment contract liabilities 30 4,134,889 - -
Trade payables
Other payables 39,548 - -
1,033,255 - -
5,207,692 - -
31 December 2018 Total
carrying
amount Level 1 Total fair
N'000 value
N'000 N'000
Assets 16. 829,073 - -
Cash and cash equivalents 17 16,727,454 16,727,454 16,727,454
Financial assets at amortised cost 18
Loans and receivables 19 255 - -
Trade receivables 20 10,438 - -
Reinsurance assets 22 374,874 - -
Other receivables (excluding prepayments) 26 121,008 - -
Statutory deposit 200,000 - -
28 18,263,102 16,727,454 16,727,454
Liabilities 29
Investment contract liabilities 30 3,086,961 - -
Trade payables
Other payables 37,598 - -
850,439 - -
3,974,998 - -
Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices
or dealer price quotations. The objective of valuation techniques is to arrive at a fair value determination that reflects
the price of the financial instrument at the reporting date that would have been determined by market participants
acting at arm's length.
Observable prices are usually available in the market for listed debt and equity securities. Availability of observable
market prices and model inputs reduces the need for management judgment and estimation and also reduces the
uncertainty associated with the determination of fair values. Availability of observable market prices and inputs varies
depending on the products and markets and is prone to changes based on specific events and general conditions in the
Notes to the Financial Statements
Page 86 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
financial markets.
Assets and liabilities for which fair value approximates carrying value
For financial assets and financial liabilities that have a short-term maturity (less than three months). It is assumed that the
carrying amounts approximate their fair values. This assumption is also applied to balances without a specific maturity.
4. Critical accounting estimates and judgement
The Company makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next
financial year. Estimates and judgements are continually evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
(a) The ultimate liability arising from claims made under insurance contracts
The estimation of the ultimate liability arising from claims made under insurance contracts is one of the
Company's most critical accounting estimate. There are several sources of uncertainty that need to be
considered in the estimate of the liability that the Company will ultimately pay for such claims.
Individual business
Traditional Insurance Plans comprise the Consolidated Financial Plan, Term Assurance, Mortgage
Protection Plan, Immediate and Deferred Annuities. For all individual business the gross premium method of
valuation was adopted.
Reserves were calculated via a cashflow projection approach, taking into account future office premiums,
expenses and benefit payments including an allowance for rider benefits were applicable. Future cashflows
were discounted back to the valuation date at the valuation rate of interest. Reserves for endowment business
have been limited to a minimum of the surrender value at the valuation date.
Individual deposit linked business
The reserve for the individual deposit based policies has been taken as the amount standing to the credit of the
policyholder at the valuation date. Where policies have active life cover this has been valued using a cashflow
projection approach as described above for other risk business.
Group life business
For Group Life Business the liability is made up of two parts as set out below. This is an appropriate
methodology for this type of business.
Ÿ An Unexpired Premium Reserve (UPR) to capture the fact that some premiums are paid in advance and
cover risk periods after the valuation date. The calculation is performed on a proportional basis of
remaining coverage period to total coverage period. If the resulting reserve is considered inadequate to
cover an additional Unexpired Risk reserve is held.
Ÿ An Incurred but Not Reported Reserve (IBNR) to capture the fact that claims can be expected to have
occurred but have not as yet been reported to the company. The method applied is to look at past reporting
patterns and use that as an indication of likely future experience. This is appropriate.
(b) Fair value of financial instruments
The determination of fair value for financial assets and financial liabilities for which there is no observable
market price requires the use of valuation techniques as described in Note 3 of the accounting policy. For
financial instruments that trade infrequently and have little price transparency, fair value is less objective, and
requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors,
pricing assumptions and other risks affecting the specific instrument.
Notes to the Financial Statements
Page 87 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs
used in making the requirements.
Ÿ Level 1: Quoted market price in an active market for an identical instrument.
Ÿ Level 2: Valuation techniques based on observable inputs. This category includes instruments valued using: quoted
market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are
considered less than active; or other valuation techniques where all significant inputs are directly or indirectly
observable from market data.
Ÿ Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where
the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant
effect on the instruments valuation. This category includes instruments that are valued based on quoted prices for
similar instruments where significant unobservable adjustments or assumptions are required to reflect differences
between the instruments.
Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices
or dealer price quotations.
The fair value of financial instruments where no active market exists or where quoted prices are not otherwise available
are determined by using valuation techniques. In these cases the fair values are estimated from observable data in respect
of similar financial instruments or using models. Where market observable inputs are not available, they are estimated
based on appropriate assumptions. Where valuation techniques (for example, models) are used to determine fair values,
they are validated and periodically reviewed by qualified personnel independent of those that sourced them.
All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and
comparative market prices. To the extent practical, models use only observable data; however, areas such as credit risk
(both own credit risk and counterparty risk), volatilities and correlations require management to make estimates. See
note 3 for summary of fair value classification of the Company's financial assets.
(c) Fair value of unquoted equity financial instruments
Investments in unquoted equity financial instrument should be measured at fair value, however, where the fair value
cannot be reliably estimated, it is carried at cost less impairment.
The fair value of the Company's investment in unquoted equity financial instrument could not be determined as there
was no observable data on which to base the fair value determination; hence the carrying amount was based on cost.
The investment is tested for impairment by comparing the cost of investment with the share of net assets in the investee
company. Other factors such as whether the company is making profits from its operations and returns on the
investment in form of dividend received are also considered.
(d) Impairment of quoted equity financial assets fair value through OCI
The Company determines that available-for-sale quoted equity financial assets are impaired when there has been a
significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged
requires judgment. In making this judgment, the Company evaluates among other factors, the normal volatility in share
price, the financial health of the investee, industry and sector performance, changes in technology, and operational and
financing cashflow. In this respect, a decline of 20% or more is regarded as significant, and a period of 9 months is
considered to be prolonged. If any such quantitative evidence exists for available-for-sale quoted equity financial assets,
the asset is considered for impairment, taking qualitative evidence into account.
Ÿ significant financial difficulty of the broker;
Ÿ a breach of agreements, such as payment defaults or delinquency in premium payments;
Ÿ Economic, regulatory or legal reasons relating to the premium debtor's financial difficulty, granting to the premium
Notes to the Financial Statements
Page 88 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
debtor a concession that the Company would not otherwise consider;
Ÿ High probability that the premium debtor will enter bankruptcy or other financial reorganisation.
If any of the impairment triggers are identified, the Company specifically assess the premium debt for impairment.
Where no impairment trigger is identified, or no objective evidence of impairment exists, the Company assesses its
premium debts collectively for impairment using the historical loss rate model.
The historical loss rate model considers the historical recoveries (cashflows) on premium debts for policies written in
prior years, in order to determine the loss given default ratio on outstanding premium as at the reporting date. The
model also considers premium receipts subsequent to the reporting date. The loss ratio derived is used to determine the
allowance for impairment on premium debts.
This model assumes that all premium debts will be paid until evidence to the contrary (a loss or trigger event) is
identified. On the identification of an objective evidence of impairment, the premium debts are subject to specific
impairment. Where there is no objective evidence of impairment, the premium debts are subjected to collective
impairment.
Collective impairment incorporates the following:
Ÿ current and reliable data, management's experienced credit judgements, and all known relevant internal and
external factors that may affect collectability;
Ÿ historical loss experience or where institutions have no loss experience of their own or insufficient experience, peer
Company experience for comparable Companies of financial instruments at amortized cost;
Ÿ adjustments to historical loss experiences on the basis of current observable data to reflect the effects of current
conditions.
(e) Liabilities arising from insurance contracts
Liabilities for unpaid claims are estimated on case by case basis. The reserves made for claims fluctuate based on the
nature and severity of the claim reported. Claims incurred but not reported are determined using statistical analysis and
the Company deem the reserves as adequate.
(f) Depreciation and carrying value of property, plant and equipment
The estimation of the useful lives of assets is based on management's judgement. Any material adjustment to the
estimated useful lives of items of property, plant and equipment will have an impact on the carrying value of these items.
(g) Recognition of deferred tax assets:
"Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for:
Ÿ temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss;
Ÿ temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse
in the foreseeable future; and
Ÿ taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the
extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets
are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
Notes to the Financial Statements
Page 89 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse,
using tax rates enacted or substantively enacted at the reporting date."
5. Gross premium income
Analysis of gross premium income per class of business is as follows:
2019 2018
N'000 N'000
Gross premium 1,461,025 1,214,007
Group life premium 700,660 111,944
Individual life premium
Annuity 7,407,779 4,510,036
9,569,464 5,835,987
Movement in unearned premium reserve (see 27(f)(i))
(48,422) (136,872)
9,521,042 5,699,115
5(i) Group Life Retail business Annuity Total
2019 N'000 N'000
N'000 N'000 11,190,059
Gross premium written 7,407,779 (1,620,594)
Transfer to investment contract 1,604,102 2,178,178 - 9,569,465
(143,076) (1,477,518) 7,407,779
1,461,026 700,660
2018 Group Life Retail business Annuity Total
N'000 N'000
Gross premium written N'000 N'000 7,039,592
Transfer to investment contract 4,510,036 (1,203,605)
1,324,920 1,204,636 - 5,835,987
(110,913) (1,092,692) 4,510,036
1,214,007 111,944
6. Reinsurance expenses
Reinsurance expenses are analysed as follows:
2019 2018
N'000 N'000
Outward re-insurance premium 397,422 320,751
7. Fees and commission income
Commissions received comprise of commission earned from reinsurance, co-insurance and treaty businesses which the
Company was involved during the financial year.
Fee and commission income 89,537 72,125
Notes to the Financial Statements
Page 90 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
8. Claims expenses 2019 2018
The claims incurred is analysed as follows: N'000 N'000
Claims expense and IBNR (see note 27( c )(ii)) 743,595 604,150
Claims recovered (157,885) (195,058)
Movement in Individual life reserves (see note 27(f)(ii)) 396,040
93,100
9. Underwriting expenses 981,750
Underwriting expenses comprises: 502,192
Commission and other related expenses (see note 21)
Maintenance expenses 563,760 249,619
5,336 6,421
10. Investment income
Investment income comprise: 569,096 256,040
Dividend income
Rental income 37,399 30,083
Interest income on financial assets (see (i) below) 109,607 112,165
Coupon received 1,000,731 356,363
2,384,809 1,341,959
i. The sources of interest income on financial assets are as follows: 3,532,546 1,840,570
Interest income on held-to-maturity financial assets
Interest income on cash and cash equivalents 937,475 311,039
Interest income on statutory deposit 33,481 19,866
29,775 25,458
1,000,731 356,363
11. Other operating income 3,258 1,527
2,148 2,513
Profit on disposal of property and equipment 18,646 13,600
Exchange rate gain 13,555
Penalty on life policy -
Annuity death benefit claim (see (i) below) 29,538 -
Other income 7,377
Administration charges on co-assurance -
38,572
53,590
i. Annuity death benefit claim relates to the income earned by the Company when an annuitant dies after the
guaranteed period.
Notes to the Financial Statements
Page 91 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
12. Net trading profit/(loss) on financial assets 2019 2018
N'000 N'000
Net fair value gain/(loss) on insurance contract liabilities fund 4,150 (120,190)
Net fair value gain/(loss) on annuity fund 2,245,230
Net fair value gain/(loss) on shareholders fund 6,852 -
2,256,232 -
(120,190)
i. Changes in net fair value of financial assets at fair value through profit or loss represents the net unrealized gains and
losses in fair value of these financial assets as a result of movements in fair value. These financial assets are include
quoted equities on the Nigerian Stock Exchange, FGN bonds, State bonds and corporate bonds.
13. Impairment of financial assets
Impairment of financial assets is made up of:
Investment securities: (26,802) (89,279)
Increase in ECL allowance for FVTOCI - (5,198)
Increase in ECL allowance for amortised cost
Other assets: (1,375) -
Increase in impairment of trade receivables - 618
Write back on trade receivable (see note 19 (ii)) (5,283)
Impairment of other assets (18,689) 57,800
Write back of impairment of other receivables and prepayments (see note 22 (i)) - (41,342)
(46,866)
14. Profit on investment contracts 288,371 318,638
Investment contract account (see note (28)(b))
Profit on investment contracts represents the Company's portion of interest which accrues to the account of investment
contract holders. The contracts are designated as financial liabilities (see note 28) and measured at amortised cost.
15. Management expenses
(a) Management expenses comprise of:
Personnel expenses (see 15(b) below) 832,134 556,266
Depreciation and amortisation (see note 25) 67,386 52,232
Auditor's remuneration 13,000 14,820
Directors fees and allowances 50,053 49,835
Professional expenses 51,619 88,217
Levy, subscription and filling fees 159,467 85,824
Repairs and maintenance 45,912 28,542
Advertisement and branding 19,527 30,120
Stationery and office expenses 50,821 43,856
Agency expenses 32,401 101,569
Rent Expense 21,936 21,334
Service and bank charges 21,972 5,474
Travel expense 21,800 20,530
Outsourcing services 31,588 30,975
Insurance expenses 6,621 4,471
Internet service charge 10,304 11,095
Shared Services (see (i) below and note (40)) 40,399 58,546
Fund manager fees 20,657 19,658
Administrative expenses (see (ii) below) 116,088 143,675
1,613,685 1,367,039
Notes to the Financial Statements
Page 92 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
i. Shared services represents the cost allocated to ARM Life Plc by Asset & Resource Management Holding
Company Limited in respect of services being provided by core business units who have direct and active
involvement in operational activities that ARM Life leverages on..
ii. Administrative expenses include costs with respect to catering services, electricity bills, regulatory fees,
vehicle licensing fees and entertainment expenses.
(b) Personnel expenses
Personnel expenses comprise of:
2019 2018
N'000 N'000
Wages and salaries 793,682 527,532
Contributory pension 38,452 28,734
832,134 556,266
16. Cash and cash equivalents
(a) Cash and cash equivalents comprises:
Cash in hand 10 10
Balances held with banks in Nigeria 314,408 192,999
Placements with financial institutions (see (b) below) 2,567,096 636,064
2,881,514 829,073
(b) Placement with financial institutions comprises term deposits with maturity of less than 90 days from the purchase
date of the instruments.
(c) Maturity profile of cash and cash equivalents
Current 2,881,514 829,073
Non-current - -
2,881,514 829,073
17. Financial assets
The Company's financial assets are summarised below by measurement category in the table below.
Financial assets - fair value through profit or loss (see (a) below) 24,940,711 435,928
Financial assets - amortised cost (see (b) below) 1,929,048 16,727,454
Financial assets - fair value through other comprehensive income (see (c) below)
- 127,369
26,869,759 17,290,751
Maturity profile of financial assets
Current 2,393,810 3,697,381
Non-current 24,475,949 13,593,370
26,869,759 17,290,751
Notes to the Financial Statements
Page 93 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
(a) Investment securities- fair value through profit or loss
Quoted Shares - cost 2019 2018
Fair value gain/(loss) N'000 N'000
1,407,976 1,478,617
(1,038,539) (1,042,689)
369,437 435,928
i. The movement in fair value loss on financial assets at fair value through profit or loss during the year is as
follows:
Balance at 1 January 1,042,689 922,499
Increase/(Decrease) in fair value loss (4,150) 120,190
1,042,689
1,038,539
Changes in fair values of financial assets at fair value through profit or loss are recorded as net trading income
on financial assets in the income statement. The fair value of all equity securities is based on their current bid
prices on the Nigerian Stock Exchange.
ii. Debt securities - Bonds
Bonds comprise:
Quoted:
FGN Bonds 214,541 -
15.54% 13-Feb-2020 853,901 -
14.50% 15-Jul-2021 118,310 -
16.39% 27-Jan-2022 327,812 -
12.75% 27-Apr-2023 1,064,715 -
14.20% 14-Mar-2024 306,922 -
12.50% 22-Jan-2026 1,076,196 -
16.29% 17-Mar-2027 2,726,460 -
13.98% 28-Feb-2028 2,544,099 -
12.15% 18-Jul-2034 108,745 -
12.05% 18-Jul-2034 217,491 -
12.12% 18-Jul-2034 2,527,379 -
12.40% 18-Mar-2036 6,806,703 -
16.25% 18-Apr-2037 5,162,177 -
14.80% 26-Apr-2049
State Bonds 47,047 -
NIGER 17.00% 04-Oct-2022 41,003 -
LAGBOND 13.50% 27-Nov-2021
Corporate Bonds 112,457 -
FIDELITYBOND 16.48% 13 May 2022 109,715 -
UBABOND 16.45% 30-Dec-2022
Unquoted: 24,365,673 -
State Bonds
ZAMBOND 17.00% 19-May-2022 110,276 -
110,276 -
24,475,949 -
Notes to the Financial Statements
Page 94 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
(iii) Movement in Bonds Carried at fair value through profit or loss during the year is as follows;
2019 2018
N'000 N'000
Transfer from fair value at amortised cost 13,593,370 -
Additions during the year 8,093,159 -
Redemption (300,000) -
Fair value 3,089,420 -
24,475,949 -
A change in the basis of measuring financial assets backing annuity liabilities from amortised cost to FVTPL was
done to correct the mismatches that existed between the annuity assets and the annuity contract liabilities. This
resulted in the reclassification of financial assets initially measured at amortised cost to fair value through Profit or
Loss (FVTPL) in line with provisions of IFRS 9 and consistent with our Business Model and SPPI assessment.
(b) Investment securities - at amortised cost
Debt securities: - 13,526,200
Bonds - quoted - 67,170
Bonds - unquoted 1,929,048
Treasury bills - quoted 1,929,048 3,134,084
16,727,454
i. Quoted Debt securities - Treasury bills
Treasury bills comprise:
Nigerian Treasury Bills - 03-Jan-2019 - 586,275
Nigerian Treasury Bills - 24-Jan-2019 - 154,808
Nigerian Treasury Bills - 31-Jan-2019 - 231,632
Nigerian Treasury Bills - 21-Feb-2019 - 90,469
Nigerian Treasury Bills - 28-Feb-2019 - 96,178
Nigerian Treasury Bills - 7-Mar-2021 - 17,611
Nigerian Treasury Bills - 14-Mar-2021 - 243,860
Nigerian Treasury Bills - 21-Mar-2021 - 223,885
Nigerian Treasury Bills - 02-May-2019 - 315,607
Nigerian Treasury Bills - 23-May-2019 - 14,147
Nigerian Treasury Bills - 30-May-2019 - 32,600
Nigerian Treasury Bills - 12-Sept-2019 - 308,905
Nigerian Treasury Bills - 03-Oct-2019 - 142,222
Nigerian Treasury Bills - 17-Oct-2019 - 84,108
Nigerian Treasury Bills - 07-Nov-2019 - 282,461
Nigerian Treasury Bills - 12-Dec-2019 - 99,135
Nigerian Treasury Bills - 26-Dec-2019 - 210,181
Nigerian Treasury Bills - 23-Jan-2020 93,608
Nigerian Treasury Bills - 16-Jan-2020 89,899 -
Nigerian Treasury Bills - 13-Feb-2020 615,495 -
Nigerian Treasury Bills - 28-Feb-2020 111,241 -
Nigerian Treasury Bills - 10-Sep-2020 316,161 -
Nigerian Treasury Bills - 24-Sep-2020 35,662 -
Nigerian Treasury Bills - 17-Oct-2020 51,240 -
Nigerian Treasury Bills - 29-Oct-2020 481,417 -
Nigerian Treasury Bills - 30-Dec-2020 134,325 -
1,929,048 -
3,134,084
Notes to the Financial Statements
Page 95 ARM Life Plc
Annual Report & Financial Statements
ii. Debt securities - Bonds For the year ended 31 December 2019
Bonds comprise:
2019 2018
Quoted: N'000 N'000
FGN Bonds
16.00% 29-June-2020 - 298,623
15.54% 13-Feb-2021 - 213,111
14.50% 01-Jul-2022 - 102,565
14.50% 15-Jul-2021 - 530,382
16.39% 27-Jan-2022 - 109,374
14.20% 14-Mar-2024 - 975,103
12.50% 22-Jan-2026 - 283,316
16.29% 17-Mar-2027 - 855,677
13.98% 28-Feb-2028 - 1,497,608
12.15% 18-Jul-2034 - 2,546,036
12.40% 18-Mar-2036 - 2,160,042
16.25% 18-Apr-2037 - 3,677,925
State Bonds - 48,321
NIGER 17.00% 04-Oct-2022 - 25,862
LAGBOND 13.50% 27-Nov-2021
- 102,167
Corporate Bonds - 100,088
FIDELITYBOND 16.48% 13 May 2022
UBABOND 16.45% 30-Dec-2022 - 13,526,200
Unquoted: - 67,170
State Bonds - 67,170
ZAMBOND 17.00% 19-May-2022 - 13,593,370
Notes to the Financial Statements
Page 96 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
(c) Investment securities- fair value through OCI 2019 2018
N'000 N'000
Unquoted shares
- 127,369
i. Fair value through OCI investment securities can be analysed as follows: - 127,369
Unquoted shares - cost
Fair value gains 55,550 152,086
Impairment loss 55,550 152,086
ii. The movement in fair value gains during the year is as follows: 77 23,221
Balance at 1 January (55,627) (47,938)
Fair value gain/(loss) 127,369
On disposal of FVOCI investment securities -
23,221 35,049
28,444 (11,828)
(51,588)
-
77 23,221
iii. The movement in impairment during the year is as follows:
Balance at 1 January 47,938 47,938
On disposal of FVOCI investment securities - -
47,938 47,938
The unquoted shares are carried at cost less impairment, as the fair value cannot be reliably determined.
iv. Unquoted investment is analysed as follows:
At cost 3,125 3,125
Trustbond Mortgage Bank Plc 11,250 11,250
Financial & Commercial Services 96,536
MTN Nigeria Communication Limited - 10,000
Golden Securities Limited 10,000 31,175
9 Mobile 31,175 152,086
55,550 23,221
Fair value gains (47,938)
Impairment 77 127,369
(55,627)
At fair value 119,680
MTN - 3,801
Financial & Commercial Services 2,187
Trustbond Mortgage Bank Plc - 1,600
Golden Securities - 101
ETI Preference -
- 127,369
-
-
Notes to the Financial Statements
Page 97 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
18 Loans and receivables 2019 2018
N'000 N'000
Staff loans
Maturity profile of Loans and receivables 430 255
Current 430 255
Non-current - -
430 255
19 Trade receivables 311,958 318,079
34,665 35,069
Due from insurance companies 346,623 353,148
Co-assurance recovery receivable (344,536) (342,710)
2,087 10,438
Impairment allowance - specific
i. Maturity profile of trade receivables 2,087 10,438
- -
Current
Non-current 2,087 10,438
Premium receivables/trade receivables are not admissible by NAICOM (National Insurance Commission) for the
purpose of solvency margin determination.
There is no concentration of credit risk with respect to loans and receivables, as the Company has a non-systematical
portfolio dispersed across many
ii. Movement in specific impairment
Balance at 1 January 342,710 338,045
Additions during the year (see note 13) 1,826 5,283
Reversal of impairment allowance (see note 13) - (618)
Balance at 31 December
344,536 342,710
iii. The Company's trade receivables have no collateral as security and other credit enhancements. The Company has no
loans or receivables that is past due but not impaired. Trade receivables are to be settled on demand and the carrying
amount is not significantly different from the fair value.
As at 31 December 2019, the Company had no trade receivables that were past due or impaired whose terms were
renegotiated.
Notes to the Financial Statements
Page 98 ARM Life Plc
Annual Report & Financial Statements
For the year ended 31 December 2019
20 Reinsurance assets
2019 2018
N'000 N'000
Prepaid reinsurance 58,261 118,465
Reinsurance recoverable on claims – IBNR 11,769 71,907
70,030 190,372
Reinsurance recoverable on claims paid and outstanding claims 283,651 200,588
353,681 390,960
Impairment (16,086) (16,086)
337,595 374,874
Prepaid reinsurance represents unamortised re-insurance cost at the end of the period. Cost associated with re-insurance
are amortised over the life of the contract.
i. The movement in reinsurance assets during the year is as follows:
Balance at 1 January 374,874 288,728
Additions during the year 701,773 648,220
Payments during the year (748,389) (551,858)
Impact of prepaid insurance
IBNR 9,337 (4,241)
- (5,975)
374,874
337,595
ii. The movement in impairment during the year is as follows:
Balance at 1 January 16,086 16,086
Additions during the year - -
Reclassification from trade receivables (see note 19(ii)) - -
16,086 16,086
Maturity profile of reinsurance assets 337,595 374,874
Current - -
Non-current
337,595 374,874
21 Deferred acquisition costs
Balance at 1 January 29,776 14,039
Commission paid 562,451 265,356
Amortization of commission (see note 9) (563,760) (249,619)
28,467 29,776
Maturity profile of deferred acquisition costs
Current 28,467 29,776
Non-current 28,467 29,776
Notes to the Financial Statements
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ARM Life Annual Report 2019
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