Basic HTML Version
37. FINANCIAL RISK MANAGEMENT POLICIES (CONT’D)
Fair values (cont’d)
(ii) Fair value hierarchy (cont’d)
For financial instruments classified as Level 2, their values are based on quoted prices in inactive markets, or whose
values are based on models whereby but the inputs to those models are observable either directly or indirectly for
substantially the full term of the asset or liability. These would include certain bonds, government bonds, corporate debt
securities and certain issued notes.
38. INSURANCE RISKS
The principal underwriting risk to which the Bank is exposed is credit risk in connection with credit, guarantee and political
risk insurance underwriting activities. Management has established underwriting processes and limits to manage this risk by
performing credit review on its policy holders and buyers.
The underwriting function undertakes qualitative and quantitative risk assessments on all buyers and clients before deciding
on an approved insured amount. Policies in riskier markets may be rejected or charged at a higher premium rate accompanied
by stringent terms and conditions to commensurate the risks.
Concentration limits are set to avoid heavy concentration within a specific region or country. Maximum limits are set for
buyer credit limits and client facility limits for prudent risk mitigation.
For the monitoring of buyer risks, the Bank takes into consideration both qualitative and quantitative factors and conducts
regular reviews on the buyers’ credit standing and payment performance to track any deterioration in their financial position
that may result in a loss to the Bank.
On country risk, the Bank periodically reviews the economic and political conditions of the insured markets so as to revise
its guidelines, wherever appropriate. In order to mitigate the insurance risk, the Bank may cede or transfer the risk to another
insurer company. The ceding arrangement minimizes the net loss to the Bank arising from potential claims.
Key assumptions
The sensitivity analysis is based upon the assumptions set out in the actuarial report and is subject to the reliances and
limitations contained within the report. One particular reliance is that the net sensitivity results assume that all reinsurance
recoveries are receivable in full.
The sensitivity items shown are independent of each other. In practice, a combination of adverse and favourable changes
could occur.
The sensitivity results are not intended to capture all possible outcomes. Significantly more adverse or favourable results
are possible.
EXIM Bank Annual Report 2013
183