ANSA McAL : 29 Mar 2022 – ANSA McAL Limited – Audited Consolidated Financial Statements for the year ended December 21st, 2021 (FULL)

Contents

Page

Independent Auditor's Report

2 - 12

Consolidated Statement of Financial Position

13 - 14

Consolidated Statement of Income

15

Consolidated Statement of Comprehensive Income

16

Consolidated Statement of Changes in Equity

17 - 18

Consolidated Statement of Cash Flows

19 - 20

Notes to the Consolidated Financial Statements

21 - 174

Key Audit Matters

How our audit addressed the key audit matter

Estimates used in the calculation of Insurance

Contracts' Liabilities

Refer to related disclosures in Notes 3, 20 and 21 and accounting policy Note 2 (xxvii). The Group has significant insurance liabilities of $1.76 billion representing 22% of the Group's total liabilities as at 31 December 2021. The valuation of insurance contracts' liabilities involves extensive judgement and is dependent on a number of subjective assumptions, including primarily the timing and ultimate settlement value of long-term policyholder liabilities as well as the estimation of claims incurred, whether reported or not, for short-term insurance contracts.

Various economic and non-economic key assumptions are used to estimate the long-term liabilities. Specifically, the Group estimates the expected number and timing of deaths, persistency, future expenses and future investment income arising from the assets backing long-term insurance contracts and the potential negative effects of the COVID-19 pandemic (the pandemic).

For short-term insurance contracts, in calculating the estimated cost of unpaid claims (both reported and incurred but not reported (IBNR)), the Group uses a combination of loss-ratio-based estimates and estimates based upon actual claims experience.

The Group uses valuation models to support the calculations of these insurance contracts' liabilities. The complexity of the models may give rise to errors as a result of inadequate/incomplete data or the design or application of the models.

Considering the significance of the insurance contracts' liabilities and the complexity and estimates involved in the actuarial valuations, we determined this to be a key audit matter in our audit of the consolidated financial statements.

We involved our EY actuarial specialists to assist us in performing our audit procedures in this area, which included among others:

• • Assessment of the key assumptions applied including consideration of emerging trends and studies on mortality and morbidity, voluntary terminations, persistency, interest rate, capital gains, policy maintenance and administrative expenses, inflation, tax and lapse rates and the possible impact of the pandemic on these factors.

• • Recalculation of technical provisions produced by the models on a sample basis.

• • An assessment of the internal controls regarding the maintenance of the policyholder database.

• • An analysis of the movements in insurance liabilities during the year. We assessed whether the movements are in line with changes in assumptions adopted by the Group, our understanding of developments in the business and our expectations derived from market experience.

• • We considered whether the Group's disclosures in the consolidated financial statements in relation to insurance contracts' liabilities were compliant with IFRS.

Key Audit Matters (continued)

How our audit addressed the key audit matter

Allowance for Expected Credit Losses (ECLs)

Refer to related disclosures in Notes 3, 9, 10 and 33 and accounting policy Note 2 (xvi). Investment securities and loans, advances and other assets not held at fair value through statement of income (FVSI) represent 31% of the total assets of the Group amounting to $5.4 billion as at 31 December 2021.

IFRS 9 'Financial Instruments' requires the Group to record an allowance for Expected Credit Losses (ECLs) for all loans and other debt financial assets not held at FVSI, together with investment in leased assets.

The appropriateness of ECLs is a highly subjective area due to the level of judgement applied by the Group, involving various assumptions and factors, such as the estimate of the likelihood of default and the potential loss given default. The Group also applied adjustments, or overlays, where they believe the data driven parameters and calculations were not appropriate, either due to emerging trends or models not capturing the risks in the portfolios, as well as assessing the impact of the pandemic. These overlays required significant judgement.

We understood and critically assessed the methodology and assumptions used by the Group in its ECL models while evaluating its compliance with IFRS 9 requirements.

We tested the completeness and accuracy of the inputs used within the models, including the Probabilities of Default (PDs), recoveries and the associated Loss Given Defaults (LGDs) and Exposures At Default (EADs). We also considered whether all relevant risks were reflected in the ECL calculation, and where this was not, whether overlays appropriately reflected those risks, particularly those stemming from the pandemic.

The aging of the portfolios and other qualitative factors were assessed to determine the staging and thus indication of a significant deterioration in credit risk in accordance with IFRS 9.

Independent testing on PD and LGD inputs was performed through validation to international external credit rating agencies, where these were used, as well as typical collateral, historical loss trends and other borrower characteristics.