Annual report 2012
24. Financial and Insurance Risk Management The risk management function within the Company is carried out in respect of financial risks (credit, market (currency and interest rate) and liquidity), insurance, operational and legal risks. The primary objectives of the risk management function are to establish risk limits, and then ensure that exposure to risks stays within these limits. The operational and legal risk management functions are intended to ensure proper functioning of internal policies and procedures to minimize operational and legal risks. The risk management function is currently carried out primarily by Chief Risk Officer. Credit risk The Company takes on exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full when due. The Company’s maximum exposure to credit risk is generally reflected in the carrying amounts of financial assets on the statement of financial position. The impact of possible netting of assets and liabilities to reduce potential credit exposure is not significant. The Company’s exposure to credit risk is managed through risk management policies and procedures with emphasis on the quality of the investment portfolio. All the Company’s investments consisted entirely of institutional deposits earning interest at an average of 15.4 percent p.a. (2011: 13.0 percent p.a). The funds invested are all held in reputable Mongolian banks and are in Mongolian Tugrik. The Company is in the early stages of development and is continually improving its policies regarding monitoring its credit risk. Amounts due from policy holders are short-term in nature and are not subject to material credit risk. Market risk The Company takes on limited exposure to market risks as explained below. The Company’s investment policy operates within the policies in place by management and its application is monitored by the Board of Directors. The investment strategy limits the investments to be held in bank deposits eliminating the risk of market fluctuations. The Company is not exposed to the uncertainty with the valuation of assets arising from changes in equity markets as the Company does not have any marketable securities such as stocks or bonds. Currency Risk Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign currency exchange rates. The Company takes on exposure to the effects of fluctuations in the prevailing levels of exchange rates on its financial position and cash flows. As at the period end as well as throughout the entire period the Company had all of its significant balances in Mongolian Tugrik. As the Company was not operating in different currencies in the period the currency risk is minimal. Sensitivities of profit and loss to reasonably possible changes in exchange rates applied at the end of the reporting period relative to the functional currency of the Company (MNT), with all other variables held constant, is presented below.
In thousands of Mongolian Tugriks 2012
From 21 April to 31 December 2011
Currency rate increase by 5%
Currency rate decrease by 5%
Currency rate increase by 15%
Currency rate decrease by 15%
Liquidity Risk Liquidity risk is defined as the risk when the maturity of assets and liabilities does not match. Liquidity risk is managed by the Management of the Company. As at 31 December 2012 or 2011, the Company does not believe the current maturity profile of the Company lends itself to any material liquidity risk, taking into account the level of cash and deposits as at year end. The Company does not have material liabilities that can be called unexpectedly at the demand of a client. Claim payments are funded by current operating cash flow including investment income.
Mandal Daatgal - Annual report 2012 [eng]