ECIC IR 2023

ANNUAL Financial Statements for the year ended 31 March 2023

E

D

H

S

I

L I

N

B

2

0

A

0

T

S

1

E

E X P O R T C R E

L T D

O C

A S

C

R I

D I

F

T

A

I

N

H

S

T

U

U

R

O

A

S

N

F

C

O

E

N

C

O

O

I

R

T

P

A

O

R

Notes to the Financial Statements

(e) Deferred tax The process for determining the critical estimates, judgements and assumptions made has been disclosed in note 1.14 (f) Useful life and residual values of depreciable assets The process for determining the critical estimates, judgements and assumptions made has been disclosed in note 1.6. (g) Lease liability The incremental borrowing rate used to value lease contracts are derived from observed market prices for a proxy entity that has issued a debt security. ECIC is a government owned entity with an implicit government guarantee, but if it were to borrow it would be at a spread above the risk free rate. The Development Bank of South Africa SOC Ltd is used as a proxy to determine the required spread, because it is a development finance institute wholly owned by the government of South Africa and it has issued a debt security with a modified duration close to the lease agreements of ECIC. The weighted average duration of each lease contract is matched at the related term of the government risk free rates published by the reserve bank at commencement date of each contract. The spread, as at the commencement date of each contract, on a DBSA issued debt security is added to the risk free rate. The spread is determined using the DBSA 3. Terms and conditions of insurance contracts The terms and conditions of insurance contracts that have a material effect on the amount, timing and uncertainty of future cash flows arising from insurance contracts are set out below: 3.1 Nature of risk covered The principal objective of the Corporation is to facilitate and encourage South African export trade by underwriting loans issued by financial institutions and financial assets outside the country, in order to enable foreign buyers to purchase goods and services from South Africa. The Corporation thus enters into insurance contracts with and for the benefit of persons carrying out business in South Africa for purposes of outward trade and/or investments to other countries primarily for medium to long‑term tenures. Cover is provided on contracts for political risks, and where unavailable in the private sector, commercial risk. Two main types of policies available are: c a contractor’s policy, which protects the contractor against buyer default during the development phase, and c a financier’s policy, which protects the lender against buyer default during the loan repayment phase. The majority of the Corporation’s exposure is to financier policies. In addition to the policies described above, the Corporation also provides investment guarantees to cover political risk on South African offshore financial assets. The insured amount equals the capital investment plus dividends to date. Furthermore, political risk cover is provided to financiers who finance non‑shareholders’ loans to foreign entities. Underwriting is complex and requires specialised staff. The same applies to claims assessors, where staff are not only required to process complex claims but are also involved in recovering losses from collateral securities and litigation. The nature of claims and the longer tail nature of business make the calculation of provisions a critical element in the Corporation’s financial reporting process. The return to shareholders under this business arises from the total premiums charged to policyholders less the amounts paid to cover claims (net of recoveries) and the expenses incurred by the Corporation. There is scope for the Corporation to earn investment income owing to the time delay between the receipt of premiums and the payment of claims. The event giving rise to a claim typically occurs with the insolvency, liquidation and protracted default of a buyer or a political event in a foreign country that gives rise to default payment. Claims are notified to the Corporation in terms of specific policy conditions. issued debt security that matches the weighted average duration of the lease contract. The assumptions made on determining the lease term have been disclosed in note 17.

YOUR EXPORT RISK PARTNER

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