Premium is recognised as earned from the date of attachment of risk (generally the date a contract is agreed to but may be earlier if
persuasive evidence of an arrangement exists) over the period of the related insurance contracts in accordance with the pattern of the
incidence of risk expected under the contracts. The pattern of the risks underwritten is generally matched by the passing of time.
Premium for unclosed business (business written close to reporting date where attachment of risk is prior to reporting date and there
is insufficient information to accurately identify the business) is brought to account based on previous experience with due allowance
for any changes in the pattern of new business and renewals. The unearned portion of premium is recognised as an unearned
premium liability on the balance sheet.
Premium receivable is recognised as the amount due and is normally settled between 30 days and 12 months. The recoverability of
premium receivable is assessed and provision is made for impairment based on objective evidence and having regard to past default
experience. Premium receivable is presented on the balance sheet net of any provision for impairment.
E. OUTWARDS REINSURANCE
Premium ceded to reinsurers is recognised as an expense in accordance with the pattern of reinsurance service received. Accordingly,
a portion of outwards reinsurance premium expense is treated as a prepayment and presented as deferred outwards reinsurance
expense on the balance sheet at the reporting date.
F. CLAIMS
The outstanding claims liability is measured as the central estimate of the present value of expected future payments relating to
claims incurred at the reporting date with an additional risk margin to allow for the inherent uncertainty in the central estimate. The
liability is measured based on the advice of/valuations performed by, or under the direction of, the Appointed Actuary. The expected
future payments include those in relation to claims reported but not yet paid or not yet paid in full, claims incurred but not enough
reported (IBNER), claims incurred but not reported (IBNR) and the anticipated direct and indirect claims handling costs. The liability is
discounted to present value using a risk free rate.
Claims expense represents claim payments adjusted for the movement in the outstanding claims liability.
The estimation of the outstanding claims liability involves a number of key assumptions and is the most critical accounting estimate.
All reasonable steps are taken to ensure that the information used regarding claims exposures is appropriate. However, given the
uncertainty in establishing the liability, it is likely that the final outcome will be different from the original liability established. Changes
in claims estimates are recognised in profit or loss in the reporting year in which the estimates are changed.
G. REINSURANCE AND OTHER RECOVERIES
Reinsurance and other recoveries received or receivable on paid claims and on outstanding claims (notified and not yet notified) are
recognised as income. Reinsurance and other recoveries receivable include the net GST receivable on outstanding claims and
recoveries. Reinsurance recoveries on paid claims are presented as part of trade and other receivables net of any provision for
impairment based on objective evidence for individual receivables. All recoveries receivable on outstanding claims are measured as
the present value of the expected future receipts calculated on the same basis as the outstanding claims liability. Reinsurance does
not relieve the originating insurer of its liabilities to policyholders and is presented separately on the balance sheet.
H. ACQUISITION COSTS
Costs associated with obtaining and recording general insurance contracts are referred to as acquisition costs. These costs include
advertising expenses, commissions or brokerage paid to agents or brokers, premium collection costs, risk assessment costs and other
administrative costs. Such costs are capitalised where they relate to the acquisition of new business or the renewal of existing
business, are presented as deferred acquisition costs, and are amortised on the same basis as the earning pattern of the premium
over the period of the related insurance contracts. The balance of the deferred acquisition costs at the reporting date represents the
capitalised deferred acquisition costs relating to unearned premium.
I. LIABILITY ADEQUACY TEST
The liability adequacy test is an assessment of the carrying amount of the unearned premium liability and is conducted at each
reporting date. If current estimates of the present value of the expected future cash flows relating to future claims arising from the
rights and obligations under current general insurance contracts, plus an additional risk margin to reflect the inherent uncertainty in
the central estimate, exceed the unearned premium liability (net of reinsurance) less related deferred acquisition costs, then the
unearned premium liability is deemed to be deficient. Any deficiency arising from the test is recognised in profit or loss with the
corresponding impact on the balance sheet recognised first through the write down of deferred acquisition costs for the relevant
portfolio of contracts, with any remaining balance being recognised on the balance sheet as an unexpired risk liability. The test is
performed at the level of a portfolio of contracts that are subject to broadly similar risks and that are managed together as a single
portfolio.
J. LEVIES AND CHARGES
Levies and charges for which the amount paid to regulatory bodies does not depend on the amounts collected from policyholders, as is
the case with fire services levies in Australia, are expensed on the same basis as the recognition of premium revenue. The portion
relating to unearned premium is treated as a prepayment and presented as deferred levies and charges on the balance sheet. A
liability for levies and charges payable is recognised on business written to the reporting date. Other levies and charges that are
simply collected on behalf of third parties are not recognised as income or expense in profit or loss.
SIGNIFICANT ACCOUNTING POLICIES APPLICABLE TO OTHER ACTIVITIES
K. FEE AND OTHER INCOME
Fee based revenue is brought to account on an accruals basis being recognised as revenue on a straight line basis in accordance with
the passage of time as the services are provided. Other income is recognised on an accruals basis.
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