NOTES TO FINANCIAL STATEMENTS NOTES TO F I NANC I AL STATEMENTS 4.2.5.1. Insurance contracts – measurement The Company applies the premium allocation approach (“PAA”) to all the insurance contracts that it issues and reinsurance contracts that it holds, as: The coverage period of each contract in the group is one year or less, including insurance contract services arising from all premiums within the contract boundary (refer to 4.2.4) For a group of contracts that is not onerous at initial recognition, the Company measures the liability for remaining coverage as: • The premiums, if any, received at initial recognition. • Minus any insurance acquisition cash flows at that date. For all product lines, there is no allowance for time value of money under the LRC as the premiums are received within one year of the coverage period. Where facts and circumstances indicate that contracts are onerous at initial recognition, the Company performs additional analysis to determine if a net outflow is expected from the contract. Such onerous contracts are separately grouped from other contracts and the Company recognises a loss in profit or loss for the net outflow, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows. A loss component is established by the Company for the liability for remaining coverage for such onerous group depicting the losses recognised. 4.2.5.2. Reinsurance contracts held - measurement The measurement of reinsurance contracts held follows the same principles as those for insurance contracts issued and has been adapted to reflect the specific features of reinsurance held. The Company measures the carrying amount of the liability for remaining coverage at the end of each reporting period as the liability for remaining coverage at the beginning of the period: • Plus premiums received in the period; • Minus insurance acquisition cash flows, with the exception of property insurance product line for which the Company chooses to expense insurance acquisition cash flows as they occur; • Plus any amounts relating to the amortisation of the insurance acquisition cash flows recognised as an expense in the reporting period for the group; and • Minus the amount recognised as insurance revenue for the services provided in the period. Where the Company has established a loss-recovery component, the Company subsequently reduces the loss- recovery component to zero in line with reductions in the onerous group of underlying insurance contracts in order to reflect that the loss-recovery component shall not exceed the portion of the carrying amount of the loss component of the onerous group of underlying insurance contracts that the entity expects to recover from the group of reinsurance contracts held. 4.2.5.3. Insurance acquisition cash flows Insurance acquisition costs for insurance contracts issued are comprised of agents’ commission, premium taxed and other expenses that relate directly to acquisition of premiums. These costs are deferred and amortised over the earning pattern of the premiums to the extent that they are considered to be recoverable from unearned premiums, after considering the related anticipated claims and expenses and investment income. Insurance acquisition costs for reinsurance contracts held consists of ceding commission, reinsurance taxes and other income that relate directly to the ceding premiums. These costs are deferred once received and recognised as revenue over the year during which the reinsurance contract is in place. 100
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