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Notes to the consolidated
financial statements
continued
2 Significant accounting policies continued
2.2 Basis of preparation continued
IAS 10 Events After the Reporting Period:
clarifies that dividends declared after
the end of the reporting period are not
obligations. This had no impact on the
Group’s accounting policy or financial
position as this was already applied.
IAS 16 Property, Plant and Equipment:
replaces the term ‘net selling price’ with
‘fair value less costs to sell’. The Group has
amended its accounting policy accordingly
which did not result in any change in the
financial position.
IAS 19 Employee Benefits: revised the
definition of ‘past service costs’ to include
reductions in benefits related to past
services and to exclude the deduction in
benefits related to future services that arise
from plan amendments. The term ‘return
on plan assets’ was revised to exclude plan
administration costs if they have already
been included in the actuarial assumptions.
In addition, the definition of ‘short-term’
and ‘other long-term’ employee benefits
was amended to focus on the point in time
at which a liability is due to be settled.
Finally, the reference to the recognition
of contingent liabilities has been deleted.
The amendment had no impact on the
accounting policy and financial position
of the Group as the definitions were
consistent with the amendment.
Standards and interpretations issued
but not yet effective or not yet endorsed
by the EU
IFRS 9 – Financial Instruments (not endorsed)
Part I of the three-part project of the
new standard for financial instruments was
issued by the IASB in November 2009
and is applicable for accounting periods
commencing 1 January 2013 although early
adoption is permitted. The two remaining
parts of the standard are Part II, Amortised
Cost and Impairment and Part III, Hedge
Accounting, both of which are expected
to be issued in 2010.
IFRS 9, Part I reduces the classification
and measurement categories of financial
instruments to two, being fair value or
amortised cost. To classify financial assets
as amortised cost they must have basic
loan features and be managed on a
contractual yield basis. In addition, the
classification must also be based on the
business model as ‘determined by key
management personnel’. The new standard
currently does not address how to measure
financial liabilities and the IASB are currently
considering including credit risk in
measuring financial liabilities. It is expected
to issue final requirements for this in 2010.
IFRS 3 (Revised) Business Combinations
and IAS 27 (Amended) Consolidated and
Separate Financial Statements (endorsed)
The revised standards were issued in
January 2008 and are applicable for
accounting periods commencing on or
after 1 July 2009. IFRS 3 incorporates
a number of changes in accounting for
business combinations which will impact
the amount of goodwill recognised and
the results reported in the period of the
combination and future reporting periods.
IAS 27 requires that a change in the
ownership interest of a subsidiary, provided
that control is maintained, to be accounted
for as an equity transaction. As such,
a transaction of this nature will no longer
give rise to goodwill nor gain or loss.
The Group has not early adopted these
standards.
2.3 Basis of consolidation
(a) Subsidiaries
Subsidiaries are those entities controlled
by the Group. Control exists when the
Group has the power, directly or indirectly,
to govern the financial and operating
policies of an entity so as to obtain benefits
from its activities. Generally this occurs
when the Group obtains a shareholding
of more than half of the voting rights of
an entity. In assessing control, potential
voting rights that are currently exercisable
or convertible are taken into account.
Management also exercise significant
judgement about any actual or perceived
control acquired indirectly, through normal
commercial dealings with entities of a
special purpose nature. The Group does
not undertake any such arrangements
with such entities where control of that
entity would be acquired. The consolidated
financial statements include the assets,
liabilities and results of the Group up
to 31 December each year. The financial
statements of subsidiaries are included in
the consolidated financial statements only
from the date that control commences
until the date that control ceases.
Hiscox Dedicated Corporate Member
Limited underwrites as a corporate member
of Lloyd’s on the main Syndicates managed
by Hiscox Syndicates Limited (the ‘main
managed Syndicates’ numbered 33 and,
commencing 1 January 2009, 3624).
In view of the several but not joint liability
54 Notes to the consolidated financial statements Hiscox Ltd Report and Accounts 2009
of underwriting members at Lloyd’s for the
transactions of syndicates in which they
participate, the Group’s attributable share
of the transactions, assets and liabilities
of these Syndicates has been included
in the financial statements. The Group
manages the underwriting of, but does not
participate as a member of, Syndicate 6104
at Lloyd’s which provides reinsurance to
Syndicate 33 on a normal commercial
basis. Consequently, aside from the receipt
of managing agency fees and defined profit
commissions as appropriate, the Group
has no share in the assets, liabilities or
transactions of Syndicate 6104, nor is it
controlled. The position and performance
of that Syndicate is therefore not included
in the Group’s financial statements.
The Group uses the acquisition method
of accounting to account for the acquisition
of subsidiaries. The cost of an acquisition
is measured as the fair value of the assets
given, together with directly attributable
transaction costs, equity instruments
issued and liabilities incurred or assumed
at the date of exchange. Identifiable assets
acquired and liabilities and contingent
liabilities assumed in a business combination
are measured initially at their fair values
at the acquisition date, irrespective of the
extent of any minority interest. The excess
of the cost of acquisition over the fair value
of the Group’s share of the identifiable net
assets acquired is recorded as goodwill.
If the cost of acquisition is less than the
fair value of the net assets of the subsidiary
acquired, the difference is recognised
directly in the income statement.
(b) Associates
Associates are those entities in which
the Group has significant influence but
not control over the financial and operating
policies. Significant influence is generally
identified with a shareholding of between
20% and 50% of an entity’s voting rights.
The consolidated financial statements
include the Group’s share of the total
recognised gains and losses of associates
on an equity accounted basis from the
date that significant influence commences
until the date that significant influence
ceases. The Group’s share of its associates’
post-acquisition profits or losses after tax
is recognised in the income statement each
period, and its share of the movement in
the associates’ net assets is reflected in the
investments’ carrying values in the balance
sheet. When the Group’s share of losses
equals or exceeds the carrying amount
of the associate, the carrying amount is
reduced to nil and recognition of further
losses is discontinued except to the extent
that the Group has incurred obligations
in respect of the associate.