Download PDF - Hiscox

Notes to the consolidated
financial statements
continued
2 Significant accounting policies continued
2.13 Insurance contracts continued
(e) Outwards reinsurance contracts
held continued
carrying amount of the reinsurance asset to
its recoverable amount and recognises the
impairment loss in the income statement.
(f) Receivables and payables related
to insurance contracts
Receivables and payables are recognised
when due. These include amounts due
to and from agents, brokers and insurance
contract holders.
If there is objective evidence that the
insurance receivable is impaired, the
Group reduces the carrying amount of
the insurance receivable accordingly and
recognises the impairment loss in profit
or loss.
(g) Salvage and subrogation
reimbursements
Some insurance contracts permit the Group
to sell property acquired in settling a claim
(i.e. salvage). The Group may also have the
right to pursue third-parties for payment of
some or all costs (i.e. subrogation). Estimates
of salvage recoveries are included as an
allowance in the measurement of the
insurance liability for claims and salvage
property is recognised in other assets when
the liability is settled. The allowance is the
amount that can reasonably be recovered
from the disposal of the property.
Subrogation reimbursements are also
considered as an allowance in the
measurement of the insurance liability for
claims and are recognised in other assets
when the liability is settled. The allowance
is the assessment of the amount that can
be recovered from the action against the
liable third-party.
2.14 Deferred tax
Deferred tax is provided in full, using the
liability method, on temporary differences
arising between the tax bases of assets
and liabilities and their carrying amounts
in the financial statements. However, if
the deferred income tax arises from initial
recognition of an asset or liability in a
transaction other than a business combination
that at the time of the transaction affects
neither accounting nor taxable profit or
loss, it is not recognised. Deferred tax is
determined using tax rates and laws that
have been enacted or substantively enacted
by the balance sheet date and are expected
to apply when the related deferred tax asset
is realised or the deferred tax liability is
settled. Deferred tax assets are recognised
to the extent that it is probable that the
future taxable profit will be available against
which the temporary differences can be
utilised. Deferred tax is provided on temporary
differences arising on investments in
subsidiaries and associates, except where
the Group controls the timing of the reversal
of the temporary difference and it is
probable that the temporary difference
will not reverse in the foreseeable future.
2.15 Employee benefits
(a) Pension obligations
The Group operated both defined
contribution and defined benefit pension
schemes during the year under review.
The defined benefit scheme closed to
future accrual with effect from 31 December
2006 and active members were offered
membership of the defined contribution
scheme from 1 January 2007.
A defined contribution plan is a pension
plan under which the Group pays fixed
contributions into a separate entity and has
no further obligation beyond the agreed
contribution rate. A defined benefit plan
is a pension plan that defines an amount
of pension benefit that an employee will
receive on retirement, usually dependent
on one or more factors such as age, years
of service and compensation.
For defined contribution plans, the Group
pays contributions to publicly or privately
administered pension insurance plans
on a contractual basis. The contributions
are recognised as an employee benefit
expense when they are due. Prepaid
contributions are recognised as an asset
to the extent that a cash refund or a
reduction in future payments is available.
The amount recognised in the balance sheet
in respect of defined benefit pension plans
is the present value of the defined benefit
obligation at the balance sheet date less
the fair value of plan assets, together with
adjustments for unrecognised actuarial gains
or losses and past service costs. Plan assets
exclude any insurance contracts issued
by the Group. To the extent that a surplus
emerges on the defined benefit obligation,
it is only recognisable on the asset side of the
balance sheet when it is probable that future
economic benefits will be recovered by the
scheme sponsor in the form of refunds or
reduced future contributions.
Actuarial gains and losses are only
recognised when the net cumulative
58 Notes to the consolidated financial statements Hiscox Ltd Report and Accounts 2009
unrecognised actuarial gains and losses
for each individual plan at the end of the
previous accounting period exceeds
10% of the higher of the defined benefit
obligation and the fair value of the plan
assets at that date. Such actuarial gains
or losses falling outside of this 10% corridor
are charged or credited to income over the
employees’ expected average remaining
working lives.
Past service costs are recognised
immediately in income, unless the changes
to the pension plan are conditional on the
employees remaining in service for a
specified period of time (the vesting period).
In this case, the past service costs are
amortised on a straight-line basis over
the vesting period.
(b) Other long-term employee benefits
The Group provides sabbatical leave to
employees on completion of a minimum
service period of ten years. The present
value of the expected costs of these
benefits is accrued over the period of
employment. In determining this liability,
consideration is given to future increases
in salary levels, experience with employee
departures and periods of service.
(c) Share based compensation
The Group operates a number of
equity settled share based employee
compensation plans. These include both
the approved and unapproved share option
schemes, and the Group’s performance
share plans, outlined in the Directors’
remuneration report together with the
Group’s Save as You Earn (SAYE) schemes.
The fair value of the employee services
received, measured at grant date, in
exchange for the grant of the awards
is recognised as an expense with the
corresponding credit being recorded in
retained earnings within equity. The total
amount to be expensed over the vesting
period is determined by reference to the
fair value of the awards granted, excluding
the impact of any non-market vesting
conditions (e.g. profitability or net asset
growth targets). Non-market vesting
conditions are included in assumptions
about the number of awards that are
expected to become exercisable. At each
balance sheet date, the Group revises
its estimates of the number of awards
that are expected to vest. It recognises
the impact of the revision of original
estimates, if any, in the income statement,
and a corresponding adjustment to equity,
over the remaining vesting period.
When the terms and conditions of an
equity settled share based employee