The Group KD Group and KD Group dd

The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
period when premium allocations to the unit-linked insurance liability are reduced for upfront charges. For property insurance
contracts a proportional share of acquisition costs is deducted from the unearned premium reserves. For life insurance
contracts with DPF and investment contracts with DPF, acquisition costs are deducted from mathematical provisions.
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2.14.1.7 Liability adequacy test
On each balance sheet date, contract liability adequacy tests are carried out. The Group assesses at each reporting date
whether its recognised insurance liabilities are adequate, using current estimates of future cash flows under its insurance
contracts, appraisal costs and administration costs, as well as financial income from the investments to cover these liabilities.
If this estimate shows that the carrying amount of insurance liabilities is not appropriate in terms of estimated future cash
flows, the entire amount of the deficit is recognised in the profit or loss.
The liability adequacy test is done on the basis of recognised gross liabilities. The relevant insurance assets are considered
separately. In carrying out the liability adequacy test, the insurance considers only liabilities which stem from contracts listed
under the insurance contract category according to the standard. These liabilities include liabilities for unearned premiums,
liabilities from insurance contracts, deferred agency fee costs, claims liabilities and other liabilities.
If the liability adequacy test indicates inadequate liabilities, the calculation of liabilities from such insurance contracts in future
periods is done on the basis of the assumption of the test which showed inadequate disclosure of liabilities.
2.14.1.8 Reinsurance contracts
Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more
contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as
reinsurance contracts held.
The benefits to which the Group is entitled under its reinsurance contracts held are recognised as reinsurance assets. These
assets consist of short-term balances due from reinsurers, as well as long-term receivables that are dependent on the
expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to
reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance
with the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts
and are recognised as an expense when due.
The Group assesses its reinsurance assets for impairment on a regular basis. If there is objective evidence that the
reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and
recognises the impairment loss in the income statement.
2.14.1.9 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 that impairment loss in the income statement.
2.14.1.10 Salvage and subrogation reimbursements
Some insurance contracts permit the Group to sell (usually damaged) 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 action against the liable third party.
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