Annual report 2006 - Dexia.com

RAPPORT DE GESTION
CONSOLIDATED
FINANCIAL STATEMENTS
COMPTES SOCIAUX
1.13. DEFERRED ACQUISITION COSTS
Deferred acquisition costs are only applicable to FSA activities
and are comprised of expenses related to the production
of insurance contracts, including commissions paid on
reinsurance assumed, compensation and related costs of
underwriting and marketing personnel, certain rating agency
fees, premium taxes and certain other underwriting expenses,
reduced by ceding commission income on premiums ceded
to reinsurers.
Deferred acquisition costs are amortized over the period in
which the related premiums are earned. Amortization of
deferred acquisition costs is presented on a separate heading
within operating costs.
When an insured issue is retired or defeased prior to the end
of the expected period of coverage, the remaining deferred
acquisition cost is recognized. Recoverability of deferred
acquisition costs is determined by:
• considering deferred premium revenue and premiums
related to early repayments;
• and the present value of anticipated losses and loss adjustment
expenses.
1.14. LOANS AND ADVANCES DUE FROM
BANKS AND CUSTOMERS
Loans categorized as “loans and advances”, being those not
included within trading, designated at fair value through P/L
and AFS, are carried at amortized cost, being the outstanding
principal amount, net of any deferred fees and material
direct costs on loans and net of any unamortized premiums
or discounts.
1.15. FINANCIAL ASSETS OR FINANCIAL
LIABILITIES HELD FOR TRADING OR FINANCIAL
ASSETS OR LIABILITIES DESIGNATED AT FAIR
VALUE THROUGH PROFIT AND LOSS
1.15.1. Loans and securities held for trading
Loans held for trading purposes are included in “Financial
assets held for trading” and are carried at fair value, with
unrealized gains and losses recorded in earnings as “Net trading
income”. Interest income is accrued using the effective
interest rate method and is recorded under “Net interest
income”.
Trading securities are securities acquired for generating a profit
from short-term fluctuations in price or dealer’s margin, or are
securities included in a portfolio in which a pattern of shortterm
profit taking exists. Trading securities are initially recognized
at fair value and subsequently re-measured at fair value.
All related realized and unrealized gains and losses are included
in “Net trading income”. Interest earned during the period of
holding the trading assets is reported as “Interest income”.
Dividends received are included in “Dividend income”.
All purchases and sales of trading securities that require
delivery within the time frame established by regulation or
market convention (“regular way” purchases and sales) are
recognized at settlement date. Other trading transactions are
treated as derivatives until settlement occurs (see also Paragraph
1.6. “Trade date and settlement date accounting”).
1.15.2. Liabilities held for trading
Liabilities held for trading follow the same accounting rules as
those for loans and securities held for trading.
1.15.3. Loans and securities designated at fair
value through profit and loss
Loans and securities designated at fair value through statement
of income follow the same accounting rules as those for
loans and securities held for trading.
Under the fair value option, a financial asset, a financial liability
or a group of financial instruments can be designated by
the entity as “at fair value through profit or loss”, provided
that doing so results in more relevant information or increases
measurement reliability. The fair value option simplifies the
application of IAS 39. It is used:
• when such designation eliminates or significantly reduces a
measurement or recognition inconsistency that would otherwise
arise,
• when a group of financial assets, financial liabilities or both
is managed and its performance is evaluated on a fair value
basis, in accordance with a documented risk management or
investment strategy,
• when an instrument contains a non-closely related embedded
derivative.
The use of the fair value option is an accounting policy choice
which should be made for the entire financial instrument, at
initial recognition and when certain conditions of documentation
are fulfilled.
In order to avoid volatility in its equity and results, Dexia has
designated the assets and liabilities of unit-linked contracts
(branch 23) at fair value through the statement of income.
1.15.4. Liabilities designated at fair value through
profit and loss
The above comments on the fair value option are also valid
for the liabilities.
1.16. LOANS AND SECURITIES AVAILABLE FOR
SALE AND SECURITIES HELD TO MATURITY
Management determines the appropriate classification of its
investments at initial recognition.
Quoted securities with fixed maturity are classified as held-tomaturity
(HTM) when management has both the intent and
the ability to hold the assets to maturity.
Securities and loans and receivables intended to be held for
an indefinite period of time, which may be sold in response to
needs for liquidity or changes in interest rates, exchange rates
or equity prices, are classified as available-for-sale (AFS).
Securities and loans and receivables are initially recognized
at fair value (which includes transaction costs). Interest is rec-
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Dexia / Annual Report 2006