2009 GMHBA Annual Report - GMHBA Health Insurance

GMHBA Limited ABN 98 004 417 092NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2009 (CONTINUED)1. Summary of significant accounting policies (continued)GMHBA Limited ABN 98 004 417 092NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2009 (CONTINUED)1. Summary of significant accounting policies (continued)(j)Claims outstanding (continued)AASB 1023 requires a risk margin be applied to allow for the inherent uncertainty in thecentral estimate. GMHBA adopted a risk margin of 6% giving in excess of 90% probability ofadequacy.The risk margin has been based on an analysis of the past experience of the Company byour Appointed Actuary on the adequacy of the provision over the prior two years.The liability for outstanding claims provides for claims received but not assessed and claimsincurred but not received. The liability is based on an actuarial assessment taking intoaccount historical patterns of claim incidence and processing.The liability also allows for an estimate of claims handling costs which include internal andexternal costs incurred in connection with the negotiation and settlement of the claimsdepartment and any part of the general administrative costs directly attributable to the claimsfunction. The allowances for the claims handling cost at 30 June 2009 is 5% of the claimsliability.(l)(m)Connect Reward benefitsThe Company operates a Connect Reward benefits entitlement for Fund members who haveat least one year of eligible combined (hospital and ancillary) membership. Fund membersreceive an additional annual allocation of benefits as long as their eligible cover ismaintained. In addition, the ‘Connect Rewards’ product entitles eligible combined Fundmembers to accumulate annual allocations, which they can use to claim additional benefits.Provision is made for the future liability for claims under the Connect Rewards entitlements.The Company has provided for the total eligible benefit to combined Fund members as at30 June 2009 with due allowance for both expected timing of payments and foregone benefitentitlements on the basis that it is likely that not all Fund members will use their fullentitlement. This allowance is reviewed periodically and the provision is currently 75% of thefull Connect Reward entitlement in respect of membership up to 30 June 2009.Comparative informationWhere necessary, comparative figures have been adjusted to conform to changes inpresentation for the current financial year.(k)Liability Adequacy TestUnder AASB 1023 the Company is required to perform a Liability Adequacy Test todetermine whether the carrying amount of insurance liabilities is adequate based onexpected future cash flows. The test is carried out with the inclusion of a risk margin and isundertaken at the level of portfolio contracts that are subject to broadly similar risks and aremanaged together as a single portfolio. Any deficiency arising is recognised by writing downany related intangible assets, then the related deferred acquisition costs with any remainingbalance being recognised as an unexpired risk liability.The Liability Adequacy Test is required to be performed to determine whether the unearnedpremium liability (premiums in advance) is adequate to cover the present value of expectedcash flows relating to future claims arising from rights and obligations under currentinsurance coverage plus an additional risk margin to reflect the inherent uncertainty in thecentral estimate. The risk margin adopted was 2.5% which corresponds to a 70% probabilityof adequacy. The reason these percentages differ from those adopted in determining theoutstanding claims liability is that the former is in effect an impairment test used only toassess the sufficiency of net premium liabilities whereas the latter is an accounting policymeasurement used in determining the carrying value of the outstanding claims liability.If the present value of the expected future cash flows relating to future claims plus theadditional risk margin to reflect the inherent uncertainty in the central estimate exceeds theunearned premium liability less related intangible assets and related deferred acquisitioncosts then the unearned premium is deemed to be deficient.The Liability Adequacy Testing as at 30 June 2009 did not result in any adjustment, as asurplus was identified.(n)(o)(p)(q)(r)Unearned premium liabilityPremiums received or receivable up to the end of the financial year are recorded as revenuefor the period from the date of the attachment of risk. Premiums received prior to 30 June2009 relating to the period beyond 30 June 2009 are recognised an Unearned PremiumLiability. Also, forecast premiums receivable from policyholders at 30 June 2009 arerecognised as unclosed business premiums.Trade and Other PayablesLiabilities are recognised for amounts payable in the future for goods and services receivedat balance date, whether or not billed to the Company. The company’s payables are allconsidered short term.Income taxThe Company is exempt from income tax by virtue of Section 50-30 item 6.3 of the IncomeTax Assessment Act.Rounding of amountsThe Company is an entity to which Australian Securities and Investment Commission ClassOrder 98/100 applies and amounts have been rounded off in accordance with that ClassOrder. All amounts shown in the financial statements are expressed to the nearest $1,000.InvestmentsInvestments comprise assets held to back insurance liabilities. All investments are managedand performance evaluated on a fair value basis for both external and internal reportingpurposes in accordance with a documented investment management strategy.All investments are determined to be assets backing insurance liabilities and accordingly aredesignated as fair value through income statement upon initial recognition. They are initiallyrecorded at fair value being the cost of acquisition excluding transaction costs and aresubsequently remeasured to fair value at each reporting date.34 3335 34