Page 84 - Continental Reinsurance 2022 Annual Report
P. 84
82 Statement of Significant Accounting Policies
2.9.9 Deferred acquisition costs 2.11 Investment income
Acquisition costs comprise all direct and indirect costs Investment income comprises interest earned on
arising from the writing of reinsurance contracts. short-term deposits, rental income, dividend and
Deferred acquisition costs (DAC) comprise commissions income earned on trading of securities. Investment
and other variable costs directly connected with income is accounted for on an accrual basis.
acquisition or renewal of reinsurance contracts.
2.11.1 Interest income
Deferred acquisition costs represent a proportion of Interest income and expense for all interest-bearing
commission and other acquisition costs, which are financial instruments are recognised within ‘securities
incurred during a financial year and are deferred to the discount and similar income’ and ‘securities discount
extent that they are recoverable out of future revenue and similar expense’ in profit or loss using the effective
margins. DAC is amortised over the premium payment interest method.
period in proportion to the premium revenue
recognised. The effective interest method is a method of
calculating the amortised cost of a financial asset or a
Commissions receivable on outwards retrocession financial liability and of allocating the interest income
contracts are deferred and amortised on a straight line or interest expense over the relevant period. The
basis over the term of the expected premiums payable. effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts through
2.10 Underwriting expenses the expected life of the financial instrument or, when
Underwriting expenses comprises acquisition, appropriate, a shorter period to the net carrying
maintenance and management expenses. Acquisition amount of the financial asset or financial liability.
and maintenance expenses relate to cost incurred When calculating the effective interest rate, the Group
directly in acquisition of businesses. estimates cash flows considering all contractual terms
of the financial instrument (for example, prepayment
2.10.1 Acquisition expenses options) but does not consider future credit losses. The
Acquisition expenses are those costs incurred in calculation includes all fees and points paid or received
obtaining and renewing insurance contracts. These between parties to the contract that are an integral
include commissions paid and policy expenses. part of the effective interest rate, transaction costs and
all other premiums or discounts.
2.10.2 Maintenance expenses
Maintenance expenses are those costs incurred in 2.11.2 Other income
servicing existing policies/contracts and these include Other income is recognised in profit or loss as the
brokerage fees and charges. service is provided or when the entity's right to receive
payment is established. Other income consist
2.10.3 Management and administration expenses primarily of dividend income, gain on assets disposal,
Management and administration expenses are expenses rental income, income from technical and
other than claims, acquisition and maintenance management services, interest on staff loan and other
expenses. miscellaneous income.
These include salaries and emoluments, other staff costs, 2.11.3 Foreign currency gains and losses
depreciation and amortisation, professional fees, Realised gains and losses recorded in the income
investment expenses and other non-operating costs. statement on investments include gains and losses on
financial assets and investment properties. Gains and
Management expenses are those expenses that relate to losses on the sale of investments are calculated as the
underwriting business which are apportioned and difference between net sales proceeds and the original
charged thereto. These include salaries and emoluments or amortized cost and are recorded on occurrence of
of underwriting staff. the sale transaction.
Administration expenses are those expenses that cannot 2.12 Cash and cash equivalents
be directly attributable to underwriting business and Cash and cash equivalents are balances that are held
charged to the profit or loss in the accounting period in for the primary purpose of meeting short-term cash
which they are incurred. These include professional fees, commitments. Hence this includes cash in hand and
investment expenses, other non-operating costs, cash equivalents that are readily convertible to known
depreciation and amortisation. amount of cash are subject to insignificant risk of
changes in value and whose original maturity is three
months or less.
