MANDAL GENERAL INSURANCE LLC
Notes to the Financial Statements – 31 December 2012
3. Summary of Significant Accounting Policies (Continued) The Company’s motor portfolio comprises both voluntary and obligatory third party liability (MTPL) insurance (driver liability insurance), as well as motor insurance. MTPL insurance covers bodily injury claims and property claims. Property damage under motor insurance, as well as bodily injury claims, are generally reported and settled within a short period of the accident occurring. Property insurance ensures that Company’s customers are paid compensation for the damage caused to their property or ensures their financial interests. Premiums written and earned. Upon inception of a contract premiums are recorded as written. The inception of a contract is conditional upon customer’s payment of total or partial amount of gross premium (depending on type of insurance contract and/or policy) as insurance coverage commences at the date of payment based on the terms of insurance contracts and/or policies. In accordance with the specifics of local insurance market the Company undertakes no insurance risk prior to the receipt of the amount of premium defined in the insurance contract and/or policy. Provision for unearned premiums (i.e. unearned premium reserve or “UPR”) represents the proportion of premiums written that relate to unexpired term of policies in force as at the balance sheet date. Provision for unearned premiums is calculated and recognized over the insurance coverage period using pro-rata method. Insurance coverage period is adjusted as to commence on the date of the first payment of insurance premium. Loss provision. Loss provision (insurance reserves) represents the accumulation of estimates for ultimate losses and includes provision for lossess reported but not settled (“RBNS”), provision for losses incurred but not yet reported (“IBNR”) and unexpired risk provision/reserve (“URR”). RBNS is provided in respect of claims reported but not settled as at the reporting date. The estimation is made on the basis of information received by the Company during investigation of the insured event including information received after the reporting date. If the amount of loss is not determined, the maximum possible amount of losses not exceeding the insurance limit, stated in the insurance policy, is recognised as RBNS. Refer to Note 4, 14 and 15. IBNR is determined for each line of business (i.e. type of insurance) based on earned premiums and an expected loss ratio (“ELR”) to project the ultimate losses and estimate the claim liability for IBNR on an ultimate undiscounted basis in accordance with the Expected Loss method. The ultimate undiscounted IBNR amounts are then discounted to recognize the time value of money and provisions for adverse deviation. The change in calculated amount of IBNR compared to the amount at the beginning of the reporting period is charged to profit and loss for the year. Refer to Notes 4, 14 and 15. Liability adequacy test and unexpired risk reserve (URR). At the end of each reporting period, liability adequacy tests are performed to ensure the adequacy of the contract liabilities net of related DAC. In performing these tests, current best estimates of future contractual cash flow and claims handling and administration expenses, as well as investment income from the assets backing such liabilities, are used. Any deficiency is immediately charged to profit or loss initially by writing off DAC and by subsequently establishing a provision for losses arising from liability adequacy tests as the unexpired risk reserve, which is presented as part of loss provision. Any DAC written off as a result of this test cannot subsequently be reinstated. Reinsurance contracts held. The Company cedes reinsurance in the normal course of business. Ceded reinsurance contracts do not relieve the Company from its obligations to policyholders. Contracts entered into by the Company with reinsurers under which the Company is compensated for losses on one or more contracts issued by the Company and that meet the classification requirements for insurance contracts are classified as reinsurance contracts held. The Company is engaged in outward reinsurance only i.e. it is not engaged in inward reinsurance. The benefits to which the Company 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 longer 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. Premiums ceded and related reinsurance liabilities are recognised on an accruals basis. The Company assesses its reinsurance assets for impairment on an annual basis. If there is objective evidence that the reinsurance asset is impaired the Company reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the statement of comprehensive income. The Company gathers the objective evidence that a reinsurance asset is impaired using the same process adopted for financial assets held at amortised cost. The impairment loss is calculated following the same method used for these financial assets.
Mandal Daatgal - Annual report 2012 [eng]