Financial Sector (Collection of Data) (reporting standard) determination No. 10 of 2010 - GRS 310 (2010) - Revenue, Expenses and Statement of Financial Performance
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Premium revenue must be recognised on a basis that is consistent with the requirements of AASB 1023.
In accordance with AASB 1023:
Premium revenue shall be recognised from the attachment date as soon as there is a basis on which it can be reliably estimated:
over the period of the general insurance contract for direct business; or
over the period of indemnity for reinsurance business;
in accordance with the pattern of the incidence of risk expected under the general insurance contract[8].
Reinsurers are required to recognise the premium based on the gross premium income to be written by the direct insurer under the contract for proportional reinsurance. For excess of loss reinsurance contracts, the premium revenue is to be recognised on the basis of the agreed minimum/deposit premium, which will be subject to a final adjustment factor applied to the final declared values of the premium determined.
Premium revenue must be discounted where it is to be received beyond the current year of cover under an insurance/reinsurance contract. In these cases, use the discount rate as required in calculating outstanding claims liabilities in accordance with AASB 1023.
Premium revenue excludes amounts collected on behalf of third parties i.e. government stamp duty and taxes.
Levies charged to insured, such as fire service levies, are to be included as total premium revenue, but are to be reported separately.
Premium refunds and rebates are to be deducted from premium revenue.
For instalment premium policies, the amount of the annualised premium is to be used.
Where premium is calculated on an adjustment basis, the estimated annual premium is to be brought to account, with the estimated premium being replaced by the actual amount as it becomes known.
Where premium is accepted on a deposit basis, the full annual premium is to be brought into account.
Premium revenue must be gross of reinsurance expense.
Total gross written premium includes premium receivable on unclosed business. This includes the business which has been accepted by the insurer/reinsurer prior to the balance date but where there is insufficient information to fully identify the business.
Part 1 and Part 2
For ‘Direct Business” and ‘Inwards Reinsurance Business’, amounts are to be reported as follows:
(1) Total gross written premium revenue
Section Premium revenue - Financial Sector (Collection of Data) (reporting standard) determination No. 10 of 2010 - GRS 310 (2010) - Revenue, Expenses and Statement of Financial Performance - Premium revenue | Zoe
Report premium revenue from business written directly by the insurer in ‘Part 1: Direct Business’. Report inwards reinsurance premiums under ‘Part 2: Reinsurance Business’. This should exclude Fire Service Levy (FSL) or other levies imposed by state and territory governments.
Also includes business sourced through insurance intermediaries such as co-insurance, underwriting pools or joint ventures, or portfolio transfers.
Joint ventures
Joint ventures are to be interpreted as defined by the AASB 131 ‘Interests in Joint Ventures’.
Coinsurance and underwriting pools
Insurance business allocated through underwriting pools and coinsurance arrangements by an entity acting as agent must be accounted for by the accepting insurer as direct insurance business (AASB 1023).
Direct insurers or reinsurers may form underwriting pools or enter coinsurance arrangements as vehicles for jointly insuring particular risks or types of risks. Premiums, claims and other expenses are usually shared in agreed ratios by insurers involved in these arrangements. Many underwriting pools and coinsurance arrangements involve the acceptance of risks by an entity acting as an agent for pool members or coinsurers. The entity receives premiums and pays claims and expenses, and allocates shares of the business to each pool member or coinsurer in agreed ratios. As the entity acting as agent is not an insurer, the business allocated to pool members and coinsurers is not reinsurance business. Pool members and coinsurers will need to treat such business allocated to them as direct insurance business.[9]
Some underwriting pools and coinsurance arrangements involve members of the pool or coinsurers directly underwriting risks and then passing all of those risks into the pool or arrangement. These risks are then shared among pool members or coinsurers. For this type of underwriting pool or arrangement, an insurer treats its share of the business that other insurers place with the pool or arrangement as inwards reinsurance, and the business that it writes and passes into the pool or arrangement as direct insurance business which it reinsures to the extent of the shares in the pool or arrangement of the other pool members or coinsurers. This approach results in the insurer properly reflecting its obligations to those it has directly insured and the substance of the transactions with the pool members or coinsurers.
Portfolio transfers
Portfolio transfer, as defined by AASB 1023, is a term used to describe the process by which premiums and claims on direct insurance business is transferred from one insurer to another by means of direct sale, not by reinsurance.
When responsibility in relation to claims on transferred insurance business passes from the transferring insurer to the accepting insurer the transfer must be accounted for as a portfolio assumption by the accepting insurer, and a portfolio withdrawal by the transferring insurer. In this instance, the accepting insurers will recognise the amount of unexpired premium revenue and insurance liabilities for which the transferring insurer is no longer responsible. Transfers of business effected through the Insurance Act requiring Federal Court approval shall be treated in this manner.
Where the responsibility in relation to claims on transferred insurance business remains with the transferring business, the transfer shall be treated by the transferring insurer and the accepting insurer as reinsurance business.