Financial Sector (Collection of Data) (reporting standard) determination No. 82 of 2006 - Reporting Standard GRS 310.1 (2007) Premium Revenue and Reinsurance Expense
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Premium revenue must be recognised on a basis that is consistent with the measurement of premiums liabilities as measured in accordance with GPS 310 Audit and Actuarial Reporting and Valuation.
Premium revenue must be recognised in line with the following:
Premium recognition for direct business: Premium revenue must be recognised fully upfront on the date the policy is accepted (bound) by insurers writing direct business.
Premium recognition for inwards reinsurance business: Premium revenue for inwards reinsurance business is to be recognised from the date of acceptance of the reinsurance risk by the reinsurer. Reinsurers are required to recognise the premium based on the Gross Net 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 determinant.
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 insurance liabilities in accordance with GPS 310 Audit and Actuarial Reporting and Valuation.
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 premium revenue.
Premium refunds and rebates are to be deducted from premium revenue.
For installment 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.
Premium revenue includes premium receivable on unclosed business. This includes the business which has been accepted by the insurer/reinsurer prior to the balance date but there is insufficient information to fully identify the business.
Premium revenue relating to insurance/reinsurance contracts written on a long-term basis:
- where the insurer/reinsurer accepting the risk has the option to cancel the contract at pre-agreed dates, premium revenue is to be recognised from the date of acceptance up to the next possible cancellation date.
- where the insurer/reinsurer accepting the risk does not have the option to cancel the contract at pre-agreed dates, the full premium for the long-term insurance/reinsurance contract is to be recognised from the date of acceptance.
For the “Direct business” and “Inwards reinsurance” business, amounts are to be reported as follows:
Premium Revenue - Relating to business directly written
Include premium revenue from business written directly by the insurer. Include inwards reinsurance premiums under the “Reinsurance” section of Type of Business column.
Do not include business sourced through insurance intermediaries such as co-insurance, underwriting pools or Joint Ventures, or portfolio transfers. These are to be disclosed in separate columns.
Premium Revenue – Business from Underwriting pools/joint ventures
Only include premium revenue from business sourced through insurance intermediaries such as co-insurance, underwriting pools or Joint Ventures.
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 ‘General Insurance Contracts’).
Joint ventures are to be interpreted as defined by the Australian Accounting standards AASB 131 ‘Interests in Joint Ventures’.
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 effectively 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.[4]
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.
Include the amount of premium revenue from policies associated with business sourced through portfolio acquisition/transfer.
Portfolio transfer 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. 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 by recognising the relevant amount of premium revenue, premium liabilities and outstanding claims liabilities.
Total Premium Revenue
This is automatically calculated by the form and represents the total of premium revenue from direct business, underwriting pools/ joint ventures and portfolio transfers/acquisitions.