Notes to the consolidated
financial statements
continued
30 Employee retirement benefit obligations continued
The unrecognised net actuarial losses are the net cumulative gains and losses on both the scheme’s obligations and underlying assets.
As the fair value of scheme obligations exceeds the present value of the scheme assets, the scheme reports a deficit. The Group recognises
actuarial gains and losses using the corridor method as defined in the Group’s accounting policy.
The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit actuarial cost method. A formal
full actuarial valuation is performed on a triennial basis, most recently at 31 December 2011, and updated at each intervening balance sheet
date by the actuaries. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using
interest rates of AA rated corporate bonds that have terms to maturity that approximate to the terms of the related pension liability.
The scheme assets are invested as follows:
2012 2011
At 31 December £000 £000
Equities 105,644 91,758
Debt and fixed income assets 47,417 44,825
Cash 3,452 3,934
156,513 140,517
The majority of the scheme’s debt and fixed income assets are held through the ownership of units in managed credit funds issued
by Standard Life Assurance Limited which invest in a broad spread of high-quality corporate bonds with derivatives used in controlled
conditions to extend durations in some cases.
The amounts recognised in the Group’s income statement are as follows:
2012 2011
Note £000 £000
Current service cost 347 533
Interest cost 7,548 7,705
Expected return on scheme assets (8,097) (8,988)
Recognition of past service credit – (3,037)
Amortisation of net actuarial loss 1,034 –
Effect of deemed irrecoverability of surplus 968 5,487
Total included in staff costs 9 1,800 1,700
The actual return on scheme assets was a gain of £17,807,000 (2011: £3,392,000).
The movement in liability recognised in the Group’s balance sheet is as follows:
2012 2011
Note £000 £000
At beginning of year – –
Total expense charged in the income statement of the Group 9 1,800 1,700
Contributions paid (1,800) (1,700)
At end of year – –
A reconciliation of the fair value of scheme assets is as follows:
2012 2011
£000 £000
Opening fair value of scheme assets 140,517 144,056
Expected return on scheme assets 8,097 8,988
Difference between expected and actual return on scheme assets 9,710 (5,596)
Contributions by the employer 1,800 1,700
Settlements with scheme members – –
Benefits paid (3,264) (8,098)
Expenses paid (347) (533)
Closing fair value of scheme assets 156,513 140,517
98 Notes to the consolidated financial statements Hiscox Ltd Report and Accounts 2012