Notes to the consolidated (g) Salvage and subrogation contributions into a separate entity and
financial statements reimbursements
Some insurance contracts permit the Group
has no further obligation beyond the agreed
contribution rate. A defined benefit plan is
continued to sell property acquired in settling a claim a pension plan that defines an amount of
(i.e. salvage). The Group may also have pension benefit that an employee will receive
the right to pursue third-parties for payment on retirement, usually dependent on one or
2 Significant accounting policies continued of some or all costs (i.e. subrogation). more factors such as age, years of service
2.13 Insurance contracts continued Estimates of salvage recoveries are included and compensation.
(d) Liability adequacy tests continued as an allowance in the measurement of
the insurance liability for claims and salvage For defined contribution plans, the Group
by writing-off DAC and by subsequently property is recognised in other assets when pays contributions to publicly or privately
establishing a provision for losses arising the liability is settled. The allowance is the administered pension insurance plans on
from liability adequacy tests (‘the unexpired amount that can reasonably be recovered a contractual basis. The contributions are
risk provision’). Any DAC written-off as from the disposal of the property. recognised as an employee benefit expense
a result of this test cannot subsequently when they are due. Prepaid contributions
be reinstated. Subrogation reimbursements are also are recognised as an asset to the extent
considered as an allowance in the that a cash refund or a reduction in future
(e) Outwards reinsurance contracts held measurement of the insurance liability for payments is available.
Contracts entered into by the Group, claims and are recognised in other assets
with reinsurers, under which the Group when the liability is settled. The allowance The amount recognised in the balance sheet
is compensated for losses on one or more is the assessment of the amount that can in respect of defined benefit pension plans
insurance or reinsurance contracts and be recovered from the action against the is the present value of the defined benefit
that meet the classification requirements liable third-party. obligation at the balance sheet date less
for insurance contracts, are classified as the fair value of plan assets, together with
insurance contracts held. Contracts that do 2.14 Deferred tax adjustments for unrecognised actuarial gains
not meet these classification requirements Deferred tax is provided in full, using the or losses and past service costs. Plan assets
are classified as financial assets. liability method, on temporary differences exclude any insurance contracts issued
arising between the tax bases of assets by the Group. To the extent that a surplus
The benefits to which the Group is entitled and liabilities and their carrying amounts emerges on the defined benefit obligation,
under outwards reinsurance contracts are in the financial statements. However, it is only recognisable on the asset side of
recognised as reinsurance assets. These if the deferred income tax arises from the balance sheet when it is probable that
assets consist of short-term balances initial recognition of an asset or liability future economic benefits will be recovered
due from reinsurers (classified within loans in a transaction other than a business by the scheme sponsor in the form of
and receivables) as well as longer-term combination that at the time of the refunds or reduced future contributions.
receivables (classified as reinsurance transaction affects neither accounting nor
assets) that are dependent on the expected taxable profit or loss, it is not recognised. Actuarial gains and losses are only
claims and benefits arising under the related Deferred tax is determined using tax rates recognised when the net cumulative
reinsured insurance contracts. and laws that have been enacted or unrecognised actuarial gains and losses
substantively enacted by the balance sheet for each individual plan at the end of the
Reinsurance liabilities primarily comprise date and are expected to apply when the previous accounting period exceeds 10%
premiums payable for ‘outwards’ related deferred tax asset is realised or the of the higher of the defined benefit obligation
reinsurance contracts. These amounts are deferred tax liability is settled. Deferred tax and the fair value of the plan assets at that
recognised in profit or loss proportionally assets are recognised to the extent that date. Such actuarial gains or losses falling
over the period of the contract. Receivables it is probable that future taxable profit will outside of this 10% corridor are charged
and payables are recognised when due. be available against which the temporary or credited to income over the employees’
differences can be utilised. Deferred tax expected average remaining working
The Group assesses its reinsurance is provided on temporary differences lives. Past service costs are recognised
assets on a regular basis and, if there is arising on investments in subsidiaries and immediately in income, unless the changes
objective evidence, after initial recognition, associates, except where the Group to the pension plan are conditional on
of an impairment in value, the Group controls the timing of the reversal of the the employees remaining in service for
reduces the carrying amount of the temporary difference and it is probable a specified period of time (the vesting
reinsurance asset to its recoverable that the temporary difference will not period). In this case, the past service costs
amount and recognises the impairment reverse in the foreseeable future. are amortised on a straight-line basis over
loss in the income statement. the vesting period.
2.15 Employee benefits
(f) Receivables and payables related (a) Pension obligations (b) Other long-term employee benefits
to insurance contracts The Group operated both defined The Group provides sabbatical leave to
Receivables and payables are recognised contribution and defined benefit pension employees on completion of a minimum
when due. These include amounts due schemes during the year under review. service period of ten years. The present
to and from agents, brokers and insurance The defined benefit scheme closed to value of the expected costs of these benefits
contract holders. future accrual with effect from 31 December is accrued over the period of employment.
2006 and active members were offered In determining this liability, consideration
If there is objective evidence that the membership of the defined contribution is given to future increases in salary levels,
insurance receivable is impaired, the Group scheme from 1 January 2007. experience with employee departures
reduces the carrying amount of the insurance and periods of service.
receivable accordingly and recognises A defined contribution plan is a pension
the impairment loss in profit or loss. plan under which the Group pays fixed
60 Notes to the consolidated financial statements Hiscox Ltd Report and Accounts 2012