Consolidated Financial Statements
Corporate Information Directors D. N. O Brien - (appointed as Chairman - January 20, ) E. G. Warner - (resigned as Chairman - January 20, ) G. A. A. King P. G. Symmonds J. I. O Connell H. H. H. Hall P. D. Rajkumarsingh F. F. Delmas Secretary Natalie. M. Brace Auditor PricewaterhouseCoopers SRL Attorneys-at-Law Elliott Mottley Leslie Haynes PKH Cheltenham Bankers CIBC FirstCaribbean International Bank
Consolidated Statement of Changes in Equity For the year ended Share capital Retained earnings Revaluation surplus Property catastrophe reserve Currency translation reserve Total Noncontrolling interest Total equity Balance as of September 30, 2014 8,900 107,879 11,339 23,948 152,066 15,919 167,985 Total comprehensive income for the year 9,438 9,438 182 9,620 Dividend paid (31,000) (31,000) (31,000) Transfer to property catastrophe reserve (3,301) 3,301 Balance as of September 30, 8,900 83,016 11,339 27,249 130,504 16,101 146,605 Total comprehensive income for the year 11,507 (2,804) 8,703 (59) 8,644 Transfer to property catastrophe reserve (3,832) 3,832 Balance as of 8,900 90,691 11,339 31,081 (2,804) 139,207 16,042 155,249 The accompanying notes form an integral part of these financial statements.
Consolidated Statement of Comprehensive Income For the year ended Revenue Gross premium earned (note 11) 247,436 233,855 Reinsurance premium ceded (note 11) (148,914) (151,933) Net premiums earned 98,522 81,922 Reinsurance commission 25,369 25,372 Net investment income (note 7) 8,626 7,726 Property income/(losses), net 25 (738) Other losses (178) (568) 132,364 113,714 Expenses Losses incurred (note 11) 89,101 56,609 Losses recoverable from reinsurers (note 11) (35,389) (11,943) Net claims incurred 53,712 44,666 Policy acquisition costs 29,913 25,263 General and administrative expenses (note 16) 33,756 30,886 Other expenses 306 538 117,687 101,353 Income from operating activities 14,677 12,361 Share of income from associated companies (note 8) 788 696 Income before taxation 15,465 13,057 Taxation (note 10) (4,573) (2,969) Net income for the year 10,892 10,088 Other comprehensive income/(loss): Defined benefit plans (note 13) 556 (468) Retranslation of foreign currency operations (2,804) Total comprehensive income for the year 8,644 9,620 Attributable to: Equity holders of the parent 8,703 9,438 Minority interest (59) 182 8,644 9,620 The accompanying notes form an integral part of these financial statements.
Consolidated Statement of Cash Flows For the year ended Cash flows from operating activities Income before taxation 15,465 13,057 Adjustments for: Depreciation 1,168 984 Investment income (7,225) (8,286) Gain on disposal of investments (41) (122) Unrealised (gain)/loss on investments (1,360) 682 Share of income from associated companies (788) (696) Pension plan expense 664 634 Other post retirement benefit expense 314 226 Gain on disposal of fixed assets (21) Operating income before working capital changes 8,176 6,479 Decrease in accounts receivable 9,161 474 (Decrease)/increase in accounts payable (10,509) 21,207 (Decrease)/increase in general insurance liabilities (4,355) 2,320 Cash generated from operations 2,473 30,480 Pension and other post retirement contributions paid (435) (433) Income taxes paid (2,746) (1,174) Net cash (used in)/from operating activities (708) 28,873 Cash flows from investing activities Purchase of fixed assets (2,580) (3,507) Purchase of investments (52,230) (24,050) Sale/maturities of investments 54,499 22,917 Proceeds from sale of fixed assets 82 Acquisition of customer list - Guyana Agency (1,600) Dividends from associated companies 44 230 Net change in short-term deposits 2,334 15,951 Investment income received 8,242 8,696 Net cash from investing activities 8,791 20,237 Cash flows from financing activities Dividends paid (31,000) Effect of exchange rate changes (1,760) Net increase in cash and cash equivalents 6,323 18,110 Cash and cash equivalents - beginning of the year 52,164 34,054 Cash and cash equivalents - end of year 58,487 52,164 The accompanying notes form an integral part of these financial statements.
1 Incorporation, ownership and registered office Massy United Insurance Ltd. is incorporated under the laws of Barbados, with its registered office located at The MassyDome, Warrens, St. Michael. The principal activities of the Company and its subsidiaries ( the Group ) are primary insurance, reinsurance and management services. The Company is a subsidiary of Massy (Barbados) Limited, the ultimate parent being Massy Holdings Ltd., a Company incorporated in Trinidad and Tobago. The Board of Directors have authorised the issue of the financial statements and have the power to amend the financial statements after the date of issue. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. a) Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and IFRIC interpretations. The consolidated financial statements have been prepared under the historical cost basis, except for land and buildings and financial assets classified as fair value through profit or loss which are measured at fair value. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3. i) Standards, amendments and interpretations adopted by the Group The Group has adopted the following new and amended standards and interpretations as of October 1, : Amendment to IAS 19, Employee benefits, regarding defined benefit plans (effective annual periods on or after 1 July 2014 although endorsed for annual periods on or after 1 February ). These narrow scope amendments apply to contributions from employees or third parties to defined benefit plans. The objective of the amendments is to simplify the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. (1)
2 Summary of significant accounting policies continued a) Basis of preparation continued i) Standards, amendments and interpretations adopted by the Group continued Annual improvements 2012 (effective annual periods on or after 1 July 2014 although endorsed for annual periods on or after 1 February ). These amendments include changes from the 2010-12 cycle of the annual improvements project, that affect 7 standards: - IFRS 2, Share-based payment - IFRS 3, Business combinations - IFRS 8, Operating segments - IFRS 13, Fair value measurement - IAS 16, Property, plant and equipment and IAS 38, Intangible assets - Consequential amendments to IFRS 9, Financial instruments, IAS 37, Provisions, contingent liabilities and contingent assets, and - IAS 39, Financial instruments - Recognition and measurement. Annual improvements 2013 (effective annual periods on or after 1 July 2014 although endorsed for annual periods on or after 1 January ). The amendments include changes from the 2011-13 cycle of the annual improvements project that affect 4 standards: - IFRS 1, First time adoption - IFRS 3, Business combinations - IFRS 13, Fair value measurement and - IAS 40, Investment property i) Standards, amendments and interpretations that are not yet effective for the financial year beginning October 1, and not early adopted by the Group. The impact of the following standards has not yet been evaluated: Amendment to IFRS 11, Joint Arrangements (effective January 1, ) on acquisition of an interest in a joint operation. This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendment specifies the appropriate accounting treatment for such acquisitions. Amendments to IAS 16, Property, plant and equipment and IAS 38, Intangible Assets, on depreciation and amortisation (effective January 1, ). In this amendment the IASB has clarified that the use of revenue based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB has also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefit embodied in an intangible asset. (2)
2 Summary of significant accounting policies continued a) Basis of preparation continued ii) Standards, amendments and interpretations that are not yet effective for the financial year beginning October 1, and not early adopted by the Group. The impact of the following standards has not yet been evaluated: continued IFRS 14 Regulatory Deferral Accounts (effective January 1, ) permits first-time adopters to continue to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt IFRS. However, to enhance comparability with entities that already apply IFRS and do not recognise such amounts, the standard requires that the effect of rate regulation must be presented separately from other items. Amendments to IAS 27, Separate Financial Statements (effective January 1, ) on the equity method. These amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Amendments to IFRS 10, Consolidated Financial Statements and IAS 28, Investments in associates and joint ventures. These amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. Annual improvements 2014 (Annual periods beginning on or after 1 January ). These set of amendments impacts 4 standards: IFRS 5, Non-current assets held for sale and discontinued operations regarding methods of disposal. IFRS 7, Financial instruments: Disclosures, (with consequential amendments to IFRS 1) regarding servicing contracts. IAS 19, Employee benefits regarding discount rates. IAS 34, Interim financial reporting regarding disclosure of information. Amendment to IAS 1, Presentation of Financial statements on the disclosure initiative (Annual periods beginning on or after 1 January ). These amendments are as part of the IASB initiative to improve presentation and disclosure in financial reports. Effective for annual periods beginning on or after 1 January. Amendment to IFRS 10 and IAS 28 on investment entities applying the consolidation exception. Annual periods beginning on or after 1 January ). These amendments clarify the application of the consolidation exception for investment entities and their subsidiaries. IFRS 15 Revenue from contracts with customers (effective January 1, 2018) is a converged standard from the IASB and FASB on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally. (3)
2 Summary of significant accounting policies continued a) Basis of preparation continued ii) Standards, amendments and interpretations that are not yet effective for the financial year beginning October 1, and not early adopted by the Group. The impact of the following standards has not yet been evaluated: continued Amendments to IAS 7 Statement of cash flows on disclosure initiative (Annual periods beginning on or after 1 January 2017). These amendments to IAS 7 introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is part of the IASB s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved. Amendments to IAS 12, Income taxes on Recognition of deferred tax assets for unrealized losses (effective 1 January 2017). These amendments on the recognition of deferred tax assets for unrealized losses clarify how to account for deferred tax assets related to debt instruments measured at fair value. IFRS 9 Financial instruments (effective January 1, 2018). This standard replaces the guidance in IAS 39. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model. IFRS 16 Leases (Annual periods beginning on or after 1 January 2019 with earlier application permitted if IFRS 15, Revenue from Contracts with Customers, is also applied.) This standard replaces the current guidance in IAS 17 and is afar-reaching change in accounting by lessees in particular. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to recognize a lease liability reflecting future lease payments and a right-of-use asset for virtually all lease contracts. The IASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. For lessors, the accounting stays almost the same. However, as the IASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be affected by the new standard. At the very least, the new accounting model for lessees are expected to impact negotiations between lessors and lessees. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. (4)
2 Summary of significant accounting policies continued b) Consolidation Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The Group consist of the following subsidiary and associated companies: Equity Country of Incorporation United Reinsurance ICC Inc. 100% St. Lucia UI Management Inc. 60% Barbados United Services Inc. 100% Barbados United Insurance Company N.V. 100% Aruba United Insurance (Grenada) Co. Ltd. 20% Grenada CSGK Finance Holdings Limited 20% Barbados Transactions and non-controlling interest The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of the net assets of the subsidiary is recorded in equity. Gains or losses on disposals to minority interests are also recorded in equity. When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in the statement of comprehensive income. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to the statement of income. Non-controlling interest includes 15,000 of capital issued by United Reinsurance ICC Inc. to Massy (Barbados) Limited. This capital has no voting or distribution rights. (5)
2 Summary of significant accounting policies continued b) Consolidation continued Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group s investment in associates includes goodwill identified on acquisition, net of accumulated impairment loss. The Group s share of its associates post-acquisition profits or losses is recognised in the statement of comprehensive income, and its share of post acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. c) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity date of three months or less. Cash and cash equivalents are shown net of bank overdrafts where the right of offset exists. d) Financial assets The Group determines the classification of its investments at initial recognition, into the categories of fair value through profit and loss, held to maturity or loans and receivables. Investments at fair value through profit or loss Financial assets at fair value through profit or loss are so designated on acquisition where they are part of a portfolio of investments whose performance is evaluated on a fair value basis in accordance with documented investment strategies. For investments that are actively traded in organized financial markets, fair value is determined by reference to stock exchange quoted market prices at the close of business on the financial statement date. (6)
2 Summary of significant accounting policies continued d) Financial assets continued Investments at fair value through profit or loss continued For securities where there is no quoted market price, fair value has been estimated by management on the basis of recent trades of the same investment or by reference to the current market value of other instruments with similar attributes. All marketable security transactions are recognized on the trade date. Realized and unrealized gains and losses are recorded in the consolidated statement of comprehensive income. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are carried at amortised cost less provision for impairment. e) Impairment of assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset s recoverable amount. An asset s recoverable amount is the higher of fair value less costs to sell or its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of the recoverable amount. A previous impairment loss is reversed only if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of comprehensive income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. (7)
2 Summary of significant accounting policies continued f) Derecognition of financial assets A financial asset is derecognized when: The rights to receive cash flows from the asset have expired; The Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; The Group has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. g) Revenue recognition Premium income: Premiums written are recognized on policy inception and earned on a pro rata basis over the term of the related policy coverage. Estimates of premiums written as at the balance sheet date but not yet received, are assessed based on estimates from underwriting or past experience and are included in premiums earned. Premiums ceded are expensed on a pro-rata basis over the term of the respective policy. Investment income: Interest income is recognized in the income statement for all interest bearing instruments on an accrual basis using the effective yield method based on the initial transaction price. Investment income also includes dividends when the right to receive payment is established. h) Insurance and reinsurance contracts Insurance and reinsurance contracts are defined as those containing significant insurance risk at the inception of the contract, or those where at the inception of the contract there is a scenario with commercial substance where the level of insurance risk may be significant. The significance of insurance risk is dependent on both the probability of an insured event and the magnitude of its potential effect. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during the period. (8)
2 Summary of significant accounting policies continued h) Insurance and reinsurance contracts continued At each financial statement date a liability adequacy test is performed to ensure the adequacy of insurance liabilities. If the test indicates that the provision for claims and claims expenses is inadequate the liabilities are adjusted to correct the deficiency with the resulting charge being included in the statement of comprehensive income. In the normal course of business, the Group seeks to reduce the losses to which it is exposed that may cause unfavorable underwriting results by reinsuring a certain level of risk with reinsurance companies. Reinsurance premiums are accounted for on a basis consistent with that used in accounting for the original policies issued and or the terms of the reinsurance contracts. The Group may receive a ceding commission in connection with ceded reinsurance, which is earned in a manner consistent with the premiums ceded. Reinsurance contracts ceded do not relieve the Group from its obligations to policyholders. The Group remains liable to its policyholders for the portion reinsured, to the extent that the reinsurers do not meet the obligations assumed under the reinsurance agreements. i) Unearned premium reserve Written premiums in respect of insurance business are reflected in the financial statements evenly over the terms of the policies. Unearned premiums represent the unearned portion of the premiums written on policies in force at the end of the year. At each financial statement date, a liability adequacy test is performed, to ensure the adequacy of unearned premiums net of related deferred acquisition costs. In performing the test, current best estimates of future contractual cash flows, claims handling and policy administration expenses, as well as investment income from assets backing such liabilities, are used. Any inadequacy is immediately charged to the consolidated statement of comprehensive income by establishing an unexpired risk provision. j) Outstanding claims reserve and property catastrophe reserve Outstanding claims consist of estimates of the ultimate cost of claims incurred that have not been settled at the financial statement date, whether reported or not, together with related claims handling costs. Significant delays may be experienced in the notification and settlement of certain types of general insurance claims, such as general liability business. Outstanding claims reserves are not discounted for the time value of money. Estimates are calculated using methods and assumptions considered to be appropriate to the circumstances of the Group and the business undertaken. This provision, while believed to be adequate to cover the ultimate cost of losses incurred, may ultimately be settled for a different amount. It is continually reviewed and any adjustments are recorded in operations in the period in which they are determined. Unallocated loss adjustment expenses (ULAE) are included in the outstanding claims reserve at year end. The estimate of the reserve is arrived at by examining the overhead expenses allocated to the claims function. This estimate is reviewed by the actuary annually. (9)
2 Summary of significant accounting policies continued j) Outstanding claims reserve and property catastrophe reserve continued The principal assumption underlying the estimates is past claims development experience. This includes assumptions in respect of average claim costs and claim numbers for each accident year. In addition, larger claims are separately assessed by loss adjusters. Judgment is used to assess the extent to which external factors such as judicial decisions and government legislation affect the estimates. The ultimate liabilities will vary as a result of subsequent developments. Differences resulting from reassessment of the ultimate liabilities are recognized in subsequent periods. In addition to the above reserves, the Group transfers from its retained earnings, as permitted in Section 155 of the Insurance Act, 1996-32, 25% of net premium income earned arising from its property business into a reserve established to cover claims made by the Group s policyholders arising from a catastrophic event, which is included as a separate component of equity. k) Amounts receivable from reinsurance companies Amounts receivable from reinsurance companies consist primarily of amounts due in respect of ceded insurance liabilities. Recoverable amounts are estimated in a manner consistent with the outstanding claims reserve or settled claims associated with the reinsured policies and in accordance with the relevant reinsurance contract. If amounts receivable from reinsurance companies are impaired, the Group reduces the carrying amount accordingly and recognizes an impairment loss in the consolidated statement of comprehensive income. A reinsurance asset is impaired if there is objective evidence that the Group may not receive all, or part, of the amounts due to it under the terms of the reinsurance contract. l) Deferred acquisition costs and reinsurance commissions Deferred acquisition costs, which are reflected net of deferred reinsurance commission income, and included in other accounts receivable, relate to commissions and other costs of acquiring insurance which vary with, and are primarily related to, the production of new and renewal business. Acquisition costs on premiums written and reinsurance commissions vary with and are directly related to the production of business. These costs and revenues are deferred and recognised over the period of the policies to which they relate. (10)
2 Summary of significant accounting policies continued m) Currency Functional and presentation currency These financial statements are expressed in Barbados dollars which in the Group s presentational currency. The results and financial position of the various agents and branches that have a functional currency other than the Group s presentational currency are translated as follows: i) Income, other comprehensive income, movements in equity and cash flows are translated at average exchange rates for the year. ii) Assets and liabilities are translated at the exchange rates ruling on September 30. iii) Resulting exchange differences are recognised in other comprehensive income. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. Translation differences on non-monetary financial assets and liabilities carried at fair value such as equities held at fair value through profit or loss are recognised as part of the fair value gain or loss in the statement of comprehensive income. n) Premium and other receivables Premium and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the consolidated statement of comprehensive income within selling, general and administration expenses. (11)
2 Summary of significant accounting policies continued o) Property, plant and equipment Property, plant and equipment including freehold land and buildings are recognised initially at cost. Land and buildings are revalued periodically to reflect market conditions based on directors valuations which are reviewed for reasonableness by a qualified independent valuer. Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income and shown as revaluation surplus in equity. Decreases that offset previous increases of the same asset are charged as other comprehensive income and debited against revaluation surplus directly in equity, all other decreases are charged directly to income. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is compared to the revalued amount of the asset. Upon disposal, any revaluation surplus relating to the particular asset being sold is transferred to retained earnings. Plant and equipment is stated at cost, excluding the costs of day-to-day servicing, less any accumulated depreciation and accumulated impairment in value. Subsequent expenditure related to repairs and maintenance is expensed during the financial period in which they are incurred. The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstance indicate that the carrying amount may not be recoverable. Gains and losses on disposals are computed as the difference between carrying amounts and proceeds received and are included in the statement of comprehensive income. Depreciation is provided on buildings on a straight line basis over a period of 50 years. Depreciation of general equipment is provided on a straight-line basis at rates varying from 10% to 25% to write off the cost of the assets over their estimated useful lives. p) Current and deferred income tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the financial statement date in the countries where the Group operates and generates taxable income. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. The principal temporary differences arise from depreciation on property, plant and equipment and tax losses carried forward. Deferred tax assets relating to the carry forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be earned against which the unused tax losses can be utilised. (12)
2 Summary of significant accounting policies continued q) Pension plan Pension obligations The Group s pension scheme is generally funded through payments to insurance companies or trusteeadministered funds, determined by periodic actuarial calculations. The Group has both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. Defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognised in the consolidated statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the consolidated financial statement date less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of long-term government securities that are denominated in the currency in which the benefit will be paid, and that have terms to maturity approximating the terms of the related pension liability. All actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past service costs are recognised immediately in the consolidated statement of income. For defined contribution plans, the Group pays contributions to administered pension insurance plans. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. Other post-employment obligations The Group provides post-retirement healthcare benefits through the Massy Barbados Medical Scheme to their retirees and registered dependants. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to the statement of comprehensive income in the period in which they arise. These obligations are valued by independent qualified actuaries. (13)
2 Summary of significant accounting policies continued q) Pension plan continued Bonus plans The Group recognises a liability and an expense for bonuses when at least one of the following conditions is met: There is a formal plan and the amounts to be paid are determined before the time of issuing the financial statements; or Past practice has created a valid expectation by employees that they will receive a bonus and the amount can be determined before the time of issuing the financial statements. Liabilities for bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. r) Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight line basis over the period of the lease. s) Dividend distributions Dividend distributions on the Group s common shares are recorded in the period in which the directors approved the declaration of the dividend. t) Provisions Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. (14)
2 Summary of significant accounting policies continued u) Intangible assets Intangible assets represent customer lists acquired on acquisition of the rights, benefits and interests in insurance portfolios. These are initially recognised at fair value and amortised on a straight line basis over the estimated useful life of the assets. 3 Significant accounting judgments, estimates and assumptions The preparation of the Group s financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future. Liabilities on insurance contracts The estimation of the ultimate liability arising from claims made under insurance contracts is a critical accounting estimate. There are several sources of uncertainty that need to be considered in the estimate of the liability that the Group will ultimately pay for such claims. Claim liabilities are based on estimates due to the fact that the ultimate disposition of claims incurred prior to the date of the financial statements, whether reported or not, is subject to the outcome of events that may not yet have occurred. The estimated cost of claims include direct expenses to be incurred in settling claims, net of the expected subrogation value and other recoveries. Significant delays are experienced in the notification and settlement of certain types of claims, particularly in respect of casualty contracts. Events which may affect the ultimate outcome of claims include inter alia, jury decisions, court interpretations, legislative changes and changes in the medical condition of claimants. Management engages an independent actuary to assist in the computation of the estimate of claim liabilities. The ultimate liability arising from claims may be mitigated by recovery arising from reinsurance contracts held. Post- retirement benefits The cost of the defined benefit pension plan and other post employment medical benefits is determined using actuarial valuations. These actuarial valuations involve making assumptions about discount rates, expected rates of return on assets of the plan, future pension increases, future salary increases, proportion of employees opting for early retirement, future changes in the NIS ceiling and inflation. Due to the long-term nature of the plan, such estimates are subject to significant uncertainty. Assumptions used are disclosed in Note 13. Revaluation of property, plant and equipment The Group carries its land and buildings at fair value, with changes in fair value being recognized in other comprehensive income. The Group utilizes independent valuers, but the nature of the process is such that it is subject to significant judgment, for example through the use of valuation techniques where there is a lack of comparable market data. (15)
4 Cash and cash equivalents Cash on hand 13 18 Cash at bank and short-term deposits 58,474 52,146 58,487 52,164 The cash and short-term deposits with an original maturity of less than 90 days earned interest at varying rates between 0.05% and 0.25% ( - 0.05% and 0.25%) per annum. The cash and short-term deposits are held across countries in which the Group conducts its business. 5 Short-term deposits The majority of these deposits mature after 90 days, and within one year of the financial statement date, except for a few held as statutory deposits which have maturity dates more than one year but less than three years. The interest rates on these deposits ranged from 0.05% and 4.00% ( - 0.20% to 5.50%) per annum. The Group s deposits are held at financial institutions throughout the Caribbean region. 6 Accounts receivable Amounts receivable from reinsurance companies (see below) 83,091 101,506 Amounts receivable from policyholders and brokers 62,892 63,645 Other accounts receivable 20,463 10,456 The following amounts are included in other accounts receivable: 166,446 175,607 Deferred acquisition costs 17,691 17,336 Deferred reinsurance commission income (12,134) (12,155) 5,557 5,181 (16)
6 Accounts receivable continued Amounts receivable from reinsurance companies is comprised as follows: Reinsurers share of outstanding claims reserves (note 11) 20,255 10,840 Reinsurers share of unearned premium reserves (note 11) 62,836 90,666 83,091 101,506 Amounts receivable from policyholders and brokers are generally non-interest bearing and on 30-90 day terms. As at, receivables with a nominal value of 14,965 ( - 14,382) were impaired and provided for in the amounts of 9,165 ( - 8,902). Movements in the provision for impairment of receivables were as follows: As of October 1 8,902 8,550 Charge for the year 263 352 As of September 30 9,165 8,902 As of and, the aging analysis of amounts due from policyholders and brokers that was past due but not impaired is as follows: Past due but not impaired Total 1-30 days 30-60 days 60-90 days Over 90 days 44,311 8,288 7,603 14,037 14,383 43,931 5,833 14,051 3,873 20,174 With respect to amounts due from policyholders and brokers, that are past due but not impaired, there are no indications as of the reporting date that the debtors will not meet their payment obligations. (17)
7 Financial assets The Group s mortgages, bonds, debentures and treasury bills yield income at a rate of interest, which reflects the nature, security and market conditions prevailing at the time of issue or renewal. Mortgages are repayable over the period to maturity in annual instalments. Bonds, debentures and treasury bills are repayable in full on maturity. The initial period to maturity does not exceed twenty years for bonds, debentures, treasury bills and mortgages. Coupon rates from fixed rate investments range between 0% and 9.75% ( - 3.00% and 9.75%) per annum. Investments are comprised as follows: Carrying value Fair value Fair value through income statement: Quoted equities 38,252 38,252 Quoted bonds 5,514 5,514 43,766 43,766 Loans and receivables: Government debentures, guaranteed bonds, deposits, treasury bills and notes 78,222 81,958 Corporate bonds and debentures 20,710 21,581 Mortgage loans 1,935 1,935 100,867 105,474 Accrued interest 3,627 3,627 148,260 152,867 (18)
7 Financial assets continued Investments are comprised as follows: Carrying value Fair value September 30, Fair value through income statement: Quoted equities 38,135 38,135 Loans and receivables: Government debentures, guaranteed bonds, deposits, treasury bills and notes 96,068 118,181 Corporate bonds and debentures 10,288 13,186 Mortgage loans 2,056 2,056 108,412 133,423 Accrued interest 4,642 4,642 151,189 176,200 (19)
7 Financial assets continued Coupon rate Current 1 to 5 years Over 5 years Total Interest bearing assets: Quoted bonds 0% 5,514 5,514 Debentures 5.88-8.50% 1,000 7,000 11,500 19,500 Treasury bills, notes and Deposits 3.00-8.50% 1,667 21,256 11,085 34,008 Bonds 2.80-9.75% 419 19,823 25,182 45,424 Mortgages 6.00-8.50% 257 1,678 1,935 8,600 48,336 49,445 106,381 September 30, Interest bearing assets: Debentures 5.25-8.50% 7,111 11,500 18,611 Treasury bills, notes and Deposits 3.00-8.50% 7,735 10,132 10,775 28,642 Bonds 4.25-9.75% 3,844 17,355 37,904 59,103 Mortgages 6.00-8.50% 189 1,867 2,056 Investment income is comprised as follows: 11,579 34,787 62,046 108,412 Interest on deposits 292 812 Interest on bonds, debentures and notes 6,099 6,417 Interest on mortgages 104 108 Interest on term payments for premium policies 635 694 Dividends received 193 132 Bank (charges)/interest (31) 141 Premium on debentures (67) (18) Unrealised gain/(loss) on investments 1,360 (682) Realised gain on disposal of investments 41 122 8,626 7,726 (20)
8 Investment in associated companies At beginning of year 5,845 5,379 Share of income 788 696 Dividends from associated companies (44) (230) 6,589 5,845 Associated companies Share of associates statement of financial position: Current assets 43,591 40,983 Non-current assets 246 321 Current liabilities (822) (19) Non-current liabilities (36,426) (35,440) Net assets 6,589 5,845 Share of the associates revenue and profit Revenue 3,717 3,587 Net income 788 696 (21)
9 Property and equipment General equipment Freehold land and buildings Total Year ended Opening net book value 7,000 18,714 25,714 Additions 2,580 2,580 Disposals (61) (61) Depreciation charge (886) (282) (1,168) Closing net book value 8,633 18,432 27,065 At Cost/revaluation 16,842 19,280 36,122 Accumulated depreciation (8,209) (848) (9,057) Net book value 8,633 18,432 27,065 Year ended September 30, Opening net book value 4,194 18,997 23,191 Additions 3,507 3,507 Disposals Depreciation charge (701) (283) (984) Closing net book value 7,000 18,714 25,714 At September 30, Cost/revaluation 14,323 19,280 33,603 Accumulated depreciation (7,323) (566) (7,889) Check Net book value 7,000 18,714 25,714 In 2013, the Group had its freehold land and buildings revalued by an independent valuer at 19,280. The fair value has been designated as level 3 within the fair value hierarchy as it was determined from inputs that are not based on observable market data. (22)