k. Financial investmentsThe Syndicate has chosen to adopt Sections 11 and 12 of FRS 102 “Basic Financial Instruments” and “Other Financial Instruments Issues”, respectively.
Financial instruments are initially recorded at cost, which equates to fair value, and subsequently carried at fair value through profit or loss.
Financial instruments that are designated as fair value through profit or loss are classified using a fair value hierarchy that reflects the significance of the inputs used in these measurements.
•Level 1: the fair value of financial instruments is derived using unadjusted quoted prices in an active market for identical assets or liabilities at the measurement date. These instruments include government bonds and securities using quoted prices in an active market.
•Level 2: the fair value of financial instruments is derived using inputs other than quoted prices included within level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly. These instruments include regularly traded government agency bonds, supranational bonds, corporate bonds, money market and open-ended funds.
•Level 3: financial instruments are derived from inputs that are not observable. Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available and may include internal data or models. Assumptions from market participants may be used to formulate the valuation of certain assets and liabilities.
All regular purchases of financial investments are recognised on the trade date, being the date the Syndicate commits to purchase the asset. All regular sales of financial investments are recognised at the earlier of the trade date and maturity date.
A financial asset is derecognised when the contractual right to receive cash flows expires or where they have been transferred, and the Syndicate has also substantially transferred all risks and rewards of ownership. A financial liability is derecognised once the obligation under the liability is discharged, cancelled or expires.
l. Derivative financial instruments
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value are recognised immediately in the profit and loss account. Fair values are obtained from quoted market prices in active markets, including recent market transactions. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.
m. Debtors and creditors arising out of direct and reinsurance operations
Debtors and creditors arising out of direct and reinsurance operations are initially recognised at transaction price and are subsequently carried at the recoverable amount. The carrying value is reviewed for impairment whenever events or circumstances indicate that the carrying amount is greater than the recoverable amount, with the impairment adjustment recorded in the profit and loss account. Debtors arising out of direct insurance and reinsurance operations are stated net of specific provisions against doubtful debts which are made based on reviews conducted by management.
n. Other debtors and creditors
Any other debtors and creditors are recognised initially at transaction price and subsequently carried at the recoverable amount. The carrying value of other debtors is reviewed for impairment whenever events or circumstances indicate that the carrying amount is greater than the recoverable amount, with the impairment adjustment recorded in the profit and loss account. All other debtors and creditors are due within one year, unless otherwise stated.
o. Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand, deposits held at call with banks and other short-term highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.
Bank overdrafts, when applicable, are shown within borrowings in current liabilities. These are measured at cost less any allowance for impairment.
p. Overseas deposits
Overseas deposits are lodged as a condition of conducting underwriting business in certain countries. These are initially recorded at cost, which equates to fair value, and subsequently carried at fair value through profit or loss.
q. Investment return
Investment return comprises all investment income, realised investment gains and losses and movements in unrealised gains and losses, net of investment management expenses, including interest. Realised gains and losses on investments carried at fair value through profit or loss are calculated as the difference between sale proceeds and the fair value at the previous
