UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report
(Date of earliest event reported): February 28, 2008
Enstar Group Limited
(Exact name of registrant as specified in its charter)
| Bermuda | 001-33289 | N/A | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
| P.O. Box HM 2267, Windsor Place, 3rd Floor 18 Queen Street, Hamilton HM JX Bermuda |
N/A |
|
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (441) 292-3645
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
We are amending the Current Report on Form 8-K that we filed on March 5, 2008 to include the
Financial Statements of Business Acquired and Pro Forma Financial Information set forth below under
Item 9.01 Financial Statements and Exhibits.
Item 9.01. Financial Statements and Exhibits.
(a)
|
Financial Statements of Business Acquired. | |
| The required financial statements are attached hereto as Exhibits 99.1 through 99.5 and are incorporated in their entirety herein by reference. | ||
(b)
|
Pro Forma Combined Financial Information. | |
| The required pro forma combined financial information is attached hereto as Exhibit 99.6 and is incorporated in its entirety herein by reference. | ||
(d)
|
Exhibits. | |
23.1
|
Consent of Ernst & Young for Church Bay Limited (formerly AMPG (1992) Limited). | |
23.2
|
Consent of Ernst & Young for Gordian Runoff Limited. | |
23.3
|
Consent of Ernst & Young for TGI Australia Limited. | |
23.4
|
Consent of Ernst & Young for Enstar Australia Limited (formerly Cobalt Solutions Australia Limited). | |
23.5
|
Consent of Ernst & Young for Harrington Sound Limited (formerly AMP General Insurance Limited). | |
99.1
|
Audited financial statements for Church Bay Limited (formerly AMPG (1992) Limited). | |
99.2
|
Audited financial statements for Gordian Runoff Limited. | |
99.3
|
Audited financial statements for TGI Australia Limited. | |
99.4
|
Audited financial statements for Enstar Australia Limited (formerly Cobalt Solutions Australia Limited). | |
99.5 |
Audited Financial Statements for Harrington Sound Limited (formerly AMP General Insurance Limited). | |
99.6 |
Pro Forma Condensed Combined Consolidated Financial Statements of Enstar Group Limited as of December 31, 2007 (Unaudited). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ENSTAR GROUP LIMITED | ||||
Date: May 21, 2008
|
By: /s/ Richard J. Harris
|
|||
| Chief Financial Officer |
EXHIBIT INDEX
23.1
|
Consent of Ernst & Young for Church Bay Limited (formerly AMPG (1992) Limited). | |
23.2
|
Consent of Ernst & Young for Gordian Runoff Limited. | |
23.3
|
Consent of Ernst & Young for TGI Australia Limited. | |
23.4
|
Consent of Ernst & Young for Enstar Australia Limited (formerly Cobalt Solutions Australia Limited). | |
23.5
|
Consent of Ernst & Young for Harrington Sound Limited (formerly AMP General Insurance Limited). | |
| 99.1 | Audited financial statements for Church Bay Limited (formerly AMPG (1992) Limited). | |
| 99.2 | Audited financial statements for Gordian Runoff Limited. | |
| 99.3 | Audited financial statements for TGI Australia Limited. | |
| 99.4 | Audited financial statements for Enstar Australia Limited (formerly Cobalt Solutions Australia Limited). | |
99.5 |
Audited Financial Statements for Harrington Sound Limited (formerly AMP General Insurance Limited). | |
| 99.6 | Pro Forma Condensed Combined Consolidated Financial Statements of Enstar Group Limited as of December 31, 2007 (Unaudited). |
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements No. 333-149551,
No. 333-148863, No. 333-148862, and No. 333-141793 on Form S-8, pertaining to the Enstar
Group Limited Employee Share Purchase Plan, Enstar Group Limited Deferred Compensation and
Ordinary Share Plan for Non-Employee Directors, The Enstar Group, Inc. 1997 Omnibus Incentive
Plan and The Enstar Group, Inc. 2001 Outside Directors Stock Option Plan, and Enstar Group
Limited 2006 Equity Incentive Plan, our reports dated May 15, 2008, with respect to the
financial statements of Church Bay Limited (formerly AMPG (1992) Limited) as of and for the
years ended December 31, 2007, 2006 and 2005 included in the Current Report on Form 8-K/A of
Enstar Group Limited dated May 19, 2008 filed with the Securities and Exchange Commission.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements No. 333-149551,
No. 333-148863, No. 333-148862, and No. 333-141793 on Form S-8, pertaining to the Enstar
Group Limited Employee Share Purchase Plan, Enstar Group Limited Deferred Compensation and
Ordinary Share Plan for Non-Employee Directors, The Enstar Group, Inc. 1997 Omnibus Incentive
Plan and The Enstar Group, Inc. 2001 Outside Directors Stock Option Plan, and Enstar Group
Limited 2006 Equity Incentive Plan, our reports dated May 15, 2008, with respect to the
financial statements of Gordian Runoff Limited as of and for the years ended December 31,
2007, 2006 and 2005 included in the Current Report on Form 8-K/A of Enstar Group Limited
dated May 19, 2008 filed with the Securities and Exchange Commission.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Exhibit 23.3
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements No. 333-149551,
No. 333-148863, No. 333-148862, and No. 333-141793 on Form S-8, pertaining to the Enstar
Group Limited Employee Share Purchase Plan, Enstar Group Limited Deferred Compensation and
Ordinary Share Plan for Non-Employee Directors, The Enstar Group, Inc. 1997 Omnibus Incentive
Plan and The Enstar Group, Inc. 2001 Outside Directors Stock Option Plan, and Enstar Group
Limited 2006 Equity Incentive Plan, our reports dated May 15, 2008, with respect to the
financial statements of TGI Australia Limited as of and for the years ended December 31,
2007, 2006 and 2005 included in the Current Report on Form 8-K/A of Enstar Group Limited
dated May 19, 2008 filed with the Securities and Exchange Commission.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Exhibit 23.4
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements No. 333-149551,
No. 333-148863, No. 333-148862, and No. 333-141793 on Form S-8, pertaining to the Enstar
Group Limited Employee Share Purchase Plan, Enstar Group Limited Deferred Compensation and
Ordinary Share Plan for Non-Employee Directors, The Enstar Group, Inc. 1997 Omnibus Incentive
Plan and The Enstar Group, Inc. 2001 Outside Directors Stock Option Plan, and Enstar Group
Limited 2006 Equity Incentive Plan, our reports dated May 15, 2008, with respect to the
financial statements of Enstar Australia Limited (formerly Cobalt Solutions Australia
Limited) as of and for the years ended December 31, 2007, 2006 and 2005 included in the
Current Report on Form 8-K/A of Enstar Group Limited dated May 19, 2008 filed with the
Securities and Exchange Commission.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Exhibit 23.5
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements No. 333-149551,
No. 333-148863, No. 333-148862, and No. 333-141793 on Form S-8, pertaining to the Enstar
Group Limited Employee Share Purchase Plan, Enstar Group Limited Deferred Compensation and
Ordinary Share Plan for Non-Employee Directors, The Enstar Group, Inc. 1997 Omnibus Incentive
Plan and The Enstar Group, Inc. 2001 Outside Directors Stock Option Plan, and Enstar Group
Limited 2006 Equity Incentive Plan, our reports dated May 15, 2008, with respect to the
financial statements of Harrington Sound Limited (formerly AMP General Insurance Limited) as
of and for the years ended December 31, 2007, 2006 and 2005 included in the Current Report on
Form 8-K/A of Enstar Group Limited dated May 19, 2008 filed with the Securities and Exchange
Commission.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Exhibit 99.1
CHURCH BAY LIMITED
(formerly AMPG (1992) LIMITED)
ABN 42 000 488 362
(formerly AMPG (1992) LIMITED)
ABN 42 000 488 362
FINANCIAL REPORT
31 DECEMBER 2007
31 DECEMBER 2007
Contents:
| Page | ||||
Financial Report |
||||
Financial Statements |
||||
- Income Statement
|
1 | |||
- Balance Sheet
|
2 | |||
- Statement of Changes in Equity
|
3 | |||
- Cash Flow Statement
|
4 | |||
Notes to the Financial Statements
|
5 | |||
Report of Independent Auditors
|
32 | |||
Church Bay Limited (formerly AMPG(1992) Limited)
Income Statement
For the year ended 31 December 2007
For the year ended 31 December 2007
| 2007 | 2006 | |||||||||||
| Notes | $ | $ | ||||||||||
Direct premium revenue |
5,327 | 7,064 | ||||||||||
Outwards reinsurance premium expense |
533 | 1,078 | ||||||||||
Net premium revenue |
4 | 4,794 | 5,986 | |||||||||
Direct claims benefit |
(51,042 | ) | (67,239 | ) | ||||||||
Reinsurance and other recoveries (expense) |
(17,623 | ) | (13,017 | ) | ||||||||
Net claims incurred |
5 | (33,419 | ) | (54,222 | ) | |||||||
Other underwriting Income |
8,695 | — | ||||||||||
Underwriting result |
46,908 | 60,208 | ||||||||||
Net investment revenue |
6 | 445,035 | 494,893 | |||||||||
General administration expenses |
7 | 135,067 | 131,995 | |||||||||
Net profit before tax |
356,876 | 423,106 | ||||||||||
Income tax expense attributable to operating profit |
8 | 125,684 | 111,429 | |||||||||
Net profit attributable to members of Church Bay Limited
(formerly AMPG(1992) Limited) |
231,192 | 311,677 | ||||||||||
The above Income Statement should be read in conjunction with the accompanying notes.
Church Bay Limited (formerly AMPG(1992)
Limited) ABN 42 000 488 362 |
1 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Balance Sheet
As at 31 December 2007
As at 31 December 2007
| 2007 | 2006 | |||||||||||
| Notes | $ | $ | ||||||||||
Current Assets |
||||||||||||
Cash and cash equivalents |
22 | 6,878,030 | 6,854,659 | |||||||||
Receivables |
9 | 74,202 | 39,955 | |||||||||
Reinsurance & other recoveries receivable |
10 | 14,706 | 24,613 | |||||||||
Other Financial assets |
11 | 446,009 | 466,353 | |||||||||
Other |
12 | 2,592 | 533 | |||||||||
Total Current Assets |
7,415,539 | 7,386,113 | ||||||||||
Non-Current Assets |
||||||||||||
Reinsurance & other recoveries receivable |
10 | 10,789 | 18,505 | |||||||||
Deferred tax assets |
8 | 21,894 | 22,208 | |||||||||
Total Non-Current Assets |
32,683 | 40,713 | ||||||||||
Total Assets |
7,448,222 | 7,426,826 | ||||||||||
Current Liabilities |
||||||||||||
Unearned premium liability |
13 | — | 2,523 | |||||||||
Outstanding claims liability |
14 | 31,958 | 53,216 | |||||||||
Payables |
15 | 10,000 | 11,892 | |||||||||
Current tax liability |
122,397 | 276,904 | ||||||||||
Total Current Liabilities |
164,355 | 344,535 | ||||||||||
Non-Current Liabilities |
||||||||||||
Unearned premium liability |
13 | — | 2,805 | |||||||||
Outstanding claims liability |
14 | 10,789 | 40,573 | |||||||||
Deferred tax liabilities |
8 | 15,734 | 12,761 | |||||||||
Total Non-Current Liabilities |
26,523 | 56,139 | ||||||||||
Total Liabilities |
190,878 | 400,674 | ||||||||||
Net Assets |
7,257,344 | 7,026,152 | ||||||||||
Shareholders’ Equity |
||||||||||||
Issued Capital |
16 | 41,784,468 | 41,784,468 | |||||||||
Accumulated losses |
(34,527,124 | ) | (34,758,316 | ) | ||||||||
Total Shareholders’ Equity |
7,257,344 | 7,026,152 | ||||||||||
The above Balance Sheet should be read in conjunction with the accompanying notes.
Church Bay Limited (formerly AMPG(1992)
Limited) ABN 42 000 488 362 |
2 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Statement of Changes in Equity
For the year ended 31 December 2007
For the year ended 31 December 2007
| Issued Capital | Accumulated | Total | ||||||||||
| Losses | ||||||||||||
| $ | $ | $ | ||||||||||
Balance as at 1 January 2007 |
41,784,468 | (34,758,316 | ) | 7,026,152 | ||||||||
Net Profit after income tax |
— | 231,192 | 231,192 | |||||||||
Balance as at 31 December 2007 |
41,784,468 | (34,527,124 | ) | 7,257,344 | ||||||||
Balance as at 1 January 2006 |
62,526,468 | (35,069,992 | ) | 27,456,476 | ||||||||
Net Profit after income tax |
— | 311,676 | 311,676 | |||||||||
Other changes in equity |
(20,742,000 | ) | — | (20,742,000 | ) | |||||||
Balance as at 31 December 2006 |
41,784,468 | (34,758,316 | ) | 7,026,152 | ||||||||
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 3 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Cash Flow Statement
For the year ended 31 December 2007
For the year ended 31 December 2007
| 2007 | 2006 | |||||||||||
| Notes | $ | $ | ||||||||||
Cash flows from operating activities |
||||||||||||
Receipts from customers and reinsurers |
2,010 | 411,364 | ||||||||||
Claims paid |
(1 | ) | — | |||||||||
Payments to customers, suppliers and employees |
(116,300 | ) | (116,478 | ) | ||||||||
Interest received |
414,567 | 371,319 | ||||||||||
Income tax paid |
(276,905 | ) | (1,208,351 | ) | ||||||||
| 22 | 23,371 | (542,146 | ) | |||||||||
Cash flows from financing activities |
||||||||||||
Repayment of loan from related party |
— | 20,742,000 | ||||||||||
Payment for capital reduction |
— | (20,742,000 | ) | |||||||||
| — | — | |||||||||||
Net increase in cash held |
22 | 23,371 | (542,146 | ) | ||||||||
Cash at the beginning of the year |
6,854,659 | 7,396,805 | ||||||||||
Cash at the end of the year |
6,878,030 | 6,854,659 | ||||||||||
The above Cash Flow Statement should be read in conjunction with the accompanying notes.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 4 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
This Financial Report, comprising the financial statements and the notes thereto, complies with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
Where necessary, comparative information has been reclassified to be consistent with current period
disclosures.
The Financial Report has been prepared in accordance with the historical cost convention except for
investments, which have been measured at fair value.
Accounting judgements and estimates
In the course of its operations the company applies judgements and makes estimates that affect the
amounts recognised in the financial report. Estimates are based on a combination of historical
experience and expectations of future events that are believed to be reasonable at the time.
Accounting Standards issued but not yet effective
Accounting Standards that have recently been issued or amended but are not yet effective have not
been adopted for the reporting period ending 31 December 2007, except IFRS8 Operating Segments. The
adoption of IFRS8 has removed the requirement for Operating Segment disclosures in this Financial
Report.
When applied in future periods, all other recently issued or amended standards are not expected to
have a material impact on the company’s results or financial position; however they may impact
Financial Report disclosures.
Changes in accounting policy
Since 1 January 2007, the company has adopted a number of Accounting Standards and Interpretations
which were mandatory for annual periods beginning on or after 1 January 2007. Adoption of these
Standards and Interpretations has not had any effect on the financial position or performance of
the Company.
Operating revenue
Operating revenue comprises general insurance earned premiums, recoveries, interest income and
investment income. Investment income is brought to account on an accrual basis.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 5 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Premium revenue and unearned premium
(i) Premium revenue
Premium revenue comprises premium from direct business.
Premium revenue comprises amounts charged to the policyholder or other insurers, excluding stamp
duties, GST and other amounts collected on behalf of third parties. The earned portion of
premiums received and receivable is recognised as operating revenue.
Premium revenue is recognised in the income statement when it has been earned. Premium revenue is
recognised in the income statement from the attachment date over the period of the contract. Where
time does not approximate the pattern of risk, previous claims experience is used to derive the
incidence of risk.
The proportion of premium received or receivable not earned in the income statement at the
reporting date is recognised in the balance sheet as an unearned premium liability. Actuarial
techniques are used to estimate the ultimate premium and are based on historical premium booking
patterns.
(ii) Unearned premiums
Unearned premiums represent premium revenue attributable to future accounting periods. Unearned
premium is determined by apportioning the premiums written in the year over the period of
insurance cover, reflecting the pattern in which risk emerges under these policies.
Outward reinsurance premium expense and deferred reinsurance premium
Premiums ceded to reinsurers are recognised as an expense over the period of cover using the
methods applicable to premium revenue as set out above.
Outstanding claims
The liability for outstanding claims is measured as the best estimate of the present value of
expected future payments against claims incurred at the reporting date under general insurance
contracts issued by the Company, with an additional risk margin to allow for the inherent
uncertainty in the best estimate.
The expected future payments include those in relation to claims reported but not yet paid; claims
incurred but not reported (IBNR), claims incurred but not enough reported (IBNER) and anticipated
claims handling costs.
Claims handling costs include costs that can be associated directly with individual claims, such as
legal and other professional fees, and costs that can only be indirectly associated with individual
claims, such as claims administration costs.
The expected future payments are discounted to present value using a risk free rate.
A risk margin is applied to the outstanding claims liability, net of reinsurance and other
recoveries, to reflect the inherent uncertainty in the central estimate. This risk margin increases
the probability that the net liability is adequately provided for to a 75% confidence level.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 6 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reinsurance and other recoveries
Reinsurance and other recoveries consist of receivables on paid claims and outstanding claims,
and are recognised as revenue when claims are paid or the outstanding claim is raised.
Reinsurance receivables are discounted to present value consistent with the discounting of
outstanding claims set out above.
Investment income
Interest income is recognised in the income statement on an effective interest method when the
entity obtains control of the right to receive the revenue.
Realised gains and losses represent the change in value between the previously reported value and
the amount received on sale of the asset. Unrealised gains and losses represent changes in the
fair value of financial assets recognised in the period.
Assets backing general insurance liabilities
The Company has determined that all assets are held to back general insurance liabilities on the
basis that all assets of the Company are available for the settlement of claims if required.
The following policies apply:
Financial assets
Financial assets are designated at fair value through profit or loss. Initial recognition is at
cost in the balance sheet and subsequent measurement is at fair value with any resultant unrealised
gains or losses recognised in the income statement. Details of fair value for the different types
of financial assets are listed below:
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand that is available on demand and deposits held at
call with financial institutions. Cash and cash equivalents are carried at fair value, being the
principal amount. For the purposes of the cash flow statement, cash also includes other highly
liquid investments not subject to significant risk of change in value.
Debt securities
Debt securities are initially recognised at fair value, representing the purchase cost of the asset
exclusive of any transaction costs. Debt securities are subsequently measured at fair value, with
any realised and unrealised gains or losses arising from changes in the fair value being recognised
in the income statement for the period in which they arise. The fair value of a traded interest
bearing security reflects the bid price at balance date. Interest bearing securities that are not
frequently traded are valued by discounting the estimated recoverable amounts, using prevailing
interest rates.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 7 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Taxes
Income tax
Income tax expense is the tax payable on taxable income for the current period based on the income
tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities
attributable to: (i) temporary differences between the tax bases of assets and liabilities and
their balance sheet carrying amounts, and (ii) unused tax losses.
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates
expected to apply when the assets are recovered or liabilities are settled, based on those tax
rates which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary
differences to measure the deferred tax asset or liability. An exception is made for certain
temporary differences arising from the initial recognition of an asset or a liability. No deferred
tax asset or liability is recognised in relation to these temporary differences if they arose in a
transaction, other than a business combination, that at the time of the transaction did not affect
either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only
if it is probable that future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the
carrying amount and tax bases of investments in controlled entities where the parent entity is able
to control the timing of the reversal of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future. The tax impact on income and expense items
recognised directly in equity is also recognised directly in equity.
Tax Consolidation
AMP Limited, Church Bay Limited (formerly AMPG(1992) Limited) and certain other wholly owned
controlled entities of AMP Limited comprise a tax-consolidated group of which AMP Limited is the
head entity. The implementation date for the tax-consolidated group was 30 June 2003.
Under tax consolidation, AMP Limited as head entity, assumes the following balances from
subsidiaries within the tax-consolidated group:
(i) Current tax balances arising from external transactions recognised by entities in the
tax-consolidated group occurring after the implementation date, and;
(ii) Deferred tax assets arising from unused tax losses and unused tax credits recognised by
entities in the tax-consolidated group occurring after the implementation date.
A tax funding agreement has been entered into by the head entity and the controlled entities in the
tax-consolidated group. Controlled entities in the tax-consolidated group will continue to be
responsible, by the operation of the tax funding agreement, for funding tax payments required to be
made by the head entity arising from underlying transactions of the controlled entities. Controlled
entities will make (receive) contributions to (from) the head entity for the balances recognised by
the head entity described in (i) and (ii) above. The contributions will be calculated in accordance
with the tax funding agreement.
Assets and liabilities which arise as a result of differences between the periods in which the
underlying transactions occur, and the period in which the funding payments under the tax funding
agreement are made, are recognised as intercompany balances receivable and payable in the balance
sheet. The recoverability of balances arising from the tax funding arrangements is based on the
ability of the tax-consolidated group to utilise the amounts recognised by the head entity.
The entity will be required to make a payment to terminate its liability under the tax funding
agreement if it leaves the tax consolidation group.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 8 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Goods and services tax
All revenues, expenses and assets are recognised net of any GST paid, except where they relate to
products and services which are input taxed for GST purposes or the GST incurred is not recoverable
from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of
the cost of acquisition of the assets or as part of the particular expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from or payable to the tax authorities is included as a receivable or payable in the
balance sheet.
Cash flows are reported on a gross basis reflecting any GST paid or collected. The GST component of
cash flows arising from investing or financing activities which are recoverable from, or payable
to, local tax authorities are classified as operating cash flows.
Foreign currency transactions and translation
Functional and Presentation currency
Items included in the financial statements are measured using the currency of the primary economic
environment in which that entity operates (the functional currency). The presentation currency of
this financial report, and the functional currency of the parent entity, is Australian dollars.
Transactions and balances
Income and expense items denominated in a currency other than the functional currency are
translated at the spot exchange rate at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated at the rate of exchange ruling at
balance sheet date, with exchange gains and losses recognised in the income statement.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value was determined.
Receivables
Receivables are financial assets and are measured at fair value. Given the short-term nature of
most receivables, the recoverable amount approximates fair value.
Payables
Creditors and accruals are recognised as liabilities for amounts to be paid in the future for goods
and services received, whether or not billed to the entity.
Amounts Due To or From Related Parties
Amounts are carried at fair value being nominal amounts due and payable. Interest is taken up
as income on an accrual basis. A provision for impairment is recognised when there is objective
evidence that the related party will not be able to pay its debt.
Issued Capital
Issued and paid up capital is recognised at the fair value of the consideration received by the
company.
Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as
a reduction of the share proceeds received.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 9 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Company makes estimates and assumptions in respect of certain key assets and liabilities.
Estimates and judgements are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances. The key areas in which critical estimates and judgements are applied are described
below.
(a) The ultimate liability arising from claims made under insurance contracts
Provision is made at the year end for the estimated cost of claims incurred but not settled at the
balance sheet date, including the cost of claims incurred but not yet reported to the Company.
The estimated cost of claims includes direct expenses to be incurred in settling claims gross of
the expected value of salvage and other recoveries. The Company takes all reasonable steps to
ensure that it has appropriate information regarding its claims exposures. However, given the
uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be
different from the original liability established.
The estimation of claims incurred but not reported (“IBNR”) is generally subject to a greater
degree of uncertainty than the estimation of the cost of settling claims already notified to the
Company, where more information about the claim event is generally available. IBNR claims may often
not be reported to the insurer until many years after the events giving rise to the claims has
happened. In calculating the estimated cost of unpaid claims the Company uses a variety of
estimation techniques, generally based upon statistical analyses of historical experience, which
assumes that the development pattern of the current claims will be consistent with past experience.
Allowance is made, however, for changes or uncertainties which may create distortions in the
underlying statistics or which might cause the cost of unsettled claims to increase or reduce when
compared with the cost of previously settled claims including:
| • | changes in the legal environment | ||
| • | changes in the economic environment | ||
| • | the impact of large losses | ||
| • | movements in industry benchmarks |
A component of these estimation techniques is usually the estimation of the cost of notified but
not paid claims. In estimating the cost of these the Company has regard to the claim circumstance
as reported, any information available from loss adjusters and information on the cost of settling
claims with similar characteristics in previous period.
Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the
amounts that will be recoverable from reinsurers based upon the gross provisions.
Details of specific assumptions used in deriving the outstanding claims liability at year-end are
detailed below.
(b) Assets arising from reinsurance contracts
Assets arising from reinsurance contracts are also calculated using the above methods. In addition,
the recoverability of these assets is assessed on a periodic basis to ensure that the balance is
reflective of the amounts that will ultimately be received, taking into consideration factors such
as counterparty and credit risk. Impairment is recognised where there is objective evidence that
the Company may not receive amounts due to it and these amounts can be reliably measured.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 10 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
(c) Process used to determine assumptions
The company wrote one class of business: lenders mortgage insurance. Lenders mortgage insurance is
short tail in nature, meaning that claims are typically settled within one year of being reported.
Claims estimates are derived from analysis of the results of several different actuarial models.
These models take past defaults and claim payments into account and assume that reported claims
will develop steadily from period to period. Other models apply a loss ratio to each loan that
reflects loan data, past claims experience and industry benchmarks.
A description of the processes used to determine these assumptions is provided below:
Average weighted term to settlement
The average weighted term to settlement is calculated separately by class of business based on
historic settlement patterns.
Reinsurance percentage
The reinsurance percentage is calculated based on past reinsurance recovery rates and the structure
of the reinsurance arrangements in place.
Discount rate
Discount rates derived from market yields on Commonwealth Government securities as at the balance
date have been adopted.
Expense rate
Claims handling expenses are calculated based on projected costs of administering the remaining
claims until expiry.
Average claim amount
The average claim amount is estimated by considering historical settlement amounts, industry
benchmarks and sensitivity testing.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 11 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
(d) Sensitivity analysis — insurance contracts
Summary
The Company conducts sensitivity analyses to quantify the exposure to risk of changes in the key
underlying variables. The valuations included in the reported results are calculated using certain
assumptions about these variables as disclosed above. The movement in any key variable will impact
the performance and equity of the Company. The tables below describe how a change in each
assumption will affect the insurance liabilities and show an analysis of the sensitivity of the
profit/(loss) to changes in these assumptions both gross and net of reinsurance.
| Variable | Impact of movement in variable | |
Average weighted term to
settlement
|
Expected payment patterns are used in determining the outstanding claims liability. A decrease in the average term to settlement rates would lead to claims being paid sooner than anticipated (increase in outstanding claims liability). | |
Reinsurance percentage
|
The company assumes money will be recoverable from reinsurers on future claims paid. A decrease in the reinsurance percentage would lead to a reduction in expected recoveries and an increase outstanding claims liability. Similarly, an increase in the reinsurance percentage would result in a reduction in the outstanding claims liability. | |
Discount rate
|
The outstanding claims liability is calculated by reference to expected future payments. These payments are discounted to adjust for the time value of money. An increase or decrease in the assumed discount rate will have an opposing impact on outstanding claims liability. | |
Expense rate
|
An estimate for the internal costs of administering claims is included in the outstanding claims liability. An increase or decrease in the expense rate assumption would have a corresponding impact on claims expense and outstanding claims liability. | |
Average claim amount
|
Average claim size is used in determining the outstanding claim liability. An increase or decrease in the average claim amount assumption would have a corresponding impact on the outstanding claims liability. |
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 12 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
The company successfully commuted its portfolio with AMP Bank Ltd. As a result the only remaining
risk is 100% reinsured. There is no impact to profit or loss from changes in variables and
therefore no impact to the financial statements.
2006
| Variable | Change in | Assumption at 12/06 | Change in Shareholder | |||||||||||||||
| Variable | Profit/(loss) (after tax) | |||||||||||||||||
| Gross | Net | Gross $ | Net $ | |||||||||||||||
Average weighted term to settlement
|
+0.5yr | 1.06yr | 1.02yr | — | — | |||||||||||||
| -0.5yr | — | — | ||||||||||||||||
Reins % (as % of Gross Outstanding
Claims)
|
+1% | n/a | 99.8 | % | — | — | ||||||||||||
| -1% | — | — | ||||||||||||||||
Discount Rate
|
+1% | 5.9 | % | 5.9 | % | — | — | |||||||||||
| -1% | — | — | ||||||||||||||||
Expense Rate (as % of Outstanding
Claims)
|
+1% | 97 | % | 83 | % | (305 | ) | — | ||||||||||
| -1% | 305 | — | ||||||||||||||||
Average Claim Amount
|
+10% | 20,216 | n/a | (3,194 | ) | (35 | ) | |||||||||||
| -10% | 3,194 | 35 | ||||||||||||||||
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 13 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
3. EVENTS OCCURRING AFTER THE REPORTING DATE
On 11 December 2007 a Sale and Purchase Agreement was entered into by the ultimate parent AMP
Limited and Enstar Australia Holdings Pty Ltd for the sale of the entity.
The sale was subject to a number of conditions including regulatory approval by the Australian
Prudential Regulatory Authority (APRA) who subsequently approved the Sale Agreement on 22 February
2008. The sale was then completed on 5 March 2008. Enstar Australia Holdings Pty Ltd assumed
ownership of the company at this point.
4. NET PREMIUM REVENUE
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Movement in unearned premiums |
5,327 | 7,064 | ||||||
Premium revenue |
5,327 | 7,064 | ||||||
Outwards reinsurance premiums |
533 | 1,078 | ||||||
Net premium revenue |
4,794 | 5,986 | ||||||
5. NET CLAIMS INCURRED
| 2007 | 2006 | |||||||||||||||||||||||
| Current | Prior years | Total | Current | Prior | Total | |||||||||||||||||||
| year | year | years | ||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
Gross claims expense |
||||||||||||||||||||||||
Gross claims
incurred —
undiscounted |
— | (51,042 | ) | (51,042 | ) | — | (67,239 | ) | (67,239 | ) | ||||||||||||||
Discount movement |
— | — | — | — | — | — | ||||||||||||||||||
| — | (51,042 | ) | (51,042 | ) | — | (67,239 | ) | (67,239 | ) | |||||||||||||||
Reinsurance and other
recoveries
revenue |
||||||||||||||||||||||||
Reinsurance and
other recoveries —
undiscounted |
— | 17,623 | 17,623 | — | 13,017 | 13,017 | ||||||||||||||||||
Discount movement |
— | — | — | — | — | — | ||||||||||||||||||
| — | 17,623 | 17,623 | — | 13,017 | 13,017 | |||||||||||||||||||
Net claims incurred |
— | (33,419 | ) | (33,419 | ) | — | (54,222 | ) | (54,222 | ) | ||||||||||||||
Current year claims relate to risks borne in the current financial year. Prior year claims relate
to a reassessment of the risks borne in all previous financial years.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 14 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
6. NET INVESTMENT REVENUE
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Investment income |
||||||||
Interest |
455,898 | 415,805 | ||||||
Interest from related parties |
||||||||
— other related parties |
— | 84,224 | ||||||
Changes in fair value of investments |
||||||||
Unrealised |
(10,863 | ) | (5,136 | ) | ||||
Total net investment revenue |
445,035 | 494,893 | ||||||
7. General Administration Expenses
| Expenses by Nature | 2007 | 2006 | ||||||
| $ | $ | |||||||
Net gain on foreign currency |
9,567 | 15,849 | ||||||
Other management fees |
100,000 | 100,000 | ||||||
External consultant costs |
20,000 | 10,000 | ||||||
Other expenses |
5,500 | 6,146 | ||||||
Total Expenses |
135,067 | 131,995 | ||||||
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 15 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
8. INCOME TAX
(a) Analysis of income tax expense
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Current tax |
101,822 | 267,409 | ||||||
Decrease in deferred tax assets |
314 | 9,270 | ||||||
Increase/(Decrease) in deferred tax liabilities |
2,974 | (165,250 | ) | |||||
Under provided in previous years |
20,574 | — | ||||||
Income tax expense |
125,684 | 111,429 | ||||||
(b) Relationship between income tax expense and accounting profit
The table below provides a reconciliation of differences between prima facie tax calculated as
30% of the profit before income tax for the period and the actual income tax expense recognised
in the income statement for the period.
In respect of income tax expense attributable to shareholders, the tax rate which applies in both
2007 and 2006 is 30% for Australia.
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Operating profit before income tax |
356,876 | 423,106 | ||||||
Prima facie income tax at the rate of 30% |
107,063 | 126,932 | ||||||
Tax effect of differences between amounts of income and
expenses recognised for accounting and the amounts
deductible/assessable in calculating taxable income: |
||||||||
Non assessable income |
— | (6,717 | ) | |||||
Under provided in prior years — deferred tax balances |
20,574 | — | ||||||
All other items |
(1,953 | ) | (8,786 | ) | ||||
Income tax expense per income statement |
125,684 | 111,429 | ||||||
(c) Analysis of deferred tax asset |
||||||||
Amounts recognised in income: |
||||||||
- Indirect Claims Costs Adjustments |
5,176 | 14,618 | ||||||
- Accrued Expenses |
3,000 | — | ||||||
- Unrealised gains/losses |
13,718 | 7,590 | ||||||
Total deferred tax assets |
21,894 | 22,208 | ||||||
(d) Analysis of deferred tax liability |
||||||||
Amounts recognised in income |
||||||||
- Accrued Interest Receivable |
15,734 | 12,761 | ||||||
Total deferred tax liability |
15,734 | 12,761 | ||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
16 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
9. RECEIVABLES
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Current |
||||||||
Interest free advance |
||||||||
- Other related parties |
— | 1,000 | ||||||
Receivable from related parties |
||||||||
- Other related parties |
21,754 | — | ||||||
Other |
52,448 | 38,955 | ||||||
Total receivables |
74,202 | 39,955 | ||||||
10. REINSURANCE AND OTHER RECOVERIES
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Expected future reinsurance recoveries undiscounted |
||||||||
- on outstanding claims |
25,495 | 45,548 | ||||||
- Discount to present value |
— | (2,431 | ) | |||||
Reinsurance and other recoveries receivable |
25,495 | 43,118 | ||||||
Reinsurance recoveries receivable-current |
14,706 | 24,613 | ||||||
Reinsurance recoveries receivable- non current |
10,789 | 18,505 | ||||||
| 25,495 | 43,118 | |||||||
11. OTHER FINANCIAL ASSETS
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Current |
||||||||
Quoted Investments- at fair value: |
||||||||
Government bonds |
446,009 | 466,353 | ||||||
Total current investments |
446,009 | 466,353 | ||||||
Total other financial assets |
446,009 | 466,353 | ||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
17 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
12. OTHER ASSETS
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Current deferred reinsurance premiums |
— | 533 | ||||||
Prepayments |
2,592 | — | ||||||
Total current other assets |
2,592 | 533 | ||||||
Deferred reinsurance premiums as at 1 January |
533 | 1,611 | ||||||
Earning of reinsurance premiums |
(533 | ) | (1,078 | ) | ||||
Deferred reinsurance premiums as at 31 December |
— | 533 | ||||||
13. UNEARNED PREMIUM LIABILITY
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Current unearned premium |
— | 2,523 | ||||||
Non-current unearned premium |
— | 2,804 | ||||||
Total unearned premium |
— | 5,327 | ||||||
Unearned premium liability as at 1 January |
5,327 | 12,391 | ||||||
Earning of premiums written in previous periods |
(5,327 | ) | (7,064 | ) | ||||
Unearned premium liability as at 31 December |
— | 5,327 | ||||||
The unearned premium liability was found to be sufficient for the current and prior periods, as a
result no unexpired risk liability has been raised.
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
18 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
14. OUTSTANDING CLAIMS
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Central estimate |
44,463 | 95,234 | ||||||
Risk margin |
— | 1,555 | ||||||
| 44,463 | 96,789 | |||||||
Discount to present value |
(1,716 | ) | (3,000 | ) | ||||
Gross outstanding claims liability |
42,747 | 93,789 | ||||||
Current |
31,958 | 53,216 | ||||||
Non-current |
10,789 | 40,573 | ||||||
Total outstanding claims |
42,747 | 93,789 | ||||||
Process for determining risk margin
The risk margin was determined, allowing for the uncertainty of the outstanding claims estimate for
each portfolio.
As the remaining policies are 100% reinsured, with no net exposure, and the claim administration
fee is fixed, no risk margin is held for Church Bay Limited (formerly AMPG(1992) Limited).
| Risk margins applied | 2007 | 2006 | ||||||
Mortgage insurance |
0 | % | 16 | % | ||||
Reconciliation of movement in discounted outstanding claims liability
| 2007 | ||||||||||||
| Gross | Reins | Net | ||||||||||
| $ | $ | $ | ||||||||||
Amount outstanding brought forward |
93,789 | 44,118 | 49,671 | |||||||||
less Claim payments/recoveries received in the period |
(1 | ) | — | (1 | ) | |||||||
Effect of change in discounting |
4,464 | 2,402 | 2,062 | |||||||||
Effect of change in assumptions |
(55,505 | ) | (21,025 | ) | (34,480 | ) | ||||||
Outstanding amount carried forward |
42,747 | 25,495 | 17,252 | |||||||||
| 2006 | ||||||||||||
| Gross | Reins | Net | ||||||||||
| $ | $ | $ | ||||||||||
Amount outstanding brought forward |
161,028 | 57,127 | 103,901 | |||||||||
less Claim payments/recoveries received in the period |
— | — | — | |||||||||
Effect of change in discounting |
4,384 | 2,215 | 2,169 | |||||||||
Effect of change in assumptions |
(71,623 | ) | (15,224 | ) | (56,399 | ) | ||||||
Outstanding amount carried forward |
93,789 | 44,118 | 49,671 | |||||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
19 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
Claims Development Table
Current year claims relate to risks borne in the current financial year. Prior year claims relate
to a reassessment of the risks borne in all previous financial years.
The Company is closed to new business and there have been no new mortgage insurance contracts
issued in the six years prior and to and including this report.
As described in Note 1, the outstanding claims liability is the best estimate of the present value
of the expected future payments, after the inclusion of a risk margin. At each balance date, the
amount of the liability is reassessed and it is likely that changes will arise in the estimates of
liabilities. The table under shows the estimates of total ultimate claims at successive year ends.
| Net | Gross | |||||||
| $ | $ | |||||||
31 December 2001 |
170,132 | 31,568,123 | ||||||
31 December 2002 |
165,072 | 31,207,548 | ||||||
31 December 2003 |
155,042 | 31,150,804 | ||||||
31 December 2004 |
151,690 | 31,109,688 | ||||||
31 December 2005 |
149,957 | 31,115,553 | ||||||
31 December 2006 |
149,411 | 31,120,753 | ||||||
31 December 2007 |
148,999 | 31,096,197 | ||||||
Current estimate of cumulative claims |
148,999 | 31,096,197 | ||||||
Cumulative payments |
148,999 | 31,068,987 | ||||||
Undiscounted central estimate |
— | 27,210 | ||||||
Effect of discounting |
— | 1,716 | ||||||
Discounted central estimate |
— | 25,494 | ||||||
Risk margin |
0 | |||||||
Claims handling provision |
17,253 | |||||||
Outstanding Claims as per the balance sheet |
42,747 | |||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
20 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
15. PAYABLES
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Current |
||||||||
Other creditors |
10,000 | 8,686 | ||||||
Other borrowings from related parties |
||||||||
— other related parties |
— | 3,206 | ||||||
| 10,000 | 11,892 | |||||||
16. ISSUED CAPITAL
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Paid up capital |
||||||||
62,526,468 ordinary shares at $0.67 each
(2006:62,526,468 ordinary shares at $0.67
each) |
41,784,468 | 41,784,468 | ||||||
Movement in share capital |
||||||||
Balance beginning of the year |
41,784,468 | 62,526,468 | ||||||
Capital return 62,526,468 shares at $0.33 each |
— | (20,742,000 | ) | |||||
| 41,784,468 | 41,784,468 | |||||||
Rights attaching to Ordinary Shares
Ordinary shares attract the following rights:
| (a) | to receive notice of and to attend and vote at all general meetings of the Company; |
||
| (b) | to receive dividends; and | ||
| (c) | in a winding up, to participate equally in the distribution of the assets of the Company (both capital and surplus), subject only to any amounts unpaid on the Share. |
17. FRANKING ACCOUNT
The AMP Limited group entered into Tax Consolidation during 2003. Under Tax Consolidation, the
franking account balances for group companies were transferred to the Head Entity, AMP Limited.
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
21 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
18. KEY MANAGEMENT PERSONNEL
The following individuals were the key management personnel of Church Bay Limited (formerly
AMPG(1992) Limited) , for the current and prior reporting periods (unless stated otherwise):
Peter Clarke |
||
Richard Grellman |
||
Paul Leaming
|
31-12-2007, Appointed | |
William Roberts |
||
Felix Zaccar |
||
Peter Hodgett
|
31-12-2007, Resigned | |
Andrew Mohl
|
31-12-2007, Resigned |
The following table provides aggregate details of the compensation of key management personnel of
Church Bay Limited (formerly AMPG(1992) Limited).
| Short-term | Post- | Other | ||||||||||||||||||||||
| employee | employment | long-term | Termination | Share-based | ||||||||||||||||||||
| benefits | benefits | benefits | benefits | payments | Total | |||||||||||||||||||
| Year | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
2007 |
6,396,418 | 204,889 | — | 7,667,817 | 2,837,771 | 17,106,895 | ||||||||||||||||||
2006 |
6,306,101 | 205,061 | — | — | 2,318,215 | 8,829,377 | ||||||||||||||||||
Key management personnel disclosed above, also provided services to other related entities during
the year. The above remuneration amounts include all amounts paid for services rendered to related
entities and those services rendered to Church Bay Limited (formerly AMPG(1992) Limited).
19. AUDITOR’S FEES
Auditors’ remuneration for the year ended 31 December 2007 is paid on the Company’s behalf by a
controlled entity within the AMP Limited Group.
20. CONTINGENT LIABILITIES
There are no contingent liabilities as at 31 December 2007 (2006: Nil).
21. RELATED PARTIES
Transactions between Church Bay Limited (formerly AMPG(1992) Limited) and other related parties
during the financial year consisted of:
| • | Interest receivable on loans to related parties | ||
| • | Payment of management fees for services provided |
Controlling Entity
The immediate parent entity as at 31 December 2007 is Shelly Bay Holdings Limited (formerly AMP
General Insurance Holdings Limited). AMP Limited is the ultimate parent entity at 31 December
2007.
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
22 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
21. RELATED PARTIES (continued)
Directors
The directors of the Company during the financial year, and the dates of appointments and
resignations during the year are:
Peter Clarke |
||
Richard Grellman |
||
Paul Leaming
|
31-12-07, Appointed | |
William Roberts |
||
Felix Zaccar |
||
Peter Hodgett |
||
Andrew Mohl
|
31-12-07, Resigned |
Other Transactions
The directors and their director related entities receive normal dividends on their ordinary
share holdings in AMP Limited.
Other transactions with directors of the Company and their director-related entities.
During the year, transactions were entered into between Directors or their Director related
entities and entities within the AMP Limited Group. These transactions are within a normal
employee, customer or supplier relationship on terms and conditions no more favourable than
those available to other employees, customers or members (unless otherwise described below) and
include:
| • | normal personal banking with AMP Bank Limited including the provision of credit cards; | |
| • | the purchase of AMP superannuation and related products; | |
| • | Financial investment services; | |
| • | Other advisory services. |
These transactions do not have the potential to adversely affect the decisions about the
allocation of scarce resources made by users of AMP’s financial statements, or discharge of
accountability by the Directors. The transactions are considered to be trivial or domestic in
nature.
Transactions within the wholly owned group
The aggregate amounts brought to account in respect of the following types of transactions and
each class of related party involved were:
AMP Services Limited and Enstar Australia Ltd (formerly Cobalt Solutions Australia Limited), both
related entities within the wholly owned group, provide operational and administrative (including
employee related) services to the entity. The services provided are in the normal course of the
business and are on normal commercial terms and conditions.
The Company settled an interest-bearing loan to AMP Finance Services Limited, a related entity
within the wholly owned group. This transaction was made under normal terms and conditions.
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
23 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
21. RELATED PARTIES (continued)
Amounts attributable to transactions with entities in the wholly-owned group
Operating profit before income tax for the financial year includes aggregate
amounts attributable to transactions in respect of:
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Interest Revenue — other related parties |
— | 84,224 | ||||||
Management Expense — other related parties |
100,000 | 100,000 | ||||||
Amounts receivable from and payable to entities in the
wholly-owned group |
||||||||
Aggregate amounts receivable at balance date from: |
||||||||
Current |
||||||||
Interest receivable — other related parties |
— | 1,000 | ||||||
Loan — other related parties |
— | — | ||||||
Aggregate amounts payable at balance date from: |
||||||||
Current |
||||||||
Payables — other related parties |
— | 3,000 | ||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
24 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
22. CASH FLOW RECONCILIATION
(i) Reconciliation of cash
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Cash balance comprises: |
||||||||
Cash at call |
751,954 | 728,583 | ||||||
Cash on deposit |
6,126,076 | 6,126,076 | ||||||
| 6,878,030 | 6,854,659 | |||||||
(ii) Reconciliation of net cash flows from operating
activities to operating profit after income tax |
||||||||
Operating profit after income tax |
231,192 | 311,676 | ||||||
Changes in net market value of investments |
10,863 | 4,524 | ||||||
FX Gains & Losses |
9,567 | 15,849 | ||||||
Changes in assets and liabilities net of the effects of acquisitions: |
||||||||
(Increase)/ decrease in receivables and other assets |
(36,391 | ) | 276,522 | |||||
(Increase)/ decrease in reinsurance and other recoveries receivable |
17,623 | 16,302 | ||||||
Increase/(decrease) in payables |
(1,892 | ) | 3,206 | |||||
Increase/(decrease) in current tax liabilities |
(154,508 | ) | (940,941 | ) | ||||
(Decrease)/ increase in unearned premiums |
(5,327 | ) | (7,064 | ) | ||||
(Decrease)/ increase in outstanding claims |
(51,042 | ) | (67,239 | ) | ||||
(Decrease)/ increase in deferred tax liabilities net of future tax benefit |
3,286 | (155,981 | ) | |||||
Net cash inflows / (outflows) from operating activities |
23,371 | (543,146 | ) | |||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
25 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
23. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS
The company’s policies and procedures in respect of managing risks are set out in this note below.
The Board has ultimate responsibility for risk management and governance, including ensuring an
appropriate risk framework is in place and is operating effectively. There are, however, other
bodies and individuals associated with the Company that manage and monitor financial risk.
The Board
The Board is responsible for the approval of policy regarding shareholder capital investment
strategy, policyholder asset and liability strategy and setting the financial risk appetite.
The Audit Committee
The Audit Committee is responsible for ensuring the existence of effective financial risk
management policies and procedures.
The RMS and REMS identify the Company’s policies and procedures, processes and controls that
comprise its risk management and control systems. These systems address all material risks,
financial and non-financial, likely to be faced by the Company. Annually, the Board certifies to
APRA that adequate strategies have been put in place to monitor those risks, that the Company has
systems in place to ensure compliance with legislative and prudential requirements and that the
Board has satisfied itself as to the compliance with the RMS and REMS. The RMS and REMS have been
approved by both the Board and APRA.
Key aspects of the processes established in the RMS to mitigate risks include:
| • | A formal regular process of risk identification and evaluation, supplemented by a documented control assessment process, is completed by management and communicated to the Board in line with the Board approved Risk Management Strategy. | ||
| • | Actuarial models, using information from management information systems, to monitor claims patterns and other relevant statistics. Past experience and statistical methods are used as part of the process. | ||
| • | The maintenance and use of various specialist information systems, which provide up to date and reliable data on claims liabilities. | ||
| • | Documented procedures that are followed by claims staff that are experienced in the various classes of business previously written. |
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
26 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
23. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (continued)
Risk and Mitigation
The Company’s activities expose it to a variety of risks.
The major risks associated with insurance contracts include:
| a) | Development of claims | |
| There is a possibility that changes may occur in the estimate of our obligations at the end of a contract period. The tables in note 14 show the estimates of total ultimate claims at successive year-ends. | ||
| b) | Terms and conditions of direct and inwards reinsurance business | |
| There is limited scope to improve the existing terms and conditions. The company has been in orderly run off since 2000, and no new contracts have been entered into since that time. | ||
| c) | Concentration of insurance risk | |
| The exposure to concentrations of insurance risk has been mitigated with the purchase of reinsurance where management believes that the price /risk transfer is suitable. |
Financial risks include:
Market risk
| a) | Interest rate risk | |
| Interest rate risk arises to the extent that there is a mismatch between the fixed-interest portfolios used to back the outstanding claims liability and those outstanding claims. The interest rate risk is managed by matching the duration profiles of the investments assets and the outstanding claims liability. | ||
| The accounting policy notes describe the policies used to measure and report the assets and liabilities of the Company. Where the applicable market value is determined by discounting future cash flows, movements in interest rates will result in a reported unrealised gain or loss in the profit and loss account. | ||
| The Company is well capitalized and funds are held in liquid fixed interest term deposits. | ||
| Interest rate sensitivity analysis | ||
| The following table demonstrates the impact of a 100 basis point change in Australian interest rates, with all other variables held constant, on the company’s shareholder profit after tax. It is assumed that the change occurs as at the reporting date (31 December) and there are concurrent movements in interest rates and parallel shifts in yield curves. |
| 31 Dec 07 | 31 Dec 06 | |||||||
| Impact on | Impact on | |||||||
| Profit after tax | Profit after tax | |||||||
| Change in Variable | $ | $ | ||||||
+100 basis points |
(7,900 | ) | (8,300 | ) | ||||
- 100 basis points |
8,000 | 8,400 | ||||||
| b) | Foreign Currency risk analysis | |
| The Company’s financial assets are primarily dominated in Australian dollar with a small exposure in New Zealand Dollars via its branch operations in New Zealand. |
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
27 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
23. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (continued)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to met its debt obligations or
other cash outflows as they fall due because of lack of liquid assets. The Company manages
liquidity risk by maintaining adequate reserves in short term cash. As required by APRA
prudential Standard GPS 220, the Company has developed and implemented a risk management
strategy which is described earlier in this note to control this risk.
The table below summaries the maturity profile of the company’s financial liabilities at 31
December based on contractual undiscounted obligations.
| 31 Dec 07 | ||||||||||||
| Up to 1 | More than 1 | |||||||||||
| year | year | Total | ||||||||||
Financial liabilities: |
||||||||||||
Payables |
10,000 | — | 10,000 | |||||||||
Total |
10,000 | — | 10,000 | |||||||||
| 31 Dec 06 | ||||||||||||
| Up to 1 | More than 1 | |||||||||||
| year | year | Total | ||||||||||
Financial liabilities: |
||||||||||||
Payables |
11,892 | — | 11,892 | |||||||||
Total |
11,892 | — | 11,892 | |||||||||
Credit risk
Credit risk is the risk of loss that arises from a counterparty failing to meet their contractual
commitments in full and on time, or from losses arising from the change in value of traded
financial instruments as a result of changes in credit risk on that instrument.
The Company has exposure to the significant counterparty PMI Mortgage Insurance Limited for its
reinsurance and ANZ for its investment. Both of these are regularly reviewed and maintained for
changes.
Credit exposure by credit rating
The table below provides information regarding the credit risk exposure of the Company by
classifying assets according to the Company’s credit rating of counter parties:
| 31 Dec 07 | 31 Dec 06 | |||||||||||||||
| Reinsurance & | Financial | Reinsurance & | Financial | |||||||||||||
| Other Recoveries | Instruments | Other Recoveries | Instruments | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
AAA |
— | — | — | — | ||||||||||||
AA |
25,495 | 6,930,478 | 43,118 | 6,893,614 | ||||||||||||
A |
— | — | — | — | ||||||||||||
BBB |
— | — | — | — | ||||||||||||
Below BBB |
— | — | — | — | ||||||||||||
Not rated |
— | 21,754 | — | 1,000 | ||||||||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
28 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
23. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (continued)
The following table provides an aged analysis of financial assets neither past due or impaired,
past due and not impaired and impaired assets. Impairment is calculated in accordance with note 1.
31 Dec 07
| Neither | ||||||||||||||||||||
| past due | ||||||||||||||||||||
| nor | Past due but not impaired | |||||||||||||||||||
| impaired | <365 days | >365 days | Impaired | Total | ||||||||||||||||
Receivables |
74,202 | — | — | — | 74,202 | |||||||||||||||
Reinsurance and other recoveries receivable |
25,495 | — | — | — | 25,495 | |||||||||||||||
31 Dec 06
| Neither | ||||||||||||||||||||
| past due | ||||||||||||||||||||
| nor | Past due but not impaired | |||||||||||||||||||
| impaired | <365 days | >365 days | Impaired | Total | ||||||||||||||||
Receivables |
39,955 | — | — | — | 39,955 | |||||||||||||||
Reinsurance and other recoveries receivable |
43,118 | — | — | — | 43,118 | |||||||||||||||
Fair Value
Details of the significant accounting policies and methods adopted, including the criteria for
recognition, the basis of measurement and the basis on which revenue and expenses are recognised,
in respect of each class of financial asset, financial liability and other investments are under
and in Note 1.
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
29 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
23. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (continued)
Categories of financial instruments
| 2007 | 2006 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Financial assets |
||||||||||||
Fair value through the profit and loss: |
||||||||||||
Receivables |
10 | 74,202 | 39,955 | |||||||||
Cash & cash equivalents |
23 | 6,878,030 | 6,854,659 | |||||||||
The recorded bid price equates to net fair value for listed debt and equity securities. For
derivative contracts, fair value equates to the unrealised gain/loss on the outstanding contract.
For the following financial instruments, the cost carrying amount is considered to equate to their
fair value:
| • | cash deposits |
| • | receivables |
| • | payables. |
CAPITAL MANAGEMENT
The Company is subject to externally imposed capital management requirements. The Company must
comply with Capital requirements as specified under APRA General Insurance Prudential Standards.
The primary capital management objective is to ensure the company will be able to continue as a
going concern while minimising excess capital through capital initiatives where appropriate.
The Company’s capital position is monitored by the Company’s Board. There have been no changes in
the capital management objectives, policies and processes from the previous period.
The company has at all times during the current and prior financial year complied with the
externally imposed capital requirements imposed by Prudential Standard GPS110 and the requirements
set out in its insurance license.
The Minimum Capital Requirement (MCR) as a ratio of the Company’s capital base is shown in the
table under.
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
30 of 32 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
23. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (continued)
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Tier 1 Capital |
||||||||
Paid up ordinary shares |
41,784,468 | 41,784,468 | ||||||
Retained earnings |
(34,758,316 | ) | (35,069,992 | ) | ||||
Current year earnings |
231,193 | 311,676 | ||||||
Less: Deductions |
(6,160 | ) | (9,447 | ) | ||||
Net tier 1 capital |
7,251,185 | 7,016,705 | ||||||
Net tier 2 capital |
— | — | ||||||
Total capital base |
7,251,185 | 7,016,705 | ||||||
Minimum capital requirement |
5,000,000 | 5,000,000 | ||||||
Capital adequacy multiple |
1.45 | 1.40 | ||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
31 of 32 | |
Report of Independent Auditors
The Board of Directors of Church Bay Limited (formerly AMPG (1992) Limited)
We have audited the accompanying balance sheets of Church Bay Limited (formerly AMPG (1992)
Limited) as of December 31, 2007 and 2006, and the related income statements, statements of changes
in equity, and cash flow statements for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Church Bay Limited (formerly AMPG (1992) Limited) at December
31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Sydney, Australia
May 15, 2008
Liability limited by a scheme
approved under Professional
Standards Legislation
approved under Professional
Standards Legislation
CHURCH BAY LIMITED
(formerly AMPG (1992) LIMITED)
ABN 42 000 488 362
(formerly AMPG (1992) LIMITED)
ABN 42 000 488 362
FINANCIAL REPORT
31 DECEMBER 2006
31 DECEMBER 2006
Contents:
| Page | ||||
Financial Report |
||||
Financial Statements |
||||
- Income Statement |
1 | |||
- Balance Sheet |
2 | |||
- Statement of Changes in Equity |
3 | |||
- Cash Flow Statement |
4 | |||
Notes to the Financial Statements |
5 | |||
Report of Independent Auditors |
30 | |||
Church Bay Limited (formerly AMPG(1992) Limited)
Income Statement
For the year ended 31 December 2006
For the year ended 31 December 2006
| 2006 | 2005 | |||||||||||
| Notes | $’000 | $’000 | ||||||||||
Direct premium revenue |
7 | 22 | ||||||||||
Outwards reinsurance premium expense |
1 | 3 | ||||||||||
Net premium revenue |
4 | 6 | 19 | |||||||||
Direct claims benefit |
(67 | ) | (250 | ) | ||||||||
Reinsurance and other recoveries (expense)/ revenue |
(13 | ) | 9 | |||||||||
Net claims incurred |
5 | (54 | ) | (259 | ) | |||||||
Underwriting result |
60 | 278 | ||||||||||
Net investment revenue |
6 | 495 | 1,497 | |||||||||
General administration expenses |
7 | 132 | 180 | |||||||||
Net profit before tax |
423 | 1,595 | ||||||||||
Income tax expense attributable to operating profit |
8 | 111 | 482 | |||||||||
Net profit attributable to members of Church Bay
Limited (formerly AMPG(1992) Limited) |
312 | 1,113 | ||||||||||
The above Income Statement should be read in conjunction with the accompanying notes.
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
1 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Balance Sheet
As at 31 December 2006
As at 31 December 2006
| 2006 | 2005 | |||||||||||
| Notes | $’000 | $’000 | ||||||||||
Current Assets |
||||||||||||
Cash and cash equivalents |
23 | 6,855 | 7,397 | |||||||||
Receivables |
10 | 40 | 4,282 | |||||||||
Reinsurance & other recoveries receivable |
11 | 25 | 33 | |||||||||
Financial Assets at Fair Value |
12 | 466 | 474 | |||||||||
Other |
13 | 1 | 1 | |||||||||
Total Current Assets |
7,387 | 12,187 | ||||||||||
Non-Current Assets |
||||||||||||
Reinsurance & other recoveries receivable |
11 | 19 | 24 | |||||||||
Financial Assets at Fair Value |
12 | — | 16,791 | |||||||||
Deferred tax assets |
8 | 22 | 31 | |||||||||
Other |
13 | — | 1 | |||||||||
Total Non-Current Assets |
41 | 16,847 | ||||||||||
Total Assets |
7,428 | 29,034 | ||||||||||
Current Liabilities |
||||||||||||
Unearned premium liability |
14 | 3 | 7 | |||||||||
Outstanding claims liability |
15 | 53 | 93 | |||||||||
Payables |
16 | 12 | 9 | |||||||||
Current tax liabilities |
277 | 1,218 | ||||||||||
Total Current Liabilities |
345 | 1,327 | ||||||||||
Non-Current Liabilities |
||||||||||||
Unearned premium liability |
14 | 3 | 5 | |||||||||
Outstanding claims liability |
15 | 41 | 68 | |||||||||
Deferred tax liabilities |
8 | 13 | 178 | |||||||||
Total Non-Current Liabilities |
57 | 251 | ||||||||||
Total Liabilities |
402 | 1,578 | ||||||||||
Net Assets |
7,026 | 27,456 | ||||||||||
Shareholders’ Equity |
||||||||||||
Issued Capital |
17 | 41,784 | 62,526 | |||||||||
Accumulated losses |
(34,758 | ) | (35,070 | ) | ||||||||
Total Shareholders’ Equity |
7,026 | 27,456 | ||||||||||
The above Balance Sheet should be read in conjunction with the accompanying notes.
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
2 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Statement of Changes in Equity
For the year ended 31 December 2006
For the year ended 31 December 2006
| Issued Capital | Accumulated | Total | ||||||||||
| Losses | ||||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Balance as at 1 January 2006 |
62,526 | (35,070 | ) | 27,456 | ||||||||
Net Profit after income tax |
— | 312 | 312 | |||||||||
Other changes in equity |
(20,742 | ) | — | (20,742 | ) | |||||||
Balance as at 31 December 2006 |
41,784 | (34,758 | ) | 7,026 | ||||||||
Balance as at 1 January 2005 |
62,526 | (36,183 | ) | 26,343 | ||||||||
Net Profit after income tax |
— | 1,113 | 1,113 | |||||||||
Balance as at 31 December 2005 |
62,526 | (35,070 | ) | 27,456 | ||||||||
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 3 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Cash Flow Statement
For the year ended 31 December 2006
For the year ended 31 December 2006
| 2006 | 2005 | |||||||||||
| Notes | $’000 | $’000 | ||||||||||
Cash flows from operating activities |
||||||||||||
Receipts from customers and reinsurers |
412 | 37 | ||||||||||
Payments to customers, suppliers and employees |
(117 | ) | (178 | ) | ||||||||
Interest received |
371 | 373 | ||||||||||
Income tax refund/(paid) |
(1,208 | ) | 272 | |||||||||
Goods and Services tax paid |
— | 3 | ||||||||||
| 23 | (542 | ) | 507 | |||||||||
Cash flows from investing activities |
||||||||||||
Purchase of investments |
— | — | ||||||||||
| — | — | |||||||||||
Cash flows from financing activities |
||||||||||||
Repayment of loan from related party |
20,742 | — | ||||||||||
Payment for capital reduction |
(20,742 | ) | — | |||||||||
| — | — | |||||||||||
Net increase in cash held |
(542 | ) | 507 | |||||||||
Cash at the beginning of the year |
7,397 | 6,890 | ||||||||||
Cash at the end of the year |
6,855 | 7,397 | ||||||||||
The above Cash Flow Statement should be read in conjunction with the accompanying notes.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 4 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
This Financial Report, comprising the financial statements and the notes thereto, complies with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
The Financial Report has been prepared in accordance with the historical cost convention except for
investments, which have been measured at fair value, and insurance liabilities, which have been
discounted to present value.
The principal accounting policies adopted in the preparation of the Financial Report are set out
below. These policies have been consistently applied to the current year and comparative period,
unless otherwise stated. The same accounting policies and methods of computation are followed by
this Financial Report as compared with the 31 December 2005 annual Financial Report. Where
necessary, comparative information has been reclassified to be consistent with current period
disclosures.
Accounting Standards that have recently been issued or amended but are not yet effective have not
been adopted for the reporting period ending 31 December 2006. When applied in future periods,
these recently issued or amended standards are not expected to have a material impact on the
company’s results or financial position; however they may impact Financial Report disclosures.
Operating revenue
Operating revenue comprises general insurance earned premiums, recoveries, interest income and
investment income. Investment income is brought to account on an accrual basis.
Premium revenue and unearned premium
(i) Premium revenue
Premium revenue comprises premium from direct business.
Premium revenue comprises amounts charged to the policyholder or other insurers, excluding stamp
duties, GST and other amounts collected on behalf of third parties. The earned portion of
premiums received and receivable is recognised as operating revenue.
Premium revenue is recognised in the income statement when it has been earned. Premium revenue is
recognised in the income statement from the attachment date over the period of the contract. Where
time does not approximate the pattern of risk, previous claims experience is used to derive the
incidence of risk.
The proportion of premium received or receivable not earned in the income statement at the
reporting date is recognised in the balance sheet as an unearned premium liability. Actuarial
techniques are used to estimate the ultimate premium and are based on historical premium booking
patterns.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 5 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
(ii) Unearned premiums
Unearned premiums represent premium revenue attributable to future accounting periods. Unearned
premium is determined by apportioning the premiums written in the year over the period of
insurance cover, reflecting the pattern in which risk emerges under these policies.
Outward reinsurance premium expense and deferred reinsurance premium
Premiums ceded to reinsurers are recognised as an expense over the period of cover using the
methods applicable to premium revenue as set out above.
Outstanding claims
The liability for outstanding claims is measured as the best estimate of the present value of
expected future payments against claims incurred at the reporting date under general insurance
contracts issued by the Company, with an additional risk margin to allow for the inherent
uncertainty in the best estimate.
The expected future payments include those in relation to claims reported but not yet paid; claims
incurred but not reported (IBNR), claims incurred but not enough reported (IBNER) and anticipated
claims handling costs.
Claims handling costs include costs that can be associated directly with individual claims, such as
legal and other professional fees, and costs that can only be indirectly associated with individual
claims, such as claims administration costs.
The expected future payments are discounted to present value using a risk free rate.
A risk margin is applied to the outstanding claims liability, net of reinsurance and other
recoveries, to reflect the inherent uncertainty in the central estimate. This risk margin increases
the probability that the net liability is adequately provided for to a 75% confidence level.
Reinsurance and other recoveries
Reinsurance and other recoveries consist of receivables on paid claims and outstanding claims,
and are recognised as revenue when claims are paid or the outstanding claim is raised.
Reinsurance receivables are discounted to present value consistent with the discounting of
outstanding claims set out above.
Investment income
Interest income is recognised in the income statement on an effective interest method when the
entity obtains control of the right to receive the revenue.
Realised gains and losses represent the change in value between the previously reported value and
the amount received on sale of the asset. Unrealised gains and losses represent changes in the
fair value of financial assets recognised in the period.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 6 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
Assets backing general insurance liabilities
The Company has determined that all assets are held to back general insurance liabilities on the
basis that all assets of the Company are available for the settlement of claims if required.
The following policies apply:
Financial assets
Financial assets are designated at fair value through profit or loss. Initial recognition is at
cost in the balance sheet and subsequent measurement is at fair value with any resultant unrealised
gains or losses recognised in the income statement. Details of fair value for the different types
of financial assets are listed below:
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand that is available on demand and deposits held at
call with financial institutions. Cash and cash equivalents are carried at fair value, being the
principal amount. For the purposes of the cash flow statement, cash also includes other highly
liquid investments not subject to significant risk of change in value.
Debt securities
Debt securities are initially recognised at fair value, representing the purchase cost of the asset
exclusive of any transaction costs. Debt securities are subsequently measured at fair value, with
any realised and unrealised gains or losses arising from changes in the fair value being recognised
in the income statement for the period in which they arise. The fair value of a traded interest
bearing security reflects the bid price at balance date. Interest bearing securities that are not
frequently traded are valued by discounting the estimated recoverable amounts, using prevailing
interest rates.
Taxes
Income tax
Income tax expense is the tax payable on taxable income for the current period based on the income
tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities
attributable to: (i) temporary differences between the tax bases of assets and liabilities and
their balance sheet carrying amounts, and (ii) unused tax losses.
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates
expected to apply when the assets are recovered or liabilities are settled, based on those tax
rates which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary
differences to measure the deferred tax asset or liability. An exception is made for certain
temporary differences arising from the initial recognition of an asset or a liability. No deferred
tax asset or liability is recognised in relation to these temporary differences if they arose in a
transaction, other than a business combination, that at the time of the transaction did not affect
either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only
if it is probable that future taxable amounts will be available to utilise those temporary
differences and losses.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 7 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Taxes (continued)
Deferred tax liabilities and assets are not recognised for temporary differences between the
carrying amount and tax bases of investments in controlled entities where the parent entity is able
to control the timing of the reversal of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future.
The tax impact on income and expense items recognised directly in equity is also recognised
directly in equity.
Tax Consolidation
AMP Limited, Church Bay Limited (formerly AMPG(1992) Limited) and certain other wholly owned
controlled entities of AMP Limited comprise a tax-consolidated group of which AMP Limited is the
head entity. The implementation date for the tax-consolidated group was 30 June 2003.
Under tax consolidation, AMP Limited as head entity, assumes the following balances from
subsidiaries within the tax-consolidated group:
(i) Current tax balances arising from external transactions recognised by entities in the
tax-consolidated group occurring after the implementation date, and;
(ii) Deferred tax assets arising from unused tax losses and unused tax credits recognised by
entities in the tax-consolidated group occurring after the implementation date.
A tax funding agreement has been entered into by the head entity and the controlled entities in the
tax-consolidated group. Controlled entities in the tax-consolidated group will continue to be
responsible, by the operation of the tax funding agreement, for funding tax payments required to be
made by the head entity arising from underlying transactions of the controlled entities. Controlled
entities will make (receive) contributions to (from) the head entity for the balances recognised by
the head entity described in (i) and (ii) above. The contributions will be calculated in accordance
with the tax funding agreement.
Assets and liabilities which arise as a result of differences between the periods in which the
underlying transactions occur, and the period in which the funding payments under the tax funding
agreement are made, are recognised as intercompany balances receivable and payable in the balance
sheet. The recoverability of balances arising from the tax funding arrangements is based on the
ability of the tax-consolidated group to utilise the amounts recognised by the head entity.
Goods and services tax
All revenues, expenses and assets are recognised net of any GST paid, except where they relate to
products and services which are input taxed for GST purposes or the GST incurred is not recoverable
from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of
the cost of acquisition of the assets or as part of the particular expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from or payable to the tax authorities is included as a receivable or payable in the
balance sheet.
Cash flows are reported on a gross basis reflecting any GST paid or collected. The GST component of
cash flows arising from investing or financing activities which are recoverable from, or payable
to, local tax authorities are classified as operating cash flows.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 8 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currency transactions and translation
Functional and Presentation currency
Items included in the financial statements are measured using the currency of the primary economic
environment in which that entity operates (the functional currency). The presentation currency of
this financial report, and the functional currency of the parent entity, is Australian dollars.
Transactions and balances
Income and expense items denominated in a currency other than the functional currency are
translated at the spot exchange rate at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated at the rate of exchange ruling at
balance sheet date, with exchange gains and losses recognised in the income statement.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value was determined.
Receivables
Receivables are financial assets and are measured at fair value. Given the short-term nature of
most receivables, the recoverable amount approximates fair value.
Payables
Creditors and accruals are recognised as liabilities for amounts to be paid in the future for goods
and services received, whether or not billed to the entity.
Amounts Due To or From Related Parties
Amounts are carried at fair value being nominal amounts due and payable. Interest is taken up
as income on an accrual basis. A provision for impairment is recognised when there is objective
evidence that the related party will not be able to pay its debt.
Issued Capital
Issued and paid up capital is recognised at the fair value of the consideration received by the
company.
Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as
a reduction of the share proceeds received.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 9 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Company makes estimates and assumptions in respect of certain key assets and liabilities.
Estimates and judgements are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances. The key areas in which critical estimates and judgements are applied are described
below.
(a) The ultimate liability arising from claims made under insurance contracts
Provision is made at the year end for the estimated cost of claims incurred but not settled at the
balance sheet date, including the cost of claims incurred but not yet reported to the Company.
The estimated cost of claims includes direct expenses to be incurred in settling claims gross of
the expected value of salvage and other recoveries. The Company takes all reasonable steps to
ensure that it has appropriate information regarding its claims exposures. However, given the
uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be
different from the original liability established.
The estimation of claims incurred but not reported (“IBNR”) is generally subject to a greater
degree of uncertainty than the estimation of the cost of settling claims already notified to the
Company, where more information about the claim event is generally available. IBNR claims may often
not be reported to the insurer until many years after the events giving rise to the claims has
happened. In calculating the estimated cost of unpaid claims the Company uses a variety of
estimation techniques, generally based upon statistical analyses of historical experience, which
assumes that the development pattern of the current claims will be consistent with past experience.
Allowance is made, however, for changes or uncertainties which may create distortions in the
underlying statistics or which might cause the cost of unsettled claims to increase or reduce when
compared with the cost of previously settled claims including:
| • | changes in the legal environment | ||
| • | changes in the economic environment | ||
| • | the impact of large losses | ||
| • | movements in industry benchmarks |
A component of these estimation techniques is usually the estimation of the cost of notified but
not paid claims. In estimating the cost of these the Company has regard to the claim circumstance
as reported, any information available from loss adjusters and information on the cost of settling
claims with similar characteristics in previous period.
Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the
amounts that will be recoverable from reinsurers based upon the gross provisions.
Details of specific assumptions used in deriving the outstanding claims liability at year-end are
detailed below.
(b) Assets arising from reinsurance contracts
Assets arising from reinsurance contracts are also calculated using the above methods. In addition,
the recoverability of these assets is assessed on a periodic basis to ensure that the balance is
reflective of the amounts that will ultimately be received, taking into consideration factors such
as counterparty and credit risk. Impairment is recognised where there is objective evidence that
the Company may not receive amounts due to it and these amounts can be reliably measured.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 10 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
(c) Process used to determine assumptions
The company wrote one class of business: lenders mortgage insurance. Lenders mortgage insurance is
short tail in nature, meaning that claims are typically settled within one year of being reported.
Claims estimates are derived from analysis of the results of several different actuarial models.
These models take past defaults and claim payments into account and assume that reported claims
will develop steadily from period to period. Other models apply a loss ratio to each loan that
reflects loan data, past claims experience and industry benchmarks.
A description of the processes used to determine these assumptions is provided below:
Average weighted term to settlement
The average weighted term to settlement is calculated separately by class of business based on
historic settlement patterns.
Reinsurance percentage
The reinsurance percentage is calculated based on past reinsurance recovery rates and the structure
of the reinsurance arrangements in place.
Discount rate
Discount rates derived from market yields on Commonwealth Government securities as at the balance
date have been adopted.
Expense rate
Claims handling expenses are calculated based on projected costs of administering the remaining
claims until expiry.
Average claim amount
The average claim amount is estimated by considering historical settlement amounts, industry
benchmarks and sensitivity testing.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 11 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
(d) Sensitivity analysis — insurance contracts
Summary
The Company conducts sensitivity analyses to quantify the exposure to risk of changes in the key
underlying variables. The valuations included in the reported results are calculated using certain
assumptions about these variables as disclosed above. The movement in any key variable will impact
the performance and equity of the Company. The tables below describe how a change in each
assumption will affect the insurance liabilities and show an analysis of the sensitivity of the
profit/(loss) to changes in these assumptions both gross and net of reinsurance.
| Variable | Impact of movement in variable | |
Average weighted term to
settlement
|
Expected payment patterns are used in determining the outstanding claims liability. A decrease in the average term to settlement rates would lead to claims being paid sooner than anticipated (increase in outstanding claims liability). | |
Reinsurance percentage
|
The company assumes money will be recoverable from reinsurers on future claims paid. A decrease in the reinsurance percentage would lead to a reduction in expected recoveries and an increase outstanding claims liability. Similarly, an increase in the reinsurance percentage would result in a reduction in the outstanding claims liability. | |
Discount rate
|
The outstanding claims liability is calculated by reference to expected future payments. These payments are discounted to adjust for the time value of money. An increase or decrease in the assumed discount rate will have an opposing impact on outstanding claims liability. | |
Expense rate
|
An estimate for the internal costs of administering claims is included in the outstanding claims liability. An increase or decrease in the expense rate assumption would have a corresponding impact on claims expense and outstanding claims liability. | |
Average claim amount
|
Average claim size is used in determining the outstanding claim liability. An increase or decrease in the average claim amount assumption would have a corresponding impact on the outstanding claims liability. |
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
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Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
2006
| Change in Shareholder | ||||||||||||||||||||
| Change in | Assumption at 12/06 | Profit/(loss) (after tax) | ||||||||||||||||||
| Variable | Variable | Gross | Net | Gross $’000 | Net $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5yr | 1.06yr | 1.02yr | — | — | |||||||||||||||
| -0.5yr | — | — | ||||||||||||||||||
Reins % (as % of Gross Outstanding |
+1% | n/a | 99.8% | — | — | |||||||||||||||
Claims)
|
-1% | — | — | |||||||||||||||||
Discount Rate |
+1% | 5.9% | 5.9% | — | — | |||||||||||||||
| -1% | — | — | ||||||||||||||||||
Expense Rate (as % of Outstanding |
+1% | 97% | 83% | — | — | |||||||||||||||
Claims)
|
-1% | — | — | |||||||||||||||||
Average Claim Amount |
+10% | 20,216 | n/a | (3 | ) | — | ||||||||||||||
| -10% | 3 | — | ||||||||||||||||||
2005
| Change in Shareholder | ||||||||||||||||
| Change in | Assumption at 12/05 | Profit/(loss) (after tax) | ||||||||||||||
| Variable | Variable | Gross/Net | Gross $’000 | Net $’000 | ||||||||||||
Average weighted term to settlement |
+0.5yr | 1.06yr | 1 | — | ||||||||||||
| -0.5yr | (1 | ) | — | |||||||||||||
Reins % (as % of Gross Outstanding
Claims) |
+1% | 91.98% | — | — | ||||||||||||
| -1% | — | — | ||||||||||||||
Discount Rate |
+1% | 5.19% | — | — | ||||||||||||
| -1% | — | — | ||||||||||||||
Expense Rate (as % of Outstanding
Claims) |
+1% | 163.9% | — | — | ||||||||||||
| -1% | — | — | ||||||||||||||
Average Claim Amount |
+10% | 20,907 | (4 | ) | — | |||||||||||
| -10% | 4 | — | ||||||||||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
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Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
3. INSURANCE CONTRACTS- RISK MANAGEMENT POLICIES AND PROCEDURES
The Company has an objective to control insurance risk thus reducing volatility. The company’s
policies and procedures in respect of managing risks are set out in this note below.
| a) | Objective in managing risks arising from insurance contracts and policies for mitigating those risks. |
In accordance with Prudential Standards GPS 220 Risk Management and GPS 230 Reinsurance issued by
the Australian Prudential Regulation Authority (APRA), the Boards and senior management have
developed, implemented and maintain a sound and prudent Risk Management Strategy (RMS) and a
Reinsurance Management Strategy (REMS).
The RMS and REMS identify the Company’s policies and procedures, processes and controls that
comprise its risk management and control systems. These systems address all material risks,
financial and non-financial, likely to be faced by the Company. Annually, the Board certifies to
APRA that adequate strategies have been put in place to monitor those risks, that the Company has
systems in place to ensure compliance with legislative and prudential requirements and that the
Board has satisfied itself as to the compliance with the RMS and REMS. The RMS and REMS have been
approved by the Board and APRA.
Key aspects of the processes established in the RMS to mitigate risks include:
| • | A formal regular process of risk identification and evaluation, supplemented by a documented control assessment process, is completed by management and communicated to the Board in line with the Board approved Risk Management Strategy. | |
| • | Actuarial models monitor claims patterns and other relevant statistics. Past experience and statistical methods are used as part of the process. | |
| • | Reinsurance has been used to limit the Company’s exposure to large single sums. The REMS provides that exposures continue to be monitored and where feasible reinsurance be purchased as means of limiting risk. | |
| • | The mix of investment assets is driven by the nature and term of the insurance liabilities. |
b) Development of claims
There is a possibility that changes may occur in the estimate of our obligations at the end of a
contract period. The tables in Note 15 show our estimates of total ultimate claims at successive
year-ends.
c) Terms and conditions of insurance contracts
There is limited scope to improve the existing terms and conditions. The company is in orderly run
off, and no new contracts are been entered into.
d) Concentration of insurance risk
The exposure to concentrations of insurance risk is able to be mitigated with the purchase of
reinsurance where management believes that the price /risk transfer is suitable.
e) Interest rate risk
Interest rate risk arises to the extent that there is a mismatch between the fixed-interest
portfolios used to back the outstanding claims liability and those outstanding claims. This is not
considered to be significant.
f) Credit risk
There are no significant concentrations of credit risk.
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
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Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
4. NET PREMIUM REVENUE
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Movement in unearned premiums |
7 | 22 | ||||||
Premium revenue |
7 | 22 | ||||||
Outwards reinsurance premiums |
1 | 3 | ||||||
Net premium revenue |
6 | 19 | ||||||
5. NET CLAIMS INCURRED
| 2006 | 2005 | |||||||||||||||||||||||
| Current | Prior | Current | Prior | |||||||||||||||||||||
| year | years | Total | year | years | Total | |||||||||||||||||||
| $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |||||||||||||||||||
Gross claims expense |
||||||||||||||||||||||||
Gross claims
incurred —
undiscounted |
— | (67 | ) | (67 | ) | — | (250 | ) | (250 | ) | ||||||||||||||
Discount movement |
— | — | — | — | — | — | ||||||||||||||||||
| — | (67 | ) | (67 | ) | — | (250 | ) | (250 | ) | |||||||||||||||
Reinsurance and
other recoveries
revenue |
||||||||||||||||||||||||
Reinsurance and
other recoveries —
undiscounted |
— | 13 | 13 | — | (9 | ) | (9 | ) | ||||||||||||||||
Discount movement |
— | — | — | — | — | — | ||||||||||||||||||
| — | 13 | 13 | — | (9 | ) | (9 | ) | |||||||||||||||||
Net claims incurred |
— | (54 | ) | (54 | ) | — | (259 | ) | (259 | ) | ||||||||||||||
Current year claims relate to risks borne in the current financial year. Prior year claims relate
to a reassessment of the risks borne in all previous financial years.
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
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Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
6. NET INVESTMENT REVENUE
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Investment income |
||||||||
Interest |
416 | 384 | ||||||
Interest from related parties |
||||||||
— other related parties |
84 | 1,122 | ||||||
Changes in fair value of investments |
||||||||
Unrealised |
(5 | ) | (9 | ) | ||||
Total net investment revenue |
495 | 1,497 | ||||||
7. OPERATING EXPENSES
Expenses by Nature
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Net gain on foreign currency |
16 | (4 | ) | |||||
Other management fees |
100 | 150 | ||||||
External consultant costs |
10 | 34 | ||||||
Other expenses |
6 | — | ||||||
Total Expenses |
132 | 180 | ||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
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Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
8. INCOME TAX
(a) Analysis of income tax expense
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current tax |
267 | 1,218 | ||||||
Decrease in deferred tax assets |
9 | 24 | ||||||
Decrease in deferred tax liabilities |
(165 | ) | (765 | ) | ||||
Over provided in previous years |
— | 5 | ||||||
Income tax expense |
111 | 482 | ||||||
(b) Relationship between income tax expense and accounting profit
The table below provides a reconciliation of differences between prima facie tax calculated as
30% of the profit before income tax for the period and the actual income tax expense recognised
in the income statement for the period.
In respect of income tax expense attributable to shareholders, the tax rate which applies in both
2006 and 2005 is 30% for Australia.
2006 and 2005 is 30% for Australia.
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Operating profit before income tax |
423 | 1,595 | ||||||
Prima facie income tax at the rate of 30% |
127 | 479 | ||||||
Tax effect of differences between amounts of income and
expenses recognised for accounting and the amounts
deductible/assessable in calculating taxable income: |
||||||||
Non assessable income |
(6 | ) | (2 | ) | ||||
Over provided in prior years — deferred tax balances |
— | 5 | ||||||
All Other items |
(10 | ) | — | |||||
Income tax expense per income statement |
111 | 482 | ||||||
(c) Analysis of deferred tax asset |
||||||||
Amounts recognised in income: |
||||||||
- Indirect Claims Costs Adjustments |
15 | 29 | ||||||
- Unrealised gains/losses |
7 | 2 | ||||||
Total deferred tax assets |
22 | 31 | ||||||
(d) Analysis of deferred tax liability |
||||||||
Amounts recognised in income |
||||||||
- Accrued Interest Receivable |
13 | 178 | ||||||
Total deferred tax liability |
13 | 178 | ||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
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Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
9. SEGMENT REPORTING
Primary Segment
The Company operates predominantly in one geographical segment being Australia and one business
segment, which is the provision of lenders mortgage insurance.
10. RECEIVABLES
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Interest free advance |
||||||||
- Other related parties |
1 | 3,689 | ||||||
Interest receivable from related parties |
||||||||
- Other related parties |
— | 574 | ||||||
Other |
39 | 19 | ||||||
Total receivables |
40 | 4,282 | ||||||
11. REINSURANCE AND OTHER RECOVERIES
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Expected future reinsurance recoveries
undiscounted |
||||||||
- on outstanding claims |
45 | 59 | ||||||
- Discount to present value |
(1 | ) | (2 | ) | ||||
Reinsurance and other recoveries receivable |
44 | 57 | ||||||
Reinsurance recoveries receivable-current |
25 | 33 | ||||||
Reinsurance recoveries receivable- non current |
19 | 24 | ||||||
| 44 | 57 | |||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
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Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
12. FINANCIAL ASSETS AT FAIR VALUE
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Quoted Investments- at fair value: |
||||||||
Government bonds |
466 | 474 | ||||||
Total current investments |
466 | 474 | ||||||
Non- Current |
||||||||
Unquoted Investments- at fair value: |
||||||||
Loans to related party |
— | 16,791 | ||||||
Total non-current investments |
— | 16,791 | ||||||
Total investments |
466 | 17,265 | ||||||
13. OTHER ASSETS
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current deferred reinsurance premiums |
1 | 1 | ||||||
Non-current deferred reinsurance premiums |
— | 1 | ||||||
Total current other assets |
1 | 2 | ||||||
Deferred reinsurance premiums as at 1 January |
2 | 5 | ||||||
Earning of reinsurance premiums |
(1 | ) | (3 | ) | ||||
Deferred reinsurance premiums as at 31 December |
1 | 2 | ||||||
14. UNEARNED PREMIUM LIABILITY
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current unearned premium |
3 | 7 | ||||||
Non-current unearned premium |
3 | 5 | ||||||
Total unearned premium |
6 | 12 | ||||||
Unearned premium liability as at 1 January |
12 | 34 | ||||||
Earning of premiums written in previous periods |
(6 | ) | (22 | ) | ||||
Unearned premium liability as at 31 December |
6 | 12 | ||||||
The unearned premium liability was found to be sufficient for the current and prior periods, as a
result no unexpired risk liability has been raised.
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
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Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
15. OUTSTANDING CLAIMS
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Central estimate |
95 | 146 | ||||||
Risk margin |
2 | 17 | ||||||
| 97 | 163 | |||||||
Discount to present value |
(3 | ) | (2 | ) | ||||
Gross outstanding claims liability |
94 | 161 | ||||||
Current |
53 | 93 | ||||||
Non-current |
41 | 68 | ||||||
Total outstanding claims |
94 | 161 | ||||||
Process for determining risk margin
The risk margin was determined for each portfolio, allowing for the uncertainty of the outstanding
claims estimate for each portfolio. A risk margin of 16% of net central estimate was applied, based
on industry benchmarks for a portfolio of this size. Given the similar nature of business in the
remaining portfolios no risk margin diversification has been allowed for.
Risk margins applied
| 2006 | 2005 | |||||||
Direct insurance |
16 | % | 30 | % | ||||
Reconciliation of movement in discounted outstanding claims liability
| 2006 | ||||||||||||
| Gross | Reins | Net | ||||||||||
| $000 | $000 | $000 | ||||||||||
Amount outstanding brought forward |
161 | 57 | 104 | |||||||||
less Claim payments/recoveries received in the period |
— | — | — | |||||||||
Effect of change in discounting |
4 | 2 | 2 | |||||||||
Effect of change in assumptions |
(71 | ) | (15 | ) | (56 | ) | ||||||
Outstanding amount carried forward |
94 | 44 | 50 | |||||||||
| 2005 | ||||||||||||
| Gross | Reins | Net | ||||||||||
| $000 | $000 | $000 | ||||||||||
Amount outstanding brought forward |
411 | 47 | 364 | |||||||||
less Claim payments/recoveries received in the period |
(140 | ) | — | (140 | ) | |||||||
Effect of change in discounting |
4 | 1 | 3 | |||||||||
Effect of change in assumptions |
(114 | ) | 9 | (123 | ) | |||||||
Outstanding amount carried forward |
161 | 57 | 104 | |||||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
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Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
Claims Development Table
Current year claims relate to risks borne in the current financial year. Prior year claims relate
to a reassessment of the risks borne in all previous financial years.
The Company is closed to new business and there have been no new mortgage insurance contracts
issued in the five years prior and to and including this report.
As described in Note 1, the outstanding claims liability is the best estimate of the present value
of the expected future payments, after the inclusion of a risk margin. At each balance date, the
amount of the liability is reassessed and it is likely that changes will arise in the estimates of
liabilities. The table under shows the estimates of total ultimate claims at successive year ends.
| Net | Gross | |||||||
| $000 | $000 | |||||||
31 December 2001 |
170 | 31,568 | ||||||
31 December 2002 |
165 | 31,208 | ||||||
31 December 2003 |
155 | 31,151 | ||||||
31 December 2004 |
152 | 31,110 | ||||||
31 December 2005 |
150 | 31,116 | ||||||
31 December 2006 |
150 | 31,121 | ||||||
Current estimate of cumulative claims |
150 | 31,121 | ||||||
Cumulative payments |
149 | 31,075 | ||||||
Undiscounted central estimate |
1 | 46 | ||||||
Effect of discounting |
1 | 3 | ||||||
Discounted central estimate |
— | 43 | ||||||
Risk margin |
2 | |||||||
Claims handling provision |
49 | |||||||
Outstanding Claims as per the balance sheet |
94 | |||||||
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 21 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
16. PAYABLES
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Other creditors |
9 | 9 | ||||||
Other borrowings from related parties
- - other related parties |
3 | — | ||||||
| 12 | 9 | |||||||
17. ISSUED CAPITAL
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Paid up capital |
||||||||
62,526,468 ordinary shares at $0.67 each
(2005:62,526,468 ordinary shares at $1 each) |
41,784 | 62,526 | ||||||
Movement in share capital |
||||||||
Balance beginning of the year |
62,526 | 62,526 | ||||||
Capital return 62,526,468 shares at $0.33 each |
(20,742 | ) | — | |||||
| 41,784 | 62,526 | |||||||
Rights attaching to Ordinary Shares
Ordinary shares attract the following rights:
| (a) | to receive notice of and to attend and vote at all general meetings of the Company; |
||
| (b) | to receive dividends; and | ||
| (c) | in a winding up, to participate equally in the distribution of the assets of the Company (both capital and surplus), subject only to any amounts unpaid on the Share. |
18. FRANKING ACCOUNT
The AMP Limited group entered into Tax Consolidation during 2003. Under Tax Consolidation, the
franking account balances for group companies were transferred to the Head Entity, AMP Limited.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 22 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
19. KEY MANAGEMENT PERSONNEL
The following individuals were the key management personnel of Church Bay Limited (formerly
AMPG(1992) Limited), for the current and prior reporting periods (unless stated otherwise):
Peter Clarke |
||
Richard Grellman |
||
Peter Hodgett (Alternate for Andrew Mohl) |
||
Andrew Mohl |
||
William Roberts |
||
Bruce Robertson
|
Resigned 09 May 2005 | |
Felix Zaccar |
The following table provides aggregate details of the compensation of key management personnel of
Church Bay Limited (formerly AMPG(1992) Limited).
| Short-term | Post- | Other long- | Share- | |||||||||||||||||||||
| employee | employment | term | Termination | based | ||||||||||||||||||||
| Year | benefits | benefits | benefits | benefits | payments | Total | ||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
2006 |
6,306,101 | 205,061 | — | — | 2,318,215 | 8,829,377 | ||||||||||||||||||
2005 |
5,737,253 | 254,791 | — | — | 2,079,046 | 8,071,090 | ||||||||||||||||||
Key management personnel disclosed above, also provided services to other related entities during
the year. The above remuneration amounts include all amounts paid for services rendered to related
entities and those services rendered to Church Bay Limited (formerly AMPG(1992) Limited).
20. AUDITOR’S FEES
Auditors’ remuneration for the year ended 31 December 2006 is paid on the Company’s behalf by a
controlled entity within the AMP Limited Group.
21. CONTINGENT LIABILITIES
There are no contingent liabilities as at 31 December 2006 (2005: Nil).
22. RELATED PARTIES
Transactions between Church Bay Limited (formerly AMPG(1992) Limited) and other related parties
during the financial year consisted of:
| • | Interest receivable on loans to related parties | ||
| • | Payment of management fees for services provided |
Controlling Entity
The immediate parent entity is Shelly Bay Holdings Ltd (formerly AMP General Insurance Holdings
Limited). AMP Limited is the ultimate parent entity.
| Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362 | 23 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
22. RELATED PARTIES (continued)
Directors
The directors of the Company during the financial year, and the dates of appointments and
resignations during the year are:
P W Clarke
R J Grellman
P M Hodgett (Alternate for A M Mohl)
A M Mohl
W K Roberts
F Zaccar
R J Grellman
P M Hodgett (Alternate for A M Mohl)
A M Mohl
W K Roberts
F Zaccar
Other Transactions
The directors and their director related entities receive normal dividends on their ordinary
share holdings in AMP Limited.
Other transactions with directors of the Company and their director-related entities.
During the year, transactions were entered into between Directors or their Director related
entities and entities within the AMP Limited Group. These transactions are within a normal
employee, customer or supplier relationship on terms and conditions no more favourable than
those available to other employees, customers or members (unless otherwise described below) and
include:
| • | normal personal banking with AMP Bank Limited including the provision of credit cards; | |
| • | the purchase of AMP superannuation and related products; | |
| • | Financial investment services; | |
| • | Other advisory services. |
These transactions do not have the potential to adversely affect the decisions about the
allocation of scarce resources made by users of AMP’s financial statements, or discharge of
accountability by the Directors. The transactions are considered to be trivial or domestic in
nature.
Transactions within the wholly owned group
The aggregate amounts brought to account in respect of the following types of transactions and
each class of related party involved were:
AMP Services Limited and Enstar Australia Limited (formerly Cobalt Solutions Australia Limited),
both related entities within the wholly owned group, provide operational and administrative
(including employee related) services to the entity. The services provided are in the normal course
of the business and are on normal commercial terms and conditions.
The Company settled an interest-bearing loan to AMP Finance Services Limited, a related entity
within the wholly owned group. This transaction was made under normal terms and conditions.
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
24 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
22. RELATED PARTIES (continued)
Amounts attributable to transactions with entities in the wholly-owned group
Operating profit before income tax for the financial year includes aggregate amounts attributable to transactions
in respect of:
| 2006 | 2005 | |||||||
| $ | $ | |||||||
Interest Revenue — other related parties |
84,224 | 1,121,723 | ||||||
Management Expense — other related parties |
100,000 | 150,000 | ||||||
Amounts receivable from and payable to entities
in the wholly-owned group |
||||||||
Aggregate amounts receivable at balance date from: |
||||||||
Current |
||||||||
Interest receivable — other related parties |
1,000 | 574,455 | ||||||
Loan — other related parties |
— | 3,689,810 | ||||||
Non Current |
||||||||
Loan — other related parties |
— | 16,791,000 | ||||||
Aggregate amounts payable at balance date from: |
||||||||
Current |
||||||||
Payables — other related parties |
3,000 | — | ||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
25 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
23. CASH FLOW RECONCILIATION
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
(i) Reconciliation of cash |
||||||||
Cash balance comprises: |
||||||||
Cash at call |
729 | 3,108 | ||||||
Cash on deposit |
6,126 | 4,289 | ||||||
| 6,855 | 7,397 | |||||||
(ii) Reconciliation of net cash flows from operating
activities to operating profit after income tax |
||||||||
Operating profit after income tax |
312 | 1,113 | ||||||
Changes in net market value of investments |
5 | 9 | ||||||
FX Gains & Losses |
16 | (4 | ) | |||||
Changes in assets and liabilities net of the effects of acquisitions: |
||||||||
(Increase)/ decrease in receivables and other assets |
277 | (1,090 | ) | |||||
(Increase)/ decrease in reinsurance and other recoveries receivable |
16 | (6 | ) | |||||
Increase/(decrease) in payables |
3 | 9 | ||||||
Increase/(decrease) in current tax liabilities |
(941 | ) | 1,218 | |||||
(Decrease)/ increase in unearned premiums |
(7 | ) | (22 | ) | ||||
(Decrease)/ increase in outstanding claims |
(67 | ) | (250 | ) | ||||
(Decrease)/ increase in deferred tax liabilities net of future tax benefit |
(156 | ) | (470 | ) | ||||
Net cash inflows / (outflows) from operating activities |
(542 | ) | 507 | |||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
26 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
24. FINANCIAL INSTRUMENTS
(a) Net fair values
The recorded net market value equates to net fair value for listed and unlisted debt and equity
securities. For the following financial instruments, the cost carrying amount is considered to
equate to their net fair value:
| • | Cash | |
| • | Cash on deposit — short term | |
| • | Investment income accrued | |
| • | Reinsurance & other recoveries | |
| • | Government security | |
| • | Loans to related company | |
| • | Other creditors and accruals |
(b) Special terms and conditions
All financial investments of the Company are held or issued on normal commercial terms at market
rates of interest. There are no special terms or conditions affecting the nature and timing of
the financial instruments not otherwise disclosed in these accounts. An interest-free advance
has been made to the immediate parent entity. All other loans have been issued on normal
commercial terms.
(c) Credit risk
Trading investments are recorded in the accounts at net market value, which represents the
Company’s exposure to credit risk in relation to these instruments.
Credit risk in trade receivables is managed by analysing the credit ratings of the underlying
debts.
(d) Interest rate risk on financial instruments
The accounting policy notes describe the policies used to measure and report the assets and
liabilities of the Company. Where the applicable market value is determined by discounting
future cash flows, movements in interest rates will result in a reported unrealised gain or loss
in the profit and loss account.
The Company seeks to reduce its interest rate risk through the use of investment portfolios as a
hedge against the insurance liabilities of the Company. To the extent that these assets and
liabilities can be matched, unrealised gains or losses on revaluation of liabilities resulting
from interest rate movements will be offset by unrealised losses or gains on revaluation of
investment assets.
The Company’s exposure to interest rate risks and the effective interest rates of financial
assets and liabilities at the reporting date, are as follows:
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
27 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
| For the year ended 2006 | Fixed interest rate | |||||||||||||||||||||||
| Maturing in | ||||||||||||||||||||||||
| Floating | 0-1 | 1 - 5 | Non | Total | Weighted | |||||||||||||||||||
| Interest | year | years | Interest | Average | ||||||||||||||||||||
| Rate | Bearing | Interest | ||||||||||||||||||||||
| $’000 | $’000 | $’000 | $’000 | $’000 | rate | |||||||||||||||||||
Financial Assets |
||||||||||||||||||||||||
Cash |
729 | — | — | — | 729 | 3.90 | % | |||||||||||||||||
Cash on deposit — short term |
— | 6,126 | — | — | 6,126 | 6.27 | % | |||||||||||||||||
Receivables — related parties |
1 | 1 | ||||||||||||||||||||||
Investment income accrued |
— | — | — | 39 | 39 | |||||||||||||||||||
Reinsurance & other recoveries |
— | — | — | 44 | 44 | |||||||||||||||||||
Government security |
— | 466 | — | — | 466 | 6.35 | % | |||||||||||||||||
Total Financial Assets |
729 | 6,592 | — | 84 | 7,405 | |||||||||||||||||||
Financial Liabilities |
||||||||||||||||||||||||
Other creditors |
— | — | — | 12 | 12 | |||||||||||||||||||
Total Financial Liabilities |
— | — | — | 12 | 12 | |||||||||||||||||||
| For the year ended 2005 | Fixed interest rate | |||||||||||||||||||||||
| Maturing in | ||||||||||||||||||||||||
| Floating | 0-1 | 1 - 5 | Non | Total | Weighted | |||||||||||||||||||
| Interest | year | years | Interest | Average | ||||||||||||||||||||
| Rate | Bearing | Interest | ||||||||||||||||||||||
| $’000 | $’000 | $’000 | $’000 | $’000 | rate | |||||||||||||||||||
Financial Assets |
||||||||||||||||||||||||
Cash |
3,108 | — | — | — | 3,108 | 3.73 | % | |||||||||||||||||
Cash on deposit — short term |
— | 4,289 | — | — | 4,289 | 5.26 | % | |||||||||||||||||
Investment income accrued |
— | — | — | 593 | 593 | |||||||||||||||||||
Reinsurance & other recoveries |
— | — | — | 57 | 57 | |||||||||||||||||||
Government security |
— | 474 | — | — | 474 | 6.62 | % | |||||||||||||||||
Loans to Related Company |
— | — | 16,791 | 3,689 | 20,480 | 6.79 | % | |||||||||||||||||
Total Financial Assets |
3,108 | 4,763 | 16,791 | 4,339 | 29,001 | |||||||||||||||||||
Financial Liabilities |
||||||||||||||||||||||||
Other creditors |
— | — | — | 9 | 9 | |||||||||||||||||||
Total Financial Liabilities |
— | — | — | 9 | 9 | |||||||||||||||||||
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
28 of 30 | |
Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
25. CAPITAL ADEQUACY
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Tier 1 Capital |
||||||||
Paid up ordinary shares |
41,784 | 62,526 | ||||||
Retained earnings |
(35,069 | ) | (36,183 | ) | ||||
Current year earnings |
312 | 1,113 | ||||||
Less: Deductions |
9 | — | ||||||
Net tier 1 capital |
7,018 | 27,456 | ||||||
Net tier 2 capital |
— | — | ||||||
Total capital base |
7,018 | 27,456 | ||||||
Minimum capital requirement |
5,000 | 8,247 | ||||||
Capital adequacy multiple |
1.40 | 3.33 | ||||||
The entity complies with Prudential Standard GPS110 and the requirements set out in its insurance
license.
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
|
29 of 30 | |
Report of Independent Auditors
The Board of Directors of Church Bay Limited (formerly AMPG (1992) Limited)
We have audited the accompanying balance sheets of Church Bay Limited (formerly AMPG (1992)
Limited) as of December 31, 2006 and 2005, and the related income statements, statements of changes
in equity, and cash flow statements for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Church Bay Limited (formerly AMPG (1992) Limited) at December
31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Sydney, Australia
May 15, 2008
Liability limited by a scheme
approved under Professional
Standards Legislation
approved under Professional
Standards Legislation
Exhibit 99.2
GORDIAN RUNOFF LIMITED
ABN 11 052 179 647
ABN 11 052 179 647
FINANCIAL REPORT
31 DECEMBER 2007
31 DECEMBER 2007
Contents:
| Page | ||||
Financial Report |
||||
Financial Statements |
||||
— Income Statement |
2 | |||
— Balance Sheet |
3 | |||
— Statement of Changes in Equity |
4 | |||
— Cash Flow Statement |
5 | |||
Notes to the Financial Statements |
6 | |||
Report of Independent Auditors |
38 | |||
| | | ||
Gordian Runoff Limited ABN 11 052 179 647
|
1 of 38 | |
Gordian RunOff Limited
Income Statement
For the year ended 31 December 2007
Income Statement
For the year ended 31 December 2007
| 2007 | 2006 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Direct premium revenue |
4 | 28 | ||||||||||
Inwards reinsurance premium revenue/(expense) |
4,689 | (1,168 | ) | |||||||||
Outwards reinsurance premium expense |
(280 | ) | (323 | ) | ||||||||
Net premium (expense)/revenue |
5 | 4,413 | (1,463 | ) | ||||||||
Direct claims (benefit)/expense |
(88,929 | ) | (34,739 | ) | ||||||||
Inwards Reinsurance claims benefit |
(29,975 | ) | (36,523 | ) | ||||||||
Reinsurance & other recoveries (expense)/revenue |
(6,502 | ) | (2,888 | ) | ||||||||
Net claims incurred |
6 | (112,402 | ) | (68,374 | ) | |||||||
Other underwriting income |
26 | 1,040 | ||||||||||
Acquisition benefit |
(114 | ) | (1,618 | ) | ||||||||
Other underwriting expenses |
231 | 1,043 | ||||||||||
Underwriting expense/(benefit) |
7 | 117 | (575 | ) | ||||||||
Underwriting result |
116,724 | 68,526 | ||||||||||
Net investment revenue |
8 | 43,345 | 45,960 | |||||||||
General administration expenses |
7 | 6,857 | 10,537 | |||||||||
Finance costs |
7 | 1,061 | — | |||||||||
Net profit before tax |
152,151 | 103,949 | ||||||||||
Income tax expense/(benefit) attributable to
operating profit |
9 | 45,672 | 29,476 | |||||||||
Net profit attributable to members of Gordian
RunOff Limited |
106,479 | 74,473 | ||||||||||
The above Income Statement should be read in conjunction with the accompanying notes.
| | | ||
Gordian Runoff Limited ABN 11 052 179 647
|
2 of 38 | |
Gordian RunOff Limited
Balance Sheet
As at 31 December 2007
Balance Sheet
As at 31 December 2007
| 2007 | 2006 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Current assets |
||||||||||||
Cash and cash equivalents |
24 | 13,857 | 42,291 | |||||||||
Receivables |
10 | 10,046 | 11,169 | |||||||||
Reinsurance and other recoveries receivable |
11 | 13,703 | 19,090 | |||||||||
Other financial assets |
12 | 590,748 | 549,602 | |||||||||
Other assets |
13 | 164 | 240 | |||||||||
Total current assets |
628,518 | 622,392 | ||||||||||
Non-current assets |
||||||||||||
Receivables |
10 | 1,796 | 3,134 | |||||||||
Reinsurance and other recoveries receivable |
11 | 15,798 | 29,757 | |||||||||
Other financial assets |
12 | 427,621 | 726,542 | |||||||||
Deferred tax assets |
9 | 32,679 | 44,573 | |||||||||
Total non-current assets |
477,894 | 804,006 | ||||||||||
Total assets |
1,106,412 | 1,426,398 | ||||||||||
Current liabilities |
||||||||||||
Outstanding claims liability |
15 | 90,891 | 112,751 | |||||||||
Payables |
16 | 9,547 | 8,431 | |||||||||
Interest Bearing Loan |
17 | 25,723 | — | |||||||||
Current Tax Liabilities |
26,227 | 24,649 | ||||||||||
Total current liabilities |
152,388 | 145,831 | ||||||||||
Non-current liabilities |
||||||||||||
Outstanding claims liability |
15 | 356,065 | 584,453 | |||||||||
Payables |
16 | 288 | 422 | |||||||||
Total non-current liabilities |
356,353 | 584,875 | ||||||||||
Total liabilities |
508,741 | 730,706 | ||||||||||
Net assets |
597,671 | 695,692 | ||||||||||
Shareholders’ equity |
||||||||||||
Issued Capital |
18 | 1,610,100 | 1,814,600 | |||||||||
Accumulated losses |
(1,012,429 | ) | (1,118,908 | ) | ||||||||
Total shareholders’ equity |
597,671 | 695,692 | ||||||||||
The above Balance Sheet should be read in conjunction with the accompanying notes.
| | | ||
Gordian Runoff Limited ABN 11 052 179 647
|
3 of 38 | |
Gordian RunOff Limited
Statement of Changes in Equity
For the year ended 31 December 2007
Statement of Changes in Equity
For the year ended 31 December 2007
| Accumulated | ||||||||||||
| Issued Capital | Losses | Total | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Balance as at 1 January 2007 |
1,814,600 | (1,118,908 | ) | 695,692 | ||||||||
Net Profit/(loss) after income tax |
— | 106,479 | 106,479 | |||||||||
Change in Equity — Capital reduction |
(204,500 | ) | — | (204,500 | ) | |||||||
Balance as at 31 December 2007 |
1,610,100 | (1,012,429 | ) | 597,671 | ||||||||
Balance as at 1 January 2006 |
1,978,600 | (1,193,381 | ) | 785,219 | ||||||||
Net Profit/(loss) after income tax |
— | 74,473 | 74,473 | |||||||||
Change in Equity — Capital reduction |
(164,000 | ) | — | (164,000 | ) | |||||||
Balance as at 31 December 2006 |
1,814,600 | (1,118,908 | ) | 695,692 | ||||||||
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Gordian Runoff Limited ABN 11 052 179 647
|
4 of 38 | |
Gordian RunOff Limited
Cash Flow Statement
For the year ended 31 December 2007
Cash Flow Statement
For the year ended 31 December 2007
| 2007 | 2006 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Cash flows from operating activities |
||||||||||||
Premiums received |
5,929 | 16,828 | ||||||||||
Reinsurance and other recoveries |
11,520 | 25,237 | ||||||||||
Dividends received |
3,580 | 2,833 | ||||||||||
Interest received |
66,509 | 80,902 | ||||||||||
Other sundry receipts |
529 | 7,082 | ||||||||||
(Payments)/refunds of outward reinsurance |
(354 | ) | (774 | ) | ||||||||
Claims paid |
(112,791 | ) | (149,686 | ) | ||||||||
Other underwriting (costs)/benefits |
(252 | ) | (1,362 | ) | ||||||||
Payments to suppliers and employees |
(34,470 | ) | (43,116 | ) | ||||||||
Income taxes (paid)/received |
(32,198 | ) | 2,020 | |||||||||
Cash flows from/(used in) operating activities |
24 | (91,998 | ) | (60,036 | ) | |||||||
Cash flows from investing activities |
||||||||||||
Proceeds from sale of investments |
808,708 | 807,810 | ||||||||||
Payments for investments |
(555,036 | ) | (613,805 | ) | ||||||||
Proceeds from share cancellation — related party |
— | |||||||||||
Loans received from subsidiary |
25,723 | 40,000 | ||||||||||
Loans from related party |
6,760 | — | ||||||||||
Cash flows from/(used in) investing activities |
286,155 | 234,005 | ||||||||||
Cash flows from/(used in) financing activities |
||||||||||||
Payment for capital reduction |
(204,500 | ) | (164,000 | ) | ||||||||
Cash flows from/(used in) financing activities |
(204,500 | ) | (164,000 | ) | ||||||||
Net decrease in cash held |
(10,343 | ) | 9,969 | |||||||||
Balance at the beginning of the year |
42,291 | 32,322 | ||||||||||
Reclass of cash to Investments |
(18,091 | ) | — | |||||||||
Balance at the end of the year |
24 | 13,857 | 42,291 | |||||||||
The above Cash Flow Statement should be read in conjunction with the accompanying notes.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
This Financial Report, comprising the financial statements and the notes thereto, complies with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
The financial statements are separate financial statements as the exemption from preparing
consolidated financial statements has been used. The entity and its subsidiaries have been
consolidated into the financial statements of AMP Limited, of 33 Alfred St Sydney NSW Australia,
an entity incorporated in Australia. Copies of these accounts can be requested from AMP Limited at
this address.
The entity’s significant investments in subsidiaries, including the name, country of incorporation
or residence, proportion of ownership interest and can found in Note 12 to these accounts. A
description of the method used to account for these investments is described under Investment in
controlled entities later in this note.
Where necessary, comparative information has been reclassified to be consistent with current period
disclosures.
The Financial Report has been prepared in accordance with the historical cost convention except for
investments, which have been measured at fair value.
Accounting judgements and estimates
In the course of its operations the company applies judgements and makes estimates that affect the
amounts recognised in the financial report. Estimates are based on a combination of historical
experience and expectations of future events that are believed to be reasonable at the time.
Accounting Standards issued but not yet effective
Accounting Standards that have recently been issued or amended but are not yet effective have not
been adopted for the reporting period ending 31 December 2007, except IFRS8 Operating Segments. The
adoption of IFRS8 has removed the requirement for Operating Segment disclosures in this Financial
Report.
When applied in future periods, all other recently issued or amended standards are not expected to
have a material impact on the company’s results or financial position; however they may impact
Financial Report disclosures.
Changes in accounting policy
Since 1 January 2007, the company has adopted a number of Accounting Standards and Interpretations
which were mandatory for annual periods beginning on or after 1 January 2007. Adoption of these
Standards and Interpretations has not had any effect on the financial position or performance of
the Company.
Operating revenue
Operating revenue comprises reinsurance and general insurance earned premiums, recoveries, interest
income and investment income. Investment income is brought to account on an accrual basis. Other
underwriting income comprises sundry receipts.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
Premium revenue and unearned premiums
Premium revenue
Premium revenue comprises premiums from direct business and from reinsurance business.
Premium revenue includes amounts charged to the policyholders or other insurers, including fire
service levies but excluding stamp duties, GST and other amounts collected on behalf of third
parties.
Premium revenue, including that on unclosed business, is recognised in the income statement when it
has been earned. Premium revenue is recognised in the income statement from the attachment date
over the period of the contract for direct business and over the period of indemnity for
reinsurance business. Where time does not approximate the pattern of risk, previous claims
experience is used to derive the incidence of risk.
The proportion of premium received or receivable not earned in the income statement at the
reporting date is recognised in the balance sheet as an unearned premium liability.
Premiums on unclosed business are calculated as the difference between an estimate of the ultimate
and booked premiums. Actuarial techniques are used to estimate the ultimate premium and are based
on historical premium booking patterns.
Unearned premiums
Unearned premiums represent premium revenue attributable to future accounting periods. For direct
insurances and certain inwards reinsurance classes of business, unearned premium is determined by
apportioning the premiums written in the year over the period of insurance cover, reflecting the
pattern in which risk emerges under these policies.
In respect of inwards reinsurance space business, premiums are unearned until the satellite launch
date, and thereafter are recognised as earned according to the risks associated with the launch,
post launch and in-orbit periods.
Outward reinsurance premium expense and deferred reinsurance premium
Premiums ceded to reinsurers are recognised as an expense over the period of cover using the
methods applicable to premium revenue as set out above.
Outstanding claims
The liability for outstanding claims is measured as the best estimate of the present value of
expected future payments against claims incurred at the reporting date under general insurance
contracts issued by the Company, with an additional risk margin to allow for the inherent
uncertainty in the best estimate.
The expected future payments include those in relation to claims reported but not yet paid; claims
incurred but not reported (IBNR), claims incurred but not enough reported (IBNER) and anticipated
claims handling costs.
Claims handling costs include costs that can be associated directly with individual claims, such as
legal and other professional fees, and costs that can only be indirectly associated with individual
claims, such as claims administration costs.
The liability for direct insurance includes an allowance for inflation and superimposed inflation
and is measured as the present value of the expected future ultimate cost of settling claims. The
expected future payments are discounted to present value using a risk free rate.
A risk margin is applied to the outstanding claims liability, net of reinsurance and other
recoveries, to reflect the inherent uncertainty in the best estimate. This risk margin increases
the probability that the net liability is adequately provided for to a 75% confidence level.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
Reinsurance and other recoveries
Reinsurance and other recoveries consist of receivables on paid claims and outstanding claims, and
are recognised as revenue when claims are paid or the outstanding claim is raised. Reinsurance
receivables are discounted to present value consistent with the discounting of outstanding claims
set out above. A provision for impairment is recognised when there is objective evidence that the
Company will not be able to collect all amounts due according to the original terms of the
receivables. The impairment charge is recognised in the income statement. Bad debts are written
off as incurred.
Fire brigade levies and other statutory charges
A liability for fire brigade levies and other statutory charges is recognised on business written
to the balance date. Levies and charges payable are expensed on the same basis as the recognition
of the related premium revenue, with the portion relating to unearned premiums being reported as
deferred statutory charges in Note 13.
Investment income
Dividend and interest income is recognised in the income statement on an effective interest method
when the entity obtains control of the right to receive the revenue.
Realised gains and losses represent the change in value between the previously reported value and
the amount received on sale of the asset. Unrealised gains and losses represent changes in the
fair value of financial assets recognised in the period.
Assets backing general insurance liabilities
As part of its investment strategy, the Company actively manages its investment portfolio to ensure
that investments mature in accordance with the expected pattern of future cash flows arising from
general insurance liabilities.
The Company has determined that all assets are held to back general insurance liabilities on the
basis that all assets are available for the settlement of claims if required.
The following policies apply to assets held to back general insurance liabilities.
Financial assets
Financial assets are designated at fair value through profit or loss. Initial recognition is at
cost in the balance sheet and subsequent measurement is at fair value with any resultant unrealised
gains or losses recognised in the income statement. Details of fair value for the different types
of financial assets are listed below:
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand that is available on demand and deposits held at
call with financial institutions. Cash and cash equivalents are carried at fair value, being the
principal amount. For the purposes of the cash flow statement, cash also includes other highly
liquid investments not subject to significant risk of change in value.
Cash trusts
The fair value of units in a listed cash trust reflects the quoted bid price at balance date.
There is no reduction for realisation costs in the value of units in a cash trust. Unlisted unit
trusts are recorded at fund managers valuations.
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
Debt securities
Debt securities are initially recognised at fair value, representing the purchase cost of the asset
exclusive of any transaction costs. Debt securities are subsequently measured at fair value, with
any realised and unrealised gains or losses arising from changes in the fair value being recognised
in the income statement for the period in which they arise. The fair value of a traded interest
bearing security reflects the bid price at balance date. Interest bearing securities that are not
frequently traded are valued by discounting the estimated recoverable amounts, using prevailing
interest rates. Debt securities are accounted for on a trade date basis.
Derivatives
Derivatives are initially recognised at fair value on the date on which a derivative contract is
entered into and are subsequently measured at their fair value. All derivatives are carried as
assets when their fair value is positive, and as liabilities when their fair value is negative.
Derivatives are exchange traded and are fair valued using their publicly quoted bid price on the
date of valuation.
Equity securities
Equity securities are initially recognised at fair value, representing the purchase cost of the
asset exclusive of any transaction costs. Equity securities are subsequently measured at fair
value, with any realised and unrealised gains or losses arising from changes in the fair value
being recognised in the income statement. The fair value of a quoted equity security reflects the
quoted bid price at balance date. Equity securities not traded in an organised financial market
are valued at estimated fair value based on future cash flows discounted at appropriate interest
rates.
Investments in controlled entities
Investments in controlled entities are valued at net assets which is an appropriate proxy for fair
value. Any write down in value to recoverable amount is reported in the Income Statement.
Taxes
Income tax
Income tax expense is the tax payable on taxable income for the current period based on the income
tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities
attributable to: (i) temporary differences between the tax bases of assets and liabilities and
their balance sheet carrying amounts, and (ii) unused tax losses.
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates
expected to apply when the assets are recovered or liabilities are settled, based on those tax
rates which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary
differences to measure the deferred tax asset or liability. An exception is made for certain
temporary differences arising from the initial recognition of an asset or a liability. No deferred
tax asset or liability is recognised in relation to these temporary differences if they arose in a
transaction, other than a business combination, that at the time of the transaction did not affect
either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only
if it is probable that future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the
carrying amount and tax bases of investments in controlled entities where the parent entity is able
to control the timing of the reversal of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future.
The tax impact on income and expense items recognised directly in equity is also recognised
directly in equity.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
Tax Consolidation
AMP Limited, Gordian Runoff Limited and certain other wholly owned controlled entities of AMP
Limited comprise a tax-consolidated group of which AMP Limited is the head entity. The
implementation date for the tax-consolidated group was 30 June 2003.
Under tax consolidation, AMP Limited as head entity, assumes the following balances from
subsidiaries within the tax-consolidated group:
| (i) | Current tax balances arising from external transactions recognised by entities in the tax-consolidated group occurring after the implementation date, and; | |
| (ii) | Deferred tax assets arising from unused tax losses and unused tax credits recognised by entities in the tax-consolidated group occurring after the implementation date. |
A tax funding agreement has been entered into by the head entity and the controlled entities in the
tax-consolidated group. Controlled entities in the tax-consolidated group will continue to be
responsible, by the operation of the tax funding agreement, for funding tax payments required to be
made by the head entity arising from underlying transactions of the controlled entities. Controlled
entities will make (receive) contributions to (from) the head entity for the balances recognised by
the head entity described in (i) and (ii) above. The contributions will be calculated in accordance
with the tax funding agreement.
Assets and liabilities which arise as a result of differences between the periods in which the
underlying transactions occur, and the period in which the funding payments under the tax funding
agreement are made, are recognised as intercompany balances receivable and payable in the balance
sheet. The recoverability of balances arising from the tax funding arrangements is based on the
ability of the tax-consolidated group to utilise the amounts recognised by the head entity.
The entity will be required to make a payment to terminate its liability under the tax funding
agreement if it leaves the tax consolidation group.
Goods and services tax
All revenues, expenses and assets are recognised net of any GST paid, except where they relate to
products and services which are input taxed for GST purposes or the GST incurred is not recoverable
from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of
the cost of acquisition of the assets or as part of the particular expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from or payable to the tax authorities is included as a receivable or payable in the
balance sheet.
Cash flows are reported on a gross basis reflecting any GST paid or collected. The GST component of
cash flows arising from investing or financing activities which are recoverable from, or payable
to, local tax authorities are classified as operating cash flows.
Foreign currency transactions and translation
Functional and presentation currency
Items included in the financial statements in each of the Gordian group entities are measured using
the currency of the primary economic environment in which that entity operates (the functional
currency). The presentation currency of this financial report, and the functional currency of the
parent entity, is Australian dollars.
Transactions and balances
Income and expense items denominated in a currency other than the functional currency are
translated at the spot exchange rate at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated at the rate of exchange ruling at
balance sheet date, with exchange gains and losses recognised in the income statement. The
corresponding foreign currency translations of foreign currency denominated outstanding claims
liabilities and receivables are reported as a component of claims expense and premium revenue,
respectively. Non-monetary items measured at fair value in a foreign currency are translated using
the exchange rates at the date when the fair value was determined.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
Receivables
Receivables are financial assets and are measured at fair value. Given the short-term nature of
most receivables, the recoverable amount approximates fair value. A provision for impairment is
recognised when there is objective evidence that the Company will not be able to collect all
amounts due according to the original terms of the receivables. The impairment charge is
recognised in the income statement. Bad debts are written off as incurred.
Payables
Trade creditors and accruals are recognised as liabilities for amounts to be paid in the future for
goods and services received, whether or not billed to the entity.
Amounts Due To or From Related Parties
Amounts are carried at fair value being nominal amounts due and payable. Interest is taken up as
income on an accrual basis. A provision for impairment is recognised when there is objective
evidence that the related party will not be able to pay its debts.
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Company makes estimates and assumptions in respect of certain key assets and liabilities.
Estimates and judgments are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances. The key areas in which critical estimates and judgments are applied are described
below.
(a) The ultimate liability arising from claims made under insurance contracts
Provision is made at year-end for the estimated cost of claims incurred but not settled at the
balance sheet date, including the cost of claims incurred but not yet reported to the Company.
The estimated cost of claims includes direct expenses to be incurred in settling claims gross of
the expected value of salvage and other recoveries. The Company takes all reasonable steps to
ensure that it has appropriate information regarding its claims exposures. However, given the
uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be
different from the original liability established.
The estimation of claims incurred but not reported (“IBNR”) is generally subject to a greater
degree of uncertainty than the estimation of the cost of settling claims already notified to the
Company, where more information about the claim event is generally available. IBNR claims may
often not be reported to the insurer until many years after the events giving rise to the claims
has happened. The liability class of business will typically display greater variations between
initial estimates and final outcomes because there is a greater degree of difficulty in estimating
IBNR reserves. For the short tail class, claims are typically reported soon after the claim event,
and hence tend to display lower levels of volatility. In calculating the estimated cost of unpaid
claims the Company uses a variety of estimation techniques, generally based upon analysis of
historical experience, which assumes that the development pattern of the current claims will be
consistent with past experience. Allowance is made, however, for changes or uncertainties which
may create distortions in the underlying statistics or which might cause the cost of unsettled
claims to increase or reduce when compared with the cost of previously settled claims including:
| • | changes in Company processes which might accelerate or slow down the development and/or recording of paid or incurred claims, compared with the statistics from previous periods; | ||
| • | changes in the legal environment; | ||
| • | the effects of inflation; | ||
| • | the impact of large losses; | ||
| • | movements in industry benchmarks. |
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued)
Large claims impacting each relevant business class are generally assessed separately, being
measured on a case by case basis or projected separately in order to allow for the possible
distortive effect of the development and incidence of these large claims.
Where possible the Company adopts multiple techniques to estimate the required level of provisions.
This assists in giving greater understanding of the trends inherent in the data being projected.
The projections given by the various methodologies also assist in setting the range of possible
outcomes. The most appropriate estimation technique is selected taking into account the
characteristics of the business class and the extent of the development of each accident year.
Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the
amounts that will be recoverable from reinsurers based upon the gross provisions. Details of
specific assumptions used in deriving the outstanding claims liability at year-end are detailed in
note 3.
(b) Assets arising from reinsurance contracts
Assets arising from reinsurance contracts are also computed using the above methods. In addition,
the recoverability of these assets is assessed on a periodic basis to ensure that the balance is
reflective of the amounts that will ultimately be received, taking into consideration factors such
as counterparty and credit risk. Impairment is recognised where there is objective evidence that
the Company may not receive amounts due to it and these amounts can be reliably measured.
3. ACTUARIAL METHODS AND ASSUMPTIONS
The entity ceased writing new business and renewals in late 1999 for both its direct insurance and
inwards reinsurance business and has run an orderly runoff since. The process for determining the
value of outstanding claims liabilities is generally consistent between these two portfolios. This
process is described below.
Claims estimates are derived from analysis of the results of several different actuarial models.
These models take case estimates as well as payments into account and assume that reported incurred
amounts or reported payment amounts will develop steadily from period to period. Other models
adopt an ultimate loss ratio for each year that reflects both the long term expected level, as well
as incorporating recent experience. The analysis is performed by underwriting year for the inwards
reinsurance class and by accident year for the direct insurance class.
Claims are first estimated on an undiscounted basis and are then discounted to allow for the time
value of money. The valuation methods adopted include an implicit allowance for future inflation
but do not identify the explicit rate. This allows for both general economic inflation as well as
any superimposed inflation detected in the modelling of payments experience. Superimposed
inflation arises from non-economic factors such as developments of legal precedent.
The liability class of business may be subject to the emergence of new types of latent claims, but
no specific allowance is included for this as at the balance sheet date. Such uncertainties are
considered when setting the risk margin appropriate for this class.
A description of the processes used to determine the key assumptions is provided below:
The average weighted term to settlement is calculated separately by class of business, based on
historical settlement patterns.
The reinsurance percentage for the direct insurance business is calculated based on past
reinsurance recovery rates and the structure of the reinsurance arrangements in place.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
3. ACTUARIAL METHODS AND ASSUMPTIONS (Continued)
The discount rates are derived from market yields on Government securities as at the balance date,
in the currency of the expected claim payments.
Expense rate Claim handling expenses are calculated based on the projected costs of administering
the remaining claims until expiry.
The ultimate to incurred claims ratio is derived by accident or underwriting year based on
historical development of claims from period to period.
The effect of changes in the assumptions have been shown in the reconciliations of general
insurance assets and liabilities in note 15 below.
Process for determining risk margin
The risk margin was determined initially for each portfolio, allowing for the uncertainty of the
outstanding claims estimate for each portfolio. Uncertainty was analysed for each portfolio taking
into account past volatility in general insurance claims, potential uncertainties relating to the
actuarial models and assumptions, the quality of the underlying data used in the models, and the
general insurance environment. The estimate of uncertainty is generally greater for long tailed
classes when compared to short tail classes due to the longer time until settlement of outstanding
claims.
The overall risk margin was determined allowing for diversification between the different
portfolios and the relative uncertainty of each portfolio. The assumptions regarding uncertainty
for each class were applied to the net central estimates, and the results were aggregated, allowing
for diversification in order to arrive at an overall provision that is intended to have a 75%
probability of adequacy.
| 2007 | 2006 | |||||||
| Risk Margins applied | % | % | ||||||
Direct insurance |
18.8 | 23.6 | ||||||
Inwards reinsurance |
17.6 | 15.8 | ||||||
Sensitivity analysis — general insurance contracts
There are a number of variables which impact the amounts recognised in the financial statements
arising from insurance contracts.
The profit or loss and equity of the company are sensitive to movements in a number of key
variables as described below.
| Variable | Description of variable | |
Direct and reinsurance |
||
Average weighted term to settlement
|
Expected payment patterns are used in determining the outstanding claims liability. A decrease in the average term to settlement would lead to claims being paid sooner than anticipated. | |
Discount rate
|
The outstanding claims liability is calculated by reference to expected future payments. These payments are discounted to adjust for the time value of money. | |
Expense rate
|
An estimate for the internal costs of administering claims is included in the outstanding claims liability. | |
Ultimate to incurred claims ratio
|
The estimated ultimate claims cost is generally greater than the claims reported as incurred to date, due to claims that are incurred but not reported (IBNR) or due to future developments on existing claims. | |
Direct only |
||
Reinsurance percentage
|
The direct class assumes money will be recoverable from reinsurers on future claims paid. | |
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
3. ACTUARIAL METHODS AND ASSUMPTIONS (Continued)
The following table provides an analysis of the sensitivity of the profit after income tax and
total equity to changes in these assumptions both gross and net of reinsurance.
2007
Direct Insurance
| Assumption at 12/07 | Profit/(Loss) (after tax) | |||||||||||||||||||
| Change | Gross of | Net of | ||||||||||||||||||
| in | Reinsurance | Reinsurance | ||||||||||||||||||
| Variable | variable | Gross | Net | $’000 | $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 year | 4.6 years | 4.7 years | 2,945 | 2,468 | |||||||||||||||
| -0.5 year | (4,134 | ) | (3,491 | ) | ||||||||||||||||
Reinsurance percentage |
+1 | % | n/a | 12.0 | % | — | 212 | |||||||||||||
(as % of gross IBNR) |
-1 | % | — | 196 | ||||||||||||||||
Discount Rate1 |
+1 | % | 6.4 | % | 6.4 | % | 4,596 | 3,886 | ||||||||||||
| -1 | % | (4,842 | ) | (4,197 | ) | |||||||||||||||
Expense Rate |
+1 | % | 15.0 | % | 15.0 | % | (1,086 | ) | (1,086 | ) | ||||||||||
| -1 | % | 1,086 | 1,086 | |||||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 105.0 | % | 106.0 | % | (5,965 | ) | (2,797 | ) | ||||||||||
| -1 | % | 4,478 | 3,841 | |||||||||||||||||
Inwards Reinsurance
| Assumption at 12/07 | Profit/(Loss) (after tax) | |||||||||||||||||||
| Change | Gross of | Net of | ||||||||||||||||||
| in | Reinsurance | Reinsurance | ||||||||||||||||||
| Variable | variable | Gross | Net | $’000 | $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 year | 5.7 years | 5.7 years | 2,606 | 2,584 | |||||||||||||||
| -0.5 year | (4,394 | ) | (4,411 | ) | ||||||||||||||||
Reinsurance percentage |
+1 | % | n/a | n/a | — | — | ||||||||||||||
(as % of gross IBNR) |
-1 | % | — | — | ||||||||||||||||
Discount Rate1 |
+1 | % | 4.2 | % | 4.2 | % | 8,171 | 8,146 | ||||||||||||
| -1 | % | (10,484 | ) | (10,498 | ) | |||||||||||||||
Expense Rate |
+1 | % | 18.0 | % | 18.0 | % | (1,446 | ) | (1,445 | ) | ||||||||||
| -1 | % | 1,446 | 1,445 | |||||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 103.0 | % | 103.0 | % | (11,890 | ) | (11,890 | ) | ||||||||||
| -1 | % | 7,772 | 7,772 | |||||||||||||||||
| 1 — | This sensitivity reflects the liability movements only. As assets are invested to match the term of liabilities there is little overall profit impact from a change to interest rates. | |
| 2 — | This ratio has only been adjusted for years that are not considered to be fully developed. |
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
3. ACTUARIAL METHODS AND ASSUMPTIONS (Continued)
2006
Direct Insurance
| Assumption at 12/06 | Profit/(Loss) (after tax) | |||||||||||||||||||
| Change | Gross of | Net of | ||||||||||||||||||
| in | Reinsurance | Reinsurance | ||||||||||||||||||
| Variable | variable | Gross | Net | $’000 | $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 year | 4.5 years | 4.6 years | 3,949 | 3,379 | |||||||||||||||
| -0.5 year | (5,202 | ) | (4,248 | ) | ||||||||||||||||
Reinsurance percentage |
+1 | % | n/a | 10.3 | % | — | 149 | |||||||||||||
(as % of gross IBNR) |
-1 | % | — | (295 | ) | |||||||||||||||
Discount Rate1 |
+1 | % | 6.0 | % | 6.0 | % | 5,603 | 5,133 | ||||||||||||
| -1 | % | (7,011 | ) | (5,557 | ) | |||||||||||||||
Expense Rate |
+1 | % | 8.8 | % | 8.8 | % | (2,176 | ) | (2,176 | ) | ||||||||||
| -1 | % | 2,176 | 2,176 | |||||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 107.9 | % | 108.9 | % | (6,862 | ) | (4,383 | ) | ||||||||||
| -1 | % | 4,392 | 3,626 | |||||||||||||||||
Inwards Reinsurance
| Assumption at 12/06 | Profit/(Loss) (after tax) | |||||||||||||||||||
| Change | Gross of | Net of | ||||||||||||||||||
| in | Reinsurance | Reinsurance | ||||||||||||||||||
| Variable | variable | Gross | Net | $’000 | $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 year | 4.4 | 4.4 | 5,615 | 5,582 | |||||||||||||||
| -0.5 year | (5,755 | ) | (5,775 | ) | ||||||||||||||||
Reinsurance percentage |
+1 | % | n/a | n/a | n/a | n/a | ||||||||||||||
(as % of gross IBNR) |
-1 | % | n/a | n/a | ||||||||||||||||
Discount Rate1 |
+1 | % | 5.0 | % | 5.0 | % | 9,420 | 9,384 | ||||||||||||
| -1 | % | (9,917 | ) | (9,933 | ) | |||||||||||||||
Expense Rate |
+1 | % | 15.8 | % | 15.8 | % | (1,997 | ) | (1,994 | ) | ||||||||||
| -1 | % | 1,997 | 1,994 | |||||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 102.9 | % | 103.0 | % | (13,739 | ) | (13,739 | ) | ||||||||||
| -1 | % | 7,727 | 7,727 | |||||||||||||||||
| 1 — | This sensitivity reflects the liability movements only. As assets are invested to match the term of liabilities there is little overall profit impact from a change to interest rates. | |
| 2 — | This ratio has only been adjusted for years that are not considered to be fully developed. |
Gordian Runoff Limited ABN 11 052 179 647
|
15 of 38 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS
The company’s policies and procedures in respect of managing risks are set out in this note below.
The Board has ultimate responsibility for risk management and governance, including ensuring an
appropriate risk framework is in place and is operating effectively. There are, however, other
bodies and individuals associated with the Company that manage and monitor financial risk.
The Board
The Board is responsible for the approval of policy regarding shareholder capital investment
strategy, policyholder asset and liability strategy and setting the financial risk appetite.
The Audit Committee
The Audit Committee is responsible for ensuring the existence of effective financial risk
management policies and procedures.
The Approved Actuary
The Approved Actuary is responsible for reporting on solvency and capital adequacy. A Financial
Condition report (FCR) and an Insurance Liability Valuation report (ILVR) must be provided to the
Board and the Australian Prudential Regulatory Authority (APRA) at least annually, the ILVR must be
peer reviewed annually by an external independent actuary. The Insurance Act also imposers
obligations on the Approved Actuary to bring to the attention of the company or in certain
circumstances APRA any matter that the Approved Actuary thinks requires action to be taken to avoid
prejudice in the interests of the policy holders.
As part of the overall governance framework the and in accordance with Prudential Standards GPS 220
Risk Management and GPS 230 Reinsurance Management issued APRA, the Board and senior management
have developed, implemented and maintain a sound and prudent Risk Management Strategy (RMS) and a
Reinsurance Management Strategy (REMS).
The RMS and REMS identify the Company’s policies and procedures, processes and controls that
comprise its risk management and control systems. These systems address all material risks,
financial and non-financial, likely to be faced by the Company. Annually, the Board certifies to
APRA that adequate strategies have been put in place to monitor those risks, that the Company has
systems in place to ensure compliance with legislative and prudential requirements and that the
Board has satisfied itself as to the compliance with the RMS and REMS. The RMS and REMS have been
approved by both the Board and APRA.
| Gordian Runoff Limited ABN 11 052 179 647 | 16 of 38 | |
Gordian RunOff Limite
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Key aspects of the processes established in the RMS to mitigate risks include:
| • | A formal regular process of risk identification and evaluation, supplemented by a documented control assessment process, is completed by management and communicated to the Board in line with the Board approved Risk Management Strategy. | ||
| • | Actuarial models, using information from management information systems, to monitor claims patterns and other relevant statistics. Past experience and statistical methods are used as part of the process. | ||
| • | The maintenance and use of various specialist information systems, which provide up to date and reliable data on claims liabilities. | ||
| • | Documented procedures that are followed by claims staff that are experienced in the various classes of business previously written. | ||
| • | Reinsurance has been used, particularly in the early period of the run-off to limit the Company’s exposure to large single claims. The REMS provides that exposures continue to be monitored and where feasible reinsurance be purchased as means of limiting risk. | ||
| • | The mix of investment assets is driven by the nature and term of the insurance liabilities. The management of assets and liabilities is closely monitored in an attempt to match the maturity dates of assets with the expected pattern of claim payments. |
Risk and Mitigation
The Company’s activities expose it to a variety of risks. The major risks associated with insurance
contracts include:
| a) | Development of claims | |
| There is a possibility that changes may occur in the estimate of our obligations at the end of a contract period. The tables in note 15 show the estimates of total ultimate claims at successive year-ends. | ||
| b) | Terms and conditions of direct and inwards reinsurance business | |
| There is limited scope to improve the existing terms and conditions. The company has been in orderly run off since 1999, and no new contracts have been entered into since that time. | ||
| c) | Concentration of insurance risk | |
| The exposure to concentrations of insurance risk can be mitigated with the purchase of reinsurance where management believes that the price /risk transfer is suitable. |
Financial risks include:
| Market risk | ||
| a) | Interest rate risk | |
| Interest rate risk arises to the extent that there is a mismatch between the fixed-interest portfolios used to back the outstanding claims liability and those outstanding claims. The interest rate risk is managed by matching the duration profiles of the investments assets and the outstanding claims liability. | ||
| The accounting policy notes describe the policies used to measure and report the assets and liabilities of the Company. Where the applicable market value is determined by discounting future cash flows, movements in interest rates will result in a reported unrealised gain or loss in the profit and loss account. | ||
| AMP Capital Investors Limited manages the investment portfolios on behalf of the Company. The Company seeks to reduce its interest rate risk through the use of investment portfolios as a hedge against its insurance liabilities. To the extent that these assets and liabilities can be matched, unrealised gains or losses on revaluation of liabilities resulting from interest rate movements will be offset by unrealised losses or gains on revaluation of investment assets. |
| Gordian Runoff Limited ABN 11 052 179 647 | 17 of 38 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Interest rate sensitivity analysis
The following table demonstrates the impact of a 100 basis point change in Australian interest
rates, with all other variables held constant, on the company’s shareholder profit after tax. It
is assumed that the change occurs as at the reporting date (31 December) and there are
concurrent movements in interest rates and parallel shifts in yield curves.
| 31 Dec 07 | 31 Dec 06 | |||||||
| Change in Variable | Impact on | Impact on | ||||||
| Profit after tax | Profit after tax | |||||||
| $’000 | $’000 | |||||||
+100 basis points |
(2,797 | ) | (6,000 | ) | ||||
- 100 basis points |
2,797 | 6,000 | ||||||
| b) | Foreign Currency risk analysis | |
| Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in exchange rates. | ||
| The Company’s financial assets are primarily dominated in the same currencies as its insurance contract liabilities, being United States dollar (USD), Great Britain pounds (GBP) and the European Union Currency (EURO). Where insurance contract liabilities are payable in a foreign currency other than the three mentioned above, the assets backing these liabilities are held in one of the three currencies (or Australian dollars) which best resembles an appropriate proxy. | ||
| Other exposures to foreign currency are immaterial. | ||
| The following table demonstrates the impact of a 10% increase or decrease in the relevant proxy currencies if the underlying liability currency moved 10% . It is assumed that the relevant change occurs at reporting date. |
| 31 Dec 07 | 31 Dec 06 | |||||||
| Change in Variable | Impact on | Impact on | ||||||
| Profit after tax | Profit after tax | |||||||
| $’000 | $’000 | |||||||
+10% |
(1,055 | ) | (1,354 | ) | ||||
- 10% |
1,055 | 1,354 | ||||||
| Gordian Runoff Limited ABN 11 052 179 647 | 18 of 38 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to met its debt obligations or
other cash outflows as they fall due because of lack of liquid assets. The Company manages
liquidity risk by maintaining adequate reserves and by continuously monitoring forecast and
actual cash flows and matching the maturiy profiles of assets and liabilities. As required by
APRA prudential Standard GPS 220, the Company has developed and implemented a risk management
strategy which is described earlier in this note to control this risk.
The table below summaries the maturity profile of the company’s financial liabilities at 31
December based on contractual undiscounted obligations.
31 Dec 07
| $’000 | $’000 | $’000 | $’000 | $’000 | ||||||||||||||||
| Up to 1 | 2 to 3 | 4 to 5 | Over 5 | Total | ||||||||||||||||
| year | years | years | years | |||||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Payables |
9,835 | — | — | — | 9,835 | |||||||||||||||
Derivatives |
— | 535 | — | 443 | 978 | |||||||||||||||
Total |
9.835 | 535 | — | 443 | 10,813 | |||||||||||||||
31 Dec 06
| $’000 | $’000 | $’000 | $’000 | $’000 | ||||||||||||||||
| Up to 1 | 2 to 3 | 4 to 5 | Over 5 | Total | ||||||||||||||||
| year | years | years | years | |||||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Payables |
8,853 | — | — | — | 8,853 | |||||||||||||||
Derivatives |
— | 308 | — | 753 | 1,061 | |||||||||||||||
Total |
8,853 | 308 | — | 753 | 9,914 | |||||||||||||||
Credit risk
Credit risk is the risk of loss that arises from a counterparty failing to meet their contractual
commitments in full and on time, or from losses arising from the change in value of traded
financial instruments as a result of changes in credit risk on that instrument.
Credit risk arising from exposure to individual counter parties in the investment portfolios is
managed by the investment manager, AMP Capital Investors’ Compliance and Business Risk team,
according to a separate investment mandate approved by the Board which aims to duration band match
the insurance liability profile within specified credit criteria constraints. Compliance with the
mandate is reported to the Board of Directors.
Credit risk in trade receivables in managed by analysing the credit ratings of the underlying
debts.
Other than loans to related parties, there are no significant concentrations of credit risk.
| Gordian Runoff Limited ABN 11 052 179 647 | 19 of 38 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Credit
exposure by credit rating
The table below provides information regarding the credit risk exposure of the Company by
classifying assets according to the Company’s credit rating of counter parties:
| 31 Dec 07 | 31 Dec 06 | |||||||||||||||
| Reinsurance & | Other Financial | Reinsurance & | Other Financial | |||||||||||||
| Other Recoveries | Instruments | Other Recoveries | Instruments | |||||||||||||
| $ 000 | $ 000 | $ 000 | $ 000 | |||||||||||||
AAA |
1,168 | 363,098 | 4,309 | 610,982 | ||||||||||||
AA |
8,883 | 535,309 | 13,661 | 561,868 | ||||||||||||
A |
7,417 | 49,239 | 11,721 | 42,806 | ||||||||||||
BBB |
1,272 | — | 1,410 | — | ||||||||||||
Below BBB |
64 | — | 109 | — | ||||||||||||
Not rated |
10,696 | 70,723 | 17,637 | 60,488 | ||||||||||||
Total |
29,501 | 1,018,369 | 48,847 | 1,276,144 | ||||||||||||
The following table provides an aged analysis of financial assets neither past due or impaired,
past due and not impaired and impaired assets. Impairment is calculated in accordance with note 1.
| 31 Dec 07 | Neither past | Past due but not impaired | ||||||||||||||||||
| due nor | Under | More than | Impaired | TOTAL | ||||||||||||||||
| impaired | 90 days | 91 days | ||||||||||||||||||
| $000 | $000 | $000 | $000 | $000 | ||||||||||||||||
Receivables |
6,626 | (107 | ) | 5,276 | 47 | 11,842 | ||||||||||||||
Reinsurance and
Other recoveries |
12,164 | 12 | 1,361 | 15,964 | 29,501 | |||||||||||||||
| 31 Dec 06 | Neither past | Past due but not impaired | ||||||||||||||||||
| due nor | Less than | More than | ||||||||||||||||||
| impaired | 90 days | 91 days | Impaired | TOTAL | ||||||||||||||||
| $000 | $000 | $000 | $000 | $000 | ||||||||||||||||
Receivables |
8,898 | (14 | ) | 5,419 | — | 14,303 | ||||||||||||||
Reinsurance and
Other recoveries |
5,060 | 15,800 | 205 | 27,782 | 48,847 | |||||||||||||||
| Gordian Runoff Limited ABN 11 052 179 647 | 20 of 38 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Fair Value
Details of the significant accounting policies and methods adopted, including the criteria for
recognition, the basis of measurement and the basis on which revenue and expenses are recognised,
in respect of each class of financial asset, financial liability and other investments are under
and in Note 1.
Categories of financial instruments
| 2007 | 2006 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Reinsurance and other recoveries |
11 | 29,501 | 48,847 | |||||||||
Financial assets |
||||||||||||
Fair value through the profit and loss: |
||||||||||||
Cash & cash equivalents |
24 | 13,857 | 42,291 | |||||||||
Receivables |
10 | 11,842 | 14,303 | |||||||||
Other financial assets |
12 | 1,018,369 | 1,276,144 | |||||||||
Financial Liabilities |
||||||||||||
Payables |
16 | 9,835 | 8,853 | |||||||||
Income tax payable |
26,227 | 24,649 | ||||||||||
The recorded bid price equates to net fair value for listed debt and equity securities. For
derivative contracts, fair value equates to the unrealised gain/loss on the outstanding contract.
For the following financial instruments, the cost carrying amount is considered to equate to their
fair value:
| • | cash deposits |
| • | loans to related parties |
| • | receivables |
| • | payables. |
Derivative transactions
The Company uses derivatives in the following way:
Investment management operations
Authority has been given to the investment managers to use derivatives in managing the investment
portfolios. There may be various reasons why investment in derivatives is more appropriate than
investment in the underlying physical asset including hedging, liquidity and pricing.
The types of derivatives, which the investment manager can use include, interest rate swaps and
futures, share price index futures and forward currency agreements.
| Gordian Runoff Limited ABN 11 052 179 647 | 21 of 38 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Extent of derivative transactions
| Notional | Fair | Notional | Fair | |||||||||||||
| value | value | value | value | |||||||||||||
| 2007 | 2007 | 2006 | 2006 | |||||||||||||
| $’000 | $’000 | $’000 | $’000 | |||||||||||||
Investment management operations |
||||||||||||||||
Interest Rate Swap Contracts |
— | — | 10,500 | (235 | ) | |||||||||||
Interest Rate Futures Contracts |
75,006 | 27 | 104,668 | (480 | ) | |||||||||||
Equity Futures & Options Contracts |
7,170 | (220 | ) | 16,762 | 1,133 | |||||||||||
The notional value refers to the value of the underlying assets of the derivatives contract. The
fair value is the unrealised gain/(loss) on the outstanding contracts.
Capital Management
The Company is subject to externally imposed capital management requirements. The Company must
comply with Capital requirements as specified under APRA General Insurance Prudential Standards.
The primary capital management objective is to ensure the company will be able to continue as a
going concern while minimising excess capital; through capital initiatives, where appropriate.
The Company’s capital position is monitored by the Company’s Board. There have been no changes in
the capital management objectives, policies and processes from the previous period.
The company has at all times during the current and prior financial year complied with the
externally imposed capital requirements imposed by Prudential Standard GPS110 and the requirements
set out in its insurance license.
The Minimum Capital Requirement (MCR) as a ratio of the Company’s capital base is shown in the
table under.
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Tier 1 Capital |
||||||||
Paid-up ordinary shares |
1,610,100 | 1,814,600 | ||||||
General reserves |
— | — | ||||||
Retained earnings |
(1,118,908 | ) | (1,193,381 | ) | ||||
Current year earnings |
106,479 | 74,473 | ||||||
Excess technical provisions (net of tax) |
||||||||
Less : deductions |
32,679 | 44,573 | ||||||
Net Tier 1 Capital |
564,992 | 651,119 | ||||||
Net Tier 2 Capital |
— | — | ||||||
Total Capital Base |
564,992 | 651,119 | ||||||
Minimum Capital Requirement |
91,649 | 133,113 | ||||||
Capital Adequacy Multiple |
6.16 | 4.89 | ||||||
The entity complies with Prudential Standard GPS110 and the requirements set out in its insurance
license.
| Gordian Runoff Limited ABN 11 052 179 647 | 22 of 38 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
5. NET PREMIUM REVENUE
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Gross written premium — direct |
4 | 8 | ||||||
Movement in unearned premium — direct |
— | 20 | ||||||
Direct premium revenue |
4 | 28 | ||||||
Gross written premium (expense)/benefit — inwards |
4,689 | (1,168 | ) | |||||
Movement in unearned premium — inwards |
— | — | ||||||
Inwards reinsurance premium (expense)/revenue |
4,689 | (1,168 | ) | |||||
Premium (expense)/revenue |
4,693 | (1,140 | ) | |||||
Outwards reinsurance premium (expense)/revenue |
(280 | ) | (323 | ) | ||||
Net Premium Revenue /(Expense) |
4,413 | (1,463 | ) | |||||
6. NET CLAIMS INCURRED
2007
| Current year | Prior years | Total | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Gross claims expense |
||||||||||||
Direct |
— | (101,038 | ) | (101,038 | ) | |||||||
Inwards reinsurance |
— | (43,307 | ) | (43,307 | ) | |||||||
Gross claims incurred — undiscounted |
— | (144,345 | ) | (144,345 | ) | |||||||
Discount movement |
— | 25,441 | 25,441 | |||||||||
Total gross claims expense |
— | (118,904 | ) | (118,904 | ) | |||||||
Reinsurance and other recoveries revenue |
||||||||||||
Reinsurance and other recoveries — undiscounted |
— | 10,018 | 10,018 | |||||||||
Discount movement |
— | (3,516 | ) | (3,516 | ) | |||||||
Total reinsurance and other recoveries revenue |
— | 6,502 | 6,502 | |||||||||
Net claims incurred |
— | (112,402 | ) | (112,402 | ) | |||||||
2006
| Current year | Prior years | Total | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Gross claims expense |
||||||||||||
Direct |
— | (25,847 | ) | (25,847 | ) | |||||||
Inwards reinsurance |
— | (59,464 | ) | (59,464 | ) | |||||||
Gross claims incurred — undiscounted |
— | (85,311 | ) | (85,311 | ) | |||||||
Discount movement |
— | 14,049 | 14,049 | |||||||||
Total gross claims expense |
— | (71,262 | ) | (71,262 | ) | |||||||
Reinsurance and other recoveries revenue |
||||||||||||
Reinsurance and other recoveries — undiscounted |
— | 3,444 | 3,444 | |||||||||
Discount movement |
— | (556 | ) | (556 | ) | |||||||
Total reinsurance and other recoveries revenue |
— | 2,888 | 2,888 | |||||||||
Net claims incurred |
— | (68,374 | ) | (68,374 | ) | |||||||
Current year claims relate to risks borne in the current financial year. Prior year claims relate
to a reassessment of the risks borne in all previous financial years.
As the company stopped writing new business in late 1999, all claims development relates to prior
years.
Gordian Runoff Limited ABN 11 052 179 647
|
23 of 38 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
7. OPERATING EXPENSES
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Expenses by Nature |
||||||||
Commission expenses |
142 | 959 | ||||||
Write-off of Bad Debt |
6 | 2,634 | ||||||
Impairment expense — premium receivables |
(396 | ) | 304 | |||||
Impairment expense — reinsurance receivables |
(1,151 | ) | (3,331 | ) | ||||
Net gain on foreign currency |
(2,588 | ) | (1,059 | ) | ||||
Investment management fees |
1,279 | 2,142 | ||||||
Other management fees |
23,892 | 25,652 | ||||||
External consultant costs |
971 | 1,245 | ||||||
Interest on loan — subsidiary |
1,061 | — | ||||||
Other expenses |
3,372 | (972 | ) | |||||
Total Expenses |
26,588 | 27,574 | ||||||
represented by: |
||||||||
General administration expenses included in net claims incurred |
18,553 | 17,612 | ||||||
Acquisition benefit |
(114 | ) | (1,618 | ) | ||||
Other underwriting expenses |
231 | 1,043 | ||||||
General administration expenses |
6,857 | 10,537 | ||||||
Finance costs |
1,061 | — | ||||||
Total expenses |
26,588 | 27,574 | ||||||
8. NET INVESTMENT REVENUE
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Investment income |
||||||||
Interest |
37,568 | 49,005 | ||||||
Interest from/(to) related parties: |
||||||||
- other related parties |
28,941 | 31,912 | ||||||
Dividends and other distributions received |
3,580 | 2,187 | ||||||
Dividends from related parties: |
||||||||
- subsidiaries |
— | 645 | ||||||
Changes in fair value of investments: |
||||||||
Realised |
(29,919 | ) | (21,115 | ) | ||||
Unrealised |
3,175 | (16,674 | ) | |||||
Total net investment revenue |
43,345 | 45,960 | ||||||
Gordian Runoff Limited ABN 11 052 179 647
|
24 of 38 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
9. INCOME TAX
a) Analysis of income tax expense
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Current tax |
37,049 | 24,055 | ||||||
Decrease in deferred tax assets |
7,539 | 7,209 | ||||||
Decrease in deferred tax liabilities |
— | (3 | ) | |||||
Under provided in previous years |
1,584 | (1,785 | ) | |||||
Other adjustments |
(500 | ) | — | |||||
Prior year tax losses not recognised now recouped |
— | — | ||||||
Income tax expense |
45,672 | 29,476 | ||||||
b) Relationship between income tax expense and accounting profit
The table below provides a reconciliation of differences between prima facie tax calculated as
30% of the profit before income tax for the period and the actual income tax expense recognised
in the income statement for the period
In respect of income tax expense attributable to shareholders, the tax rate which applies in both
2007 and 2006 is 30% for Australia and 33% for New Zealand.
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Operating profit before income tax |
152,151 | 103,948 | ||||||
Prima facie income tax at the rate of 30% |
45,645 | 31,184 | ||||||
Tax effect of differences between amounts of income and
expenses recognised for accounting and the amounts
deductible/assessable in calculating taxable income: |
||||||||
Non assessable income |
— | 3 | ||||||
Unrealised revaluation of controlled entity |
233 | — | ||||||
Capital Loss on subsidiary |
(1,181 | ) | — | |||||
Other |
(609 | ) | 74 | |||||
Over/(Under) provided in prior years |
1,584 | (1,785 | ) | |||||
Income tax expense per income statement |
45,672 | 29,476 | ||||||
c) Analysis of deferred tax asset
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Amounts recognised in income: |
||||||||
- Provision for doubtful debts |
8,510 | 14,713 | ||||||
- Accruals |
60 | 239 | ||||||
- Indirect Claims Costs Adjustments |
16,726 | 20,070 | ||||||
- Unrealised gains/losses |
6,202 | 9,561 | ||||||
- Other |
— | 6 | ||||||
- Current year’s tax losses |
1,181 | — | ||||||
Total deferred tax assets |
32,679 | 44,589 | ||||||
d) Analysis of deferred tax liability
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Amounts recognised in income: |
||||||||
- Other |
— | 16 | ||||||
Total deferred tax liability |
— | 16 | ||||||
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Deferred tax asset |
32,679 | 44,589 | ||||||
Deferred tax liability |
— | (16 | ) | |||||
Net deferred tax asset |
32,679 | 44,573 | ||||||
Gordian Runoff Limited ABN 11 052 179 647
|
25 of 38 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
10. RECEIVABLES
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Premiums receivable — direct insurance |
9 | 13 | ||||||
less: provision for impairment of
premium receivable |
(9 | ) | (13 | ) | ||||
| — | — | |||||||
Premiums receivable — inwards reinsurance |
9,518 | 9,411 | ||||||
less: provision for impairment of
premium receivable |
(2,201 | ) | (2,594 | ) | ||||
| 7,317 | 6,817 | |||||||
Premium receivables — direct & inwards
reinsurance |
7,317 | 6,817 | ||||||
Other receivables |
235 | 529 | ||||||
Other receivables from related parties |
||||||||
-other related parties |
— | 1,325 | ||||||
Interest receivable from related parties |
||||||||
-other related parties |
2,494 | 2,498 | ||||||
Total current receivables |
10,046 | 11,169 | ||||||
Non-current |
||||||||
Premiums receivable — inwards reinsurance |
1,796 | 3,134 | ||||||
Total non-current receivables |
1,796 | 3,134 | ||||||
11. REINSURANCE AND OTHER RECOVERIES
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Expected future reinsurance recoveries undiscounted |
||||||||
- on claims paid |
23,191 | 25,988 | ||||||
- on outstanding claims |
41,173 | 62,389 | ||||||
| 64,364 | 88,377 | |||||||
Discount to present value |
(8,706 | ) | (12,222 | ) | ||||
less: provision for impairment of reinsurance assets |
(26,157 | ) | (27,308 | ) | ||||
Reinsurance and other recoveries receivable |
29,501 | 48,847 | ||||||
Current |
||||||||
Reinsurance and other recoveries receivable |
31,448 | 39,701 | ||||||
less: provision for impairment of reinsurance assets |
(17,745 | ) | (20,611 | ) | ||||
| 13,703 | 19,090 | |||||||
Non-current |
||||||||
Reinsurance and other recoveries receivable |
24,211 | 36,454 | ||||||
less: provision for impairment of reinsurance assets |
(8,413 | ) | (6,697 | ) | ||||
| 15,798 | 29,757 | |||||||
Refer to note 15 for a reconciliation of the movement in reinsurance and other recoveries on incurred
claims over the year.
Gordian Runoff Limited ABN 11 052 179 647
|
26 of 38 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
12. OTHER FINANCIAL ASSETS
| Company | ||||||||
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Quoted investments — at fair value |
||||||||
Government and semi-government bonds* |
63,208 | 31,147 | ||||||
Corporate bonds |
44,563 | 79,335 | ||||||
Derivatives |
1,818 | 1,875 | ||||||
| 109,589 | 112,357 | |||||||
Unquoted investments — at fair value value |
||||||||
Units held in cash management trusts |
||||||||
- Other related parties |
4,193 | — | ||||||
Units held in other unit trusts |
||||||||
- Other related parties |
34,847 | 15,151 | ||||||
Loan to related party in the wholly owned group |
442,119 | 422,094 | ||||||
| 481,159 | 437,245 | |||||||
Total current financial assets |
590,748 | 549,602 | ||||||
Non-current |
||||||||
Quoted investments — at fair value |
||||||||
Government and semi-government bonds* |
223,969 | 400,150 | ||||||
Corporate bonds |
171,969 | 293,922 | ||||||
Shares in other corporations |
926 | 935 | ||||||
| 396,864 | 695,007 | |||||||
Unquoted investments — at fair value |
||||||||
Shares in controlled entities |
30,689 | 31,467 | ||||||
Shares in associated entities |
68 | 68 | ||||||
| 30,757 | 31,535 | |||||||
Total non-current financial assets |
427,621 | 726,542 | ||||||
Total financial assets |
1,018,369 | 1,276,144 | ||||||
| * | The Company has given security over government and semi-government bonds against letters of credit of $28.3m (31 December 2006: $44.9m). These assets provide security to the extent of 105% to 110% of the outstanding letters of credit. The security agreements do not restrict the investments from being traded. |
Gordian Runoff Limited ABN 11 052 179 647
|
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
12. OTHER FINANCIAL ASSETS (continued)
Investments in controlled entities
| 2007 | 2007 | 2006 | 2006 | |||||||||||||
| Name of entity | % | $’000 | % | $’000 | ||||||||||||
Gordian RunOff (UK) Limited |
100 | 30,689 | 100 | 31,467 | ||||||||||||
| 30,689 | 31,467 | |||||||||||||||
Gordian RunOff (UK) Limited is incorporated in the United Kingdom and is audited by Ernst & Young
UK.
13. OTHER ASSETS
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Deferred acquisition costs |
— | — | ||||||
Prepayments |
164 | 240 | ||||||
Total current other assets |
164 | 240 | ||||||
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Deferred acquisition costs as at 1 January |
— | 3 | ||||||
Amortisation charged to income |
— | (3 | ) | |||||
Deferred acquisition costs as at 31 December |
— | — | ||||||
Gordian Runoff Limited ABN 11 052 179 647
|
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
14. UNEARNED PREMIUM
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Unearned premium liability as at 1 January |
— | 20 | ||||||
Earning of premiums written in previous periods |
— | (20 | ) | |||||
Unearned premium liability as at 31 December |
— | — | ||||||
15. OUTSTANDING CLAIMS
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Central estimate |
467,488 | 703,638 | ||||||
Risk margin |
64,931 | 103,293 | ||||||
| 532,419 | 806,931 | |||||||
Discount to present value |
(85,463 | ) | (109,727 | ) | ||||
Gross outstanding claims liability |
446,956 | 697,204 | ||||||
Current |
90,891 | 112,751 | ||||||
Non-current |
356,065 | 584,453 | ||||||
Total outstanding claims |
446,956 | 697,204 | ||||||
Investment assets in the form of debt securities are held to back the liability for outstanding
claims and are realised on a regular basis to meet claims. The amount of claims likely to be
settled within 12 months of the reporting date is classified as current.
The Company has been closed to new business since 1999 and there have been no new direct or inwards
reinsurance contracts issued in the five years prior to and including this report.
As described in note 1, the outstanding claims liability is the best estimate of the present value
of the expected future payments, after the inclusion of a risk margin. At each balance date, the
amount of the liability is reassessed and it is likely that changes will arise in the estimates of
liabilities. The tables in the following pages show the estimates of total ultimate claims at
successive year ends.
Gordian Runoff Limited ABN 11 052 179 647
|
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
15. OUTSTANDING CLAIMS (continued)
Reconciliation of movement in discounted outstanding claims liability
2007
| Gross | Reinsurance | Net | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Amount outstanding brought forward |
697,204 | 48,847 | 648,357 | |||||||||
Claim payments/ recoveries during the period |
(112,791 | ) | (11,520 | ) | (101,271 | ) | ||||||
Effect of changes in assumptions |
(118,509 | ) | (7,853 | ) | (110,656 | ) | ||||||
Effect of changes in exchange rates |
(18,948 | ) | 27 | (18,975 | ) | |||||||
Amount outstanding carried forward |
446,956 | 29,501 | 417,455 | |||||||||
2006
| Gross | Reinsurance | Net | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Amount outstanding brought forward |
918,152 | 71,196 | 846,956 | |||||||||
Claim payments/ recoveries during the period |
(149,686 | ) | (25,237 | ) | (124,449 | ) | ||||||
Effect of changes in assumptions |
(57,129 | ) | 2,857 | (59,986 | ) | |||||||
Effect of changes in exchange rates |
(14,133 | ) | 31 | (14,164 | ) | |||||||
Amount outstanding carried forward |
697,204 | 48,847 | 648,357 | |||||||||
Gordian Runoff Limited ABN 11 052 179 647
|
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
15. OUTSTANDING CLAIMS (continued)
Claims Development Table
| Inwards Reinsurance | Direct Insurance | Total | ||||||||||||||||||||||
| Net | Gross | Net | Gross | Net | Gross | |||||||||||||||||||
| Estimate of Cumulative claims | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | ||||||||||||||||||
31 December 2001 |
5,064,881 | 5,402,510 | 1,384,633 | 1,857,817 | 6,449,514 | 7,260,327 | ||||||||||||||||||
31 December 2002 |
5,026,838 | 5,389,980 | 1,415,333 | 1,920,262 | 6,442,171 | 7,310,242 | ||||||||||||||||||
31 December 2003 |
5,044,587 | 5,439,170 | 1,462,533 | 1,952,003 | 6,507,120 | 7,391,173 | ||||||||||||||||||
31 December 2004 |
4,990,587 | 5,379,685 | 1,432,295 | 1,882,078 | 6,422,882 | 7,261,763 | ||||||||||||||||||
31 December 2005 |
4,966,996 | 5,344,998 | 1,491,990 | 1,933,978 | 6,458,986 | 7,278,976 | ||||||||||||||||||
31 December 2006 |
4,938,503 | 5,313,834 | 1,463,731 | 1,901,401 | 6,402,234 | 7,215,235 | ||||||||||||||||||
31 December 2007 |
4,930,513 | 5,305,046 | 1,393,892 | 1,822,020 | 6,324,405 | 7,127,066 | ||||||||||||||||||
Estimate of Cumulative
Claims at 31 December 2007 |
4,930,513 | 5,305,046 | 1,393,892 | 1,822,020 | 6,324,405 | 7,127,066 | ||||||||||||||||||
Cumulative Payments |
4,691,017 | 5,064,768 | 1,259,843 | 1,650,593 | 5,950,860 | 6,715,361 | ||||||||||||||||||
Undiscounted central estimate |
239,496 | 240,278 | 134,049 | 171,427 | 373,545 | 411,705 | ||||||||||||||||||
Effect of Discounting |
43,160 | 43,160 | 33,614 | 42,303 | 76,774 | 85,463 | ||||||||||||||||||
Discounted Central Estimate |
196,336 | 197,118 | 100,435 | 129,124 | 296,771 | 326,242 | ||||||||||||||||||
Risk Margin |
64,931 | |||||||||||||||||||||||
Claims Handling Provision |
55,783 | |||||||||||||||||||||||
| Gross Outstanding Claims as per the Balance Sheet | 446,956 | |||||||||||||||||||||||
16. PAYABLES
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Trade & other creditors |
1,996 | 3,303 | ||||||
Other borrowings from related parties |
||||||||
- subsidiaries |
— | |||||||
- other related parties |
7,551 | 5,128 | ||||||
Total current payables |
9,547 | 8,431 | ||||||
Non-current |
||||||||
Trade & other creditors |
288 | 422 | ||||||
Total non-current payables |
288 | 422 | ||||||
Gordian Runoff Limited ABN 11 052 179 647
|
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
17. INTEREST BEARING LOAN
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Loan |
||||||||
— subsidiaries |
25,723 | — | ||||||
Total current payables |
25,723 | — | ||||||
18. ISSUED CAPITAL
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Paid up capital |
||||||||
1,840,000,005 fully paid ordinary shares at $0.88 per
share (2006: 1,840,000,005) at $0.99 per
share |
1,610,100 | 1,814,600 | ||||||
Total paid up capital |
1,610,100 | 1,814,600 | ||||||
Movement in ordinary share capital |
||||||||
Balance beginning of the year |
1,814,600 | 1,978,600 | ||||||
Movement for the year — Capital reduction 18 August 06 |
— | (164,000 | ) | |||||
Movement for the year — Capital reduction 27 June 07 |
(113,000 | ) | — | |||||
Movement for the year — Capital reduction 28 May 07 |
(91,500 | ) | — | |||||
Balance at the end of the period |
1,610,100 | 1,814,600 | ||||||
Rights attaching to Ordinary Shares
Ordinary shares attract the following rights:
| (a) | to receive notice of and to attend and vote at all general meetings of the Company; |
||
| (b) | to receive dividends; and | ||
| (c) | in a winding up, to participate equally in the distribution of the assets of the Company (both capital and surplus), subject only to any amounts unpaid on the Share. |
19. FRANKING ACCOUNT
No dividends were paid or proposed during the year.
The AMP Limited group entered into Tax Consolidation during 2003. Under Tax Consolidation, the
franking account balances for group companies were transferred to the Head Entity, AMP Limited.
The entity will be required to make a payment to terminate its liability under the tax funding
agreement if it leaves the tax consolidation group.
Gordian Runoff Limited ABN 11 052 179 647
|
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
20. KEY MANAGEMENT PERSONNEL COMPENSATION
The following individuals were the key management personnel of Gordian RunOff Limited for the
current and prior reporting periods (unless stated otherwise):
| Date of Appointment/Resignation during the | ||
| Name | current or prior reporting period | |
Peter Clarke |
||
Richard Grellman |
||
Paul Leaming
|
31-12-2007, Appointed | |
William Roberts |
||
Felix Zaccar |
||
Peter Hodgett
|
31-12-2007, Resigned | |
Andrew Mohl
|
31-12-2007, Resigned | |
The following table provides aggregate details of the compensation of key management personnel of
Gordian RunOff Limited.
| Short-term employee | Post-employment | Other long-term | Termination | Share-based | ||||||||||||||||||||
| benefits | benefits | benefits | benefits | payments | Total | |||||||||||||||||||
| Year | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
2007 |
6,396,418 | 204,889 | — | 7,667,817 | 2,837,771 | 17,106,895 | ||||||||||||||||||
2006 |
6,306,101 | 205,061 | — | — | 2,318,215 | 8,829,377 | ||||||||||||||||||
Key management personnel disclosed above, also provided services to other related entities during
the year. The above remuneration amounts include all amounts paid for services rendered to related
entities and those services rendered to Gordian RunOff Limited.
21. AUDITORS’ REMUNERATION
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Amounts received, or due and receivable, by Ernst
& Young for: |
||||||||
— other services |
237 | 129 | ||||||
Auditors’ remuneration for the year ended 31 December 2007 is paid on the
entity’s behalf by a controlled entity within the AMP Limited Group.
22. CONTINGENT LIABILITIES
Legal disputes
The nature of the insurance reinsurance business from time to time gives rise to disputes. Several
claims have been denied or recoveries disputed, giving rise to legal actions over coverage issues.
Any resulting litigation/arbitration will be vigorously defended or pursued. In assessing claim
liabilities or reinsurance recoveries, management has reserved based on its best estimate of the
likely outcomes. The nature of these disputes are such that the quantum and timing of the outcome
are uncertain.
Gordian Runoff Limited ABN 11 052 179 647
|
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
23. RELATED PARTIES
Controlling Entity
The immediate parent entity at 31 December 2007 is AG Australia Holdings Ltd. AMP Limited at 31
December 2007 is the ultimate parent entity.
Controlled Entities
Information relating to controlled entities is included at Note 12.
Directors
The directors of the Company during the financial year, and the dates of appointments and
resignations during the year are:
Peter Clarke |
||
Richard Grellman |
||
Paul Leaming
|
31-12-07, Appointed | |
William Roberts |
||
Felix Zaccar |
||
Peter Hodgett |
||
Andrew Mohl
|
31-12-07, Resigned |
Other transactions with key management personnel of the Company
During the year, transactions may have been entered into between key management personnel and
entities within the AMP Limited Group. These transactions are within a normal employee, customer or
supplier relationship on terms and conditions no more favourable than those available to other
employees, customers or members (unless otherwise described below) and may include:
| • | normal personal banking with AMP Bank Limited including the provision of credit cards; | ||
| • | the purchase of AMP superannuation and related products; | ||
| • | financial investment services; | ||
| • | other advisory services. |
These transactions do not have the potential to adversely affect the decisions about the allocation
of scarce resources made by users of the consolidated entity’s financial statements, or discharge
of accountability by key management personnel. The transactions are considered to be trivial or
domestic in nature.
Transactions within the wholly owned group
Transactions between Gordian RunOff Limited and its controlled entities, and other related parties
for the financial year consisted of:
| • | Payment of management fees for services provided; |
| • | Provision of intercompany loan; |
| • | Interest on intercompany loan; |
| • | Receipt of dividend; and |
| • | Provision of share capital. |
Gordian Runoff Limited ABN 11 052 179 647
|
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
The aggregate amounts brought to account in respect of the following types of transactions and each
class of related party involved were:
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Amounts attributable to transactions with related parties |
||||||||
Operating profit before income tax includes aggregate amounts
attributable to transactions in respect of: |
||||||||
Investment Expenses — other related parties |
997,909 | 2,053,027 | ||||||
Interest Revenue — other related parties |
28,941,231 | 31,911,761 | ||||||
Dividend Revenue — subsidiaries |
— | 645,161 | ||||||
Management Expenses — other related parties |
23,891,864 | 25,652,346 | ||||||
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Amounts receivable from and payable to related
parties |
||||||||
Aggregate amounts receivable at balance date from: |
||||||||
Interest receivable — other related parties |
2,493,927 | 2,498,449 | ||||||
Intercompany receivables — other related parties |
— | 1,325,723 | ||||||
Loans — other related parties |
442,118,711 | 422,093,922 | ||||||
Aggregate amounts payable at balance date to: |
||||||||
Payables — other related parties |
26,036,115 | 5,128,164 | ||||||
AMP Capital Investors Limited, a related entity within the wholly owned group, manages the majority
of the investments of the consolidated entity under a management contract, which follows the normal
terms and conditions for such contracts. Fees are paid or are due and payable for the management of
investment portfolios under normal terms and conditions.
AMP Services Limited and Enstar Australia Limited (formerly Cobalt Solutions Australia Limited),
fellow wholly owned controlled entities, provide operational and administrative (including employee
related) services to the consolidated entity. The services provided are in the normal course of the
business and are on normal commercial terms and conditions.
The Company advanced additional loans to AMP Life Limited. These transactions were made under
normal market terms and conditions.
Gordian Runoff Limited ABN 11 052 179 647
|
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
24. CASH FLOW RECONCILIATIONS
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
(i) Reconciliation of cash |
||||||||
Cash balance comprises: |
||||||||
Cash on hand |
13,457 | 10,141 | ||||||
Short term money market deposits |
400 | 32,150 | ||||||
| 13,857 | 42,291 | |||||||
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
(ii) Reconciliation of net cash flows from
operating activities to operating profit
after income tax |
||||||||
Operating profit after income tax |
106,479 | 74,474 | ||||||
Changes in net market value of investments |
23,327 | 16,674 | ||||||
Net loss/(gain) on sale of investments |
29,919 | 21,115 | ||||||
Net (gain)/loss on foreign currency transactions |
(15,307 | ) | (4,618 | ) | ||||
Changes in assets and liabilities |
||||||||
— Increase in accrued interest |
(5 | ) | (11,466 | ) | ||||
— Decrease in receivables |
(18,649 | ) | 35,446 | |||||
— Decrease in reinsurance and other
recoveries receivable |
16,872 | 26,216 | ||||||
— Decrease in other assets |
(166 | ) | 3 | |||||
— Decrease in unearned premiums |
— | (20 | ) | |||||
— Decrease in outstanding claims |
(250,248 | ) | (220,948 | ) | ||||
— Decrease in accounts payable & borrowings |
2,307 | (28,409 | ) | |||||
— Decrease in income taxes payable |
1,578 | 7,206 | ||||||
— Decrease in deferred taxes payable,
net of future tax benefit |
11,895 | 24,291 | ||||||
Net cash flows used in operating activities |
(91,998 | ) | (60,036 | ) | ||||
Gordian Runoff Limited ABN 11 052 179 647
|
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
25. FINANCIAL SUPPORT
The Company has the benefit of the support of the immediate parent AG Australia Holdings Limited,
by virtue of a guarantee dated 16 June 1992 whereby the parent has guaranteed payments under
policies of insurance issued by the Company. This applies to claims made and arising prior to the
date of revocation of this guarantee being 30 June 2002.
26. EVENTS OCCURRING AFTER THE REPORTING DATE
On 11 December 2007 a Sale and Purchase Agreement was entered into by the ultimate parent AMP
Limited and Enstar Australia Holdings Pty Ltd for the sale of the entity.
The sale was subject to a number of conditions including regulatory approval by the Australian
Prudential Regulatory Authority (APRA) who subsequently approved the Sale Agreement on 22 February
2008. The sale was then completed on 5 March 2008. Enstar Australia Holdings Pty Ltd assumed
ownership of the company at this point.
The Australian Prudential Regulation Authority has approved a further reduction in capital of up to
$147,000,000. Capital was subsequently reduced on 14 February 2008 for this amount via the
reduction in loans to its parent entity.
In March 2008 the loan receivable from a related party was fully repaid to the Company and invested
in cash.
Gordian Runoff Limited ABN 11 052 179 647
|
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Report of Independent Auditors
The Board of Directors of Gordian Runoff Limited
We have audited the accompanying balance sheets of Gordian Runoff Limited as of December 31, 2007
and 2006, and the related income statements, statements of changes in equity, and cash flow
statements for the years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Gordian Runoff Limited at December 31, 2007 and 2006, and the
results of its operations and its cash flows for the years then ended in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Sydney, Australia
May 15, 2008
| Liability limited by a scheme approved under Professional Standards Legislation |
GORDIAN RUNOFF LIMITED
ABN 11 052 179 647
ABN 11 052 179 647
FINANCIAL REPORT
31 DECEMBER 2006
31 DECEMBER 2006
Contents:
| Page | ||||
Financial Report |
||||
Financial Statements |
||||
— Income Statement |
2 | |||
— Balance Sheet |
3 | |||
— Statement of Changes in Equity |
4 | |||
— Cash Flow Statement |
5 | |||
Notes to the Financial Statements |
6 | |||
Report of Independent Auditors |
39 | |||
Gordian Runoff Limited ABN 11 052 179 647
|
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Gordian RunOff Limited
Income Statement
For the year ended 31 December 2006
Income Statement
For the year ended 31 December 2006
| 2006 | 2005 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Direct premium revenue |
28 | 273 | ||||||||||
Inwards reinsurance premium (expense)/revenue |
(1,168 | ) | 3,539 | |||||||||
Outwards reinsurance premium (expense)/revenue |
(323 | ) | 1,670 | |||||||||
Net premium (expense)/revenue |
5 | (1,463 | ) | 5,482 | ||||||||
Direct claims (benefit)/expense |
(34,739 | ) | 75,805 | |||||||||
Inwards Reinsurance claims benefit |
(36,523 | ) | (31,047 | ) | ||||||||
Reinsurance & other recoveries (expense)/revenue |
(2,888 | ) | 736 | |||||||||
Net claims incurred |
6 | (68,374 | ) | 44,022 | ||||||||
Net movement in unexpired risk liability |
— | (485 | ) | |||||||||
Other underwriting income |
1,040 | 896 | ||||||||||
Acquisition benefit |
(1,618 | ) | (807 | ) | ||||||||
Other underwriting expenses |
1,043 | 1,753 | ||||||||||
Underwriting (benefit)/expense |
7 | (575 | ) | 946 | ||||||||
Underwriting result |
68,526 | (38,105 | ) | |||||||||
Net investment revenue |
8 | 45,960 | 101,706 | |||||||||
General administration expenses |
7 | 10,537 | (3,391 | ) | ||||||||
Net profit before tax |
103,949 | 66,992 | ||||||||||
Income tax expense/(benefit) attributable
to operating profit |
9 | 29,476 | 17,052 | |||||||||
Net profit attributable to members of Gordian RunOff Limited |
74,473 | 49,940 | ||||||||||
The above Income Statement should be read in conjunction with the accompanying notes.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Balance Sheet
As at 31 December 2006
Balance Sheet
As at 31 December 2006
| 2006 | 2005 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Current assets |
||||||||||||
Cash and cash equivalents |
23 | 42,291 | 11,913 | |||||||||
Receivables |
10 | 11,169 | 39,884 | |||||||||
Reinsurance and other recoveries receivable |
11 | 19,090 | 30,915 | |||||||||
Other financial assets |
12 | 549,602 | 663,048 | |||||||||
Other assets |
13 | 240 | 3 | |||||||||
Total current assets |
622,392 | 745,763 | ||||||||||
Non-current assets |
||||||||||||
Receivables |
10 | 3,134 | 8,961 | |||||||||
Reinsurance and other recoveries receivable |
11 | 29,757 | 40,281 | |||||||||
Other financial assets |
12 | 726,542 | 937,068 | |||||||||
Deferred tax assets |
9 | 44,573 | 51,779 | |||||||||
Total non-current assets |
804,006 | 1,038,089 | ||||||||||
Total assets |
1,426,398 | 1,783,852 | ||||||||||
Current liabilities |
||||||||||||
Unearned premium liability |
14 | — | 20 | |||||||||
Outstanding claims liability |
15 | 112,751 | 159,202 | |||||||||
Payables |
16 | 8,431 | 78,718 | |||||||||
Current Tax Liabilities |
24,649 | 358 | ||||||||||
Total current liabilities |
145,831 | 238,298 | ||||||||||
Non-current liabilities |
||||||||||||
Outstanding claims liability |
15 | 584,453 | 758,950 | |||||||||
Payables |
16 | 422 | 1,385 | |||||||||
Total non-current liabilities |
584,875 | 760,335 | ||||||||||
Total liabilities |
730,706 | 998,633 | ||||||||||
Net assets |
695,692 | 785,219 | ||||||||||
Shareholders’ equity |
||||||||||||
Issued Capital |
17 | 1,814,600 | 1,978,600 | |||||||||
Accumulated losses |
(1,118,908 | ) | (1,193,381 | ) | ||||||||
Total shareholders’ equity |
695,692 | 785,219 | ||||||||||
The above Balance Sheet should be read in conjunction with the accompanying notes.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Statement of Changes in Equity
For the year ended 31 December 2006
Statement of Changes in Equity
For the year ended 31 December 2006
| Accumulated | ||||||||||||
| Issued Capital | Losses | Total | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Balance as at 1 January 2006 |
1,978,600 | (1,193,381 | ) | 785,219 | ||||||||
Net Profit/(loss) after income tax |
— | 74,473 | 74,473 | |||||||||
Change in Equity — Capital reduction |
(164,000 | ) | — | (164,000 | ) | |||||||
Balance as at 31 December 2006 |
1,814,600 | (1,118,908 | ) | 695,692 | ||||||||
Balance as at 1 January 2005 |
1,978,600 | (1,243,321 | ) | 735,279 | ||||||||
Net Profit/(loss) after income tax |
— | 49,940 | 49,940 | |||||||||
Balance as at 31 December 2005 |
1,978,600 | (1,193,381 | ) | 785,219 | ||||||||
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Cash Flow Statement
For the year ended 31 December 2006
Cash Flow Statement
For the year ended 31 December 2006
| 2006 | 2005 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Cash flows from operating activities |
||||||||||||
Premiums received |
16,828 | 4,908 | ||||||||||
Reinsurance and other recoveries |
25,237 | 63,543 | ||||||||||
Dividends received |
2,833 | 2,178 | ||||||||||
Interest received |
80,902 | 100,996 | ||||||||||
Other sundry receipts |
7,082 | (4,595 | ) | |||||||||
(Payments)/refunds of outward reinsurance |
(774 | ) | 1,599 | |||||||||
Claims paid |
(149,686 | ) | (194,638 | ) | ||||||||
Other underwriting (costs)/benefits |
(1,362 | ) | (1,339 | ) | ||||||||
Payments to suppliers and employees |
(43,116 | ) | (29,669 | ) | ||||||||
Income taxes (paid)/received |
2,020 | 20,291 | ||||||||||
Cash flows from/(used in) operating activities |
23 | (60,036 | ) | (36,726 | ) | |||||||
Cash flows from investing activities |
||||||||||||
Proceeds from sale of investments |
807,810 | 1,595,254 | ||||||||||
Payments for investments |
(613,805 | ) | (1,352,631 | ) | ||||||||
Proceeds from share cancellation — related party |
— | 2,000 | ||||||||||
Loans received from related parties |
40,000 | 3,123 | ||||||||||
Loans advanced to related party |
— | (235,628 | ) | |||||||||
Cash flows from/(used in) investing activities |
234,005 | 12,118 | ||||||||||
Cash flows from/(used in) financing activities |
||||||||||||
Payment for capital reduction |
(164,000 | ) | — | |||||||||
Cash flows from/(used in) financing activities |
(164,000 | ) | — | |||||||||
Net decrease in cash held |
9,969 | (24,608 | ) | |||||||||
Effect of exchange rate changes on the balances
of cash held in foreign currencies |
— | 608 | ||||||||||
Balance at the beginning of the year |
32,322 | 56,322 | ||||||||||
Balance at the end of the year |
23 | 42,291 | 32,322 | |||||||||
The above Cash Flow Statement should be read in conjunction with the accompanying notes.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
This Financial Report, comprising the financial statements and the notes thereto, complies with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
The financial statements are separate financial statements as the exemption from preparing
consolidated financial statements has been used. The entity and its subsidiaries have been
consolidated into the financial statements of AMP Limited, of 33 Alfred St Sydney NSW Australia,
an entity incorporated in Australia. Copies of these accounts can be requested from AMP Limited at
this address.
The entity’s significant investments in subsidiaries, including the name, country of incorporation
or residence, proportion of ownership interest and can found in Note 12 to these accounts. A
description of the method used to account for these investments is described under Investment in
controlled entities later in this note.
The Financial Report has been prepared in accordance with the historical cost convention except for
investments, which have been measured at fair value, and insurance liabilities, which have been
discounted to present value.
The principal accounting policies adopted in the preparation of the Financial Report are set out
below. These policies have been consistently applied to the current year and comparative period,
unless otherwise stated. The same accounting policies and methods of computation are followed by
this Financial Report as compared with the 31 December 2005 Financial Report. Where necessary,
comparative information has been reclassified to be consistent with current period disclosures.
Accounting Standards that have recently been issued or amended but are not yet effective have not
been adopted for the reporting period ending 31 December 2006. When applied in future periods,
these recently issued or amended standards are not expected to have a material impact on the
company’s results or financial position; however they may impact Financial Report disclosures.
Operating revenue
Operating revenue comprises reinsurance and general insurance earned premiums, recoveries, interest
income and investment income. Investment income is brought to account on an accrual basis. Other
underwriting income comprises sundry receipts.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
Premium revenue and unearned premiums
Premium revenue
Premium revenue comprises premiums from direct business and from reinsurance business.
Premium revenue includes amounts charged to the policyholders or other insurers, including fire
service levies but excluding stamp duties, GST and other amounts collected on behalf of third
parties.
Premium revenue, including that on unclosed business, is recognised in the income statement when it
has been earned. Premium revenue is recognised in the income statement from the attachment date
over the period of the contract for direct business and over the period of indemnity for
reinsurance business. Where time does not approximate the pattern of risk, previous claims
experience is used to derive the incidence of risk.
The proportion of premium received or receivable not earned in the income statement at the
reporting date is recognised in the balance sheet as an unearned premium liability.
Premiums on unclosed business are calculated as the difference between an estimate of the ultimate
and booked premiums. Actuarial techniques are used to estimate the ultimate premium and are based
on historical premium booking patterns.
Unearned premiums
Unearned premiums represent premium revenue attributable to future accounting periods. For direct
insurances and certain inwards reinsurance classes of business, unearned premium is determined by
apportioning the premiums written in the year over the period of insurance cover, reflecting the
pattern in which risk emerges under these policies.
In respect of inwards reinsurance space business, premiums are unearned until the satellite launch
date, and thereafter are recognised as earned according to the risks associated with the launch,
post launch and in-orbit periods.
Unexpired risk liability
The adequacy of the unearned premium liability in respect of each class of business is assessed by
considering current estimates of all expected future cash flows relating to future claims covered
by current insurance contracts.
If the present value of the expected future cash flows relating to future claims exceeds the
unearned premium liability less related intangible assets and related deferred acquisition costs
then the unearned premium liability is deemed to be deficient.
The entire deficiency is recognised immediately in the income statement. The deficiency is
recognised first by writing down any related intangible assets and then related deferred
acquisition costs, with any excess being recorded in the balance sheet as an unexpired risk
liability.
Outward reinsurance premium expense and deferred reinsurance premium
Premiums ceded to reinsurers are recognised as an expense over the period of cover using the
methods applicable to premium revenue as set out above.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
Outstanding claims
The liability for outstanding claims is measured as the best estimate of the present value of
expected future payments against claims incurred at the reporting date under general insurance
contracts issued by the Company, with an additional risk margin to allow for the inherent
uncertainty in the best estimate.
The expected future payments include those in relation to claims reported but not yet paid; claims
incurred but not reported (IBNR), claims incurred but not enough reported (IBNER) and anticipated
claims handling costs.
Claims handling costs include costs that can be associated directly with individual claims, such as
legal and other professional fees, and costs that can only be indirectly associated with individual
claims, such as claims administration costs.
The liability for direct insurance includes an allowance for inflation and superimposed inflation
and is measured as the present value of the expected future ultimate cost of settling claims. The
expected future payments are discounted to present value using a risk free rate.
A risk margin is applied to the outstanding claims liability, net of reinsurance and other
recoveries, to reflect the inherent uncertainty in the best estimate. This risk margin increases
the probability that the net liability is adequately provided for to a 75% confidence level.
Reinsurance and other recoveries
Reinsurance and other recoveries consist of receivables on paid claims and outstanding claims, and
are recognised as revenue when claims are paid or the outstanding claim is raised. Reinsurance
receivables are discounted to present value consistent with the discounting of outstanding claims
set out above. A provision for impairment is recognised when there is objective evidence that the
Company will not be able to collect all amounts due according to the original terms of the
receivables. The impairment charge is recognised in the income statement. Bad debts are written
off as incurred.
Fire brigade levies and other statutory charges
A liability for fire brigade levies and other statutory charges is recognised on business written
to the balance date. Levies and charges payable are expensed on the same basis as the recognition
of the related premium revenue, with the portion relating to unearned premiums being reported as
deferred statutory charges in Note 13.
Investment income
Dividend and interest income is recognised in the income statement on an effective interest method
when the entity obtains control of the right to receive the revenue.
Realised gains and losses represent the change in value between the previously reported value and
the amount received on sale of the asset. Unrealised gains and losses represent changes in the
fair value of financial assets recognised in the period.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
Assets backing general insurance liabilities
As part of its investment strategy, the Company actively manages its investment portfolio to ensure
that investments mature in accordance with the expected pattern of future cash flows arising from
general insurance liabilities.
The Company has determined that all assets are held to back general insurance liabilities on the
basis that all assets are available for the settlement of claims if required.
The following policies apply to assets held to back general insurance liabilities.
Financial assets
Financial assets are designated at fair value through profit or loss. Initial recognition is at
cost in the balance sheet and subsequent measurement is at fair value with any resultant unrealised
gains or losses recognised in the income statement. Details of fair value for the different types
of financial assets are listed below:
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand that is available on demand and deposits held at
call with financial institutions. Cash and cash equivalents are carried at fair value, being the
principal amount. For the purposes of the cash flow statement, cash also includes other highly
liquid investments not subject to significant risk of change in value.
Cash trusts
The fair value of units in a listed cash trust reflects the quoted bid price at balance date.
There is no reduction for realisation costs in the value of units in a cash trust. Unlisted unit
trusts are recorded at fund managers valuations.
Debt securities
Debt securities are initially recognised at fair value, representing the purchase cost of the asset
exclusive of any transaction costs. Debt securities are subsequently measured at fair value, with
any realised and unrealised gains or losses arising from changes in the fair value being recognised
in the income statement for the period in which they arise. The fair value of a traded interest
bearing security reflects the bid price at balance date. Interest bearing securities that are not
frequently traded are valued by discounting the estimated recoverable amounts, using prevailing
interest rates. Debt securities are accounted for on a trade date basis.
Derivatives
Derivatives are initially recognised at fair value on the date on which a derivative contract is
entered into and are subsequently measured at their fair value. All derivatives are carried as
assets when their fair value is positive, and as liabilities when their fair value is negative.
Derivatives are exchange traded and are fair valued using their publicly quoted bid price on the
date of valuation.
Equity securities
Equity securities are initially recognised at fair value, representing the purchase cost of the
asset exclusive of any transaction costs. Equity securities are subsequently measured at fair
value, with any realised and unrealised gains or losses arising from changes in the fair value
being recognised in the income statement. The fair value of a quoted equity security reflects the
quoted bid price at balance date. Equity securities not traded in an organised financial market
are valued at estimated fair value based on future cash flows discounted at appropriate interest
rates.
Investments in controlled entities
Investments in controlled entities are valued at the lower of net assets and recoverable amount
which have been adopted as a proxy for fair value. Any write down in value to recoverable amount is
reported in the Income Statement.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
Taxes
Income tax
Income tax expense is the tax payable on taxable income for the current period based on the income
tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities
attributable to: (i) temporary differences between the tax bases of assets and liabilities and
their balance sheet carrying amounts, and (ii) unused tax losses.
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates
expected to apply when the assets are recovered or liabilities are settled, based on those tax
rates which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary
differences to measure the deferred tax asset or liability. An exception is made for certain
temporary differences arising from the initial recognition of an asset or a liability. No deferred
tax asset or liability is recognised in relation to these temporary differences if they arose in a
transaction, other than a business combination, that at the time of the transaction did not affect
either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only
if it is probable that future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the
carrying amount and tax bases of investments in controlled entities where the parent entity is able
to control the timing of the reversal of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future.
The tax impact on income and expense items recognised directly in equity is also recognised
directly in equity.
Tax Consolidation
AMP Limited, Gordian Runoff Limited and certain other wholly owned controlled entities of AMP
Limited comprise a tax-consolidated group of which AMP Limited is the head entity. The
implementation date for the tax-consolidated group was 30 June 2003.
Under tax consolidation, AMP Limited as head entity, assumes the following balances from
subsidiaries within the tax-consolidated group:
| (i) | Current tax balances arising from external transactions recognised by entities in the tax-consolidated group occurring after the implementation date, and; | |
| (ii) | Deferred tax assets arising from unused tax losses and unused tax credits recognised by entities in the tax-consolidated group occurring after the implementation date. |
A tax funding agreement has been entered into by the head entity and the controlled entities in the
tax-consolidated group. Controlled entities in the tax-consolidated group will continue to be
responsible, by the operation of the tax funding agreement, for funding tax payments required to be
made by the head entity arising from underlying transactions of the controlled entities. Controlled
entities will make (receive) contributions to (from) the head entity for the balances recognised by
the head entity described in (i) and (ii) above. The contributions will be calculated in accordance
with the tax funding agreement.
Assets and liabilities which arise as a result of differences between the periods in which the
underlying transactions occur, and the period in which the funding payments under the tax funding
agreement are made, are recognised as intercompany balances receivable and payable in the balance
sheet. The recoverability of balances arising from the tax funding arrangements is based on the
ability of the tax-consolidated group to utilise the amounts recognised by the head entity.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
Goods and services tax
All revenues, expenses and assets are recognised net of any GST paid, except where they relate to
products and services which are input taxed for GST purposes or the GST incurred is not recoverable
from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of
the cost of acquisition of the assets or as part of the particular expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from or payable to the tax authorities is included as a receivable or payable in the
balance sheet.
Cash flows are reported on a gross basis reflecting any GST paid or collected. The GST component of
cash flows arising from investing or financing activities which are recoverable from, or payable
to, local tax authorities are classified as operating cash flows.
Foreign currency transactions and translation
Functional and presentation currency
Items included in the financial statements in each of the Gordian group entities are measured using
the currency of the primary economic environment in which that entity operates (the functional
currency). The presentation currency of this financial report, and the functional currency of the
parent entity, is Australian dollars.
Transactions and balances
Income and expense items denominated in a currency other than the functional currency are
translated at the spot exchange rate at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated at the rate of exchange ruling at
balance sheet date, with exchange gains and losses recognised in the income statement. The
corresponding foreign currency translations of foreign currency denominated outstanding claims
liabilities and receivables are reported as a component of claims expense and premium revenue,
respectively. Non-monetary items measured at fair value in a foreign currency are translated using
the exchange rates at the date when the fair value was determined.
Receivables
Receivables are financial assets and are measured at fair value. Given the short-term nature of
most receivables, the recoverable amount approximates fair value. A provision for impairment is
recognised when there is objective evidence that the Company will not be able to collect all
amounts due according to the original terms of the receivables. The impairment charge is
recognised in the income statement. Bad debts are written off as incurred.
Payables
Trade creditors and accruals are recognised as liabilities for amounts to be paid in the future for
goods and services received, whether or not billed to the entity.
Amounts Due To or From Related Parties
Amounts are carried at fair value being nominal amounts due and payable. Interest is taken up as
income on an accrual basis. A provision for impairment is recognised when there is objective
evidence that the related party will not be able to pay its debts.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Company makes estimates and assumptions in respect of certain key assets and liabilities.
Estimates and judgments are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances. The key areas in which critical estimates and judgments are applied are described
below.
(a) The ultimate liability arising from claims made under insurance contracts
Provision is made at year-end for the estimated cost of claims incurred but not settled at the
balance sheet date, including the cost of claims incurred but not yet reported to the Company.
The estimated cost of claims includes direct expenses to be incurred in settling claims gross of
the expected value of salvage and other recoveries. The Company takes all reasonable steps to
ensure that it has appropriate information regarding its claims exposures. However, given the
uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be
different from the original liability established.
The estimation of claims incurred but not reported (“IBNR”) is generally subject to a greater
degree of uncertainty than the estimation of the cost of settling claims already notified to the
Company, where more information about the claim event is generally available. IBNR claims may
often not be reported to the insurer until many years after the events giving rise to the claims
has happened. The liability class of business will typically display greater variations between
initial estimates and final outcomes because there is a greater degree of difficulty in estimating
IBNR reserves. For the short tail class, claims are typically reported soon after the claim event,
and hence tend to display lower levels of volatility. In calculating the estimated cost of unpaid
claims the Company uses a variety of estimation techniques, generally based upon analysis of
historical experience, which assumes that the development pattern of the current claims will be
consistent with past experience. Allowance is made, however, for changes or uncertainties which
may create distortions in the underlying statistics or which might cause the cost of unsettled
claims to increase or reduce when compared with the cost of previously settled claims including:
| • | changes in Company processes which might accelerate or slow down the development and/or recording of paid or incurred claims, compared with the statistics from previous periods; | ||
| • | changes in the legal environment; | ||
| • | the effects of inflation; | ||
| • | the impact of large losses; | ||
| • | movements in industry benchmarks. |
Large claims impacting each relevant business class are generally assessed separately, being
measured on a case by case basis or projected separately in order to allow for the possible
distortive effect of the development and incidence of these large claims.
Where possible the Company adopts multiple techniques to estimate the required level of provisions.
This assists in giving greater understanding of the trends inherent in the data being projected.
The projections given by the various methodologies also assist in setting the range of possible
outcomes. The most appropriate estimation technique is selected taking into account the
characteristics of the business class and the extent of the development of each accident year.
Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the
amounts that will be recoverable from reinsurers based upon the gross provisions.
Details of specific assumptions used in deriving the outstanding claims liability at year-end are
detailed in note 3.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued)
(b) Assets arising from reinsurance contracts
Assets arising from reinsurance contracts are also computed using the above methods. In addition,
the recoverability of these assets is assessed on a periodic basis to ensure that the balance is
reflective of the amounts that will ultimately be received, taking into consideration factors such
as counterparty and credit risk. Impairment is recognised where there is objective evidence that
the Company may not receive amounts due to it and these amounts can be reliably measured.
3. ACTUARIAL METHODS AND ASSUMPTIONS
The entity ceased writing new business and renewals in late 1999 for both its direct insurance and
inwards reinsurance business and has run an orderly runoff since. The process for determining the
value of outstanding claims liabilities is generally consistent between these two portfolios. This
process is described below.
Claims estimates are derived from analysis of the results of several different actuarial models.
These models take case estimates as well as payments into account and assume that reported incurred
amounts or reported payment amounts will develop steadily from period to period. Other models
adopt an ultimate loss ratio for each year that reflects both the long term expected level, as well
as incorporating recent experience. The analysis is performed by underwriting year for the inwards
reinsurance class and by accident year for the direct insurance class.
Claims are first estimated on an undiscounted basis and are then discounted to allow for the time
value of money. The valuation methods adopted include an implicit allowance for future inflation
but do not identify the explicit rate. This allows for both general economic inflation as well as
any superimposed inflation detected in the modelling of payments experience. Superimposed
inflation arises from non-economic factors such as developments of legal precedent.
The liability class of business may be subject to the emergence of new types of latent claims, but
no specific allowance is included for this as at the balance sheet date. Such uncertainties are
considered when setting the risk margin appropriate for this class.
A description of the processes used to determine the key assumptions is provided below:
The average weighted term to settlement is calculated separately by class of business, based on
historical settlement patterns.
The reinsurance percentage for the direct insurance business is calculated based on past
reinsurance recovery rates and the structure of the reinsurance arrangements in place.
The discount rates are derived from market yields on Government securities as at the balance date,
in the currency of the expected claim payments.
Expense rate Claim handling expenses are calculated based on the projected costs of administering
the remaining claims until expiry.
The ultimate to incurred claims ratio is derived by accident or underwriting year based on
historical development of claims from period to period.
The effect of changes in the assumptions have been shown in the reconciliations of general
insurance assets and liabilities in note 15 below.
Gordian Runoff Limited ABN 11 052 179 647
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
3. ACTUARIAL METHODS AND ASSUMPTIONS (Continued)
Process for determining risk margin
The risk margin was determined initially for each portfolio, allowing for the uncertainty of the
outstanding claims estimate for each portfolio. Uncertainty was analysed for each portfolio taking
into account past volatility in general insurance claims, potential uncertainties relating to the
actuarial models and assumptions, the quality of the underlying data used in the models, and the
general insurance environment. The estimate of uncertainty is generally greater for long tailed
classes when compared to short tail classes due to the longer time until settlement of outstanding
claims.
The overall risk margin was determined allowing for diversification between the different
portfolios and the relative uncertainty of each portfolio. The assumptions regarding uncertainty
for each class were applied to the net central estimates, and the results were aggregated, allowing
for diversification in order to arrive at an overall provision that is intended to have a 75%
probability of adequacy.
| 2006 | 2005 | |||||||
| % | % | |||||||
Risk Margins applied |
||||||||
Direct insurance |
23.6 | 15.1 | ||||||
Inwards reinsurance |
15.8 | 14.8 | ||||||
Sensitivity analysis — general insurance contracts
There are a number of variables which impact the amounts recognised in the financial statements
arising from insurance contracts.
The profit or loss and equity of the company are sensitive to movements in a number of key
variables as described below.
| Variable | Description of variable | |
Direct and reinsurance |
||
Average weighted term to settlement
|
Expected payment patterns are used in determining the outstanding claims liability. A decrease in the average term to settlement would lead to claims being paid sooner than anticipated. | |
Discount rate
|
The outstanding claims liability is calculated by reference to expected future payments. These payments are discounted to adjust for the time value of money. | |
Expense rate
|
An estimate for the internal costs of administering claims is included in the outstanding claims liability. | |
Ultimate to incurred claims ratio
|
The estimated ultimate claims cost is generally greater than the claims reported as incurred to date, due to claims that are incurred but not reported (IBNR) or due to future developments on existing claims. | |
Direct only |
||
Reinsurance percentage
|
The direct class assumes money will be recoverable from reinsurers on future claims paid. | |
The following table provides an analysis of the sensitivity of the profit after income tax and
total equity to changes in these assumptions both gross and net of reinsurance.
Gordian Runoff Limited ABN 11 052 179 647
|
14 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
3. ACTUARIAL METHODS AND ASSUMPTIONS (Continued)
2006
Direct Insurance
| Assumption at 12/06 | Profit/(Loss) (after tax) | |||||||||||||||||||
| Gross of | Net of | |||||||||||||||||||
| Change in | Reinsurance | Reinsurance | ||||||||||||||||||
| Variable | variable | Gross | Net | $’000 | $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 year | 4.5 years | 4.6 years | 3,949 | 3,379 | |||||||||||||||
| -0.5 year | (5,202 | ) | (4,248 | ) | ||||||||||||||||
Reinsurance percentage |
+1 | % | n/a | 10.3 | % | — | 149 | |||||||||||||
(as % of gross IBNR) |
-1 | % | — | (295 | ) | |||||||||||||||
Discount Rate1 |
+1 | % | 6.0 | % | 6.0 | % | 5,603 | 5,133 | ||||||||||||
| -1 | % | (7,011 | ) | (5,557 | ) | |||||||||||||||
Expense Rate |
+1 | % | 8.8 | % | 8.8 | % | (2,176 | ) | (2,176 | ) | ||||||||||
| -1 | % | 2,176 | 2,176 | |||||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 107.9 | % | 108.9 | % | (6,862 | ) | (4,383 | ) | ||||||||||
| -1 | % | 4,392 | 3,626 | |||||||||||||||||
Inwards Reinsurance
| Assumption at 12/06 | Profit/(Loss) (after tax) | |||||||||||||||||||
| Gross of | Net of | |||||||||||||||||||
| Change in | Reinsurance | Reinsurance | ||||||||||||||||||
| Variable | variable | Gross | Net | $’000 | $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 year | 4.4 | 4.4 | 5,615 | 5,582 | |||||||||||||||
| -0.5 year | (5,755 | ) | (5,775 | ) | ||||||||||||||||
Reinsurance percentage |
+1 | % | n/a | n/a | n/a | n/a | ||||||||||||||
(as % of gross IBNR) |
-1 | % | n/a | n/a | ||||||||||||||||
Discount Rate1 |
+1 | % | 5.0 | % | 5.0 | % | 9,420 | 9,384 | ||||||||||||
| -1 | % | (9,917 | ) | (9,933 | ) | |||||||||||||||
Expense Rate |
+1 | % | 15.8 | % | 15.8 | % | (1,997 | ) | (1,994 | ) | ||||||||||
| -1 | % | 1,997 | 1,994 | |||||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 102.9 | % | 103.0 | % | (13,739 | ) | (13,739 | ) | ||||||||||
| -1 | % | 7,727 | 7,727 | |||||||||||||||||
| 1 | — | This sensitivity reflects the liability movements only. As assets are invested to match the term of liabilities there is little overall profit impact from a change to interest rates. |
| 2 | — | This ratio has only been adjusted for years that are not considered to be fully developed. |
Gordian Runoff Limited ABN 11 052 179 647
|
15 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
3. ACTUARIAL METHODS AND ASSUMPTIONS (Continued)
2005
Direct Insurance
| Assumption at 12/05 | Profit/(Loss) (after tax) | |||||||||||||||||||
| Gross of | Net of | |||||||||||||||||||
| Change in | Reinsurance | Reinsurance | ||||||||||||||||||
| Variable | variable | Gross | Net | $’000 | $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 year | 4.4 years | 4.4 years | 3,168 | 2,609 | |||||||||||||||
| -0.5 year | (5,767 | ) | (4,956 | ) | ||||||||||||||||
Reinsurance percentage |
+1 | % | n/a | 11 | % | — | 349 | |||||||||||||
(as % of gross IBNR) |
-1 | % | — | (387 | ) | |||||||||||||||
Discount Rate1 |
+1 | % | 5.3 | % | 5.3 | % | 6,820 | 5,762 | ||||||||||||
| -1 | % | (7,603 | ) | (7,271 | ) | |||||||||||||||
Expense Rate |
+1 | % | 10 | % | 10 | % | (2,508 | ) | (2,508 | ) | ||||||||||
| -1 | % | 2,508 | 2,508 | |||||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 109 | % | 111 | % | (6,940 | ) | (5,682 | ) | ||||||||||
| -1 | % | 4,285 | 3,564 | |||||||||||||||||
Inwards Reinsurance
| Assumption at 12/05 | Profit/(Loss) (after tax) | |||||||||||||||||||
| Gross of | Net of | |||||||||||||||||||
| Change in | Reinsurance | Reinsurance | ||||||||||||||||||
| Variable | variable | Gross | Net | $’000 | $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 year | 4.5 | 4.5 | 7,372 | 7,321 | |||||||||||||||
| -0.5 year | (7,534 | ) | (7,564 | ) | ||||||||||||||||
Reinsurance percentage |
+1 | % | n/a | n/a | n/a | n/a | ||||||||||||||
(as % of gross IBNR) |
-1 | % | n/a | n/a | ||||||||||||||||
Discount Rate1 |
+1 | % | 4.5 | % | 4.5 | % | 14,304 | 14,243 | ||||||||||||
| -1 | % | (15,074 | ) | (15,094 | ) | |||||||||||||||
Expense Rate |
+1 | % | 14 | % | 14 | % | (2,992 | ) | (2,987 | ) | ||||||||||
| -1 | % | 2,992 | 2,987 | |||||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 104 | % | 104 | % | (17,775 | ) | (17,775 | ) | ||||||||||
| -1 | % | 12,007 | 12,007 | |||||||||||||||||
| 1 — | This sensitivity reflects the liability movements only. As assets are invested to match the term of liabilities, there is little overall profit impact from a change to interest rates. | |
| 2 — | This ratio has only been adjusted for years that are not considered to be fully developed. |
Gordian Runoff Limited ABN 11 052 179 647
|
16 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
4. INSURANCE CONTRACTS — RISK MANAGEMENT POLICIES AND PROCEDURES
The Company has an objective to control insurance risk thus reducing volatility. The company’s
policies and procedures in respect of managing risks are set out in this note below.
| a) | Objective in managing risks arising from insurance contracts and policies for mitigating those risks. | |
| In accordance with Prudential Standards GPS 220 Risk Management and GPS 230 Reinsurance Management issued by the Australian Prudential Regulation Authority (APRA), the Board and senior management have developed, implemented and maintain a sound and prudent Risk Management Strategy (RMS) and a Reinsurance Management Strategy (REMS). | ||
| The RMS and REMS identify the Company’s policies and procedures, processes and controls that comprise its risk management and control systems. These systems address all material risks, financial and non-financial, likely to be faced by the Company. Annually, the Board certifies to APRA that adequate strategies have been put in place to monitor those risks, that the Company has systems in place to ensure compliance with legislative and prudential requirements and that the Board has satisfied itself as to the compliance with the RMS and REMS. The RMS and REMS have been approved by both the Board and APRA. | ||
| Key aspects of the processes established in the RMS to mitigate risks include: |
| • | A formal regular process of risk identification and evaluation, supplemented by a documented control assessment process, is completed by management and communicated to the Board in line with the Board approved Risk Management Strategy. | ||
| • | Actuarial models, using information from management information systems, to monitor claims patterns and other relevant statistics. Past experience and statistical methods are used as part of the process. | ||
| • | The maintenance and use of various specialist information systems, which provide up to date and reliable data on claims liabilities. | ||
| • | Documented procedures that are followed by claims staff that are experienced in the various classes of business previously written. | ||
| • | Reinsurance has been used, particularly in the early period of the run-off to limit the Company’s exposure to large single claims. The REMS provides that exposures continue to be monitored and where feasible reinsurance be purchased as means of limiting risk. | ||
| • | The mix of investment assets is driven by the nature and term of the insurance liabilities. The management of assets and liabilities is closely monitored in an attempt to match the maturity dates of assets with the expected pattern of claim payments. |
| b) | Development of claims | |
| There is a possibility that changes may occur in the estimate of our obligations at the end of a contract period. The tables in note 15 show the estimates of total ultimate claims at successive year-ends. | ||
| c) | Terms and conditions of direct and inwards reinsurance business | |
| There is limited scope to improve the existing terms and conditions. The company has been in orderly run off since 1999, and no new contracts have been entered into since that time. | ||
| d) | Concentration of insurance risk | |
| The exposure to concentrations of insurance risk is able to be mitigated with the purchase of reinsurance where management believes that the price /risk transfer is suitable. | ||
| e) | Interest rate risk | |
| Interest rate risk arises to the extent that there is a mismatch between the fixed-interest portfolios used to back the outstanding claims liability and those outstanding claims. The interest rate risk is managed by matching the duration profiles of the investments assets and the outstanding claims liability. | ||
| f) | Credit risk | |
| Other than loans to related parties, there are no significant concentrations of credit risk. |
Gordian Runoff Limited ABN 11 052 179 647
|
17 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
5. NET PREMIUM REVENUE
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Gross written premium — direct |
8 | 204 | ||||||
Movement in unearned premium — direct |
20 | 69 | ||||||
Direct premium revenue |
28 | 273 | ||||||
Gross written premium (expense)/benefit — inwards |
(1,168 | ) | 3,305 | |||||
Movement in unearned premium — inwards |
— | 234 | ||||||
Inwards reinsurance premium (expense)/revenue |
(1,168 | ) | 3,539 | |||||
Premium (expense)/revenue |
(1,140 | ) | 3,812 | |||||
Outwards reinsurance premium (expense)/revenue |
(323 | ) | 1,670 | |||||
Net Premium (Expense)/Revenue |
(1,463 | ) | 5,482 | |||||
6. NET CLAIMS INCURRED
2006
| Current year | Prior years | Total | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Gross claims expense |
||||||||||||
Direct |
— | (25,847 | ) | (25,847 | ) | |||||||
Inwards reinsurance |
— | (59,464 | ) | (59,464 | ) | |||||||
Gross claims incurred — undiscounted |
— | (85,311 | ) | (85,311 | ) | |||||||
Discount movement |
— | 14,049 | 14,049 | |||||||||
Total gross claims expense |
— | (71,262 | ) | (71,262 | ) | |||||||
Reinsurance and other recoveries revenue |
||||||||||||
Reinsurance and other recoveries — undiscounted |
— | 3,444 | 3,444 | |||||||||
Discount movement |
— | (556 | ) | (556 | ) | |||||||
Total reinsurance and other recoveries revenue |
— | 2,888 | 2,888 | |||||||||
Net claims incurred |
— | (68,374 | ) | (68,374 | ) | |||||||
2005
| Current year | Prior years | Total | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Gross claims expense |
||||||||||||
Direct |
— | 51,635 | 51,635 | |||||||||
Inwards reinsurance |
— | (46,468 | ) | (46,468 | ) | |||||||
Gross claims incurred — undiscounted |
— | 5,167 | 5,167 | |||||||||
Discount movement |
— | 39,591 | 39,591 | |||||||||
Total gross claims expense |
— | 44,758 | 44,758 | |||||||||
Reinsurance and other recoveries revenue |
||||||||||||
Reinsurance and other recoveries — undiscounted |
— | 7,852 | 7,852 | |||||||||
Discount movement |
— | (8,588 | ) | (8,588 | ) | |||||||
Total reinsurance and other recoveries revenue |
— | (736 | ) | (736 | ) | |||||||
Net claims incurred |
— | 44,022 | 44,022 | |||||||||
Current year claims relate to risks borne in the current financial year. Prior year claims relate
to a reassessment of the risks borne in all previous financial years.
As the company stopped writing new business in late 1999, all claims development relates to prior
years.
Gordian Runoff Limited ABN 11 052 179 647
|
18 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
7. OPERATING EXPENSES
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Expenses by Nature |
||||||||
Commission expenses |
959 | 1,263 | ||||||
Write-off of Bad Debt |
2,634 | — | ||||||
Impairment expense — premium receivables |
304 | (919 | ) | |||||
Impairment expense — reinsurance receivables |
(3,331 | ) | (16,877 | ) | ||||
Net gain on foreign currency |
(1,059 | ) | 283 | |||||
Investment management fees |
2,142 | 2,320 | ||||||
Other management fees |
25,652 | 26,518 | ||||||
External consultant costs |
1,245 | 789 | ||||||
Other expenses |
(972 | ) | 1,078 | |||||
Total Expenses |
27,574 | 14,455 | ||||||
represented by: |
||||||||
General administration expenses included in net
claims incurred |
17,612 | 16,900 | ||||||
Acquisition benefit |
(1,618 | ) | (807 | ) | ||||
Other underwriting expenses |
1,043 | 1,753 | ||||||
General administration expenses |
10,537 | (3,391 | ) | |||||
Total expenses |
27,574 | 14,455 | ||||||
8. NET INVESTMENT REVENUE
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Investment income |
||||||||
Interest |
49,005 | 68,368 | ||||||
Interest from related parties: |
||||||||
- other related parties |
31,912 | 24,690 | ||||||
Dividends and other distributions received |
2,187 | 1,030 | ||||||
Dividends from related parties: |
||||||||
- subsidiaries |
645 | 1,148 | ||||||
Changes in fair value of investments: |
||||||||
Realised |
(21,115 | ) | (49,960 | ) | ||||
Unrealised |
(16,674 | ) | 56,430 | |||||
Total net investment revenue |
45,960 | 101,706 | ||||||
Gordian Runoff Limited ABN 11 052 179 647
|
19 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
9) INCOME TAX
b) Analysis of income tax expense
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current tax |
24,055 | 20,187 | ||||||
Decrease/(increase) in deferred tax assets |
7,209 | (2,720 | ) | |||||
Decrease in deferred tax liabilities |
(3 | ) | — | |||||
Under provided in previous years |
(1,785 | ) | (145 | ) | ||||
Other adjustments |
— | 688 | ||||||
Prior year tax losses not recognised now recouped |
— | (958 | ) | |||||
Income tax expense |
29,476 | 17,052 | ||||||
b) Relationship between income tax expense and accounting profit
The table below provides a reconciliation of differences between prima facie tax calculated as 30%
of the profit before income tax for the period and the actual income tax expense recognised in the
income statement for the period
In respect of income tax expense attributable to shareholders, the tax rate which applies in both
2006 and 2005 is 30% for Australia and 33% for New Zealand.
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Operating profit before income tax |
103,948 | 66,992 | ||||||
Primia facia income tax at the rate of 30% |
31,184 | 20,097 | ||||||
Tax effect of differences between amounts of income
and expenses recognised for accounting and the
amounts deductible/assessable in calculating taxable
income: |
||||||||
Non assessable income |
3 | (309 | ) | |||||
Other |
74 | (1,633 | ) | |||||
Under provided in prior years |
(1,785 | ) | (145 | ) | ||||
Previously unrecognised tax losses reducing current
tax expense |
— | (958 | ) | |||||
Income tax expense per income statement |
29,476 | 17,052 | ||||||
c) Analysis of deferred tax asset
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Amounts recognised in income: |
||||||||
- Provision for doubtful debts |
14,713 | 17,734 | ||||||
- Accruals |
239 | 95 | ||||||
- Indirect Claims Costs Adjustments |
20,070 | 27,707 | ||||||
- Unrealised gains/losses |
9,561 | 2,055 | ||||||
- Other |
6 | 1,714 | ||||||
- Current year’s tax losses |
— | 2,493 | ||||||
Total deferred tax assets |
44,589 | 51,798 | ||||||
d) Analysis of deferred tax liability
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Amounts recognised in income: |
||||||||
- Other |
16 | 19 | ||||||
Total deferred tax liability |
16 | 19 | ||||||
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Deferred tax asset |
44,589 | 51,798 | ||||||
Deferred tax liability |
(16 | ) | (19 | ) | ||||
Net deferred tax asset |
44,573 | 51,779 | ||||||
Gordian Runoff Limited ABN 11 052 179 647
|
20 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
10. RECEIVABLES
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Premiums receivable — direct insurance |
13 | 18 | ||||||
less: provision for impairment of premium
receivable |
(13 | ) | — | |||||
| — | 18 | |||||||
Premiums receivable — inwards reinsurance |
9,411 | 21,567 | ||||||
less: provision for impairment of premium
receivable |
(2,594 | ) | (2,333 | ) | ||||
| 6,817 | 19,234 | |||||||
Premium receivables — direct & inwards
reinsurance |
6,817 | 19,252 | ||||||
Other receivables |
529 | 6,501 | ||||||
Other receivables from related parties
- -other related parties |
1,325 | 181 | ||||||
Interest receivable from related parties
- -other related parties |
2,498 | 13,950 | ||||||
Total current receivables |
11,169 | 39,884 | ||||||
Non-current |
||||||||
Premiums receivable — inwards reinsurance |
3,134 | 8,961 | ||||||
Total non-current receivables |
3,134 | 8,961 | ||||||
11. REINSURANCE AND OTHER RECOVERIES
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Expected future reinsurance recoveries undiscounted |
||||||||
— on claims paid |
25,988 | 43,324 | ||||||
— on outstanding claims |
62,389 | 71,262 | ||||||
| 88,377 | 114,586 | |||||||
Discount to present value |
(12,222 | ) | (12,780 | ) | ||||
less: provision for impairment of reinsurance assets |
(27,308 | ) | (30,610 | ) | ||||
Reinsurance and other recoveries receivable |
48,847 | 71,196 | ||||||
Current |
||||||||
Reinsurance and other recoveries receivable |
39,701 | 51,704 | ||||||
less: provision for impairment of reinsurance assets |
(20,611 | ) | (20,789 | ) | ||||
| 19,090 | 30,915 | |||||||
Non-current |
||||||||
Reinsurance and other recoveries receivable |
36,454 | 50,102 | ||||||
less: provision for impairment of reinsurance assets |
(6,697 | ) | (9,821 | ) | ||||
| 29,757 | 40,281 | |||||||
Refer to note 15 for a reconciliation of the movement in reinsurance and other
recoveries on incurred claims over the year.
Gordian Runoff Limited ABN 11 052 179 647
|
21 of 39 | |||
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
12. OTHER FINANCIAL ASSETS
| Company | ||||||||
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Quoted investments — at fair value |
||||||||
Government and semi-government bonds* |
31,147 | 86,237 | ||||||
Corporate bonds |
79,335 | 94,227 | ||||||
Shares in other corporations |
— | 806 | ||||||
Derivatives |
1,875 | 1,295 | ||||||
| 112,357 | 182,565 | |||||||
Unquoted investments — at fair value value |
||||||||
Units held in cash management trusts |
||||||||
— Other related parties |
— | 20,409 | ||||||
Units held in other unit trusts |
||||||||
— Other related parties |
15,151 | 9,446 | ||||||
Loan to related party in the wholly owned group |
422,094 | 450,628 | ||||||
| 437,245 | 480,483 | |||||||
Total current financial assets |
549,602 | 663,048 | ||||||
Non-current |
||||||||
Quoted investments — at fair value |
||||||||
Government and semi-government bonds* |
400,150 | 658,807 | ||||||
Corporate bonds |
293,922 | 206,090 | ||||||
Shares in other corporations |
935 | — | ||||||
| 695,007 | 864,897 | |||||||
Unquoted investments — at fair value |
||||||||
Other |
— | 2,328 | ||||||
Shares in controlled entities |
31,467 | 69,775 | ||||||
Shares in associated entities |
68 | 68 | ||||||
| 31,535 | 72,171 | |||||||
Total non-current financial assets |
726,542 | 937,068 | ||||||
Total financial assets |
1,276,144 | 937,068 | ||||||
| * | The Company has given security over government and semi-government bonds against letters of credit of $44.9m (31 December 2005: $104.2m). These assets provide security to the extent of 105% to 110% of the outstanding letters of credit. The security agreements do not restrict the investments from being traded. |
Gordian Runoff Limited ABN 11 052 179 647
|
22 of 39 | |||
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
12. OTHER FINANCIAL ASSETS (continued)
Investments in controlled entities
| 2006 | 2006 | 2005 | 2005 | |||||||||||||
| Name of entity | % | $’000 | % | $’000 | ||||||||||||
Gordian RunOff (UK) Limited |
100 | 31,467 | 100 | 25,790 | ||||||||||||
South Pacific Agricultural Company Pty Limited |
— | — | 100 | — | ||||||||||||
Gordian Mortgage Insurance Limited |
— | — | 100 | — | ||||||||||||
Quay Rural Trust |
— | — | 100 | 43,985 | ||||||||||||
| 31,467 | 69,775 | |||||||||||||||
Gordian RunOff (UK) Limited is incorporated in the United Kingdom and is audited by Ernst & Young.
During the year South Pacific Agricultural Company Pty Ltd and Gordian Mortgage Insurance Limited
were deregistered, and Quay Rural Trust was dissolved. These entities were incorporated in
Australia. South Pacific Agricultural Company Pty Ltd and Quay Rural Trust were audited by PKF,
formerly known as Pannell Kerr Forster and Ernst & Young audited Gordian Mortgage Insurance
Limited.
13. OTHER ASSETS
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Deferred acquisition costs |
— | 3 | ||||||
Prepayments |
240 | — | ||||||
Total current other assets |
240 | 3 | ||||||
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Deferred acquisition costs as at 1 January |
3 | 10 | ||||||
Amortisation charged to income |
(3 | ) | (7 | ) | ||||
Deferred acquisition costs as at 31 December |
— | 3 | ||||||
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Deferred reinsurance premiums as at 1 January |
— | 540 | ||||||
Earning of reinsurance premiums |
— | 540 | ||||||
Deferred reinsurance premiums as at 31 December |
— | — | ||||||
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Deferred statutory charges as at 1 January |
— | 17 | ||||||
Amortisation charged to income |
— | (17 | ) | |||||
Deferred statutory charges as at 31 December |
— | — | ||||||
Gordian Runoff Limited ABN 11 052 179 647
|
23 of 39 | |||
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
14. UNEARNED PREMIUM
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current unearned premium |
— | 20 | ||||||
Total unearned premium |
— | 20 | ||||||
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Unearned premium liability as at 1 January |
20 | 322 | ||||||
Earning of premiums written in previous periods |
(20 | ) | (302 | ) | ||||
Unearned premium liability as at 31 December |
— | 20 | ||||||
15. OUTSTANDING CLAIMS
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Central estimate |
703,638 | 941,105 | ||||||
Risk margin |
103,293 | 119,530 | ||||||
| 806,931 | 1,060,635 | |||||||
Discount to present value |
(109,727 | ) | (142,483 | ) | ||||
Gross outstanding claims liability |
697,204 | 918,152 | ||||||
Current |
112,751 | 159,202 | ||||||
Non-current |
584,453 | 758,950 | ||||||
Total outstanding claims |
697,204 | 918,152 | ||||||
Investment assets in the form of debt securities are held to back the liability for outstanding
claims and are realised on a regular basis to meet claims. The amount of claims likely to be
settled within 12 months of the reporting date is classified as current.
The Company has been closed to new business since 1999 and there have been no new direct or inwards
reinsurance contracts issued in the five years prior to and including this report.
As described in note 1, the outstanding claims liability is the best estimate of the present value
of the expected future payments, after the inclusion of a risk margin. At each balance date, the
amount of the liability is reassessed and it is likely that changes will arise in the estimates of
liabilities. The tables in the following pages show the estimates of total ultimate claims at
successive year ends.
Gordian Runoff Limited ABN 11 052 179 647
|
24 of 39 | |||
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
15. OUTSTANDING CLAIMS (continued)
2006
| Gross | Reinsurance | Net | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Amount outstanding brought forward |
918,152 | 71,196 | 846,956 | |||||||||
Claim payments/ recoveries during the period |
(149,686 | ) | (25,237 | ) | (124,449 | ) | ||||||
Effect of changes in assumptions |
(57,129 | ) | 2,857 | (59,986 | ) | |||||||
Effect of changes in exchange rates |
(14,133 | ) | 31 | (14,164 | ) | |||||||
Amount outstanding carried forward |
697,204 | 48,847 | 648,357 | |||||||||
2005
| Gross | Reinsurance | Net | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Amount outstanding brought forward |
1,054,932 | 117,130 | 937,802 | |||||||||
Claim payments/ recoveries during the period |
(194,638 | ) | (63,543 | ) | (131,095 | ) | ||||||
Effect of changes in assumptions |
37,963 | 14,558 | 23,405 | |||||||||
Effect of changes in exchange rates |
19,895 | 3,051 | 16,844 | |||||||||
Amount outstanding carried forward |
918,152 | 71,196 | 846,956 | |||||||||
Claims Development Table
| Inwards Reinsurance | Direct Insurance | Total | ||||||||||||||||||||||
| Net | Gross | Net | Gross | Net | Gross | |||||||||||||||||||
| $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |||||||||||||||||||
Estimate of Cumulative
claims |
||||||||||||||||||||||||
31 December 2001 |
5,546,741 | 5,969,117 | 1,384,633 | 1,857,817 | 6,931,374 | 7,826,934 | ||||||||||||||||||
31 December 2002 |
5,501,089 | 5,958,853 | 1,415,333 | 1,920,262 | 6,916,422 | 7,879,115 | ||||||||||||||||||
31 December 2003 |
5,505,440 | 5,962,356 | 1,462,533 | 1,952,003 | 6,967,973 | 7,914,359 | ||||||||||||||||||
31 December 2004 |
5,450,936 | 5,901,231 | 1,432,295 | 1,882,078 | 6,883,231 | 7,783,309 | ||||||||||||||||||
31 December 2005 |
5,423,564 | 5,861,248 | 1,491,990 | 1,933,978 | 6,915,554 | 7,795,226 | ||||||||||||||||||
31 December 2006 |
5,400,793 | 5,835,799 | 1,443,852 | 1,901,401 | 6,844,645 | 7,737,200 | ||||||||||||||||||
Estimate of Cumulative
Claims at 31 December
2006 |
5,400,793 | 5,835,799 | 1,443,852 | 1,901,401 | 6,844,645 | 7,737,200 | ||||||||||||||||||
Cumulative Payments |
5,069,792 | 5,500,299 | 1,219,629 | 1,600,155 | 6,289,421 | 7,100,454 | ||||||||||||||||||
Undiscounted central
estimate |
331,001 | 335,500 | 224,223 | 301,246 | 555,224 | 636,746 | ||||||||||||||||||
Effect of Discounting |
55,511 | 55,564 | 41,995 | 54,163 | 97,506 | 109,727 | ||||||||||||||||||
Discounted Central
Estimate |
275,490 | 279,936 | 182,228 | 247,083 | 457,718 | 527,019 | ||||||||||||||||||
Risk Margin |
103,293 | |||||||||||||||||||||||
Claims Handling Provision |
66,892 | |||||||||||||||||||||||
Gross Outstanding Claims
as per the Balance Sheet |
697,204 | |||||||||||||||||||||||
Gordian Runoff Limited ABN 11 052 179 647
|
25 of 39 | |||
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
15. OUTSTANDING CLAIMS (continued)
The risk margin is intended to achieve a 75% probability of adequacy. The risk
margin has been determined consistent with the calculation of the outstanding
claims liability as disclosed in note 3.
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Unexpired Risk Liability |
||||||||
Central estimate |
— | — | ||||||
Net unexpired risk liability |
— | — | ||||||
a) Movement in unexpired risk liability
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Unexpired risk liability as at 1 January |
— | 485 | ||||||
Recognition of additional unexpired risk liability
in the period |
— | — | ||||||
Release of unexpired risk liability recorded in
previous periods |
— | (485 | ) | |||||
Unexpired risk liability as at 31 December |
— | — | ||||||
b) Deficiency recognised in the income statement
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Gross movement in unexpired risk liability |
— | (485 | ) | |||||
Reinsurance on unexpired risk liability |
— | — | ||||||
Net movement in unexpired risk liability |
— | (485 | ) | |||||
Total deficiency recognised in income statement |
— | (485 | ) | |||||
Gordian Runoff Limited ABN 11 052 179 647
|
26 of 39 | |||
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
16. PAYABLES
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Trade & other creditors |
3,303 | 34,284 | ||||||
Other borrowings from related parties |
||||||||
- subsidiaries |
— | 43,985 | ||||||
- other related parties |
5,128 | 449 | ||||||
Total current payables |
8,431 | 78,718 | ||||||
Non-current |
||||||||
Trade & other creditors |
422 | 1,385 | ||||||
Total non-current payables |
422 | 1,385 | ||||||
17. ISSUED CAPITAL
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Paid up capital |
||||||||
1,840,000,005 fully paid ordinary shares at $0.99 per
share (2004: 1,840,000,005) at $1.08 per
share |
1,814,600 | 1,978,600 | ||||||
Total paid up capital |
1,814,600 | 1,978,600 | ||||||
Movement in ordinary share capital |
||||||||
Balance beginning of the year |
1,978,600 | 1,978,600 | ||||||
Movement for the year — Capital reduction 18 August 06 |
(164,000 | ) | — | |||||
Balance at the end of the period |
1,814,600 | 1,978,600 | ||||||
Rights attaching to Ordinary Shares
Ordinary shares attract the following rights:
| (a) | to receive notice of and to attend and vote at all general meetings of the Company; |
||
| (b) | to receive dividends; and | ||
| (c) | in a winding up, to participate equally in the distribution of the assets of the Company (both capital and surplus), subject only to any amounts unpaid on the Share. |
18. FRANKING ACCOUNT
No dividends were paid or proposed during the year.
The AMP Limited group entered into Tax Consolidation during 2003. Under Tax Consolidation, the
franking account balances for group companies were transferred to the Head Entity, AMP Limited.
| Gordian Runoff Limited ABN 11 052 179 647 | 27 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
19. KEY MANAGEMENT PERSONNEL COMPENSATION
The following individuals were the key management personnel of Gordian RunOff Limited for the
current and prior reporting periods (unless stated otherwise):
| Date of Appointment/Resignation during the | ||
| Name | current or prior reporting period | |
Peter Clarke |
||
Richard Grellman |
||
Peter Hodgett |
||
Andrew Mohl |
||
William Roberts |
||
Felix Zaccar |
||
Bruce Robertson
|
09-05-2005, Resigned | |
The following table provides aggregate details of the compensation of key management personnel of
Gordian RunOff Limited.
| Short-term | Post- | Other long | ||||||||||||||||||||||
| employee | employment | -term | Termination | Share-based | ||||||||||||||||||||
| Year | benefits | benefits | benefits | benefits | payments | Total | ||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
2006 |
6,306,101 | 205,061 | — | — | 2,318,215 | 8,829,377 | ||||||||||||||||||
2005 |
5,737,253 | 254,791 | — | — | 2,079,046 | 8,071,090 | ||||||||||||||||||
Key management personnel disclosed above, also provided services to other related entities during
the year. The above remuneration amounts include all amounts paid for services rendered to related
entities and those services rendered to Gordian Runoff Ltd.
20. AUDITORS’ REMUNERATION
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Amounts received, or due and receivable, by Ernst & Young for: |
||||||||
- other services |
129 | 92 | ||||||
Auditors’ remuneration for the year ended 31 December 2006 is paid on the entity’s behalf by a
controlled entity within The AMP Limited Group.
21. CONTINGENT LIABILITIES
Legal disputes
The nature of the reinsurance business from time to time gives rise to disputes. Several claims
have been denied or recoveries disputed, giving rise to legal actions over coverage issues. Any
resulting litigation will be vigorously defended. In assessing claim liabilities or reinsurance
recoveries, management has reserved based on its best estimate of the likely outcomes. The nature
of these disputes are such that the quantum and timing of the outcome are uncertain.
| Gordian Runoff Limited ABN 11 052 179 647 | 28 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
22. RELATED PARTIES
Controlling Entity
The immediate parent entity is AG Australia Holdings Ltd. AMP Limited is the ultimate parent
entity.
Controlled Entities
Information relating to controlled entities is included at Note 12.
Directors
The directors of the Company during the financial year, and the dates of appointments and
resignations during the year are:
Peter Clarke |
||
Richard Grellman |
||
Peter Hodgett |
||
Andrew Mohl |
||
William Roberts |
||
Felix Zaccar |
||
Bruce Robertson
|
09-05-2005, Resigned |
Other transactions with key management personnel of the Company
During the year, transactions may have been entered into between key management personnel and
entities within the AMP Limited Group. These transactions are within a normal employee, customer or
supplier relationship on terms and conditions no more favourable than those available to other
employees, customers or members (unless otherwise described below) and may include:
| • | normal personal banking with AMP Bank Limited including the provision of credit cards; | ||
| • | the purchase of AMP superannuation and related products; | ||
| • | financial investment services; | ||
| • | other advisory services. |
These transactions do not have the potential to adversely affect the decisions about the allocation
of scarce resources made by users of the consolidated entity’s financial statements, or discharge
of accountability by key management personnel. The transactions are considered to be trivial or
domestic in nature.
| Gordian Runoff Limited ABN 11 052 179 647 | 29 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
22. RELATED PARTIES (Continued)
Transactions within the wholly owned group
Transactions between Gordian RunOff Limited and its controlled entities, and other related parties
for the financial year consisted of:
| • | Payment of management fees for services provided; |
| • | Provision of intercompany loan; |
| • | Interest on intercompany loan; |
| • | Receipt of dividend; and |
| • | Provision of share capital. |
The aggregate amounts brought to account in respect of the following types of transactions and each
class of related party involved were:
| 2006 | 2005 | |||||||
| $ | $ | |||||||
Amounts attributable to transactions with related parties |
||||||||
Operating profit before income tax includes aggregate
amounts attributable to transactions in respect of: |
||||||||
Investment Expenses — other related parties |
2,053,027 | 2,319,674 | ||||||
Interest Revenue — other related parties |
31,911,761 | 24,690,451 | ||||||
Dividend Revenue — subsidiaries |
645,161 | 1,148,199 | ||||||
Management Expenses — other related parties |
25,652,346 | 26,517,726 | ||||||
| 2006 | 2005 | |||||||
| $ | $ | |||||||
Amounts receivable from and payable to related parties |
||||||||
Aggregate amounts receivable at balance date from: |
||||||||
Interest receivable — other related parties |
2,498,449 | 13,950,313 | ||||||
Intercompany receivables — other related parties |
1,325,723 | 180,514 | ||||||
Loans — other related parties |
422,093,922 | 450,628,452 | ||||||
Aggregate amounts payable at balance date to: |
||||||||
Payables — subsidiaries |
— | 43,984,858 | ||||||
Payables — other related parties |
5,128,164 | 448,549 | ||||||
AMP Capital Investors Limited, a related entity within the wholly owned group, manages the majority
of the investments of the consolidated entity under a management contract, which follows the normal
terms and conditions for such contracts. Fees are paid or are due and payable for the management of
investment portfolios under normal terms and conditions.
AMP Services Limited and Enstar Australia Ltd (formerly Cobalt Solutions Australia Limited), fellow
wholly owned controlled entities, provide operational and administrative (including employee
related) services to the consolidated entity. The services provided are in the normal course of the
business and are on normal commercial terms and conditions.
The Company advanced additional loans to AMP Life Limited. These transactions were made under
normal market terms and conditions.
| Gordian Runoff Limited ABN 11 052 179 647 | 30 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
23. CASH FLOW RECONCILIATIONS
(i) Reconciliation of cash
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Cash balance comprises: |
||||||||
Cash on hand |
10,141 | 10,010 | ||||||
Short term money market deposits |
32,150 | 1,903 | ||||||
| 42,291 | 11,913 | |||||||
Units in cash managed trusts |
— | 20,409 | ||||||
| 42,291 | 32,322 | |||||||
(ii) Reconciliation of net cash flows from
operating activities to operating profit
after income tax
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Operating profit after income tax |
74,474 | 64,940 | ||||||
Changes in net market value of investments |
16,674 | (56,430 | ) | |||||
Net loss/(gain) on sale of investments |
21,115 | 49,960 | ||||||
Net (gain)/loss on foreign currency transactions |
(4,618 | ) | 283 | |||||
Changes in assets and liabilities |
||||||||
- Increase in receivables |
(11,466 | ) | — | |||||
- Decrease in receivables |
35,446 | 2,923 | ||||||
- Decrease in reinsurance and other
recoveries receivable |
26,216 | 45,933 | ||||||
- Decrease in other assets |
3 | 601 | ||||||
- Decrease in unearned premiums |
(20 | ) | (302 | ) | ||||
- Decrease in outstanding claims |
(220,948 | ) | (137,265 | ) | ||||
- Decrease in accounts payable & borrowings |
(28,409 | ) | (29,712 | ) | ||||
- Decrease in income taxes payable |
7,206 | 358 | ||||||
- Decrease in deferred taxes payable,
net of future tax benefit |
24,291 | 21,985 | ||||||
Net cash flows used in operating activities |
(60,036 | ) | (36,726 | ) | ||||
| Gordian Runoff Limited ABN 11 052 179 647 | 31 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
24. SEGMENT REPORTING
(a) Primary reporting format — business segment
Business Segment Information
Direct Insurance
Comprises corporate insurance operations in run-off.
Inwards Reinsurance
Comprises inwards reinsurance operations in run-off.
| Direct | Inwards | |||||||||||||||
| 2006 | Insurance | Reinsurance | Unallocated | Total | ||||||||||||
| $’000 | $’000 | $’000 | $’000 | |||||||||||||
Net premium revenue |
28 | (1,491 | ) | — | (1,463 | ) | ||||||||||
Net claims incurred |
(33,114 | ) | (35,260 | ) | — | (68,374 | ) | |||||||||
Other underwriting income |
(3 | ) | 2,661 | — | 2,658 | |||||||||||
Underwriting expenses |
15 | 1,028 | — | 1,043 | ||||||||||||
Underwriting result |
33,124 | 35,402 | — | 68,526 | ||||||||||||
Net investment revenue/(expense) |
11,232 | (7,769 | ) | 42,497 | 45,960 | |||||||||||
General administration expenses/(benefit) |
— | — | 10,537 | 10,537 | ||||||||||||
Net profit before tax |
44,356 | 27,633 | 31,960 | 103,949 | ||||||||||||
Income tax expense |
— | — | 29,476 | 29,476 | ||||||||||||
Net profit after tax attributable to
members of Gordian Runoff Limited |
44,356 | 27,633 | 2,484 | 74,473 | ||||||||||||
| Direct | Inwards | |||||||||||||||
| Insurance | Reinsurance | Unallocated | Total | |||||||||||||
| $’000 | $’000 | $’000 | $’000 | |||||||||||||
Total Revenues |
44,374 | 26,000 | 42,497 | 112,871 | ||||||||||||
Total Expenses |
18 | (1,633 | ) | 10,537 | 8,922 | |||||||||||
Net profit before tax |
44,356 | 27,633 | 31,960 | 103,949 | ||||||||||||
Other segment items included in the income
statement are as follows: |
||||||||||||||||
Impairment of premium receivables |
13 | 291 | — | 304 | ||||||||||||
Impairment of reinsurance receivables |
(1,265 | ) | (2,066 | ) | — | (3,331 | ) | |||||||||
The segment assets and liabilities are as follows : |
||||||||||||||||
Assets |
355,419 | 419,860 | 651,119 | 1,426,398 | ||||||||||||
Liabilities |
407,159 | 323,547 | — | 730,706 | ||||||||||||
Segment assets include investments, premium receivables, and reinsurance and other recoveries receivable
Segment liabilities include outstanding claims liabilities & other payables.
The entity has not incurred capital expenditure in the reporting periods.
| Gordian Runoff Limited ABN 11 052 179 647 | 32 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
24. SEGMENT REPORTING (Continued)
| Direct | Inwards | |||||||||||||||
| 2005 | Insurance | Reinsurance | Unallocated | Total | ||||||||||||
| $’000 | $’000 | $’000 | $’000 | |||||||||||||
Net premium revenue |
770 | 4,712 | — | 5,482 | ||||||||||||
Net claims incurred |
77,977 | (33,955 | ) | — | 44,022 | |||||||||||
Movement in unexpired risk liability |
— | (485 | ) | — | (485 | ) | ||||||||||
Other underwriting income |
771 | 125 | — | 896 | ||||||||||||
Underwriting expenses |
279 | 667 | — | 946 | ||||||||||||
Underwriting result |
(76,715 | ) | 38,610 | — | (38,105 | ) | ||||||||||
Net investment revenue/(expense) |
18,189 | 48,036 | 35,481 | 101,706 | ||||||||||||
General administration expenses/(benefit) |
— | — | (3,391 | ) | (3,391 | ) | ||||||||||
Net profit before tax |
(58,526 | ) | 86,646 | 38,872 | 66,992 | |||||||||||
Income tax expense |
— | — | 17,052 | 17,052 | ||||||||||||
Net profit after tax attributable to
members of Gordian Runoff Limited |
(58,526 | ) | 86,646 | 21,820 | 49,940 | |||||||||||
| Direct | Inwards | |||||||||||||||
| Insurance | Reinsurance | Unallocated | Total | |||||||||||||
| $’000 | $’000 | $’000 | $’000 | |||||||||||||
Total Revenues |
17,061 | 87,188 | 35,481 | 139,730 | ||||||||||||
Total Expenses |
75,587 | 542 | (3,391 | ) | 72,738 | |||||||||||
Net profit before tax |
(58,526 | ) | 86,646 | 38,872 | 66,992 | |||||||||||
Other segment items included in the income
statement are as follows: |
||||||||||||||||
Impairment of premium receivables |
(18 | ) | (901 | ) | — | (919 | ) | |||||||||
Impairment of reinsurance receivables |
(1,950 | ) | (14,927 | ) | — | (16,877 | ) | |||||||||
The segment assets and liabilities are as
follows : |
||||||||||||||||
Assets |
393,586 | 656,825 | 733,440 | 1,783,851 | ||||||||||||
Liabilities |
381,209 | 617,423 | — | 998,632 | ||||||||||||
Segment assets include investments, premium receivables, and reinsurance and other recoveries
receivable Segment liabilities include outstanding claims liabilities & other payables.
The entity has not incurred capital expenditure in the reporting periods.
| Gordian Runoff Limited ABN 11 052 179 647 | 33 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
(b) Secondary Reporting Format
The international segment relates to the inwards reinsurance business. Reinsurance cover is
non-country specific. Gordian RunOff Limited ceased writing new business and renewals in late
1999.and has operated an orderly runoff since that time.
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Revenue |
||||||||
Australia |
81,194 | 53,050 | ||||||
International |
31,677 | 86,680 | ||||||
Total Revenue |
112,871 | 139,730 | ||||||
Assets |
||||||||
Australia |
975,071 | 1,101,236 | ||||||
International |
451,327 | 682,615 | ||||||
Total Assets |
1,426,398 | 1,783,851 | ||||||
25. FINANCIAL INSTRUMENTS AND DERIVATIVES
(a) Fair values
The recorded bid price equates to net fair value for listed debt and equity securities. For
derivative contracts, fair value equates to the unrealised gain/loss on the outstanding contract.
For the following financial instruments, the cost carrying amount is considered to equate to their
fair value:
| • | cash deposits |
| • | loans to related parties |
| • | receivables |
| • | payables. |
(b) Special terms and conditions
All financial investments of the Company are held or issued on normal commercial terms at market
rates of interest. There are no special terms or conditions affecting the nature and timing of the
financial instruments not otherwise disclosed in these accounts. The accounting policies and terms
and conditions for each class of financial asset or liability at the balance date are detailed in
Note 1 and throughout the other notes to these financial statements.
Gordian Runoff Limited ABN 11 052 179 647
|
34 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
25. FINANCIAL INSTRUMENTS AND DERIVATIVES (continued)
(c) Credit risk
Trading investments are recorded in the accounts at fair value, which represents the Group’s
exposure to credit risk in relation to these instruments. The Company’s credit risk exposure to
derivatives is the fair value as recorded above.
The credit risk of the Company arising from exposure to individual entities in investment
portfolios is monitored and controlled by AMP Capital Investors Limited in accordance with Group
Credit Policy guidelines.
Credit risk in trade receivables in managed by analysing the credit ratings of the underlying
debts.
(d) Currency Exposure
In addition to functional currency, the consolidated group has exposure to investments and
investment cashflows denominated in US dollars, pounds sterling, and euro.
(e) Interest rate risk on financial instruments
The accounting policy notes describe the policies used to measure and report the assets and
liabilities of the Group. Where the applicable market value is determined by discounting future
cash flows, movements in interest rates will result in a reported unrealised gain or loss in the
profit and loss account.
AMP Capital Investors Limited manages investment portfolios on behalf of the Company. The Company
seeks to reduce its interest rate risk through the use of investment portfolios as a hedge against
the insurance liabilities of the Group. To the extent that these assets and liabilities can be
matched, unrealised gains or losses on revaluation of liabilities resulting from interest rate
movements will be offset by unrealised losses or gains on revaluation of investment assets.
The Company’s exposure to interest rate risks and the effective interest rates of financial assets
and liabilities at the reporting date, are as follows:
Gordian Runoff Limited ABN 11 052 179 647
|
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Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
25. FINANCIAL INSTRUMENTS AND DERIVATIVES (Continued)
(f) Interest rate risk on financial instruments
| Fixed interest rate | ||||||||||||||||||||||||||||||||||||||||
| Floating | Maturing in | Non | Weighted | |||||||||||||||||||||||||||||||||||||
| Interest | 0-1 | 1-2 | 2-3 | 3-4 | 4-5 | > 5 | Interest | Average | ||||||||||||||||||||||||||||||||
| Rate | year | years | years | years | years | years | Bearing | Total | Interest | |||||||||||||||||||||||||||||||
| For the year ended 2006 | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | rate | ||||||||||||||||||||||||||||||
Financial Assets |
||||||||||||||||||||||||||||||||||||||||
Cash deposits |
42,291 | 42,291 | 5.57 | % | ||||||||||||||||||||||||||||||||||||
Cash trusts and short term
money markets* |
— | — | N/A | |||||||||||||||||||||||||||||||||||||
Other Unit trusts* |
15,151 | 15,151 | N/A | |||||||||||||||||||||||||||||||||||||
Debt securities* |
110,482 | 187,311 | 106,463 | 76,631 | 58,204 | 265,463 | 804,554 | 5.72 | % | |||||||||||||||||||||||||||||||
Derivatives* |
1,875 | 1,875 | N/A | |||||||||||||||||||||||||||||||||||||
Shares |
32,470 | 32,470 | N/A | |||||||||||||||||||||||||||||||||||||
Related Party Loan |
422,094 | 422,094 | 7.06 | % | ||||||||||||||||||||||||||||||||||||
Receivables |
14,303 | 14,303 | N/A | |||||||||||||||||||||||||||||||||||||
Total Financial Assets |
479,536 | 110,482 | 187,311 | 106,463 | 76,631 | 58,204 | 265,463 | 48,648 | 1,332,738 | |||||||||||||||||||||||||||||||
Financial Liabilities |
||||||||||||||||||||||||||||||||||||||||
Payables |
— | — | — | — | — | — | — | 8,853 | 8,853 | N/A | ||||||||||||||||||||||||||||||
Total Financial Liabilities |
— | — | — | — | — | — | — | 8,853 | 8,853 | |||||||||||||||||||||||||||||||
| Fixed interest rate | ||||||||||||||||||||||||||||||||||||||||
| Floating | Maturing in | Non | Weighted | |||||||||||||||||||||||||||||||||||||
| Interest | 0-1 | 1-2 | 2-3 | 3-4 | 4-5 | > 5 | Interest | Average | ||||||||||||||||||||||||||||||||
| Rate | year | years | years | years | years | years | Bearing | Total | Interest | |||||||||||||||||||||||||||||||
| For the year ended 2005 | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | rate | ||||||||||||||||||||||||||||||
Financial Assets |
||||||||||||||||||||||||||||||||||||||||
Cash deposits |
11,913 | 11,913 | 4.30 | % | ||||||||||||||||||||||||||||||||||||
Cash trusts and short term
money markets* |
20,409 | 20,409 | N/A | |||||||||||||||||||||||||||||||||||||
Other Unit trusts* |
9,446 | 9,446 | N/A | |||||||||||||||||||||||||||||||||||||
Debt securities* |
180,464 | 109,200 | 193,104 | 140,798 | 76,491 | 347,632 | 1,047,689 | 4.83 | % | |||||||||||||||||||||||||||||||
Derivatives* |
1,295 | 1,295 | N/A | |||||||||||||||||||||||||||||||||||||
Shares |
70,649 | 70,649 | N/A | |||||||||||||||||||||||||||||||||||||
Related Party Loan |
450,628 | 450,628 | 6.79 | % | ||||||||||||||||||||||||||||||||||||
Receivables |
48,845 | 48,845 | N/A | |||||||||||||||||||||||||||||||||||||
Total Financial Assets |
492,396 | 180,464 | 109,200 | 193,104 | 140,798 | 76,491 | 347,632 | 120,789 | 1,660,874 | |||||||||||||||||||||||||||||||
Financial Liabilities |
||||||||||||||||||||||||||||||||||||||||
Payables |
— | — | — | — | — | — | — | 80,103 | 80,103 | N/A | ||||||||||||||||||||||||||||||
Total Financial Liabilities |
— | — | — | — | — | — | — | 80,103 | 80,103 | |||||||||||||||||||||||||||||||
| * | These balances include investments held in technical reserves which are used to meet insurance liabilities. The company seeks to match the duration of these assets to the corresponding insurance liability to reduce the exposure of the company to interest rate movement. |
Gordian Runoff Limited ABN 11 052 179 647
|
36 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
25. FINANCIAL INSTRUMENTS AND DERIVATIVES (continued)
(g) Specific purposes for which derivative transactions are undertaken
The Group uses derivatives in the following way:
Investment management operations
Group entities have given authority to AMP Capital Investors Limited (the investment manager) to
use derivatives in managing investment portfolios. There may be various reasons why investment in
derivatives is more appropriate than investment in the underlying physical asset including hedging,
liquidity and pricing.
The types of derivatives, which the investment manager can use include, interest rate swaps and
futures, share price index futures and forward currency agreements.
Extent of derivative transactions
| Notional | Fair | Notional | Fair | |||||||||||||
| value | value | value | value | |||||||||||||
| 2006 | 2006 | 2005 | 2005 | |||||||||||||
| $’000 | $’000 | $’000 | $’000 | |||||||||||||
Investment management operations |
||||||||||||||||
Interest Rate Swap Contracts |
10,500 | (235 | ) | 46,500 | 180 | |||||||||||
Interest Rate Futures Contracts |
104,668 | (480 | ) | 32,356 | 134 | |||||||||||
Equity Futures & Options Contracts |
16,762 | 1,133 | 23,944 | 724 | ||||||||||||
The notional value refers to the value of the underlying assets of the derivatives contract. The
fair value is the unrealised gain/(loss) on the outstanding contracts.
Gordian Runoff Limited ABN 11 052 179 647
|
37 of 39 | |
Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
26. CAPITAL ADEQUACY
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Tier 1 Capital |
||||||||
Paid-up ordinary shares |
1,814,600 | 1,978,600 | ||||||
General reserves |
— | — | ||||||
Retained earnings |
(1,193,381 | ) | (1,243,321 | ) | ||||
Current year earnings |
74,473 | 49,940 | ||||||
Excess technical provisions (net of tax) |
— | |||||||
Less : deductions |
44,573 | 51,779 | ||||||
Net Tier 1 Capital |
651,119 | 733,440 | ||||||
Net Tier 2 Capital |
— | — | ||||||
Total Capital Base |
651,119 | 733,440 | ||||||
Minimum Capital Requirement |
133,113 | 172,298 | ||||||
Capital Adequacy Multiple |
4.89 | 4.25 | ||||||
The entity complies with Prudential Standard GPS110 and the requirements set out in its insurance
license.
27. FINANCIAL SUPPORT
The Company has the benefit of the support of the immediate parent AG Australia Holdings Limited,
by virtue of a guarantee dated 16 June 1992 whereby it has guaranteed payments under policies of
insurance issued by the Company. This applies to claims made and arising prior to the date of
revocation of this guarantee being 30 June 2002.
28. EVENTS OCCURRING AFTER THE REPORTING DATE
The Australian Prudential Regulation Authority has approved a further reduction in capital of up to
$91,500,000.
With the exception of the above, no other matter or circumstance has arisen since the end of the
financial year that has significantly affected or may significantly affect:
| i) | the entity’s operations in future financial years; or | |
| ii) | the results of those operations in future financial years; or | |
| iii) | the entity’s state of affairs in future financial years. |
Gordian Runoff Limited ABN 11 052 179 647
|
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Report of Independent Auditors
The Board of Directors of Gordian Runoff Limited
We have audited the accompanying balance sheets of Gordian Runoff Limited as of December 31, 2006
and 2005, and the related income statements, statements of changes in equity, and cash flow
statements for the years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Gordian Runoff Limited at December 31, 2006 and 2005, and the
results of its operations and its cash flows for the years then ended in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Sydney, Australia
May 15, 2008
Liability limited by a scheme
approved under Professional
Standards Legislation
approved under Professional
Standards Legislation
Exhibit 99.3
TGI AUSTRALIA LIMITED
ABN 12 000 041 458
ABN 12 000 041 458
Financial Report
31 DECEMBER 2007
31 DECEMBER 2007
Contents:
| Page | ||||
Financial Report |
||||
Financial Statements |
||||
- Income Statement |
1 | |||
- Balance Sheet |
2 | |||
- Statement of Changes in Equity |
3 | |||
- Cash Flow Statement |
4 | |||
Notes to the Financial Statements |
5 | |||
Report of Independent Auditors |
32 | |||
TGI Australia Ltd
Income Statement
For the year ended 31 December 2007
Income Statement
For the year ended 31 December 2007
| 31 Dec 07 | 31 Dec 06 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Direct Premium Revenue |
1,739 | 1,622 | ||||||||||
Outwards reinsurance expense |
257 | 722 | ||||||||||
Net premium revenue |
5 | 1,482 | 900 | |||||||||
Direct claims expense/(benefit) |
(10,538 | ) | 21,335 | |||||||||
Reinsurance and other recoveries revenue |
995 | 23,863 | ||||||||||
Net claims incurred |
6 | (11,533 | ) | (2,528 | ) | |||||||
Other underwriting income |
223 | 548 | ||||||||||
Other underwriting expenses |
43 | 61 | ||||||||||
Underwriting expenses |
7 | 43 | 61 | |||||||||
Underwriting result |
13,195 | 3,915 | ||||||||||
Net investment revenue |
8 | 8,435 | 6,386 | |||||||||
General and administration expenses |
7 | 3,218 | 2,240 | |||||||||
Net profit before tax |
18,412 | 8,061 | ||||||||||
Income tax expense |
9 | 6,262 | 2,610 | |||||||||
Net profit attributable to members of
TGI Australia Ltd |
12,150 | 5,451 | ||||||||||
The above Income Statement should be read in conjunction with the accompanying notes.
TGI Australia ABN 12 000 041 458
|
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TGI Australia Ltd
Balance Sheet
As at 31 December 2007
Balance Sheet
As at 31 December 2007
| 31 Dec 07 | 31 Dec 06 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Current Assets |
||||||||||||
Cash and cash equivalents |
24 | 1,596 | 971 | |||||||||
Receivables |
10 | 1,210 | 7,458 | |||||||||
Reinsurance and other recoveries receivable |
11 | 12,711 | 14,566 | |||||||||
Other financial assets |
12 | 93,882 | 80,320 | |||||||||
Other |
13 | 356 | 364 | |||||||||
Total Current Assets |
109,755 | 103,679 | ||||||||||
Non — Current Assets |
||||||||||||
Reinsurance and other recoveries receivable |
11 | 23,595 | 27,778 | |||||||||
Other financial assets |
12 | 51,906 | 63,686 | |||||||||
Deferred tax assets |
9 | 4,099 | 5,708 | |||||||||
Total Non — Current Assets |
79,600 | 97,172 | ||||||||||
Total Assets |
189,355 | 200,851 | ||||||||||
Current Liabilities |
||||||||||||
Unearned premiums |
14 | 834 | 750 | |||||||||
Outstanding claims liability |
15 | 19,161 | 24,868 | |||||||||
Payables |
16 | 904 | 1,490 | |||||||||
Current tax liability |
2,751 | — | ||||||||||
Total Current Liabilities |
23,650 | 27,108 | ||||||||||
Non — Current Liabilities |
||||||||||||
Outstanding claims liability |
15 | 61,623 | 81,815 | |||||||||
Deferred tax liability |
9 | 29 | 25 | |||||||||
Total Non — Current Liabilities |
61,652 | 81,840 | ||||||||||
Total Liabilities |
85,302 | 108,948 | ||||||||||
Net Assets |
104,053 | 91,903 | ||||||||||
Shareholder’s Equity |
||||||||||||
Issued Capital |
17 | 30,000 | 30,000 | |||||||||
Retained profits |
18 | 74,053 | 61,903 | |||||||||
Total Shareholder’s Equity |
104,053 | 91,903 | ||||||||||
The above Balance Sheet should be read in conjunction with the accompanying notes.
TGI Australia ABN 12 000 041 458
|
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TGI Australia Ltd
Statement of Changes in Equity
For the year ended 31 December 2007
Statement of Changes in Equity
For the year ended 31 December 2007
| Retained | ||||||||||||
| Issued Capital | Earnings | Total | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Balance as at 1 January 2007 |
30,000 | 61,903 | 91,903 | |||||||||
Net Profit/(loss) after income tax |
— | 12,150 | 12,150 | |||||||||
Other changes in equity- Dividends paid |
— | — | — | |||||||||
Balance as at 31 December 2007 |
30,000 | 74,053 | 104,053 | |||||||||
Balance as at 1 January 2006 |
30,000 | 76,452 | 106,452 | |||||||||
Net Profit/(loss) after income tax |
— | 5,451 | 5,451 | |||||||||
Other changes in equity- Dividends paid |
— | (20,000 | ) | (20,000 | ) | |||||||
Balance as at 31 December 2006 |
30,000 | 61,903 | 91,903 | |||||||||
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
TGI Australia ABN 12 000 041 458
|
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TGI Australia Ltd
Cashflow Statement
For the year ended 31 December 2007
Cashflow Statement
For the year ended 31 December 2007
| 31 Dec 07 | 31 Dec 06 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Cash flows from operating activities |
||||||||||||
Premium received |
1,150 | 818 | ||||||||||
Reinsurance recoveries received |
6,419 | 23,557 | ||||||||||
Other sundry receipts |
15 | 52 | ||||||||||
Outward reinsurance paid |
(249 | ) | (121 | ) | ||||||||
Claims paid |
(12,450 | ) | (28,382 | ) | ||||||||
Distributions received |
372 | 1,459 | ||||||||||
Interest received |
3,700 | 6,599 | ||||||||||
Investment expenses |
(139 | ) | (253 | ) | ||||||||
Other underwriting expenses |
(2,346 | ) | (4,839 | ) | ||||||||
Income taxes paid |
1,726 | (5,324 | ) | |||||||||
Net cash flows from operating activities |
24 | (1,802 | ) | (6,434 | ) | |||||||
Cash flows from investing activities |
||||||||||||
Loans advanced to related parties |
(10,000 | ) | (10,000 | ) | ||||||||
Purchase of investments |
(82,064 | ) | (70,637 | ) | ||||||||
Sale of investments |
92,870 | 108,035 | ||||||||||
Net cash flows from investing activities |
806 | 27,398 | ||||||||||
Cash flows from financing activities |
||||||||||||
Dividends paid |
— | (20,000 | ) | |||||||||
Net cash flows from financing activities |
— | (20,000 | ) | |||||||||
Net (decrease)/increase in cash |
(996 | ) | 964 | |||||||||
Cash at the beginning of the year |
2,592 | 1,628 | ||||||||||
Cash at the end of the year |
24 | 1,596 | 2,592 | |||||||||
The above Cash Flow Statement should be read in conjunction with the accompanying notes.
TGI Australia ABN 12 000 041 458
|
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF ACCOUNTING POLICIES
Basis of Accounting
This Financial Report, comprising the financial statements and the notes thereto, complies with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
Where necessary, comparative information has been reclassified to be consistent with current
period disclosures.
The Financial Report has been prepared in accordance with the historical cost convention except
for investments, which have been measured at fair value.
Accounting judgements and estimates
In the course of its operations the company applies judgements and makes estimates that
affect the amounts recognised in the financial report. Estimates are based on a combination of
historical experience and expectations of future events that are believed to be reasonable at the
time.
Accounting Standards issued but not yet effective
Accounting Standards that have recently been issued or amended but are not yet effective have not
been adopted for the reporting period ending 31 December 2007, except IFRS8 Operating Segments. The
adoption of IFRS8 has removed the requirement for Operating Segment disclosures in this Financial
Report.
When applied in future periods, all other recently issued or amended standards are not expected to
have a material impact on the company’s results or financial position; however they may impact
Financial Report disclosures.
Changes in accounting policy
Since 1 January 2007, the company has adopted a number of Accounting Standards and Interpretations
which were mandatory for annual periods beginning on or after 1 January 2007. Adoption of these
Standards and Interpretations has not had any effect on the financial position or performance of
the Company.
Operating revenue
Operating revenue comprises general insurance earned premiums, recoveries, investment income and
interest income. Investment income is brought to account on an accrual basis. Other underwriting
income comprises of sundry receipts.
Premium Revenue and Unearned premiums
(i) Premium revenue
General insurance premiums comprise amounts charged to policyholders or other insurers,
including fire service levies, but excluding stamp duties and GST collected on behalf of third
parties. The earned portion of premiums received and receivable, including unclosed business, is
recognised as operating revenue. Movements in the provisions for impairment of premium
receivables have been included in premium revenue.
(ii) Unearned premiums
Unearned premiums represent premium revenue attributable to future accounting periods. Unearned
premium is determined by apportioning the premiums written in the year evenly over the period of
insurance cover, reflecting the pattern in which risk emerges under these policies.
TGI Australia ABN 12 000 041 458
|
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Unexpired risk liability
The adequacy of the unearned premium liability in respect of each class of business is
assessed by considering current estimates of all expected future cash flows relating to future
claims covered by current insurance contracts.
If the present value of the expected future cash flows relating to future claims exceeds the
unearned premium liability less related intangible assets and related deferred acquisition costs
then the unearned premium liability is deemed to be deficient.
The entire deficiency is recognised immediately in the income statement. The deficiency is
recognised first by writing down any related intangible assets and then related deferred
acquisition costs, with any excess being recorded in the balance sheet as an unexpired risk
liability.
Outstanding Claims
The liability for outstanding claims is measured as the best estimate of the present value of
expected future payments against claims incurred at the reporting date under general insurance
contracts issued by the Company, with an additional risk margin to allow for the inherent
uncertainty in the best estimate.
The expected future payments include those in relation to claims reported but not yet paid;
claims incurred but not reported (IBNR), claims incurred but not enough reported (IBNER) and
anticipated claims handling costs.
Claims handling costs include costs that can be associated directly with individual claims, such
as legal and other professional fees, and costs that can only be indirectly associated with
individual claims, such as claims administration costs.
The liability includes an allowance for inflation and superimposed inflation and is measured as
the present value of the expected future ultimate cost of settling claims. The expected future
payments are discounted to present value using a risk free rate.
A risk margin is applied to the outstanding claims liability, net of reinsurance and other
recoveries, to reflect the inherent uncertainty in the best estimate. This risk margin increases
the probability that the net liability is adequately provided for to a 75% confidence level.
Outwards reinsurance premium expense and deferred reinsurance premium
Premiums ceded to reinsurers are recognised as an expense over the period of cover using the
methods applicable to premium revenue as set out in the premium revenue note above.
Reinsurance and other recoveries
Reinsurance and other recoveries consist of receivables on paid claims and outstanding claims and
are recognised as revenue when claims are paid or the outstanding claim is raised. Reinsurance
receivables are discounted to present value consistent with the discounting of outstanding
claims. A provision for impairment is recognised when there is objective evidence that the
Company will not be able to collect all the amounts due according to the original terms of the
receivables. The impairment charge is recognised in the income statement. Bad debts are written
off as incurred.
Fire brigade levies and other statutory charges
A liability for fire brigade levies and other statutory charges is recognised on business written
to the balance date. Levies and charges payable are expensed on the same basis as the
recognition of the related premium revenue, with the portion relating to unearned premiums being
reported as deferred statutory charges.
TGI Australia ABN 12 000 041 458
|
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Investment Income
Dividend and interest income is recognised in the income statement on an effective interest
method when the entity obtains control of the right to receive the revenue.
Realised gains and losses represent the change in value between the previously reported value and
the amount received on sale of the asset. Unrealised gains and losses represent changes in the
fair value of financial assets recognised in the period.
Assets backing general insurance liabilities
As part of its investment strategy, the Company actively manages its investment portfolio to
ensure that investments mature in accordance with the expected pattern of future cash flows
arising from general insurance liabilities.
The Company has determined that all assets are held to back general insurance liabilities on the
basis that all assets of the Company are available for the settlement of claims if required. The
following policies apply to assets held to back general insurance liabilities.
Financial assets
Financial assets are designated at fair value through profit or loss. Initial recognition is at
cost in the balance sheet and subsequent measurement is at fair value with any resultant
unrealised gains or losses recognised in the income statement. Details of fair value for the
different types of financial assets are listed below:
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand that is available on demand and deposits
held at call with financial institutions. Cash and cash equivalents are carried at fair value,
being the principal amount. For the purposes of the cash flow statement, cash also includes
other highly liquid investments not subject to significant risk of change in value.
Cash trusts
The fair value of units in a listed cash trust reflects the quoted bid price at balance
date. There is no reduction for realisation costs in the value of units in a cash trust.
Unlisted unit trusts are recorded at fund managers valuations.
Debt securities
Debt securities are initially recognised at fair value, representing the purchase cost of
the asset exclusive of any transaction costs. Debt securities are subsequently measured at fair
value, with any realised and unrealised gains or losses arising from changes in the fair value
being recognised in the income statement for the period in which they arise. The fair value of a
traded interest bearing security reflects the bid price at balance date. Interest bearing
securities that are not frequently traded are valued by discounting the estimated recoverable
amounts, using prevailing interest rates. Debt securities are accounted for on a trade date
basis.
Derivatives
Derivatives are initially recognised at fair value on the date on which a derivative
contract is entered into and are subsequently measured at their fair value. All derivatives are
carried as assets when their fair value is positive, and as liabilities when their fair value is
negative. Derivatives are exchange traded and are fair valued using their publicly quoted bid
price on the date of valuation.
TGI Australia ABN 12 000 041 458
|
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Income Tax
Income tax
Income tax expense is the tax payable on taxable income for the current period based on the
income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities
attributable to: (i) temporary differences between the tax bases of assets and liabilities and
their balance sheet carrying amounts, and (ii) unused tax losses.
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates
expected to apply when the assets are recovered or liabilities are settled, based on those tax
rates which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary
differences to measure the deferred tax asset or liability. An exception is made for certain
temporary differences arising from the initial recognition of an asset or a liability. No
deferred tax asset or liability is recognised in relation to these temporary differences if they
arose in a transaction, other than a business combination, that at the time of the transaction
did not affect either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses
only if it is probable that future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the
carrying amount and tax bases of investments in controlled entities where the parent entity is
able to control the timing of the reversal of the temporary differences and it is probable that
the differences will not reverse in the foreseeable future.
Tax Consolidation
AMP Limited, TGI Australia Ltd and certain other wholly owned controlled entities of AMP Limited
comprise a tax-consolidated group of which AMP Limited is the head entity. The implementation
date for the tax-consolidated group was 30 June 2003.
Under tax consolidation, AMP Limited as head entity, assumes the following balances from
subsidiaries within the tax-consolidated group:
(i) Current tax balances arising from external transactions recognised by entities in the
tax-consolidated group occurring after the implementation date, and;
(ii) Deferred tax assets arising from unused tax losses and unused tax credits recognised by
entities in the tax-consolidated group occurring after the implementation date.
A tax funding agreement has been entered into by the head entity and the controlled entities in
the tax-consolidated group. Controlled entities in the tax-consolidated group will continue to be
responsible, by the operation of the tax funding agreement, for funding tax payments required to
be made by the head entity arising from underlying transactions of the controlled entities.
Controlled entities will make (receive) contributions to (from) the head entity for the balances
recognised by the head entity described in (i) and (ii) above. The contributions will be
calculated in accordance with the tax funding agreement.
Assets and liabilities which arise as a result of differences between the periods in which the
underlying transactions occur, and the period in which the funding payments under the tax funding
agreement are made, are recognised as intercompany balances receivable and payable in the balance
sheet. The recoverability of balances arising from the tax funding arrangements is based on the
ability of the tax-consolidated group to utilise the amounts recognised by the head entity.
The entity will be required to make a payment to terminate its liability under the tax funding
agreement if it leaves the tax consolidation group.
TGI Australia ABN 12 000 041 458
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF ACCOUNTING POLICIES (continued)
Goods and Services Tax (GST)
All revenues, expenses and assets are recognised net of any GST paid, except where they relate to
products and services which are input taxed for GST purposes or the GST incurred is not
recoverable from the relevant tax authorities. In such circumstances, the GST paid is recognised
as part of the cost of acquisition of the assets or as part of the particular expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from or payable to the tax authorities is included as a receivable or payable in the
balance sheet.
Cash flows are reported on a gross basis reflecting any GST paid or collected. The GST component
of cash flows arising from investing or financing activities which are recoverable from, or
payable to, local tax authorities are classified as operating cash flows.
Foreign currency transactions and translation
Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary
economic environment in which that entity operates (the functional currency). The presentation
currency of this financial report, and the functional currency, is Australian dollars.
Transactions and balances
Income and expense items denominated in a currency other than the functional currency are
translated at the spot exchange rate at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated at the rate of exchange ruling at
balance sheet date, with exchange gains and losses recognised in the income statement. The
corresponding foreign currency translations of overseas outstanding claims liabilities and
receivables are reported as a component of claims expense and premium revenue, respectively.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value was determined.
Receivables
Receivables are financial assets and are measured at fair value. Given the short-term nature of
most receivables, the recoverable amount approximates fair value. A provision for impairment is
recognised when there is objective evidence that the Company will not be able to collect all
amounts due according to the original terms of the receivables. The impairment charge is
recognised in the income statement. Bad debts are written off as incurred.
Payables
Trade creditors and accruals are recognised as liabilities for amounts to be paid in the future
for goods and services received, whether or not billed to the entity.
Amounts Due To or From Related Parties
Amounts are carried at fair value being nominal amounts due and payable. Interest is taken up as
income on an accrual basis. A provision for impairment is recognised when there is objective
evidence that the related party will not be able to pay its debt.
TGI Australia ABN 12 000 041 458
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Company makes estimates and assumptions in respect of certain key assets and liabilities.
Estimates and judgements are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under
the circumstances. The key areas in which critical estimates and judgements are applied are
described below.
(a) The ultimate liability arising from claims made under insurance contracts
Provision is made at year-end for the estimated cost of claims incurred but not settled at the
balance sheet date, including the cost of claims incurred but not yet reported to the Company.
The estimated cost of claims includes direct expenses to be incurred in settling claims gross of
the expected value of salvage and other recoveries. The Company takes all reasonable steps to
ensure that it has appropriate information regarding its claims exposures. However, given the
uncertainty in establishing claims provisions, it is likely that the final outcome will prove to
be different from the original liability established.
The estimation of claims incurred but not reported (“IBNR”) is generally subject to a greater
degree of uncertainty than the estimation of the cost of settling claims already notified to the
Company, where more information about the claim event is generally available. IBNR claims may
often not be reported to the insurer until many years after the events giving rise to the claims
has happened. The liability class of business will typically display greater variations between
initial estimates and final outcomes because there is a greater degree of difficulty in
estimating IBNR reserves. For the short tail class, claims are typically reported soon after the
claim event, and hence tend to display lower levels of volatility. In calculating the estimated
cost of unpaid claims the Company uses a variety of estimation techniques, generally based upon
analysis of historical experience, which assumes that the development pattern of the current
claims will be consistent with past experience. Allowance is made, however, for changes or
uncertainties which may create distortions in the underlying statistics or which might cause the
cost of unsettled claims to increase or reduce when compared with the cost of previously settled
claims including:
| • | changes in Company processes which might accelerate or slow down the development and/or recording of paid or incurred claims, compared with the statistics from previous periods; | ||
| • | changes in the legal environment; | ||
| • | the effects of inflation; | ||
| • | the impact of large losses; | ||
| • | movements in industry benchmarks. |
Where possible the Company adopts multiple techniques to estimate the required level of
provisions. This assists in giving greater understanding of the trends inherent in the data
being projected. The projections given by the various methodologies also assist in setting the
range of possible outcomes. The most appropriate estimation technique is selected taking into
account the characteristics of the business class and the extent of the development of each
accident year.
Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of
the amounts that will be recoverable from reinsurers based upon the gross provisions.
Details of specific assumptions used in deriving the outstanding claims liability at year-end are
detailed in note 3.
(b) Assets arising from reinsurance contracts
Assets arising from reinsurance contracts are also computed using the above methods. In addition,
the recoverability of these assets is assessed on a periodic basis to ensure that the balance is
reflective of the amounts that will ultimately be received, taking into consideration factors
such as counterparty and credit risk. Impairment is recognised where there is objective evidence
that the Company may not receive amounts due to it and these amounts can be reliably measured.
TGI Australia ABN 12 000 041 458
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
3. ACTUARIAL METHODS AND ASSUMPTIONS
Claims estimates are derived from analysis of the results of several different actuarial models.
These models take case estimates as well as payments into account and assume that reported
incurred amounts or reported payment amounts will develop steadily from period to period. Other
models adopt an ultimate loss ratio for each year that reflects both the long term expected
level, as well as incorporating recent experience. The analysis is performed by accident year
for the direct insurance class.
Claims are first estimated on an undiscounted basis and are then discounted to allow for the time
value of money. The valuation methods adopted include an implicit allowance for future inflation
but do not identify the explicit rate. This allows for both general economic inflation as well
as any superimposed inflation detected in the modelling of payments experience. Superimposed
inflation arises from non-economic factors such as developments of legal precedent.
The liability class of business may be subject to the emergence of new types of latent claims,
but no specific allowance is included for this as at the balance sheet date. Such uncertainties
are considered when setting the risk margin appropriate for this class.
A description of the processes used to determine the key assumptions is provided below:
The average weighted term to settlement is calculated separately by class of business, based on
historical settlement patterns.
The reinsurance percentage is calculated based on past reinsurance recovery rates and the
structure of the reinsurance arrangements in place.
The discount rates are derived from market yields on Government securities as at the balance
date, in the currency of the expected claim payments.
Expense rate. Claim handling expenses are calculated based on the projected costs of
administering the remaining claims until expiry.
The ultimate to incurred claims ratio is derived by accident or underwriting year based on
historical development of claims from period to period.
The effect of changes in the assumptions have been shown in the reconciliations of general
insurance assets and liabilities in Note 15.
Process for determining risk margin
The risk margin was determined initially for each portfolio, allowing for the uncertainty of the
outstanding claims estimate for each portfolio. Uncertainty was analysed for each portfolio
taking into account past volatility in general insurance claims, potential uncertainties relating
to the actuarial models and assumptions, the quality of the underlying data used in the models,
and the general insurance environment. The estimate of uncertainty is generally greater for long
tailed classes when compared to short tail classes due to the longer time until settlement of
outstanding claims.
The overall risk margin was determined allowing for diversification between the different
portfolios and the relative uncertainty of each portfolio. The assumptions regarding uncertainty
for each class were applied to the net central estimates, and the results were aggregated,
allowing for diversification in order to arrive at an overall provision that is intended to have
a 75% probability of adequacy.
| 2007 | 2006 | |||||||
| % | % | |||||||
Risk Margins applied |
18.8 | 29.0 | ||||||
TGI Australia ABN 12 000 041 458
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
3. ACTUARIAL METHODS AND ASSUMPTIONS (continued)
Sensitivity analysis — general insurance contracts
There are a number of variables which impact the amounts recognised in the financial statements
arising from insurance contracts.
The profit or loss and equity of the Company are sensitive to movements in a number of key
variables as described below.
| Variable | Description of variable | |
Average weighted term
to settlement
|
Expected payment patterns are used in determining the outstanding claims liability. A decrease in the average term to settlement would lead to claims being paid sooner than anticipated. | |
Discount rate
|
The outstanding claims liability is calculated by reference to expected future payments. These payments are discounted to adjust for the time value of money. | |
Expense rate
|
An estimate for the internal costs of administering claims is included in the outstanding claims liability. | |
Ultimate to incurred
claims ratio
|
The estimated ultimate claims cost is generally greater than the claims reported as incurred to date, due to claims that are incurred but not reported (IBNR) or due to future developments on existing claims. | |
Reinsurance percentage
|
Assumes money will be recoverable from reinsurers on future claims paid. | |
The following table provides an analysis of the sensitivity of the profit after income tax and
total equity to changes in these assumptions both gross and net of reinsurance.
2007
| Change in | Assumption at 12/07 | Profit/(Loss) (after tax) | ||||||||||||||||||
| Variable | variable | Gross % | Net % | Gross $’000 | Net $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 | year | 3.3 | 3.7 | 1,671 | 984 | ||||||||||||||
| -0.5 | year | 3.3 | 3.7 | (1,767 | ) | (1,015 | ) | |||||||||||||
Reinsurance percentage |
+1 | % | n/a | 8.0 | — | 52 | ||||||||||||||
(as % of gross IBNR) |
-1 | % | n/a | 8.0 | — | (52 | ) | |||||||||||||
Discount Rate1 |
+1 | % | 6.4 | 6.2 | 1,522 | 1016 | ||||||||||||||
| -1 | % | 6.4 | 6.2 | (1,629 | ) | (1,095 | ) | |||||||||||||
Expense Rate |
+1 | % | 17.0 | n/a | (474 | ) | (474 | ) | ||||||||||||
| -1 | % | 17.0 | n/a | 474 | 474 | |||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 101.7 | n/a | (3,310 | ) | (1,966 | ) | ||||||||||||
| -1 | % | 101.7 | n/a | 1,497 | 810 | |||||||||||||||
| 1 — | This sensitivity reflects the liability movements only. As assets are invested to match the term of liabilities, there is little overall profit impact from a change to interest rates. | |
| 2 — | This ratio has only been adjusted for years that are not considered to be fully developed. |
TGI Australia ABN 12 000 041 458
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
3. ACTUARIAL METHODS AND ASSUMPTIONS (continued)
2006
| Change in | Assumption at 12/06 | Profit/(Loss) (after tax) | ||||||||||||||||||
| Variable | variable | Gross % | Net % | Gross $’000 | Net $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 | year | 3.3 | 3.6 | 2,010 | 1,347 | ||||||||||||||
| -0.5 | year | 3.3 | 3.6 | (2,214 | ) | (1,387 | ) | |||||||||||||
Reinsurance percentage |
+1 | % | n/a | 9.0 | — | 97 | ||||||||||||||
(as % of gross IBNR) |
-1 | % | n/a | 9.0 | — | (97 | ) | |||||||||||||
Discount Rate1 |
+1 | % | 5.9 | 5.9 | 2,058 | 1,437 | ||||||||||||||
| -1 | % | 5.9 | 5.9 | (2,201 | ) | (1,543 | ) | |||||||||||||
Expense Rate |
+1 | % | 17.3 | 17.3 | (623 | ) | (623 | ) | ||||||||||||
| -1 | % | 17.3 | 17.3 | 623 | 623 | |||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 102.5 | 102.5 | (3,732 | ) | (2,355 | ) | ||||||||||||
| -1 | % | 102.5 | 102.5 | 2,066 | 1,392 | |||||||||||||||
| 1 — | This sensitivity reflects the liability movements only. As assets are invested to match the term of liabilities, there is little overall profit impact from a change to interest rates. | |
| 2 — | This ratio has only been adjusted for years that are not considered to be fully developed. |
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS
The company’s policies and procedures in respect of managing risks are set out in this note
below.
The Board has ultimate responsibility for risk management and governance, including ensuring an
appropriate risk framework is in place and is operating effectively. There are, however, other
bodies and individuals associated with the Company that manage and monitor financial risk.
The Board
The Board is responsible for the approval of policy regarding shareholder capital investment
strategy, policyholder asset and liability strategy and setting the financial risk appetite.
The Audit Committee
The Audit Committee is responsible for ensuring the existence of effective financial risk
management policies and procedures.
The Approved Actuary
The Approved Actuary is responsible for reporting on solvency and capital adequacy. A Financial
Condition report (FCR) and an Insurance Liability Valuation report (ILVR) must be provided to the
Board and the Australian Prudential Regulatory Authority (APRA) at least annually, the ILVR must
be peer reviewed annually by an external independent actuary. The Insurance Act also imposers
obligations on the Approved Actuary to bring to the attention of the company or in certain
circumstances APRA any matter that the Approved Actuary thinks requires action to be taken to
avoid prejudice in the interests of the policy holders.
TGI Australia ABN 12 000 041 458
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
As part of the overall governance framework the and in accordance with Prudential Standards GPS
220 Risk Management and GPS 230 Reinsurance Management issued APRA, the Board and senior
management have developed, implemented and maintain a sound and prudent Risk Management Strategy
(RMS) and a Reinsurance Management Strategy (REMS).
The RMS and REMS identify the Company’s policies and procedures, processes and controls that
comprise its risk management and control systems. These systems address all material risks,
financial and non-financial, likely to be faced by the Company. Annually, the Board certifies to
APRA that adequate strategies have been put in place to monitor those risks, that the Company has
systems in place to ensure compliance with legislative and prudential requirements and that the
Board has satisfied itself as to the compliance with the RMS and REMS. The RMS and REMS have
been approved by both the Board and APRA.
Key aspects of the processes established in the RMS to mitigate risks include:
| • | A formal regular process of risk identification and evaluation, supplemented by a documented control assessment process, is completed by management and communicated to the Board in line with the Board approved Risk Management Strategy. | ||
| • | Actuarial models, using information from management information systems, to monitor claims patterns and other relevant statistics. Past experience and statistical methods are used as part of the process. | ||
| • | The maintenance and use of various specialist information systems, which provide up to date and reliable data on claims liabilities. | ||
| • | Documented procedures that are followed by claims staff that are experienced in the various classes of business previously written. | ||
| • | Reinsurance has been used, particularly in the early period of the run-off to limit the Company’s exposure to large single claims. The REMS provides that exposures continue to be monitored and where feasible reinsurance be purchased as means of limiting risk. | ||
| • | The mix of investment assets is driven by the nature and term of the insurance liabilities. The management of assets and liabilities is closely monitored in an attempt to match the maturity dates of assets with the expected pattern of claim payments. |
Risk and Mitigation
The Company’s activities expose it to a variety of risks.
The major risks associated with insurance contracts include:
| a) | Development of claims | |
| There is a possibility that changes may occur in the estimate of our obligations at the end of a contract period. The tables in note 15 show the estimates of total ultimate claims at successive year-ends. | ||
| b) | Terms and conditions of direct and inwards reinsurance business | |
| There is limited scope to improve the existing terms and conditions. The company has been in orderly run off since 1999, and no new contracts have been entered into since that time with the exception of riskcap. | ||
| c) | Concentration of insurance risk | |
| The exposure to concentrations of insurance risk can be mitigated with the purchase of reinsurance where management believes that the price /risk transfer is suitable. |
TGI Australia ABN 12 000 041 458
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Financial risks include:
| Market risk | ||
| a) | Interest rate risk | |
| Interest rate risk arises to the extent that there is a mismatch between the fixed-interest portfolios used to back the outstanding claims liability and those outstanding claims. The interest rate risk is managed by matching the duration profiles of the investments assets and the outstanding claims liability. | ||
| The accounting policy notes describe the policies used to measure and report the assets and liabilities of the Company. Where the applicable market value is determined by discounting future cash flows, movements in interest rates will result in a reported unrealised gain or loss in the profit and loss account. | ||
| AMP Capital Investors Limited manages the investment portfolios on behalf of the Company. The Company seeks to reduce its interest rate risk through the use of investment portfolios as a hedge against its insurance liabilities. To the extent that these assets and liabilities can be matched, unrealised gains or losses on revaluation of liabilities resulting from interest rate movements will be offset by unrealised losses or gains on revaluation of investment assets. | ||
| Interest rate sensitivity analysis The following table demonstrates the impact of a 100 basis point change in Australian interest rates, with all other variables held constant, on the company’s shareholder profit after tax. It is assumed that the change occurs as at the reporting date (31 December) and there are concurrent movements in interest rates and parallel shifts in yield curves. |
| 31 Dec 07 | 31 Dec 06 | |||||||
| Impact on Profit | Impact on Profit | |||||||
| Change in Variable | after tax $’000 | after tax $’000 | ||||||
+100 basis points |
(697 | ) | (1,000 | ) | ||||
- 100 basis points |
697 | 1,000 | ||||||
| b) | Foreign Currency risk analysis | |
| Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in exchange rates. | ||
| The Company’s financial assets are all held in Australian dollars. This matches the currency profile of the liabilities with the exception of some policies written in USD. As a result the entity is exposed to some currency mismatch. | ||
| Other exposures to foreign currency are immaterial. | ||
| Foreign Currency sensitivity analysis The following table demonstrates the impact of a 10% increase or decrease in the Australian dollar against the USD, where the USD is seen as the relevant proxy of liabilities. It is assumed that the relevant change occurs at reporting date. |
| 31 Dec 07 | 31 Dec 06 | |||||||
| Impact on Profit | Impact on Profit | |||||||
| Change in Variable | after tax $’000 | after tax $’000 | ||||||
+10% |
(710 | ) | (1,033 | ) | ||||
– 10% |
710 | 1,033 | ||||||
TGI Australia ABN 12 000 041 458
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
| 4. | RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued) | |
| Liquidity risk | ||
| Liquidity risk is the risk that the Company will not be able to met its debt obligations or other cash outflows as they fall due because of lack of liquid assets. The Company manages liquidity risk by maintaining adequate reserves and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of assets and liabilities. As required by APRA prudential Standard GPS 220, the Company has developed and implemented a risk management strategy which is described earlier in this note to control this risk. | ||
| The table below summaries the maturity profile of the company’s financial liabilities at 31 December based on contractual undiscounted obligations. |
31 Dec 07
| $’000 | $’000 | $’000 | $’000 | $’000 | ||||||||||||||||
| Up to 1 year | 2 to 3 years | 4 to 5 years | Over 5 years | Total | ||||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Payables |
904 | — | — | — | 904 | |||||||||||||||
Deferred Tax Liability |
— | 10 | 7 | 12 | 29 | |||||||||||||||
Derivatives |
— | 136 | — | 62 | 198 | |||||||||||||||
Total |
904 | 146 | 7 | 74 | 1,131 | |||||||||||||||
31 Dec 06
| $’000 | $’000 | $’000 | $’000 | $’000 | ||||||||||||||||
| Up to 1 year | 2 to 3 years | 4 to 5 years | Over 5 years | Total | ||||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Payables |
1,490 | — | — | — | 1,490 | |||||||||||||||
Deferred tax liability |
— | 9 | 6 | 10 | 25 | |||||||||||||||
Derivatives |
— | 177 | — | 16 | 193 | |||||||||||||||
Total |
1,490 | 186 | 6 | 26 | 1,708 | |||||||||||||||
Credit risk
Credit risk is the risk of loss that arises from a counterparty failing to meet their contractual
commitments in full and on time, or from losses arising from the change in value of traded
financial instruments as a result of changes in credit risk on that instrument.
Credit risk arising from exposure to individual counter parties in the investment portfolios is
managed by the investment manager, AMP Capital Investors’ Compliance and Business Risk team,
according to a separate investment mandate approved by the Board which aims to duration band
match the insurance liability profile within specified credit criteria constraints. Compliance
with the mandate is reported to the Board of Directors.
Credit risk in trade receivables in managed by analysing the credit ratings of the underlying
debts.
Other than loans to related parties, there are no significant concentrations of credit risk.
TGI Australia ABN 12 000 041 458
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Credit exposure by credit rating
The table below provides information regarding the credit risk exposure of the Company by
classifying assets according to the Company’s credit rating of counter parties:
| 31 Dec 07 | 31 Dec 06 | |||||||||||||||
| Reinsurance & Other | Other Financial | Reinsurance & Other | Other Financial | |||||||||||||
| Recoveries | Instruments | Recoveries | Instruments | |||||||||||||
| $000 | $000 | $000 | $000 | |||||||||||||
AAA |
7,652 | 47,849 | 9780 | 60,345 | ||||||||||||
AA |
9,692 | 85,460 | 11,707 | 70,581 | ||||||||||||
A |
15,437 | 4,765 | 18,736 | 5,843 | ||||||||||||
BBB |
14 | |||||||||||||||
Below BBB
|
||||||||||||||||
Not rated |
6,197 | 7,714 | 4,555 | 7,237 | ||||||||||||
Total |
38,978 | 145,788 | 44,292 | 144,006 | ||||||||||||
The following table provides an aged analysis of financial assets neither past due or impaired,
past due and not impaired and impaired assets. Impairment is calculated in accordance with note 1.
| Neither past | Past due but not impaired | |||||||||||||||||||
| due nor | Under | More than | ||||||||||||||||||
| impaired | 90 days | 91 days | Impaired | TOTAL | ||||||||||||||||
| 31 Dec 07 | $000 | $000 | $000 | $000 | $000 | |||||||||||||||
Receivables |
1,167 | 43 | 1,210 | |||||||||||||||||
Reinsurance and Other recoveries |
30,578 | 362 | 824 | 7,214 | 38,978 | |||||||||||||||
Other Financial Instruments |
145,788 | 145,788 | ||||||||||||||||||
| Neither past | Past due but not impaired | |||||||||||||||||||
| due nor | Less than | More than | ||||||||||||||||||
| impaired | 90 days | 91 days | Impaired | TOTAL | ||||||||||||||||
| 31 Dec 06 | $000 | $000 | $000 | $000 | $000 | |||||||||||||||
Receivables |
7,450 | 8 | 7,458 | |||||||||||||||||
Reinsurance and Other recoveries |
35,824 | 218 | 5,413 | 2,837 | 44,292 | |||||||||||||||
Other Financial Instruments |
144,006 | 144,006 | ||||||||||||||||||
TGI Australia ABN 12 000 041 458
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Fair Value
Details of the significant accounting policies and methods adopted, including the criteria for
recognition, the basis of measurement and the basis on which revenue and expenses are
recognised, in respect of each class of financial asset, financial liability and other
investments are under and in Note 1.
Categories of financial instruments
| 2007 | 2006 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Financial assets |
||||||||||||
Reinsurance and other recoveries |
11 | 36,306 | 42,344 | |||||||||
Fair value through the profit and loss: |
||||||||||||
Loans to related parties |
23 | 73,070 | 58,715 | |||||||||
Receivables |
10 | 1,210 | 7,458 | |||||||||
Cash & cash equivalents |
24 | 1,596 | 971 | |||||||||
Other financial assets |
12 | 145,788 | 144,006 | |||||||||
Financial Liabilities |
||||||||||||
Payables |
16 | 904 | 1,490 | |||||||||
Income tax payable |
2,751 | — | ||||||||||
Deferred Tax Liability |
9 | 29 | 25 | |||||||||
The recorded bid price equates to net fair value for listed debt and equity securities. For
derivative contracts, fair value equates to the unrealised gain/loss on the outstanding
contract. For the following financial instruments, the cost carrying amount is considered to
equate to their fair value:
| • | cash deposits |
| • | loans to related parties |
| • | receivables |
| • | payables. |
Derivative transactions
The Company uses derivatives in the following way:
Investment management operations
Authority has been given to the investment managers to use derivatives in managing the
investment portfolios. There may be various reasons why investment in derivatives is more
appropriate than investment in the underlying physical asset including hedging, liquidity and
pricing.
The types of derivatives, which the investment manager can use include, interest rate swaps and
futures, share price index futures and forward currency agreements.
TGI Australia ABN 12 000 041 458
|
18 of 32 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Extent of derivative transactions
| Notional | Fair | Notional | Fair | |||||||||||||
| value | value | value | value | |||||||||||||
| 2007 | 2007 | 2006 | 2006 | |||||||||||||
| $’000 | $’000 | $’000 | $’000 | |||||||||||||
Investment management operations |
||||||||||||||||
Interest Rate Swap Contracts |
— | — | 1,800 | (40 | ) | |||||||||||
Interest Rate Futures Contracts |
19,366 | (111 | ) | 19,286 | (74 | ) | ||||||||||
Equity Futures & Options Contracts |
— | — | — | — | ||||||||||||
The notional value refers to the value of the underlying assets of the derivatives contract. The
fair value is the unrealised gain/(loss) on the outstanding contracts.
Capital Management
The Company is subject to externally imposed capital management requirements. The Company must
comply with Capital requirements as specified under APRA General Insurance Prudential Standards.
The primary capital management objective is to ensure the company will be able to continue as a
going concern while minimising excess capital; through capital initiatives, where appropriate.
The Company’s capital position is monitored by the Company’s Board. There have been no changes in
the capital management objectives, policies and processes from the previous period.
The company has at all times during the current and prior financial year complied with the
externally imposed capital requirements imposed by Prudential Standard GPS110 and the
requirements set out in its insurance license.
The Minimum Capital Requirement (MCR) as a ratio of the Company’s capital base is shown in the
table under.
| 31 Dec 07 | 31 Dec 06 | |||||||
| $’000 | $’000 | |||||||
Tier 1 Capital |
||||||||
Paid-up ordinary shares |
30,000 | 30,000 | ||||||
General reserves |
— | — | ||||||
Retained earnings |
61,782 | 56,452 | ||||||
Current year earnings |
12,144 | 5,330 | ||||||
Excess technical provisions (net of tax) |
— | |||||||
Less : deductions |
(4,070 | ) | (5,683 | ) | ||||
Net Tier 1 Capital |
99,856 | 86,099 | ||||||
Net Tier 2 Capital |
— | — | ||||||
Total Capital Base |
99,856 | 86,099 | ||||||
Minimum Capital Requirement |
15,880 | 19,769 | ||||||
Capital adequacy multiple |
6.29 | 4.36 | ||||||
The entity complies with Prudential Standard GPS110 and the requirements set out in its insurance
licence.
TGI Australia ABN 12 000 041 458
|
19 of 32 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
5. NET PREMIUM REVENUE
| 2007 | 2006 | ||||||||
| $’000 | $’000 | ||||||||
Gross written premium |
1,823 | 1,681 | |||||||
Movement in unearned premium |
(84 | ) | (59 | ) | |||||
Premium revenue |
1,739 | 1,622 | |||||||
Outwards reinsurance expense |
257 | 722 | |||||||
Net Premium Revenue |
1,482 | 900 | |||||||
6. NET CLAIMS INCURRED
| 31-Dec-07 | 31-Dec-06 | |||||||||||||||||||||||
| Current | Prior | Current | Prior | |||||||||||||||||||||
| year | years | Total | year | years | Total | |||||||||||||||||||
| $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |||||||||||||||||||
Gross claims expense |
||||||||||||||||||||||||
Gross claims incurred — undiscounted |
741 | (14,240 | ) | (13,499 | ) | 2,202 | 15,435 | 17,637 | ||||||||||||||||
Discount movement |
(241 | ) | 3,202 | 2,961 | (705 | ) | 4,403 | 3,698 | ||||||||||||||||
Claims incurred — discounted |
500 | (11,038 | ) | (10,538 | ) | 1,497 | 19,838 | 21,335 | ||||||||||||||||
Reinsurance and other recoveries revenues |
||||||||||||||||||||||||
Reinsurance and other recoveries — undiscounted |
(19 | ) | (246 | ) | (265 | ) | — | (25,650 | ) | (25,650 | ) | |||||||||||||
Discount movement |
6 | (736 | ) | (730 | ) | — | 1,787 | 1,787 | ||||||||||||||||
Reinsurance and other recoveries — discounted |
(13 | ) | (982 | ) | (995 | ) | — | (23,863 | ) | (23,863 | ) | |||||||||||||
Net claims incurred — discounted |
487 | (12,020 | ) | (11,533 | ) | 1,497 | (4,025 | ) | (2,528 | ) | ||||||||||||||
Current year claims relate to risks borne in the current financial year. Prior year claims
relate to a reassessment of the risks borne in all previous financial years.
TGI Australia ABN 12 000 041 458
|
20 of 32 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
7. OPERATING EXPENSES
| 2007 | 2006 | |||||||
| Expenses by Nature | $’000 | $’000 | ||||||
Commission expense/(benefit) |
— | 61 | ||||||
Write-off of Bad Debt |
— | 4,212 | ||||||
Impairment expense — premium receivables |
— | 44 | ||||||
Impairment expense/(benefit) — reinsurance receivables |
918 | (3,977 | ) | |||||
Investment management fees |
162 | 278 | ||||||
Other management fees |
4,847 | 1,562 | ||||||
External consultant costs |
135 | 58 | ||||||
Other expenses |
109 | 3,209 | ||||||
Total Expenses |
6,171 | 5,447 | ||||||
represented by: |
||||||||
General administration expenses included in net claims incurred |
2,910 | 3,146 | ||||||
Other underwriting expenses |
43 | 61 | ||||||
General administration expenses |
3,218 | 2,240 | ||||||
Total expenses |
6,171 | 5,447 | ||||||
8. NET INVESTMENT REVENUE
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Interest |
4,575 | 6,551 | ||||||
Interest from related parties: |
||||||||
- other related parties |
4,501 | 2,564 | ||||||
Distributions received |
372 | 1,459 | ||||||
Changes in fair value of investments: |
||||||||
Realised (loss)/gain |
(2,268 | ) | (1,879 | ) | ||||
Unrealised loss |
1,255 | (2,309 | ) | |||||
Total Net Investment Revenue |
8,435 | 6,386 | ||||||
TGI Australia ABN 12 000 041 458
|
21 of 32 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
9. INCOME TAX
(a) Analysis of income tax expense
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Current tax |
4,538 | 591 | ||||||
Decrease in deferred tax assets |
1,005 | 3,819 | ||||||
Increase in deferred tax liabilities |
4 | (1,777 | ) | |||||
(Under)/over provided in previous years |
715 | (23 | ) | |||||
Income tax expense |
6,262 | 2,610 | ||||||
(b) Relationship between income tax expense and accounting profit
The table below provides a reconciliation of differences between prima facie tax calculated as
30% of the profit before income tax for the period and the actual income tax expense recognised
in the income statement for the period.
In respect of income tax expense attributable to shareholders, the tax rate which applies in both
2007 and 2006 is 30%.
2007 and 2006 is 30%.
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Operating profit before income tax |
18,412 | 8,061 | ||||||
Prima facie income tax at the rate of 30% |
5,524 | 2,418 | ||||||
Tax effect of differences between amounts of income and
expenses recognised for accounting and the amounts
deductible/assessable in calculating taxable income: |
||||||||
Non assessable income |
(281 | ) | ||||||
Other |
24 | 473 | ||||||
Under provided in prior years — deferred tax balances |
714 | — | ||||||
Income tax expense per income statement |
6,261 | 2,610 | ||||||
(c) Analysis of deferred tax asset
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Amounts recognised in income: |
||||||||
- Provision for doubtful debts |
861 | 586 | ||||||
- Accruals |
20 | 4 | ||||||
- Indirect Claims Costs Adjustments |
3,019 | 4,092 | ||||||
- Other |
199 | 1,026 | ||||||
Total deferred tax assets |
4,099 | 5,708 | ||||||
(d) Analysis of deferred tax liability
Amounts recognised in income |
||||||||
- Unrealised gains/losses |
29 | 25 | ||||||
Total deferred tax liability |
29 | 25 | ||||||
TGI Australia ABN 12 000 041 458
|
22 of 32 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
10. RECEIVABLES
| 31 Dec 07 | 31 Dec 06 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Premiums receivable — direct insurance |
671 | — | ||||||
less provision for impairment of premium receivable |
— | — | ||||||
| 671 | — | |||||||
Other receivables |
120 | 4,172 | ||||||
less provision for impairment of other receivables |
— | — | ||||||
| 120 | 4,172 | |||||||
Other receivables from related parties |
||||||||
- other related parties |
— | 3,013 | ||||||
Interest receivable from related parties |
||||||||
- other related parties |
419 | 273 | ||||||
Total current receivables |
1,210 | 7,458 | ||||||
11. REINSURANCE AND OTHER RECOVERIES
| 31 Dec 07 | 31 Dec 06 | |||||||
| $’000 | $’000 | |||||||
Expected future reinsurance and other recoveries undiscounted |
||||||||
- on claims paid |
5,627 | 6,138 | ||||||
- on outstanding claims |
39,712 | 45,252 | ||||||
Discount to present value |
(6,361 | ) | (7,092 | ) | ||||
less provision for impairment of reinsurance and other recoveries |
(2,672 | ) | (1,954 | ) | ||||
Reinsurance and other recoveries receivable |
36,306 | 42,344 | ||||||
Reinsurance and other recoveries receivable — current |
15,103 | 16,234 | ||||||
less provision for impairment of reinsurance and other recoveries |
(2,392 | ) | (1,668 | ) | ||||
Reinsurance and other recoveries receivable — Current |
12,711 | 14,566 | ||||||
Reinsurance and other recoveries receivable — non current |
23,876 | 28,063 | ||||||
less provision for impairment of reinsurance and other recoveries |
(281 | ) | (285 | ) | ||||
Reinsurance and other recoveries receivable — Non current |
23,595 | 27,778 | ||||||
Refer to Note 15 for a reconciliation of the movement in reinsurance and other recoveries on
incurred claims over the year.
TGI Australia ABN 12 000 041 458
|
23 of 32 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
12. OTHER FINANCIAL ASSETS
| 31 Dec 07 | 31 Dec 06 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Quoted investments — at fair value: |
||||||||
Government and semi-government bonds |
4,080 | 1,364 | ||||||
Corporate bonds |
8,789 | 11,093 | ||||||
Deposit on futures |
339 | 287 | ||||||
Derivatives |
(111 | ) | ||||||
| 13,097 | 12,744 | |||||||
Unquoted investments — at fair value: |
||||||||
Units held in cash managed trust |
||||||||
- Other related parties |
1,238 | 1,621 | ||||||
Units held in other unit trusts |
6,477 | 7,240 | ||||||
Loan — Other related parties |
73,070 | 58,715 | ||||||
| 80,785 | 67,576 | |||||||
Total current financial assets |
93,882 | 80,320 | ||||||
Non-Current |
||||||||
Quoted investments — at fair value: |
||||||||
Government and semi-government bonds |
30,275 | 32,236 | ||||||
Corporate bonds |
21,631 | 31,564 | ||||||
Derivatives |
— | (114 | ) | |||||
Total non current financial assets |
51,906 | 63,686 | ||||||
Total other financial assets |
145,788 | 144,006 | ||||||
13. OTHER ASSETS
| 31 Dec 07 | 31 Dec 06 | |||||||
| $’000 | $’000 | |||||||
Deferred reinsurance expense |
331 | 332 | ||||||
Other- prepayments |
25 | 32 | ||||||
Total other assets |
356 | 364 | ||||||
TGI Australia ABN 12 000 041 458
|
24 of 32 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
14. UNEARNED PREMIUM
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Current unearned premium |
834 | 750 | ||||||
Non-current unearned premium |
— | — | ||||||
Total unearned premium |
834 | 750 | ||||||
Unearned premium liability as at 1 January |
750 | 809 | ||||||
Deferral of premiums on contracts written in the period |
834 | 750 | ||||||
Earning of premiums written in previous periods |
(750 | ) | (809 | ) | ||||
Unearned premium liability as at 31 December |
834 | 750 | ||||||
During the year the unearned premium liability in respect of TGI was found to be
sufficient. As a result no unexpired risk reserve was required.
15. OUTSTANDING CLAIMS
| 31 Dec 07 | 31 Dec 06 | |||||||
| $’000 | $’000 | |||||||
Central estimate |
89,414 | 106,797 | ||||||
Risk margin |
7,516 | 15,444 | ||||||
Discount to present value |
(16,146 | ) | (15,558 | ) | ||||
Total Outstanding Claims |
80,784 | 106,683 | ||||||
Current |
19,161 | 24,868 | ||||||
Non-Current |
61,623 | 81,815 | ||||||
| 80,784 | 106,683 | |||||||
Investment assets in the form of debt securities are held to back the liability for outstanding
claims and are realised on a regular basis to meet claims. The amount of claims likely to be
settled within 12 months of the reporting date is classified as current.
TGI Australia ABN 12 000 041 458
|
25 of 32 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
15. OUTSTANDING CLAIMS (continued)
Reconciliation of movement in discounted outstanding claims liability
| Gross | Reinsurance | Net | ||||||||||
| 2007 | $’000 | $’000 | $’000 | |||||||||
Amount outstanding carried forward |
106,683 | 42,186 | 64,497 | |||||||||
less Claim payments/recoveries received in the period |
(12,450 | ) | (6,419 | ) | (6,031 | ) | ||||||
Effect of change in assumptions |
(12,480 | ) | 729 | (13,209 | ) | |||||||
Effect of change in exchange rates |
(969 | ) | (390 | ) | (579 | ) | ||||||
Outstanding amount carried forward |
80,784 | 36,106 | 44,678 | |||||||||
| Gross | Reinsurance | Net | ||||||||||
| 2006 | $’000 | $’000 | $’000 | |||||||||
Amount outstanding carried forward |
113,730 | 41,880 | 71,850 | |||||||||
less Claim payments/recoveries received in the period |
(28,382 | ) | (23,557 | ) | (4,825 | ) | ||||||
Effect of change in assumptions |
21,922 | 24,068 | (2,146 | ) | ||||||||
Effect of change in exchange rates |
(587 | ) | (205 | ) | (382 | ) | ||||||
Outstanding amount carried forward |
106,683 | 42,186 | 64,497 | |||||||||
As described in note 1, the outstanding claims liability is the best estimate of the present
value of the expected future payments, after the inclusion of a risk margin. At each balance
date, the amount of the liability is reassessed and it is likely that changes will arise in the
estimates of liabilities. The table under show the estimates of total ultimate claims at
successive year ends.
| Estimate of Cumulative claims | Net | Gross | ||||||
| $’000 | $’000 | |||||||
31 December 2001 |
652,869 | 959,696 | ||||||
31 December 2002 |
645,066 | 988,296 | ||||||
31 December 2003 |
632,396 | 970,761 | ||||||
31 December 2004 |
610,081 | 960,133 | ||||||
31 December 2005 |
596,238 | 956,555 | ||||||
31 December 2006 |
596,961 | 982,344 | ||||||
32 December 2007 |
592,266 | 976,769 | ||||||
Estimate of Cumulative Claims at 31 December 2007 |
592,266 | 976,769 | ||||||
Cumulative Payments |
555,708 | 900,498 | ||||||
Undiscounted central estimate |
36,558 | 76,271 | ||||||
Effect of Discounting |
6,703 | 13,065 | ||||||
Discounted Central Estimate |
29,855 | 63,206 | ||||||
Risk Margin |
7,516 | |||||||
Claims Administration Expense Provision |
10,062 | |||||||
Gross Outstanding Claims as per the Balance Sheet |
80,784 | |||||||
TGI Australia ABN 12 000 041 458
|
26 of 32 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
16. PAYABLES
| 31 Dec 07 | 31 Dec 06 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Trade creditors and other creditors |
265 | 1,413 | ||||||
Other borrowings from related parties |
||||||||
- other related parties |
639 | 77 | ||||||
| 904 | 1,490 | |||||||
17. ISSUED CAPITAL
| 31 Dec 07 | 31 Dec 06 | |||||||
| $’000 | $’000 | |||||||
Paid up capital: |
||||||||
15,000,000 Ordinary Shares at $2 per share |
30,000 | 30,000 | ||||||
(2006: 15,000,000 Ordinary Sharesat $2 per
share) |
||||||||
Total |
30,000 | 30,000 | ||||||
Movement in share capital |
||||||||
Balance beginning of year |
30,000 | 30,000 | ||||||
Balance end of year |
30,000 | 30,000 | ||||||
Rights attaching to Ordinary Shares
Ordinary shares attract the following rights:
| (a) | to receive notice of and to attend and vote at all general meetings of the Company; | ||
| (b) | to receive dividends; and | ||
| (c) | in a winding up, to participate equally in the distribution of the assets of the Company (both capital and surplus), subject only to any amounts unpaid on the share. |
18. RETAINED PROFITS
| 31 Dec 07 | 31 Dec 06 | |||||||
| $’000 | $’000 | |||||||
Retained profits at beginning of the
financial year |
61,903 | 76,452 | ||||||
Operating profit/(loss) after Income Tax |
12,150 | 5,451 | ||||||
Dividend Paid |
— | (20,000 | ) | |||||
Retained Profits at the end of the
financial year |
74,053 | 61,903 | ||||||
| 31 Dec 07 | 31 Dec 06 | |||||||
| $’000 | $’000 | |||||||
Dividends paid on ordinary shares |
||||||||
- Dividend paid on 12 April 2006 |
20,000 | |||||||
Unfranked dividend of $1.33 per
share |
||||||||
Dividends paid during the year |
— | 20,000 | ||||||
TGI Australia ABN 12 000 041 458
|
27 of 32 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
19. FRANKING ACCOUNT
The AMP Limited group entered into Tax Consolidation during 2003. Under Tax Consolidation, the
franking account balances for group companies were transferred to the Head Entity, AMP Limited.
20. KEY MANAGEMENT PERSONNEL COMPENSATION
The following individuals were the key management personnel of TGI Australia Limited for the
current and prior reporting periods (unless stated otherwise):
| Name | Date of Appointment/Resignation during the current or prior reporting period | |
Peter Clarke |
||
Richard Grellman |
||
Paul Leaming
|
31-12-2007, Appointed | |
William Roberts |
||
Felix Zaccar |
||
Peter Hodgett
|
31-12-2007, Resigned | |
Andrew Mohl
|
31-12-2007, Resigned | |
The following table provides aggregate details of the compensation of key management personnel of
TGI Australia Limited.
| Short-term | Post- | Other long- | ||||||||||||||||||||||
| employee | employment | term | Termination | Share-based | ||||||||||||||||||||
| Year | benefits | benefits | benefits | benefits | payments | Total | ||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
2007 |
6,396,418 | 204,889 | — | 7,667,817 | 2,837,771 | 17,106,895 | ||||||||||||||||||
2006 |
6,306,101 | 205,061 | — | — | 2,318,215 | 8,829,377 | ||||||||||||||||||
Key management personnel disclosed above, also provided services to other related entities during
the year. The above remuneration amounts include all amounts paid for services rendered to related
entities and those services rendered to TGI Australia Limited.
21. AUDITORS’ REMUNERATION
Auditors’ remuneration for the year ended 31 December 2007 is paid on the Company’s behalf by a
controlled entity within the AMP Limited Group.
22. CONTINGENT LIABILITIES
There are no contingent liabilities as at 31 December 2007 (2006: Nil).
TGI Australia ABN 12 000 041 458
|
28 of 32 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
23. RELATED PARTIES
Controlling Entity
The immediate parent entity at December 2007 is AMP General Insurance Limited. AMP Limited is the
ultimate parent entity at 31 December 2007.
Directors
The directors of the company during the financial year and the dates of appointments and
resignations during the year are:
| Name | Date of Appointment/Resignation during the current or prior reporting period | |
Peter Clarke |
||
Richard Grellman |
||
Paul Leaming
|
31-12-07, Appointed | |
William Roberts |
||
Felix Zaccar |
||
Peter Hodgett |
||
Andrew Mohl
|
31-12-07, Resigned | |
Other Transactions
The directors and their director related entities receive normal dividends on their ordinary
share holdings in AMP Limited.
Other transactions with key management personnel of the Company
During the year, transactions were entered into between Directors or their Director related
entities and entities within the AMP Limited Group. These transactions are within a normal
employee, customer or supplier relationship on terms and conditions no more favourable than those
available to other employees, customers or members (unless otherwise described below) and
include:
| • | normal personal banking with AMP Bank Limited including the provision of credit cards; | |
| • | the purchase of AMP superannuation and related products; |
| • | financial investment services; |
| • | other advisory services. |
These transactions do not have the potential to adversely affect the decisions about the
allocation of scarce resources made by users of the entity’s financial statements, or discharge
of accountability by key management personnel. The transactions are considered to be trivial or
domestic in nature.
TGI Australia ABN 12 000 041 458
|
29 of 32 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
23. RELATED PARTIES (continued)
Transactions with Related Parties
Transactions between TGI Australia Limited and other related parties for the financial year
consisted of:
| • | Payment of management fees for services provided | ||
| • | Provision of share capital | ||
| • | Provision of intercompany loans | ||
| • | Underwriting the self insurance program of the AMP group |
The aggregate amounts brought to account in respect of the following types of transactions and
each class of related party involved were:
| 31 Dec 07 | 31 Dec 06 | |||||||
| $ | $ | |||||||
Amounts attributable to transactions with related parties |
||||||||
Operating profit/(loss) before income tax for the financial year includes
aggregate amounts attributable to transactions in respect of: |
||||||||
Gross Written Premium — other related parties |
1,260,000 | 1,081,000 | ||||||
Investment Expenses — other related parties |
87,267 | 226,061 | ||||||
Management Expense — other related parties |
4,872,077 | 4,857,230 | ||||||
Units held in cash managed trust |
1,238,000 | 1,621,000 | ||||||
Interest Received — other related parties |
4,500,837 | 2,564,102 | ||||||
Aggregate amounts receivable at balance date from: |
||||||||
Current |
||||||||
Receivable — other related parties |
— | 3,013,123 | ||||||
Interest receivable — other related parties |
418,899 | 272,567 | ||||||
Interest
Bearing Loans — other related parties |
73,069,595 | 58,715,091 | ||||||
Aggregate amounts payable at balance date to: |
||||||||
Current |
||||||||
Payables — other related parties |
638,604 | 77,302 | ||||||
AMP Capital Investors Limited, a related entity within the wholly owned group, manages the
majority of the investments of the company under a management contract which follows the normal
terms and conditions for such contracts. Fees are paid or are due and payable for the management
of investment portfolios under normal terms and conditions.
AMP Services Limited and Enstar Australia Limited (formerly Cobalt Solutions Australia Limited ),
fellow wholly controlled entities, provide operational and administrative (including employee
related) services to the company with the exception of certain financing arrangements, finance
leasing and agent related services. The services provided are in the normal course of the
business and are on normal commercial terms and conditions.
TGI Australia Limited continues to administer the self insurance program of the AMP Group for
underwriting years 2001/2002 and 2002/2003 as well as providing certain AMP Life subsidiaries
with professional indemnity cover via the reactivated RiskCap program.
TGI Australia ABN 12 000 041 458
|
30 of 32 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2007
Notes to the financial statements for the year ended 31 December 2007
24. CASH FLOW RECONCILIATION
(i) Reconciliation of cash
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Cash on Trust |
— | 1,622 | ||||||
Cash at call |
1,596 | 971 | ||||||
| 1,596 | 2,592 | |||||||
(ii) Reconciliation of net cash flows from operating activities to operating profit after
income tax:
Operating profit / (loss) after income tax |
12,150 | 5,452 | ||||||
Changes in net market value of investments |
(2,269 | ) | 1,879 | |||||
Net (gain)/loss on sale of investments |
1,255 | 2,309 | ||||||
Bad debts written off |
— | 4,212 | ||||||
Changes in assets and liabilities |
||||||||
(Increase) / decrease in accrued interest |
(4,501 | ) | (2,564 | ) | ||||
(Increase) / decrease in premium debtors |
— | 44 | ||||||
Increase / (decrease) in doubtful debts provision |
718 | (3,934 | ) | |||||
Decrease / (increase) in receivables |
7,561 | (5,958 | ) | |||||
Increase / (decrease) in unearned premium provision |
84 | (58 | ) | |||||
Decrease / (increase) in reinsurance recoveries |
5,319 | (586 | ) | |||||
Increase / (decrease) in accounts payable |
(586 | ) | (734 | ) | ||||
Increase / (decrease) in claims outstanding |
(25,898 | ) | (7,048 | ) | ||||
Increase / (decrease) in tax provisions |
4,365 | 552 | ||||||
Net cash outflow from operating activities |
(1,802 | ) | (6,434 | ) | ||||
25. EVENTS OCCURRING AFTER THE REPORTING DATE
On 11 December 2007 a Sale and Purchase Agreement was entered into by the ultimate parent AMP
Limited and Enstar Australia Holdings Pty Ltd for the sale of the entity. The sale was subject to
multiple conditions including regulatory approval by the Australian Prudential Regulatory Authority
(APRA) and was completed on 05/03/08.
A dividend of $36.9m was paid on 18 February 2008
In March 2008 the loan receivable from a related party was fully repaid to the Company and invested
in cash.
TGI Australia ABN 12 000 041 458
|
31 of 32 | |
Report of Independent Auditors
The Board
of Directors of TGI Australia Limited
We have audited the accompanying balance sheets of TGI Australia Limited as of December 31, 2007
and 2006, and the related income statements, statements of changes in equity, and cash flow
statements for the years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of TGI Australia Limited at December 31, 2007 and 2006, and the
results of its operations and its cash flows for the years then ended in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
| /s/ Ernst & Young | ||||
| Sydney, Australia May 15, 2008 |
||||
Liability limited by a scheme approved under
Professional Standards Legislation
Professional Standards Legislation
TGI AUSTRALIA LIMITED
ABN 12 000 041 458
ABN 12 000 041 458
Financial Report
31 DECEMBER 2006
31 DECEMBER 2006
Contents:
| Page | ||||
Financial Report |
||||
Financial Statements |
||||
- Income Statement |
1 | |||
- Balance Sheet |
2 | |||
- Statement of Changes in Equity |
3 | |||
- Cash Flow Statement |
4 | |||
Notes to the Financial Statements |
5 | |||
Report of Independent Auditors |
31 | |||
TGI Australia Ltd
Income Statement
For the year ended 31 December 2006
Income Statement
For the year ended 31 December 2006
| 31 Dec 06 | 31 Dec 05 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Direct Premium Revenue |
1,622 | 1,211 | ||||||||||
Outwards reinsurance expense |
722 | 592 | ||||||||||
Net premium revenue |
5 | 900 | 619 | |||||||||
Direct claims expense/(benefit) |
21,335 | (7,167 | ) | |||||||||
Reinsurance and other recoveries revenue |
23,863 | 13,142 | ||||||||||
Net Claims Incurred |
6 | (2,528 | ) | (20,309 | ) | |||||||
Other Underwriting Income |
548 | 766 | ||||||||||
Acquisition benefit |
— | (7 | ) | |||||||||
Other underwriting expenses |
61 | 207 | ||||||||||
Underwriting expenses |
7 | 61 | 200 | |||||||||
Underwriting result |
3,915 | 21,494 | ||||||||||
Net Investment Revenue |
8 | 6,386 | 10,728 | |||||||||
General and administration expenses |
7 | 2,240 | 2,600 | |||||||||
Net profit before tax |
8,061 | 29,622 | ||||||||||
Income tax expense |
9 | 2,610 | 8,723 | |||||||||
Net profit attributable to members
of TGI Australia Ltd |
5,451 | 20,899 | ||||||||||
The above Income Statement should be read in conjunction with the accompanying notes.
TGI Australia ABN 12 000 041 458
|
1 of 31 | |
TGI Australia Ltd
Balance Sheet
As at 31 December 2006
Balance Sheet
As at 31 December 2006
| 31 Dec 06 | 31 Dec 05 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Current Assets |
||||||||||||
Cash and cash equivalents |
25 | 971 | 437 | |||||||||
Receivables |
10 | 7,458 | 2,920 | |||||||||
Reinsurance and other recoveries receivable |
11 | 14,566 | 17,363 | |||||||||
Other financial assets |
12 | 80,320 | 78,635 | |||||||||
Other |
13 | 364 | 237 | |||||||||
Total Current Assets |
103,679 | 99,592 | ||||||||||
Non — Current Assets |
||||||||||||
Reinsurance and other recoveries receivable |
11 | 27,778 | 24,517 | |||||||||
Other financial assets |
12 | 63,686 | 92,871 | |||||||||
Deferred tax assets |
9 | 5,708 | 9,602 | |||||||||
Total Non — Current Assets |
97,172 | 126,990 | ||||||||||
Total Assets |
200,851 | 226,582 | ||||||||||
Current Liabilities |
||||||||||||
Unearned premiums |
14 | 750 | 809 | |||||||||
Outstanding claims liability |
15 | 24,868 | 29,904 | |||||||||
Payables |
16 | 1,490 | 2,224 | |||||||||
Current tax liability |
— | 1,564 | ||||||||||
Total Current Liabilities |
27,108 | 34,501 | ||||||||||
Non — Current Liabilities |
||||||||||||
Outstanding claims liability |
15 | 81,815 | 83,826 | |||||||||
Deferred tax liability |
9 | 25 | 1,803 | |||||||||
Total Non — Current Liabilities |
81,840 | 85,629 | ||||||||||
Total Liabilities |
108,948 | 120,130 | ||||||||||
Net Assets |
91,903 | 106,452 | ||||||||||
Shareholder’s Equity |
||||||||||||
Issued Capital |
17 | 30,000 | 30,000 | |||||||||
Retained profits |
18 | 61,903 | 76,452 | |||||||||
Total Shareholder’s Equity |
91,903 | 106,452 | ||||||||||
The above Balance Sheet should be read in conjunction with the accompanying notes.
TGI Australia ABN 12 000 041 458
|
2 of 31 | |
TGI Australia Ltd
Statement of Changes in Equity
For the year ended 31 December 2006
Statement of Changes in Equity
For the year ended 31 December 2006
| Retained | ||||||||||||
| Issued Capital | Earnings | Total | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Balance as at 1 January 2006 |
30,000 | 76,452 | 106,452 | |||||||||
Net Profit/(loss) after income tax |
— | 5,451 | 5,451 | |||||||||
Other changes in equity- Dividends paid |
— | (20,000 | ) | (20,000 | ) | |||||||
Balance as at 31 December 2006 |
30,000 | 61,903 | 91,903 | |||||||||
Balance as at 1 January 2005 |
30,000 | 55,553 | 85,553 | |||||||||
Net Profit/(loss) after income tax |
— | 20,899 | 20,899 | |||||||||
Balance as at 31 December 2005 |
30,000 | 76,452 | 106,452 | |||||||||
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
TGI Australia ABN 12 000 041 458
|
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TGI Australia Ltd
Cashflow Statement
For the year ended 31 December 2006
Cashflow Statement
For the year ended 31 December 2006
| 31 Dec 06 | 31 Dec 05 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Cash Flows from Operating Activities: |
||||||||||||
Premium Received |
818 | 1,723 | ||||||||||
Reinsurance recoveries received |
23,557 | 26,042 | ||||||||||
Other sundry receipts |
52 | 750 | ||||||||||
Outward reinsurance paid |
(121 | ) | (579 | ) | ||||||||
Claims paid |
(28,382 | ) | (41,836 | ) | ||||||||
Distributions received |
1,459 | 550 | ||||||||||
Interest received |
6,599 | 9,183 | ||||||||||
Investment expenses |
(253 | ) | (392 | ) | ||||||||
Other underwriting expenses |
(4,839 | ) | (8,313 | ) | ||||||||
Income taxes paid |
(5,324 | ) | (10,970 | ) | ||||||||
| (6,434 | ) | (23,838 | ) | |||||||||
Cash Flows from Investing Activities |
||||||||||||
Loans advanced to related parties |
(10,000 | ) | (45,000 | ) | ||||||||
Purchase of investments |
(70,637 | ) | (181,743 | ) | ||||||||
Sale of investments |
108,035 | 243,841 | ||||||||||
| 27,398 | 17,098 | |||||||||||
Cash Flows from Financing Activities |
||||||||||||
Dividends paid |
(20,000 | ) | — | |||||||||
| (20,000 | ) | — | ||||||||||
Net (decrease)/increase in cash |
964 | (6,740 | ) | |||||||||
Cash at the beginning of the year |
1,628 | 8,368 | ||||||||||
Cash at the end of the year |
25 | 2,592 | 1,628 | |||||||||
The above Cash Flow Statement should be read in conjunction with the accompanying notes.
TGI Australia ABN 12 000 041 458
|
4 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
1. SUMMARY OF ACCOUNTING POLICIES
Basis of Accounting
This Financial Report, comprising the financial statements and the notes thereto, complies with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
The Financial Report has been prepared in accordance with the historical cost convention except
for investments, which have been measured at fair value, and insurance liabilities, which have
been discounted to present value.
The principal accounting policies adopted in the preparation of the Financial Report are set out
below. These policies have been consistently applied to the current year and comparative period,
unless otherwise stated. The same accounting policies and methods of computation are followed by
this Financial Report as compared with the 31 December 2005 Financial Report. Where necessary,
comparative information has been reclassified to be consistent with current period disclosures.
Accounting Standards that have recently been issued or amended but are not yet effective have
not been adopted for the reporting period ending 31 December 2006. When applied in future
periods, these recently issued or amended standards are not expected to have a material impact
on the company’s results or financial position; however they may impact Financial Report
disclosures.
Operating revenue
Operating revenue comprises general insurance earned premiums, recoveries, investment income and
interest income. Investment income is brought to account on an accrual basis. Other underwriting
income comprises of sundry receipts.
Premium Revenue and Unearned premiums
(i) Premium revenue
General insurance premiums comprise amounts charged to policyholders or other insurers,
including fire service levies, but excluding stamp duties and GST collected on behalf of third
parties. The earned portion of premiums received and receivable, including unclosed business, is
recognised as operating revenue. Movements in the provisions for impairment of premium receivables
have been included in premium revenue.
(ii) Unearned premiums
Unearned premiums represent premium revenue attributable to future accounting periods. Unearned
premium is determined by apportioning the premiums written in the year evenly over the period of
insurance cover, reflecting the pattern in which risk emerges under these policies.
Unexpired risk liability
The adequacy of the unearned premium liability in respect of each class of business is
assessed by considering current estimates of all expected future cash flows relating to future
claims covered by current insurance contracts.
If the present value of the expected future cash flows relating to future claims exceeds
the unearned premium liability less related intangible assets and related deferred acquisition
costs then the unearned premium liability is deemed to be deficient.
TGI Australia ABN 12 000 041 458
|
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
The entire deficiency is recognised immediately in the income statement. The deficiency is
recognised first by writing down any related intangible assets and then related deferred
acquisition costs, with any excess being recorded in the balance sheet as an unexpired risk
liability.
Outstanding Claims
The liability for outstanding claims is measured as the best estimate of the present value of
expected future payments against claims incurred at the reporting date under general insurance
contracts issued by the Company, with an additional risk margin to allow for the inherent
uncertainty in the best estimate.
The expected future payments include those in relation to claims reported but not yet paid; claims
incurred but not reported (IBNR), claims incurred but not enough reported (IBNER) and anticipated
claims handling costs.
Claims handling costs include costs that can be associated directly with individual claims, such as
legal and other professional fees, and costs that can only be indirectly associated with individual
claims, such as claims administration costs.
The liability includes an allowance for inflation and superimposed inflation and is measured as the
present value of the expected future ultimate cost of settling claims. The expected future payments
are discounted to present value using a risk free rate.
A risk margin is applied to the outstanding claims liability, net of reinsurance and other
recoveries, to reflect the inherent uncertainty in the best estimate. This risk margin increases
the probability that the net liability is adequately provided for to a 75% confidence level.
Outwards reinsurance premium expense and deferred reinsurance premium
Premiums ceded to reinsurers are recognised as an expense over the period of cover using the
methods applicable to premium revenue as set out in the premium revenue note above.
Reinsurance and other recoveries
Reinsurance and other recoveries consist of receivables on paid claims and outstanding claims and
are recognised as revenue when claims are paid or the outstanding claim is raised. Reinsurance
receivables are discounted to present value consistent with the discounting of outstanding claims.
A provision for impairment is recognised when there is objective evidence that the Company will not
be able to collect all the amounts due according to the original terms of the receivables. The
impairment charge is recognised in the income statement. Bad debts are written off as incurred.
Fire brigade levies and other statutory charges
A liability for fire brigade levies and other statutory charges is recognised on business written
to the balance date. Levies and charges payable are expensed on the same basis as the recognition
of the related premium revenue, with the portion relating to unearned premiums being reported as
deferred statutory charges.
Investment Income
Dividend and interest income is recognised in the income statement on an effective interest method
when the entity obtains control of the right to receive the revenue.
Realised gains and losses represent the change in value between the previously reported value and
the amount received on sale of the asset. Unrealised gains and losses represent changes in the
fair value of financial assets recognised in the period.
TGI Australia ABN 12 000 041 458
|
6 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Assets backing general insurance liabilities
As part of its investment strategy, the Company actively manages its investment portfolio to ensure
that investments mature in accordance with the expected pattern of future cash flows arising from
general insurance liabilities.
The Company has determined that all assets are held to back general insurance liabilities on the
basis that all assets of the Company are available for the settlement of claims if required. The
following policies apply to assets held to back general insurance liabilities.
Financial assets
Financial assets are designated at fair value through profit or loss. Initial recognition is at
cost in the balance sheet and subsequent measurement is at fair value with any resultant unrealised
gains or losses recognised in the income statement. Details of fair value for the different types
of financial assets are listed below:
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand that is available on demand and deposits
held at call with financial institutions. Cash and cash equivalents are carried at fair value,
being the principal amount. For the purposes of the cash flow statement, cash also includes
other highly liquid investments not subject to significant risk of change in value.
Cash trusts
The fair value of units in a listed cash trust reflects the quoted bid price at balance
date. There is no reduction for realisation costs in the value of units in a cash trust.
Unlisted unit trusts are recorded at fund managers valuations.
Debt securities
Debt securities are initially recognised at fair value, representing the purchase cost of
the asset exclusive of any transaction costs. Debt securities are subsequently measured at fair
value, with any realised and unrealised gains or losses arising from changes in the fair value
being recognised in the income statement for the period in which they arise. The fair value of
a traded interest bearing security reflects the bid price at balance date. Interest bearing
securities that are not frequently traded are valued by discounting the estimated recoverable
amounts, using prevailing interest rates. Debt securities are accounted for on a trade date
basis.
Derivatives
Derivatives are initially recognised at fair value on the date on which a derivative
contract is entered into and are subsequently measured at their fair value. All derivatives are
carried as assets when their fair value is positive, and as liabilities when their fair value is
negative. Derivatives are exchange traded and are fair valued using their publicly quoted bid
price on the date of valuation.
Income Tax
Income tax
Income tax expense is the tax payable on taxable income for the current period based on the income
tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities
attributable to: (i) temporary differences between the tax bases of assets and liabilities and
their balance sheet carrying amounts, and (ii) unused tax losses.
TGI Australia ABN 12 000 041 458
|
7 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates
expected to apply when the assets are recovered or liabilities are settled, based on those tax
rates which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary
differences to measure the deferred tax asset or liability. An exception is made for certain
temporary differences arising from the initial recognition of an asset or a liability. No deferred
tax asset or liability is recognised in relation to these temporary differences if they arose in a
transaction, other than a business combination, that at the time of the transaction did not affect
either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only
if it is probable that future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the
carrying amount and tax bases of investments in controlled entities where the parent entity is able
to control the timing of the reversal of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future.
Tax Consolidation
AMP Limited, TGI Australia Ltd and certain other wholly owned controlled entities of AMP Limited
comprise a tax-consolidated group of which AMP Limited is the head entity. The implementation date
for the tax-consolidated group was 30 June 2003.
Under tax consolidation, AMP Limited as head entity, assumes the following balances from
subsidiaries within the tax-consolidated group:
(i) Current tax balances arising from external transactions recognised by entities in the
tax-consolidated group occurring after the implementation date, and;
(ii) Deferred tax assets arising from unused tax losses and unused tax credits recognised by
entities in the tax-consolidated group occurring after the implementation date.
A tax funding agreement has been entered into by the head entity and the controlled entities in the
tax-consolidated group. Controlled entities in the tax-consolidated group will continue to be
responsible, by the operation of the tax funding agreement, for funding tax payments required to be
made by the head entity arising from underlying transactions of the controlled entities. Controlled
entities will make (receive) contributions to (from) the head entity for the balances recognised by
the head entity described in (i) and (ii) above. The contributions will be calculated in accordance
with the tax funding agreement.
Assets and liabilities which arise as a result of differences between the periods in which the
underlying transactions occur, and the period in which the funding payments under the tax funding
agreement are made, are recognised as intercompany balances receivable and payable in the balance
sheet. The recoverability of balances arising from the tax funding arrangements is based on the
ability of the tax-consolidated group to utilise the amounts recognised by the head entity.
TGI Australia ABN 12 000 041 458
|
8 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
Goods and Services Tax (GST)
All revenues, expenses and assets are recognised net of any GST paid, except where they relate to
products and services which are input taxed for GST purposes or the GST incurred is not recoverable
from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of
the cost of acquisition of the assets or as part of the particular expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from or payable to the tax authorities is included as a receivable or payable in the
balance sheet.
Cash flows are reported on a gross basis reflecting any GST paid or collected. The GST component of
cash flows arising from investing or financing activities which are recoverable from, or payable
to, local tax authorities are classified as operating cash flows.
Foreign currency transactions and translation
Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic
environment in which that entity operates (the functional currency). The presentation currency of
this financial report, and the functional currency, is Australian dollars.
Transactions and balances
Income and expense items denominated in a currency other than the functional currency are
translated at the spot exchange rate at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated at the rate of exchange ruling at
balance sheet date, with exchange gains and losses recognised in the income statement. The
corresponding foreign currency translations of overseas outstanding claims liabilities and
receivables are reported as a component of claims expense and premium revenue, respectively.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value was determined.
Receivables
Receivables are financial assets and are measured at fair value. Given the short-term nature of
most receivables, the recoverable amount approximates fair value. A provision for impairment is
recognised when there is objective evidence that the Company will not be able to collect all
amounts due according to the original terms of the receivables. The impairment charge is
recognised in the income statement. Bad debts are written off as incurred.
Payables
Trade creditors and accruals are recognised as liabilities for amounts to be paid in the future
for goods and services received, whether or not billed to the entity.
Amounts Due To or From Related Parties
Amounts are carried at fair value being nominal amounts due and payable. Interest is taken up as
income on an accrual basis. A provision for impairment is recognised when there is objective
evidence that the related party will not be able to pay its debt.
TGI Australia ABN 12 000 041 458
|
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Company makes estimates and assumptions in respect of certain key assets and liabilities.
Estimates and judgements are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances. The key areas in which critical estimates and judgements are applied are described
below.
(a) The ultimate liability arising from claims made under insurance contracts
Provision is made at year-end for the estimated cost of claims incurred but not settled at the
balance sheet date, including the cost of claims incurred but not yet reported to the Company.
The estimated cost of claims includes direct expenses to be incurred in settling claims gross of
the expected value of salvage and other recoveries. The Company takes all reasonable steps to
ensure that it has appropriate information regarding its claims exposures. However, given the
uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be
different from the original liability established.
The estimation of claims incurred but not reported (“IBNR”) is generally subject to a greater
degree of uncertainty than the estimation of the cost of settling claims already notified to the
Company, where more information about the claim event is generally available. IBNR claims may
often not be reported to the insurer until many years after the events giving rise to the claims
has happened. The liability class of business will typically display greater variations between
initial estimates and final outcomes because there is a greater degree of difficulty in estimating
IBNR reserves. For the short tail class, claims are typically reported soon after the claim event,
and hence tend to display lower levels of volatility. In calculating the estimated cost of unpaid
claims the Company uses a variety of estimation techniques, generally based upon analysis of
historical experience, which assumes that the development pattern of the current claims will be
consistent with past experience. Allowance is made, however, for changes or uncertainties which
may create distortions in the underlying statistics or which might cause the cost of unsettled
claims to increase or reduce when compared with the cost of previously settled claims including:
| • | changes in Company processes which might accelerate or slow down the development and/or recording of paid or incurred claims, compared with the statistics from previous periods; | ||
| • | changes in the legal environment; | ||
| • | the effects of inflation; | ||
| • | the impact of large losses; | ||
| • | movements in industry benchmarks. |
Where possible the Company adopts multiple techniques to estimate the required level of provisions.
This assists in giving greater understanding of the trends inherent in the data being projected.
The projections given by the various methodologies also assist in setting the range of possible
outcomes. The most appropriate estimation technique is selected taking into account the
characteristics of the business class and the extent of the development of each accident year.
Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the
amounts that will be recoverable from reinsurers based upon the gross provisions.
Details of specific assumptions used in deriving the outstanding claims liability at year-end are
detailed in note 3.
(b) Assets arising from reinsurance contracts
Assets arising from reinsurance contracts are also computed using the above methods. In addition,
the recoverability of these assets is assessed on a periodic basis to ensure that the balance is
reflective of the amounts that will ultimately be received, taking into consideration factors such
as counterparty and credit risk. Impairment is recognised where there is objective evidence that
the Company may not receive amounts due to it and these amounts can be reliably measured.
TGI Australia ABN 12 000 041 458
|
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TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
3. ACTUARIAL METHODS AND ASSUMPTIONS
Claims estimates are derived from analysis of the results of several different actuarial models.
These models take case estimates as well as payments into account and assume that reported incurred
amounts or reported payment amounts will develop steadily from period to period. Other models
adopt an ultimate loss ratio for each year that reflects both the long term expected level, as well
as incorporating recent experience. The analysis is performed by accident year for the direct
insurance class.
Claims are first estimated on an undiscounted basis and are then discounted to allow for the time
value of money. The valuation methods adopted include an implicit allowance for future inflation
but do not identify the explicit rate. This allows for both general economic inflation as well as
any superimposed inflation detected in the modelling of payments experience. Superimposed
inflation arises from non-economic factors such as developments of legal precedent.
The liability class of business may be subject to the emergence of new types of latent claims, but
no specific allowance is included for this as at the balance sheet date. Such uncertainties are
considered when setting the risk margin appropriate for this class.
A description of the processes used to determine the key assumptions is provided below:
The average weighted term to settlement is calculated separately by class of business, based on
historical settlement patterns.
The reinsurance percentage is calculated based on past reinsurance recovery rates and the structure
of the reinsurance arrangements in place.
The discount rates are derived from market yields on Government securities as at the balance date,
in the currency of the expected claim payments.
Expense rate. Claim handling expenses are calculated based on the projected costs of administering
the remaining claims until expiry.
The ultimate to incurred claims ratio is derived by accident or underwriting year based on
historical development of claims from period to period.
The effect of changes in the assumptions have been shown in the reconciliations of general
insurance assets and liabilities in Note 15.
Process for determining risk margin
The risk margin was determined initially for each portfolio, allowing for the uncertainty of the
outstanding claims estimate for each portfolio. Uncertainty was analysed for each portfolio taking
into account past volatility in general insurance claims, potential uncertainties relating to the
actuarial models and assumptions, the quality of the underlying data used in the models, and the
general insurance environment. The estimate of uncertainty is generally greater for long tailed
classes when compared to short tail classes due to the longer time until settlement of outstanding
claims.
The overall risk margin was determined allowing for diversification between the different
portfolios and the relative uncertainty of each portfolio. The assumptions regarding uncertainty
for each class were applied to the net central estimates, and the results were aggregated, allowing
for diversification in order to arrive at an overall provision that is intended to have a 75%
probability of adequacy.
| 2006 | 2005 | |||||||
| % | % | |||||||
Risk Margins applied |
29.0 | 19.5 | ||||||
TGI Australia ABN 12 000 041 458
|
11 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
Sensitivity analysis – general insurance contracts
There are a number of variables which impact the amounts recognised in the financial statements
arising from insurance contracts.
The profit or loss and equity of the Company are sensitive to movements in a number of key
variables as described below.
| Variable | Description of variable | |
Average weighted term
to settlement
|
Expected payment patterns are used in determining the outstanding claims liability. A decrease in the average term to settlement would lead to claims being paid sooner than anticipated. | |
Discount rate
|
The outstanding claims liability is calculated by reference to expected future payments. These payments are discounted to adjust for the time value of money. | |
Expense rate
|
An estimate for the internal costs of administering claims is included in the outstanding claims liability. | |
Ultimate to incurred
claims ratio
|
The estimated ultimate claims cost is generally greater than the claims reported as incurred to date, due to claims that are incurred but not reported (IBNR) or due to future developments on existing claims. | |
Reinsurance percentage
|
Assumes money will be recoverable from reinsurers on future claims paid. |
The following table provides an analysis of the sensitivity of the profit after income tax and
total equity to changes in these assumptions both gross and net of reinsurance.
2006
| Change in | Assumption at 12/06 | Profit/(Loss) (after tax) | ||||||||||||||||
| Variable | variable | Gross % | Net % | Gross $’000 | Net $’000 | |||||||||||||
Average weighted term to settlement |
+0.5 year | 3.3 | 3.6 | 2,010 | 1,347 | |||||||||||||
| -0.5 year | 3.3 | 3.6 | (2,214 | ) | (1,387 | ) | ||||||||||||
Reinsurance percentage |
+1% | n/a | 9.0 | — | 97 | |||||||||||||
(as % of gross IBNR) |
-1% | n/a | 9.0 | — | (97 | ) | ||||||||||||
Discount Rate1 |
+1% | 5.9 | 5.9 | 2,058 | 1,437 | |||||||||||||
| -1% | 5.9 | 5.9 | (2,201 | ) | (1,543 | ) | ||||||||||||
Expense Rate |
+1% | 17.3 | 17.3 | (623 | ) | (623 | ) | |||||||||||
| -1% | 17.3 | 17.3 | 623 | 623 | ||||||||||||||
Ultimate to incurred claims ratio2 |
+1% | 102.5 | 102.5 | (3,732 | ) | (2,355 | ) | |||||||||||
| -1% | 102.5 | 102.5 | 2,066 | 1,392 | ||||||||||||||
| 1 — | This sensitivity reflects the liability movements only. As assets are invested to match the term of liabilities, there is little overall profit impact from a change to interest rates. | |
| 2 — | This ratio has only been adjusted for years that are not considered to be fully developed. |
TGI Australia ABN 12 000 041 458
|
12 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
2005
| Change in | Assumption at 12/05 | Profit/(Loss) (after tax) | ||||||||||||||||
| Variable | variable | Gross % | Net % | Gross $’000 | Net $’000 | |||||||||||||
Average weighted term to settlement |
+0.5 year | 3.5 | 3.6 | 2,008 | 1,386 | |||||||||||||
| -0.5 year | 3.5 | 3.6 | (2,163 | ) | (1,525 | ) | ||||||||||||
Reinsurance percentage |
+1% | n/a | 18.0 | — | 161 | |||||||||||||
(as % of gross IBNR) |
-1% | n/a | 18.0 | — | (161 | ) | ||||||||||||
Discount Rate1 |
+1% | 5.2 | 5.2 | 2,014 | 1,385 | |||||||||||||
| -1% | 5.2 | 5.2 | (2,148 | ) | (1,488 | ) | ||||||||||||
Expense Rate |
+1% | 21.9 | 21.9 | (669 | ) | (669 | ) | |||||||||||
| -1% | 21.9 | 21.9 | 669 | 669 | ||||||||||||||
Ultimate to incurred claims ratio2 |
+1% | 103.3 | 103.3 | (4,901 | ) | (3,268 | ) | |||||||||||
| -1% | 103.3 | 103.3 | 2,940 | 1,994 | ||||||||||||||
| 1 — | This sensitivity reflects the liability movements only. As assets are invested to match the term of liabilities, there is little overall profit impact from a change to interest rates. | |
| 2 — | This ratio has only been adjusted for years that are not considered to be fully developed. |
TGI Australia ABN 12 000 041 458
|
13 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
4. INSURANCE CONTRACTS – RISK MANAGEMENT POLICIES AND PROCEDURES.
The Company has an objective to control insurance risk thus reducing volatility. The company’s
policies and procedures in respect of managing risks are set out in this note below.
| a) | Objective in managing risks arising from insurance contracts and policies for mitigating those risks. | |
| In accordance with Prudential Standards GPS 220 Risk Management and GPS 230 Reinsurance Management issued by the Australian Prudential Regulation Authority (APRA), the Board and senior management have developed, implemented and maintain a sound and prudent Risk Management Strategy (RMS) and a Reinsurance Management Strategy (REMS). | ||
| The RMS and REMS identify the Company’s policies and procedures, processes and controls that comprise its risk management and control systems. These systems address all material risks, financial and non-financial, likely to be faced by the Company. Annually, the Board certifies to APRA that adequate strategies have been put in place to monitor those risks, that the Company has systems in place to ensure compliance with legislative and prudential requirements and that the Board has satisfied itself as to the compliance with the RMS and REMS. The RMS and REMS have been approved by both the Board and APRA. | ||
| Key aspects of the processes established in the RMS to mitigate risks include: |
| • | A formal regular process of risk identification and evaluation, supplemented by a documented control assessment process, is completed by management and communicated to the Board in line with the Board approved Risk Management Strategy. | ||
| • | Actuarial models, using information from management information systems, to monitor claims patterns and other relevant statistics. Past experience and statistical methods are used as part of the process. | ||
| • | The maintenance and use of various specialist information systems, which provide up to date and reliable data on claims liabilities. | ||
| • | Documented procedures that are followed by claims staff that are experienced in the various classes of business previously written. | ||
| • | Reinsurance has been used, to limit the Company’s exposure to large single claims. The REMS provides that exposures continue to be monitored and where feasible reinsurance be purchased as means of limiting risk. | ||
| • | The mix of investment assets is driven by the nature and term of the insurance liabilities. The management of assets and liabilities is closely monitored in an attempt to match the maturity dates of assets with the expected pattern of claim payments. |
| b) | Development of claims | |
| There is a possibility that changes may occur in the estimate of our obligations at the end of a contract period. The tables in note 15 show our estimates of total ultimate claims at successive year-ends. | ||
| c) | Terms and conditions of direct and inwards reinsurance business | |
| There is limited scope to improve the existing terms and conditions. The company is been in orderly run off since 1999, and no new contracts have been entered into since that time with the exception of the Riskcap self insurance program. | ||
| d) | Concentration of insurance risk | |
| The exposure to concentrations of insurance risk is able to be mitigated with the purchase of reinsurance where management believes that the price /risk transfer is suitable. | ||
| e) | Interest rate risk | |
| Interest rate risk arises to the extent that there is a mismatch between the fixed-interest portfolios used to back the outstanding claims liability and those outstanding claims. The interest rate risk is managed by matching the duration profiles of the investments assets and the outstanding claims liability. | ||
| f) | Credit risk | |
| Other than loans to related parties, there are no significant concentrations of credit risk. |
TGI Australia ABN 12 000 041 458
|
14 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
5. NET PREMIUM REVENUE
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Gross written premium |
1,681 | 1,760 | ||||||
Movement in unearned premium |
(59 | ) | (549 | ) | ||||
Premium revenue |
1,622 | 1,211 | ||||||
Outwards reinsurance expense |
722 | 592 | ||||||
Net Premium Revenue |
900 | 619 | ||||||
6. NET CLAIMS INCURRED
| 31-Dec-06 | 31-Dec-05 | |||||||||||||||||||||||
| Current | Prior | Current | Prior | |||||||||||||||||||||
| year | years | Total | year | years | Total | |||||||||||||||||||
| $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |||||||||||||||||||
Gross claims expense |
||||||||||||||||||||||||
Gross claims incurred — undiscounted |
2,202 | 15,435 | 17,637 | — | (16,528 | ) | (16,528 | ) | ||||||||||||||||
Discount movement |
(705 | ) | 4,403 | 3,698 | — | 9,361 | 9,361 | |||||||||||||||||
Claims incurred — discounted |
1,497 | 19,838 | 21,335 | — | (7,167 | ) | (7,167 | ) | ||||||||||||||||
Reinsurance and other recoveries revenues |
||||||||||||||||||||||||
Reinsurance and other recoveries — undiscounted |
— | (25,650 | ) | (25,650 | ) | — | (10,265 | ) | (10,265 | ) | ||||||||||||||
Discount movement |
— | 1,787 | 1,787 | — | (2,877 | ) | (2,877 | ) | ||||||||||||||||
Reinsurance and other recoveries — discounted |
— | (23,863 | ) | (23,863 | ) | — | (13,142 | ) | (13,142 | ) | ||||||||||||||
Net claims incurred — discounted |
1,497 | (4,025 | ) | (2,528 | ) | — | (20,309 | ) | (20,309 | ) | ||||||||||||||
Current year claims relate to risks borne in the current financial year. Prior year claims relate
to a reassessment of the risks borne in all previous financial years.
TGI Australia ABN 12 000 041 458
|
15 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
7. OPERATING EXPENSES
| 2006 | 2005 | |||||||
| Expenses by Nature | $’000 | $’000 | ||||||
Commission expense/(benefit) |
61 | (7 | ) | |||||
Write-off of Bad Debt |
4,212 | 42 | ||||||
Impairment expense — premium receivables |
44 | 37 | ||||||
Impairment expense/(benefit) — reinsurance receivables |
(3,977 | ) | (211 | ) | ||||
Investment management fees |
278 | 370 | ||||||
Other management fees |
1,562 | 2,226 | ||||||
External consultant costs |
58 | (48 | ) | |||||
Other expenses |
63 | 392 | ||||||
Total Expenses |
2,301 | 2,800 | ||||||
represented by: |
||||||||
General administration expenses included in net claims incurred |
(3,146 | ) | (4,157 | ) | ||||
Acquisition benefit |
— | (7 | ) | |||||
Other underwriting expenses |
61 | 207 | ||||||
General administration expenses |
5,386 | 6,757 | ||||||
Total expenses |
2,301 | 2,800 | ||||||
8. NET INVESTMENT REVENUE
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Interest |
6,551 | 9,215 | ||||||
Interest from related parties: |
||||||||
- other related parties |
2,564 | 1,424 | ||||||
Distributions received |
1,459 | 550 | ||||||
Changes in fair value of investments: |
||||||||
Realised (loss)/gain |
(1,879 | ) | 2,332 | |||||
Unrealised loss |
(2,309 | ) | (2,793 | ) | ||||
Total Net Investment Revenue |
6,386 | 10,728 | ||||||
TGI Australia ABN 12 000 041 458
|
16 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
9. INCOME TAX
(a) Analysis of income tax expense
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current tax |
591 | 5,199 | ||||||
Decrease in deferred tax assets |
3,819 | 2,986 | ||||||
Increase in deferred tax liabilities |
(1,777 | ) | 112 | |||||
(Under)/over provided in previous years |
(23 | ) | 426 | |||||
Income tax expense |
2,610 | 8,723 | ||||||
(b) Relationship between income tax expense and accounting profit
The table below provides a reconciliation of differences between prima facie tax calculated
as 30% of the profit before income tax for the period and the actual income tax expense
recognised in the income statement for the period.
In respect of income tax expense attributable to shareholders, the tax rate which applies in
both 2006 and 2005 is 30%.
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Operating profit before income tax |
8,061 | 29,622 | ||||||
Prima facie income tax at the rate of 30% |
2,418 | 8,886 | ||||||
Tax effect of differences between amounts of income and
expenses recognised for accounting and the amounts
deductible/assessable in calculating taxable income: |
||||||||
Non assessable income |
(281 | ) | — | |||||
Other |
473 | (589 | ) | |||||
Under provided in prior years — deferred tax balances |
— | 426 | ||||||
Income tax expense per income statement |
2,610 | 8,723 | ||||||
(c) Analysis of deferred tax asset
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Amounts recognised in income: |
||||||||
- Provision for doubtful debts |
586 | 1,766 | ||||||
- Accruals |
4 | 108 | ||||||
- Indirect Claims Costs Adjustments |
4,092 | 5,459 | ||||||
- Unrealised gains/losses |
— | 12 | ||||||
- Other |
1,026 | |||||||
Total deferred tax assets |
4,682 | 9,602 | ||||||
(d) Analysis of deferred tax liability
Amounts recognised in income |
||||||||
- Unrealised gains/losses |
25 | 225 | ||||||
- Other |
— | 1,578 | ||||||
Total deferred tax liability |
25 | 1,803 | ||||||
TGI Australia ABN 12 000 041 458
|
17 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
10. RECEIVABLES
| 31 Dec 06 | 31 Dec 05 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Premiums receivable — direct insurance |
— | 44 | ||||||
less provision for impairment of premium receivable |
— | (44 | ) | |||||
| — | — | |||||||
Other receivables |
4,172 | 4,734 | ||||||
less provision for impairment of other receivables |
— | (4,014 | ) | |||||
| 4,172 | 720 | |||||||
Other receivables from related parties |
||||||||
- other related parties |
3,013 | 789 | ||||||
Interest receivable from related parties |
||||||||
- other related parties |
273 | 1,411 | ||||||
Total current receivables |
7,458 | 2,920 | ||||||
In 2006, other receivables include income tax recoverable under the tax sharing agreement of
$3,415,000 as PAYG installments made throughout the year exceed the current tax payable.
The provision for impairment in 2005 of $4,014,000 was written off as a bad debt in 2006
11. REINSURANCE AND OTHER RECOVERIES
| 31 Dec 06 | 31 Dec 05 | |||||||
| $’000 | $’000 | |||||||
Expected future reinsurance and other recoveries undiscounted |
||||||||
- on claims paid |
6,138 | 11,309 | ||||||
- on outstanding claims |
45,252 | 38,118 | ||||||
Discount to present value |
(7,092 | ) | (5,716 | ) | ||||
less provision for impairment of reinsurance and other recoveries |
(1,954 | ) | (1,831 | ) | ||||
Reinsurance and other recoveries receivable |
42,344 | 41,880 | ||||||
Reinsurance and other recoveries receivable — current |
16,234 | 18,849 | ||||||
less provision for impairment of reinsurance and other recoveries |
(1,668 | ) | (1,486 | ) | ||||
Reinsurance and other recoveries receivable — Current |
14,566 | 17,363 | ||||||
Reinsurance and other recoveries receivable — non current |
28,063 | 24,862 | ||||||
less provision for impairment of reinsurance and other recoveries |
(285 | ) | (345 | ) | ||||
Refer to Note 15 for a reconciliation of the movement in reinsurance and other recoveries on
incurred claims over the year.
TGI Australia ABN 12 000 041 458
|
18 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
12. OTHER FINANCIAL ASSETS
| 31 Dec 06 | 31 Dec 05 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Quoted investments — at fair value: |
||||||||
Government and semi-government bonds |
1,364 | 12,128 | ||||||
Corporate bonds |
11,093 | 8,662 | ||||||
Deposit on futures |
287 | 106 | ||||||
| 12,744 | 20,896 | |||||||
Unquoted investments — at fair value: |
||||||||
Units held in cash managed trust |
||||||||
- Other related parties |
1,621 | 1,191 | ||||||
Units held in other unit trusts |
7,240 | 11,535 | ||||||
Loan — Other related parties |
58,715 | 45,013 | ||||||
| 67,576 | 57,739 | |||||||
Total current financial assets |
80,320 | 78,635 | ||||||
Non-Current |
||||||||
Quoted investments — at fair value: |
||||||||
Government and semi-government bonds |
32,236 | 46,472 | ||||||
Corporate bonds |
31,564 | 46,111 | ||||||
Derivatives |
(114 | ) | 288 | |||||
Total non current financial assets |
63,686 | 92,871 | ||||||
Total other financial asstes |
144,006 | 171,506 | ||||||
13. OTHER ASSETS
| 31 Dec 06 | 31 Dec 05 | |||||||
| $’000 | $’000 | |||||||
Deferred reinsurance expense |
332 | 237 | ||||||
Other — Prepayments |
32 | — | ||||||
| 364 | 237 | |||||||
Other Assets — Current |
364 | 237 | ||||||
| 364 | 237 | |||||||
TGI Australia ABN 12 000 041 458
|
19 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
14. UNEARNED PREMIUM
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current unearned premium |
750 | 809 | ||||||
Non-current unearned premium |
— | — | ||||||
Total unearned premium |
750 | 809 | ||||||
Unearned premium liability as at 1 January |
809 | 260 | ||||||
Deferral of premiums on contracts written in the period |
750 | 574 | ||||||
Earning of premiums written in previous periods |
(809 | ) | (25 | ) | ||||
Unearned premium liability as at 31 December |
750 | 809 | ||||||
During the year the unearned premium liability in respect of TGI was found to be
sufficient. As a result no unexpired risk reserve was required.
15. OUTSTANDING CLAIMS
| 31 Dec 06 | 31 Dec 05 | |||||||
| $’000 | $’000 | |||||||
Central estimate |
106,797 | 117,974 | ||||||
Risk margin |
15,444 | 18,560 | ||||||
Discount to present value |
(15,558 | ) | (22,804 | ) | ||||
Total Outstanding Claims |
106,683 | 113,730 | ||||||
Current |
24,868 | 29,904 | ||||||
Non-Current |
81,815 | 83,826 | ||||||
| 106,683 | 113,730 | |||||||
Investment assets in the form of debt securities are held to back the liability for outstanding
claims and are realised on a regular basis to meet claims. The amount of claims likely to be
settled within 12 months of the reporting date is classified as current.
| TGI Australia ABN 12 000 041 458 | 20 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
15. OUTSTANDING CLAIMS (continued)
Reconciliation of movement in discounted outstanding claims liability
| Gross | Reinsurance | Net | ||||||||||
| 2006 | $’000 | $’000 | $’000 | |||||||||
Amount outstanding brought forward |
113,730 | 41,880 | 71,850 | |||||||||
less Claim payments/recoveries received in the period |
(28,382 | ) | (23,557 | ) | (4,825 | ) | ||||||
Effect of change in assumptions |
21,922 | 24,068 | (2,146 | ) | ||||||||
Effect of change in exchange rates |
(587 | ) | (205 | ) | (382 | ) | ||||||
Outstanding amount brought forward |
106,683 | 42,186 | 64,497 | |||||||||
| Gross | Reinsurance | Net | ||||||||||
| 2005 | $’000 | $’000 | $’000 | |||||||||
Amount outstanding brought forward |
167,349 | 54,840 | 112,509 | |||||||||
less Claim payments/recoveries received in the period |
(41,836 | ) | (26,042 | ) | (15,794 | ) | ||||||
Effect of change in assumptions |
(11,072 | ) | 13,307 | (24,379 | ) | |||||||
Effect of change in exchange rates |
(711 | ) | (225 | ) | (486 | ) | ||||||
Outstanding amount brought forward |
113,730 | 41,880 | 71,850 | |||||||||
As described in note 1, the outstanding claims liability is the best estimate of the present value
of the expected future payments, after the inclusion of a risk margin. At each balance date, the
amount of the liability is reassessed and it is likely that changes will arise in the estimates of
liabilities. The table under show the estimates of total ultimate claims at successive year ends.
Estimate of Cumulative claims
| Net | Gross | |||||||
| $’000 | $’000 | |||||||
31 December 2001 |
652,869 | 959,696 | ||||||
31 December 2002 |
645,066 | 988,296 | ||||||
31 December 2003 |
632,396 | 970,761 | ||||||
31 December 2004 |
610,081 | 960,133 | ||||||
31 December 2005 |
596,238 | 956,555 | ||||||
31 December 2006 |
596,961 | 982,344 | ||||||
Estimate of Cumulative Claims at 31 December 2006 |
596,961 | 982,344 | ||||||
Cumulative Payments |
549,057 | 889,187 | ||||||
Undiscounted central estimate |
47,904 | 93,157 | ||||||
Effect of Discounting |
8,466 | 15,558 | ||||||
Discounted Central Estimate |
39,438 | 77,599 | ||||||
Risk Margin |
15,444 | |||||||
Claims Administration Expense Provision |
13,640 | |||||||
Gross Outstanding Claims as per the Balance Sheet |
106,683 | |||||||
| TGI Australia ABN 12 000 041 458 | 21 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
16. PAYABLES
| 31 Dec 06 | 31 Dec 05 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Trade creditors and other creditors |
1,413 | 1,394 | ||||||
Other creditors |
— | 774 | ||||||
Other borrowings from related parties
— other related parties |
77 | 56 | ||||||
| 1,490 | 2,224 | |||||||
17. ISSUED CAPITAL
| 31 Dec 06 | 31 Dec 05 | |||||||
| $’000 | $’000 | |||||||
Paid up capital: |
||||||||
15,000,000 Ordinary Shares at $2 per share |
30,000 | 30,000 | ||||||
(2005: 15,000,000 Ordinary Sharesat $2 per share) |
||||||||
Total |
30,000 | 30,000 | ||||||
Movement in share capital |
||||||||
Balance beginning of year |
30,000 | 30,000 | ||||||
Balance end of year |
30,000 | 30,000 | ||||||
Rights attaching to Ordinary Shares
Ordinary shares attract the following rights:
| (a) | to receive notice of and to attend and vote at all general meetings of the Company; |
||
| (b) | to receive dividends; and | ||
| (c) | in a winding up, to participate equally in the distribution of the assets of the Company (both capital and surplus), subject only to any amounts unpaid on the share. |
18. RETAINED PROFITS
| 31 Dec 06 | 31 Dec 05 | |||||||
| $’000 | $’000 | |||||||
Retained profits at beginning of the
financial year |
76,452 | 55,553 | ||||||
Operating profit/(loss) after Income Tax |
5,451 | 20,899 | ||||||
Dividend Paid |
(20,000 | ) | — | |||||
Retained Profits at the end of the
financial year |
61,903 | 76,452 | ||||||
| 31 Dec 06 | 31 Dec 05 | |||||||
| $’000 | $’000 | |||||||
Dividends paid on ordinary shares |
||||||||
- Dividend paid on 12 April 2006 |
20,000 | — | ||||||
Unfranked dividend of $1.33 per
share |
||||||||
Dividends paid during the year |
20,000 | — | ||||||
| TGI Australia ABN 12 000 041 458 | 22 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
Notes to the financial statements for the year ended 31 December 2006
19. FRANKING ACCOUNT
The AMP Limited group entered into Tax Consolidation during 2003. Under Tax Consolidation, the
franking account balances for group companies were transferred to the Head Entity, AMP Limited.
20. SEGMENT REPORTING
The company operated in one industry, being direct insurance, underwritten in Australia.
21. KEY MANAGEMENT PERSONNEL COMPENSATION
The following individuals were the key management personnel of TGI Australia Limited for the
current and prior reporting periods (unless stated otherwise):
| Date of Appointment/Resignation during the current or | ||
| Name | prior reporting period | |
Peter Clarke |
||
Richard Grellman |
||
Peter Hodgett |
||
Andrew Mohl |
||
William Roberts |
||
Bruce Robertson
|
09-05-2005, Resigned | |
Felix Zaccar |
||
The following table provides aggregate details of the compensation of key management personnel of
TGI Australia Limited.
| Short-term | Post- | Other long | ||||||||||||||||||||||
| employee | employment | -term | Termination | Share-based | ||||||||||||||||||||
| Year | benefits | benefits | benefits | benefits | payments | Total | ||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
2006 |
6,306,101 | 205,061 | — | — | 2,318,215 | 8,829,377 | ||||||||||||||||||
2005 |
5,737,253 | 254,791 | — | — | 2,079,046 | 8,071,090 | ||||||||||||||||||
Key management personnel disclosed above, also provided services to other related entities during
the year. The above remuneration amounts include all amounts paid for services rendered to related
entities and those services rendered to TGI Australia Limited.
22. AUDITORS’ REMUNERATION
Auditors’ remuneration for the year ended 31 December 2006 is paid on the Company’s behalf by a
controlled entity within the AMP Limited Group.
23. CONTINGENT LIABILITIES
There are no contingent liabilities as at 31 December 2006 (2005: Nil).
| TGI Australia ABN 12 000 041 458 | 23 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
24. RELATED PARTIES
Controlling Entity
The immediate parent entity is AMP General Insurance Limited. AMP Limited is the ultimate parent
entity.
Directors
The directors of the company during the financial year and the dates of appointments and
resignations during the year are:
| Date of Appointment/Resignation | ||
| during the current or prior | ||
| Name | reporting period | |
Peter Clarke |
||
Richard Grellman |
||
Peter Hodgett (alternate for Andrew Mohl) |
||
Andrew Mohl |
||
William Roberts |
||
Bruce Robertson
|
09-05-2005, Resigned | |
Felix Zaccar |
||
Other Transactions
The directors and their director related entities receive normal dividends on their ordinary share
holdings in AMP Limited.
Other transactions with key management personnel of the Company
During the year, transactions were entered into between Directors or their Director related
entities and entities within the AMP Limited Group. These transactions are within a normal
employee, customer or supplier relationship on terms and conditions no more favourable than those
available to other employees, customers or members (unless otherwise described below) and include:
| • | normal personal banking with AMP Bank Limited including the provision of credit cards; | |
| • | the purchase of AMP superannuation and related products; | |
| • | financial investment services; | |
| • | other advisory services. |
These transactions do not have the potential to adversely affect the decisions about the allocation
of scarce resources made by users of the entity’s financial statements, or discharge of
accountability by key management personnel. The transactions are considered to be trivial or
domestic in nature.
TGI Australia ABN 12 000 041 458
|
24 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
24. RELATED PARTIES (continued)
Transactions with Related Parties
Transactions between TGI Australia Limited and other related parties for the financial year
consisted of:
| • | Payment of management fees for services provided | ||
| • | Provision of share capital | ||
| • | Provision of intercompany loans | ||
| • | Underwriting the self insurance program of the AMP group |
The aggregate amounts brought to account in respect of the following types of transactions and each
class of related party involved were:
| 31 Dec 06 | 31 Dec 05 | |||||||
| $ | $ | |||||||
Amounts attributable to transactions with related parties |
||||||||
Operating profit/(loss) before income tax for the financial year includes
aggregate amounts attributable to transactions in respect of: |
||||||||
Gross Written Premium — other related parties |
1,081,000 | 1,153,000 | ||||||
Investment Expenses — other related parties |
226,061 | 369,933 | ||||||
Management Expense — other related parties |
4,857,230 | 6,402,314 | ||||||
Interest Received — other related parties |
2,564,102 | 1,423,555 | ||||||
Aggregate amounts receivable at balance date from: |
||||||||
Current |
||||||||
Receivable — other related parties |
3,013,123 | 789,266 | ||||||
Interest receivable — other related parties |
272,567 | 1,410,533 | ||||||
Interest Bearing Loans — other related parties |
58,715,091 | 45,013,022 | ||||||
Aggregate amounts payable at balance date to: |
||||||||
Current |
||||||||
Payables — other related parties |
77,302 | 56,000 | ||||||
AMP Capital Investors Limited, a related entity within the wholly owned group, manages the majority
of the investments of the company under a management contract which follows the normal terms and
conditions for such contracts. Fees are paid or are due and payable for the management of
investment portfolios under normal terms and conditions.
AMP Services Limited and Enstar Australia Limited (formerly Cobalt Solutions Australia Limited),
fellow wholly controlled entities, provide operational and administrative (including employee
related) services to the company with the exception of certain financing arrangements, finance
leasing and agent related services. The services provided are in the normal course of the business
and are on normal commercial terms and conditions.
TGI Australia Limited continues to administer the self insurance program of the AMP Group for
underwriting years 2001/2002 and 2002/2003 as well as providing certain AMP Life subsidiaries with
professional indemnity cover via the reactivated RiskCap program.
TGI Australia ABN 12 000 041 458
|
25 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
25. CASH FLOW RECONCILIATION
(i) Reconciliation of cash
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
| Cash on Trust | 1,622 | 1,191 | ||||||
| Cash at call | 971 | 437 | ||||||
| 2,592 | 1,628 | |||||||
| (ii) Reconciliation of net cash flows from operating activities to operating profit after income tax: | ||||||||
Operating profit / (loss) after income tax |
5,452 | 20,899 | ||||||
Changes in net market value of investments |
1,879 | (2,332 | ) | |||||
Net (gain)/loss on sale of investments |
2,309 | 2,793 | ||||||
Bad debts written off |
4,212 | — | ||||||
Changes in assets and liabilities |
||||||||
(Increase) / decrease in accrued interest |
(2,564 | ) | — | |||||
(Increase) / decrease in premium debtors |
44 | 6 | ||||||
Increase / (decrease) in doubtful debts provision |
(3,934 | ) | (175 | ) | ||||
Decrease / (increase) in receivables |
(5,958 | ) | 1,446 | |||||
Increase / (decrease) in unearned premium provision |
(58 | ) | 549 | |||||
Decrease / (increase) in reinsurance recoveries |
(586 | ) | 13,139 | |||||
Increase / (decrease) in accounts payable |
(734 | ) | (574 | ) | ||||
Increase / (decrease) in claims outstanding |
(7,048 | ) | (53,619 | ) | ||||
Increase / (decrease) in tax provisions |
552 | (5,969 | ) | |||||
Net cash outflow from operating activities |
(6,434 | ) | (23,838 | ) | ||||
TGI Australia ABN 12 000 041 458
|
26 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
26. FINANCIAL INSTRUMENTS AND DERIVATIVES
(a) Specific purposes for which derivative transactions are undertaken
The Company uses derivatives in the following way:
Investment management operations
The Company has given authority to AMP Capital Investors Limited (the investment manager) to use
derivatives in managing investment portfolios. There may be various reasons why investment in
derivatives is more appropriate than investment in the underlying physical asset including hedging,
liquidity and pricing.
The types of derivatives which the investment manager uses are interest rate swaps and futures.
(b) Extent of derivative transactions
| Notional | Net market | Notional | Net market | |||||||||||||
| value | value | value | value | |||||||||||||
| 31 Dec 2006 | 31 Dec 2006 | 31 Dec 2005 | 31 Dec 2005 | |||||||||||||
| $’000 | $’000 | $’000 | $’000 | |||||||||||||
Investment management operations |
||||||||||||||||
Commercial Bond contract |
19,286 | 213 | 25,560 | 288 | ||||||||||||
The notional value refers to the value of the underlying assets of the derivatives contract. The
fair value is the unrealised gain/(loss) on the outstanding contracts.
The interest rate contracts used by the Company are for hedging purposes.
(c) Fair Values
The recorded bid price equates to net fair value for listed debt and equity securities. For
derivative contracts, fair value equates to the unrealised gain/loss on the outstanding contract.
For the following financial instruments, the cost carrying amount is considered to equate to their
fair value:
| • | cash deposits |
| • | loans to related parties |
| • | receivables |
| • | payables. |
(d) Special terms and conditions
All financial instruments of the Company are held or issued on normal commercial terms at market
rates of interest. There are no special terms or conditions affecting the nature and timing of the
financial instruments not otherwise disclosed in these accounts. The accounting policies and terms
and conditions for each class of financial asset or liability at the balance date are detailed in
Note 1 and throughout the other notes to these financial statements.
TGI Australia ABN 12 000 041 458
|
27 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
26. FINANCIAL INSTRUMENTS AND DERIVATIVES (continued)
(e) Credit risk
Trading investments are recorded in the accounts at fair value which represents the Company’s
exposure to credit risk in relation to these instruments. The Company’s credit risk exposure to
derivatives is the fair value as recorded above.
The credit risk of the Company arising from exposure to individual entities in investment
portfolios is monitored and controlled by AMP Capital Investors Limited in accordance with Credit
Policy guidelines.
Credit risk in trade receivables in managed by analysing the credit ratings of the underlying
debts.
(f) Interest rate risk on financial instruments
The accounting policy notes describe the policies used to measure and report the assets and
liabilities of the Company. Where the applicable market value is determined by discounting future
cash flows, movements in interest rates will result in a reported unrealised gain or loss in the
profit and loss account.
AMP Capital Investors Limited manages investment portfolios on behalf of the Company. The Company
seeks to reduce its interest rate risk through the use of investment portfolios as a hedge against
the insurance liabilities of the Company. To the extent that these assets and liabilities can be
matched, unrealised gains or losses on revaluation of liabilities resulting from interest rate
movements will be offset by unrealised losses or gains on revaluation of investment assets.
The Company uses derivatives to manage the interest rate risk on its other interest sensitive
assets and liabilities set out in Note 25(a).
The Company’s exposure to interest rate risks and the effective interest rates of financial assets
and liabilities at the reporting date, are as follows:
TGI Australia ABN 12 000 041 458
|
28 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
26. FINANCIAL INSTRUMENTS AND DERIVATIVES (continued)
| Fixed interest rate | ||||||||||||||||||||||||||||||||||||||||
| Floating | Maturing in | Non | Weighted | |||||||||||||||||||||||||||||||||||||
| Interest | 0-1 | 1-2 | 2-3 | 3-4 | 4-5 | > 5 | Interest | Average | ||||||||||||||||||||||||||||||||
| Rate | year | years | years | years | years | years | Bearing | Total | Interest | |||||||||||||||||||||||||||||||
| For the year ended 2006 | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | rate | ||||||||||||||||||||||||||||||
Financial Assets |
||||||||||||||||||||||||||||||||||||||||
Receivables |
7,458 | 7,458 | ||||||||||||||||||||||||||||||||||||||
Debtors and Reinsurance |
44,388 | 44,388 | ||||||||||||||||||||||||||||||||||||||
Cash at bank |
971 | 971 | 4.90 | % | ||||||||||||||||||||||||||||||||||||
Cash Trusts |
1,621 | 1,621 | 6.00 | % | ||||||||||||||||||||||||||||||||||||
Other Trusts |
7,240 | 7,240 | ||||||||||||||||||||||||||||||||||||||
Government and Semi-
government stocks and bonds |
1,364 | 13,502 | 18,737 | 33,603 | 5.79 | % | ||||||||||||||||||||||||||||||||||
Corporate bonds |
11,093 | 7,498 | 9,110 | 3,949 | 3,232 | 7,777 | 42,659 | 6.64 | % | |||||||||||||||||||||||||||||||
Deposits on Futures |
287 | 287 | ||||||||||||||||||||||||||||||||||||||
Derivatives |
(114 | ) | (114 | ) | ||||||||||||||||||||||||||||||||||||
Related Party Loan |
58,715 | 58,715 | 7.06 | % | ||||||||||||||||||||||||||||||||||||
Total Financial Assets |
2,592 | 71,172 | 21,000 | 9,110 | 3,949 | 3,232 | 26,514 | 59,259 | 196,828 | |||||||||||||||||||||||||||||||
Financial Liabilities |
||||||||||||||||||||||||||||||||||||||||
Payables |
1,490 | 1,490 | ||||||||||||||||||||||||||||||||||||||
Total Financial Liabilities |
— | — | — | — | — | — | — | 1,490 | 1,490 | |||||||||||||||||||||||||||||||
| Fixed interest rate | ||||||||||||||||||||||||||||||||||||||||
| Floating | Maturing in | Non | Weighted | |||||||||||||||||||||||||||||||||||||
| Interest | 0-1 | 1-2 | 2-3 | 3-4 | 4-5 | > 5 | Interest | Average | ||||||||||||||||||||||||||||||||
| Rate | year | years | years | years | years | years | Bearing | Total | Interest | |||||||||||||||||||||||||||||||
| For the year ended 2005 | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | $000’s | rate | ||||||||||||||||||||||||||||||
Financial Assets |
||||||||||||||||||||||||||||||||||||||||
Receivables |
6,978 | 6,978 | ||||||||||||||||||||||||||||||||||||||
Debtors and Reinsurance |
43,711 | 43,711 | ||||||||||||||||||||||||||||||||||||||
Cash at bank |
437 | 437 | 4.48 | % | ||||||||||||||||||||||||||||||||||||
Cash Trusts |
1,191 | 1,191 | 5.44 | % | ||||||||||||||||||||||||||||||||||||
Other Trusts |
11,535 | 11,535 | ||||||||||||||||||||||||||||||||||||||
Government and Semi-
government stocks and bonds |
12,128 | 3,084 | 10,568 | 3,732 | 653 | 28,435 | 58,600 | 5.12 | % | |||||||||||||||||||||||||||||||
Corporate bonds |
8,662 | 12,744 | 12,121 | 6,901 | 5,644 | 8,701 | 54,773 | 5.81 | % | |||||||||||||||||||||||||||||||
Deposits on Futures |
106 | 106 | ||||||||||||||||||||||||||||||||||||||
Derivatives |
288 | 288 | ||||||||||||||||||||||||||||||||||||||
Related Party Loan |
45,013 | 45,013 | 6.79 | % | ||||||||||||||||||||||||||||||||||||
Total Financial Assets |
1,628 | 20,790 | 15,828 | 22,689 | 10,633 | 6,297 | 37,136 | 62,618 | 222,632 | |||||||||||||||||||||||||||||||
Financial Liabilities |
||||||||||||||||||||||||||||||||||||||||
Payables |
2,224 | 2,224 | ||||||||||||||||||||||||||||||||||||||
Total Financial Liabilities |
— | — | — | — | — | — | — | 2,224 | 2,224 | |||||||||||||||||||||||||||||||
TGI Australia ABN 12 000 041 458
|
29 of 31 | |
TGI Australia Ltd
Notes to the financial statements for the year ended 31 December 2006
27. CAPITAL ADEQUACY
| $’000 | $’000 | |||||||
Tier 1 Capital |
||||||||
Paid-up ordinary shares |
30,000 | 30,000 | ||||||
General reserves |
— | — | ||||||
Retained earnings |
56,452 | 55,553 | ||||||
Current year earnings |
5,330 | 20,899 | ||||||
Excess technical provisions (net of tax) |
— | — | ||||||
Less : deductions |
(5,683 | ) | (27,799 | ) | ||||
Net Tier 1 Capital |
86,099 | 78,653 | ||||||
Net Tier 2 Capital |
— | — | ||||||
Total Capital Base |
86,099 | 78,653 | ||||||
Minimum Capital Requirement |
19,769 | 43,829 | ||||||
Capital adequacy multiple |
4.36 | 1.79 | ||||||
The entity complies with Prudential Standard GPS110 and the requirements set out in its insurance
licence.
TGI Australia ABN 12 000 041 458
|
30 of 31 | |
Report of Independent Auditors
The Board of Directors of TGI Australia Limited
We have audited the accompanying balance sheets of TGI Australia Limited as of December 31, 2006
and 2005, and the related income statements, statements of changes in equity, and cash flow
statements for the years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of TGI Australia Limited at December 31, 2006 and 2005, and the
results of its operations and its cash flows for the years then ended in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Sydney, Australia
May 15, 2008
Liability limited by a scheme
approved under Professional
Standards Legislation
approved under Professional
Standards Legislation
Exhibit 99.4
ENSTAR AUSTRALIA LIMITED
(Formerly COBALT SOLUTIONS AUSTRALIA LIMITED)
(Formerly COBALT SOLUTIONS AUSTRALIA LIMITED)
ABN 99 096 363 923
FINANCIAL REPORT
31 DECEMBER 2007
31 DECEMBER 2007
Contents:
| Page | ||||
Financial Report |
||||
- Income Statement |
2 | |||
- Balance Sheet |
3 | |||
- Statement of Cash Flows |
4 | |||
- Statement of Changes in Equity |
5 | |||
Notes to the Financial Statements |
6 | |||
Report of Independent Auditors |
20 | |||
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Income Statement
For the year ended 31 December 2007
For the year ended 31 December 2007
| 2007 | 2006 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Revenues |
2 | 28,948 | 30,020 | |||||||||
Expenses |
3 | (21,165 | ) | (23,748 | ) | |||||||
Profit before income tax expense |
7,783 | 6,272 | ||||||||||
Income tax expense |
4 | (1,840 | ) | (2,459 | ) | |||||||
Net profit after income tax
expense, attributable to
members of Enstar Australia
Limited (formerly Cobalt
Solutions Australia Limited) |
5,943 | 3,813 | ||||||||||
The above Income Statement should be read in conjunction with the accompanying notes.
Page 2 of 19
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Balance Sheet
As at 31 December 2007
As at 31 December 2007
| 2007 | 2006 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Current Assets |
||||||||||||
Cash & Cash equivalents |
12 | 8,032 | 8,990 | |||||||||
Receivables |
5 | 7,910 | 6,291 | |||||||||
Total current assets |
15,942 | 15,281 | ||||||||||
Non-current assets |
||||||||||||
Plant & Equipment |
6 | 14 | 34 | |||||||||
Deferred tax assets |
4 | 988 | 717 | |||||||||
Total non-current assets |
1,002 | 751 | ||||||||||
Total assets |
16,944 | 16,032 | ||||||||||
Current liabilities |
||||||||||||
Payables |
7 | 3,942 | 4,815 | |||||||||
Deferred Income |
8 | 37 | — | |||||||||
Current tax liabilities |
102 | — | ||||||||||
Total current liabilities |
4,081 | 4,815 | ||||||||||
Non-current liabilities |
||||||||||||
Payables |
7 | 703 | — | |||||||||
Total non-current liabilities |
703 | — | ||||||||||
Total liabilities |
4,784 | 4,815 | ||||||||||
Net assets |
12,160 | 11,217 | ||||||||||
Equity |
11 | — | — | |||||||||
Retained profits |
12,160 | 11,217 | ||||||||||
Total equity |
12,160 | 11,217 | ||||||||||
The above Balance Sheet should be read in conjunction with the accompanying notes.
Page 3 of 19
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Statement of Cash Flows
For the year ended 31 December 2007
For the year ended 31 December 2007
| 2007 | 2006 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Cash flows from operating activities |
||||||||||||
Cash receipts in the course of operations |
63,074 | 72,560 | ||||||||||
Cash payments in the course of operations |
(56,062 | ) | (69,967 | ) | ||||||||
Investment income received |
522 | 940 | ||||||||||
Income tax paid |
(3,487 | ) | (5,672 | ) | ||||||||
Cash flows from operating activities |
12 | 4,047 | (2,139 | ) | ||||||||
Cash flows from investing activities |
||||||||||||
Payments for plant and equipment |
(5 | ) | (29 | ) | ||||||||
Cash flows used in investing activities |
(5 | ) | (29 | ) | ||||||||
Cash flows from financing activities |
||||||||||||
Dividend Paid |
(5,000 | ) | (18,000 | ) | ||||||||
Cash flows used in financing activities |
(5,000 | ) | (18,000 | ) | ||||||||
Net increase/(decrease) in cash held |
(958 | ) | (20,168 | ) | ||||||||
Balance at the beginning of the year |
8,990 | 29,158 | ||||||||||
Balance at the end of the year |
12 | 8,032 | 8,990 | |||||||||
The above Statement of Cash Flows should be read in conjunction with the accompanying notes.
Page 4 of 19
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Statement Of Changes in Equity
For the year ended 31 December 2007
| Issued | Accumulated | |||||||||||||||
| Capital | Profit | Total | ||||||||||||||
| Note | $’000 | $’000 | $’000 | |||||||||||||
Balance as at 1 January 2007 |
— | 11,217 | 11,217 | |||||||||||||
Net Profit after income tax |
5,943 | 5,943 | ||||||||||||||
Total Recognised income and expense |
5,943 | 5,943 | ||||||||||||||
Dividends paid & payable |
10 | (5,000 | ) | (5,000 | ) | |||||||||||
Balance as at 31 December 2007 |
— | 12,160 | 12,160 | |||||||||||||
Balance as at 1 January 2006 |
— | 17,404 | 17,404 | |||||||||||||
Net Profit after income tax |
3,813 | 3,813 | ||||||||||||||
Total Recognised income and expense |
3,813 | 3,813 | ||||||||||||||
Dividends paid & payable |
10 | (10,000 | ) | (10,000 | ) | |||||||||||
Balance as at 31 December 2006 |
— | 11,217 | 11,217 | |||||||||||||
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Page 5 of 19
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Preparation
This Financial Report, comprising the financial statements and the notes thereto, complies with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
Where necessary, comparative information has been reclassified to be consistent with current period
disclosures.
The Financial Report has been prepared in accordance with the historical cost convention except for
investments, which have been measured at fair value.
Accounting judgements and estimates
In the course of its operations the company applies judgements and makes estimates that affect the
amounts recognised in the financial report. Estimates are based on a combination of historical
experience and expectations of future events that are believed to be reasonable at the time.
Accounting Standards issued but not yet effective
Accounting Standards that have recently been issued or amended but are not yet effective have not
been adopted for the reporting period ending 31 December 2007, except IFRS8 Operating Segments. The
adoption of IFRS8 has removed the requirement for Operating Segment disclosures in this Financial
Report.
When applied in future periods, all other recently issued or amended standards are not expected to
have a material impact on the company’s results or financial position; however they may impact
Financial Report disclosures.
Changes in accounting policy
Since 1 January 2007, the company has adopted a number of Accounting Standards and Interpretations
which were mandatory for annual periods beginning on or after 1 January 2007. Adoption of these
Standards and Interpretations has not had any effect on the financial position or performance of
the Company.
b) Revenue Recognition
Rendering of Services
Revenue from the rendering of services is recognised in the period in which the service is
provided, having regard to the stage of completion of the contract.
In certain circumstances revenue may be received in advance of the period to which it relates. In
these instances, the revenue is deferred to future periods as disclosed in Deferred Income, Note 8
to the accounts.
Interest Income
Interest income is recognised when the right to receive interest has been established.
Page 6 of 20
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
c) Taxes
Income tax
Income tax expense is the tax payable on taxable income for the current period based on the income
tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities
attributable to:
| (i) | temporary differences between the tax bases of assets and liabilities and their balance sheet carrying amounts, and | ||
| (ii) | unused tax losses. |
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates
expected to apply when the assets are recovered or liabilities are settled, based on those tax
rates which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary
differences to measure the deferred tax asset or liability. An exception is made for certain
temporary differences arising from the initial recognition of an asset or a liability. No deferred
tax asset or liability is recognised in relation to these temporary differences if they arose in a
transaction, other than a business combination, that at the time of the transaction did not affect
either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only
if it is probable that future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the
carrying amount and tax bases of investments in controlled entities where the parent entity is able
to control the timing of the reversal of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future.
The tax impact on income and expense items recognised directly in equity is also recognised
directly in equity.
Deferred tax is not discounted to present value.
Tax Consolidation
AMP Limited, Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd), and certain other
wholly owned controlled entities of AMP Limited comprise a tax-consolidated group of which AMP
Limited is the head entity. The implementation date for the tax-consolidated group was 30 June
2003.
Under tax consolidation, AMP Limited as head entity, assumes the following balances from
subsidiaries within the tax-consolidated group:
| i) | Current tax balances arising from external transactions recognised by entities in the tax- consolidated group occurring after the implementation date, and; | |
| ii) | Deferred tax assets arising from unused tax losses and unused tax credits recognised by entities in the tax-consolidated group occurring after the implementation date. |
A tax funding agreement has been entered into by the head entity and the controlled entities in the
tax-consolidated group. Controlled entities in the tax-consolidated group will continue to be
responsible, by the operation of the tax funding agreement, for funding tax payments required to be
made by the head entity arising from underlying transactions of the controlled entities. Controlled
entities will make (receive) contributions to (from) the head entity for the balances recognised by the head entity
described in (i) and (ii) above. The contributions will be calculated in accordance with the tax
funding agreement. .
Page 7 of 20
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The entity will be required to make a payment to terminate its liability under the tax funding
agreement if it leaves the tax consolidation group.
The contributions are payable as set out in the agreement and reflect the timing of AMP Limited’s
obligations to make payments to the relevant tax authorities.
Assets and liabilities which arise as a result of balances transferred from entities within the tax
consolidated group to the head entity, are recognised as related party balances receivable and
payable in the Balance sheet. The recoverability of balances arising from the tax funding
arrangements is based on the ability of the tax-consolidated group to utilise the amounts
recognised by the head entity.
Cobalt UK Branch
Tax losses arising in the UK branch will be recognised as a deferred tax asset to the extent it is
considered probable that they will be available to be offset against assessable income available in
a related party in the UK
Goods and Services Tax
All revenues, expenses and assets are recognised net of any GST paid, except where they relate to
products and services which are input taxed for GST purposes or the GST incurred is not recoverable
from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of the cost of acquisition of the assets or as part of the particular expense.
from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of the cost of acquisition of the assets or as part of the particular expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from or payable to the tax authorities is included as a receivable or payable in the
balance sheet.
Cash flows are reported on a gross basis reflecting any GST paid or collected. The GST component of
cash flows arising from investing or financing activities which are recoverable from, or payable
to, local tax authorities are classified as operating cash flows.
d) Foreign Currencies
Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic
environment in which that entity operates (the functional currency).
The presentation currency of this Financial Report, and the functional currency of the parent
entity, is Australian dollars.
Transactions and balances
Revenue and expenditure items denominated in a currency other than the functional currency are
translated at the spot exchange rate at the date of transaction. Monetary assets and liabilities
denominated in foreign currencies are translated at the rate of exchange ruling at the balance
sheet date, with exchange gains and losses being recognised in the income statement.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value was determined.
Page 8 of 20
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
e) Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand that is available on demand and deposits that are
held at call with financial institutions. Cash and cash equivalents are carried at fair value,
being the principal amount.
For the purpose of the cash flow statement, cash also includes other highly liquid investments not
subject to significant risk of change in value, with short periods to maturity net of outstanding
bank overdrafts.
f) Receivables
Receivables are carried at nominal amounts due less any provision for impairment. A provision for
impairment is recognised when collection of the full nominal amount is no longer probable.
Impairment of an asset is reviewed each balance date. Any applicable terms or conditions are set
out in Note 5.
g) Plant & Equipment
Cost
Plant & equipment is carried at historical cost less accumulated depreciation and any accumulated
impairment losses.
Depreciation
Items of plant and equipment are depreciated over their estimated useful lives.
The assets residual lives, useful lives and amortisation methods are reviewed, and adjusted for if
appropriate, at each financial year end.
The depreciation rates and method used for each class, for the current year, is:
| Depreciation rate | Depreciation method | |||||||
Computer racks |
10 | % | Straight line | |||||
Computer hardware(pre Oct 06) |
25 | % | Straight line | |||||
Computer hardware(post Oct06) |
20 | % | Straight line | |||||
Computer peripherals |
40 | % | Straight line | |||||
Computers |
50 | % | Straight line | |||||
h) Leases
Leases are classified at their inception as either operating or finance leases based on the
economic substance of the agreement so as to reflect the risks and benefits incidental to
ownership.
Operating leases
The minimum lease payments of operating leases, where the lessor effectively retains substantially
all of the risks and benefits of ownership of the leased item, are recognised as an expense on a
straight-line basis.
Contingent rentals are recognised as an expense in the financial year in which they are incurred.
Finance leases
There are no leases that have been classified as finance leases.
Page 9 of 20
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
i) Payables
Trade Creditors and accruals are recognised as liabilities for amounts to be paid in the future for
goods and services received, whether or not billed to the entity.
Terms and conditions are set out in Note 7.
j) Issued Capital
Issued and paid up capital is recognised at the fair value of the consideration received by the
company. Any transaction costs arising on the issue of ordinary shares are recognised directly in
equity as a reduction of the share proceeds received.
2. REVENUE
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Revenue from operating activities: |
||||||||
Management fees |
28,458 | 29,083 | ||||||
Total Revenue from operating activities |
28,458 | 29,083 | ||||||
Revenue from non-operating activities |
||||||||
Investment income |
490 | 937 | ||||||
Total Revenue from non-operating activities |
490 | 937 | ||||||
Total Revenues |
28,948 | 30,020 | ||||||
3. EXPENSES
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Profit before income tax is arrived after charging the following items: |
||||||||
Personnel Costs |
15,153 | 16,206 | ||||||
Occupancy and Related property expenses |
2,904 | 3,440 | ||||||
IT & Communication |
1,227 | 1,623 | ||||||
Advertising & Promotions |
425 | 484 | ||||||
Other expenses |
1,456 | 1,995 | ||||||
Total expenses |
21,165 | 23,748 | ||||||
The majority of the costs above are incurred by way of management fee paid to AMP Services Ltd.
Page 10 of 20
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
4. INCOME TAX
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
a) Analysis of income tax expense |
||||||||
Current tax |
2,125 | 1,663 | ||||||
Decrease in deferred tax assets |
96 | 458 | ||||||
Write off of prior year losses |
— | 338 | ||||||
Over provided in previous years |
(381 | ) | — | |||||
Income tax expense |
1,840 | 2,459 | ||||||
b) Relationship between income tax expense and accounting profit
The table below provides a reconciliation of differences between prima facie tax calculated as
30% of the profit before income tax for the period and the actual income tax expense recognised
in the income statement for the period.
In respect of income tax expense, the tax rate which applies in both 2007 and 2006 is 30% for Australia
and UK.
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Operating profit before income tax |
7,783 | 6,272 | ||||||
Prima facie income tax calculated at 30% (2006: 30 %) |
2,335 | 1,882 | ||||||
Tax effect of differences between amounts of income and
expenses recognised for accounting and the amounts
deductible/assessable in calculating taxable income: |
||||||||
Other |
(495 | ) | 577 | |||||
Income tax expense per income statement |
1,840 | 2,459 | ||||||
c) Analysis of deferred tax asset
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Amounts recognised in income: |
||||||||
Accruals |
288 | 308 | ||||||
Other |
149 | 409 | ||||||
Current year’s tax losses |
368 | — | ||||||
Prior year’s tax losses |
183 | — | ||||||
Total deferred tax assets |
988 | 717 | ||||||
Page 11 of 20
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
5. RECEIVABLES (CURRENT)
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Trade debtors |
94 | 88 | ||||||
Amounts receivable from related parties |
7,506 | 2,680 | ||||||
Other debtors |
310 | 3,523 | ||||||
Total receivables (current) |
7,910 | 6,291 | ||||||
Amounts receivable from related parties are settled pursuant to client management agreements.
Other receivables are non-interest bearing and are normally settled on 30-day terms.
6. PLANT AND EQUIPMENT
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Gross carrying amount |
89 | 83 | ||||||
Less accumulated depreciation and impairment loss |
75 | 49 | ||||||
Total Plant & Equipment |
14 | 34 | ||||||
Carrying amount at beginning of the year |
34 | 37 | ||||||
Additions |
5 | 29 | ||||||
Recoverable amount write-down |
— | (5 | ) | |||||
Depreciation expense |
(25 | ) | (27 | ) | ||||
Total Plant & Equipment |
14 | 34 | ||||||
7. PAYABLES
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Amount due to other related parties |
1,599 | 2,331 | ||||||
Sundry Payables |
146 | 146 | ||||||
Trade creditors and accruals |
2,197 | 2,338 | ||||||
Payables (current) |
3,942 | 4,815 | ||||||
Other Payables |
703 | — | ||||||
Payables (non-current) |
703 | — | ||||||
Total Payables |
4,645 | — | ||||||
Sundry payables are non-interest bearing balances due to third parties pursuant to client
management agreements. Trade creditors are non-interest bearing and are normally settled on less
than 30 day terms.
Page 12 of 20
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
8. DEFERRED INCOME (CURRENT)
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Deferred Income |
37 | — | ||||||
Total Deferred Income (current) |
37 | — | ||||||
9. PROVISIONS (CURRENT)
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Provision for dividend payable |
— | — | ||||||
Total Provisions |
— | — | ||||||
Movements in Provisions |
||||||||
Balance at the beginning of the year |
— | 8,000 | ||||||
Additional provisions recognised (dividend Payable ) |
5,000 | — | ||||||
Amount paid during the period |
(5,000 | ) | (8,000 | ) | ||||
Unused amounts reversed during the period |
— | — | ||||||
Balance at the end of the year |
— | — | ||||||
10. DIVIDENDS PAID
| 2007 | 2006 | |||||||||||
| $’000 | $’000 | |||||||||||
| (a) Dividends paid on ordinary shares during the year | ||||||||||||
| - | Dividend paid on 27 June 2007 |
5,000 | — | |||||||||
Unfranked Dividend of $2.5m per Ordinary Share |
||||||||||||
| - | Dividend paid on 9 February 2006 |
— | 8,000 | |||||||||
Unfranked Dividend of $4m per Ordinary Share |
||||||||||||
| - | Dividend paid on 27 June 2006 |
— | 10,000 | |||||||||
Unfranked Dividend of $5m per Ordinary Share |
||||||||||||
| Dividends paid during year | 5,000 | 18,000 | ||||||||||
11. CONTRIBUTED EQUITY
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Issued & Paid up capital |
||||||||
Two fully paid ordinary shares at $1 each |
2 | 2 | ||||||
Ordinary shares attract the following rights:
| (a) | to receive notice of and to attend and vote at all general meetings of the Company; | |
| (b) | to receive dividends; and in a winding up, to participate equally in the distribution of the assets of; | |
| (c) | the Company (both capital and surplus), subject only to any amounts unpaid on the share. |
Page 13 of 20
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
12. STATEMENT OF CASH FLOWS
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
(a) Reconciliation of the profit after tax to the net cash
flows from operating activities |
||||||||
Net Profit after tax |
5,943 | 3,813 | ||||||
Non-Cash Items: |
||||||||
Depreciation and impairment of plant & equipment |
25 | 32 | ||||||
Changes in assets/liabilities: |
||||||||
(Increase)/decrease in receivables/other assets |
(1,619 | ) | (4,508 | ) | ||||
Decrease/(Increase) in current year tax losses |
(338 | ) | 338 | |||||
(Increase)/decrease in prior year tax overprovision |
(381 | ) | — | |||||
(Increase)/decrease in deferred tax assets |
67 | 287 | ||||||
Increase/(decrease) in current Tax liabilities |
484 | (2,153 | ) | |||||
Increase/(decrease) in payables/ deferred income/provisions |
(133 | ) | 52 | |||||
Net cash flows from/(used in) operating activities |
4,047 | (2,139 | ) | |||||
(b) Reconciliation of cash |
||||||||
Cash balance comprises: |
||||||||
- cash at bank |
8,032 | 8,990 | ||||||
Closing cash balance |
8,032 | 8,990 | ||||||
13. FRANKING ACCOUNT
The AMP Limited group entered into Tax Consolidation during 2003. Under Tax Consolidation, the
franking account balances for group companies are transferred to the Head Entity, AMP Limited.
14. LEASE EXPENDITURE COMMITMENTS
Operating leases
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Minimum lease payments |
||||||||
- not later than one year |
412 | 407 | ||||||
- later than one year and not later than five years |
192 | 566 | ||||||
Aggregate leases expenditure contracted for at balance date |
604 | 973 | ||||||
Aggregate expenditure commitments comprise: |
||||||||
Amounts not provided for : |
||||||||
rental commitments |
604 | 973 | ||||||
Aggregate leases expenditure contracted for at balance date |
604 | 973 | ||||||
Page 14 of 20
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
15. AUDITORS’ REMUNERATION
Auditors’ remuneration for the year ended 31 December 2007 is paid on the Company’s behalf by a
controlled entity within the AMP Limited Group.
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Amounts paid or payable to auditors of the company for: |
||||||||
- Other services |
35,155 | 10,047 | ||||||
Total Auditors’ Remuneration |
35,155 | 10,047 | ||||||
16. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS
The company’s policies and procedures in respect of managing risks are set out in this note below.
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited) has an established risk
management framework that meets the needs of its operations.
There are a number of interlinked risk management processes operating to ensure identification,
assessment, treatment and monitoring of the risk environment. The main components, in summary,
are:
| • | Development of the risk management culture. |
|
| • | Assessment and monitoring of risks facing the business |
There were two main mechanisms addressing risks :
| 1) | Risk registers. | ||
| 2) | Control self assessment process. |
Reporting of risk information
Information reported and reviewed by the Operational Risk Committee is then reported to the Audit
Committee.
The Board has ultimate responsibility for risk management and governance, including ensuring an
appropriate risk framework is in place and is operating effectively.
Risk and Mitigation
The Company’s activities expose it to a variety of risks.
Financial risks include:
Market risk
Foreign Currency risk analysis
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in exchange rates.
The Company’s financial assets are primarily dominated in Australian dollar with a small exposure
in Great Britain Pounds (GBP) via its branch operations in the United Kingdom.
The carrying amount of the Company’s foreign currency dominated monetary assets and liabilities
are:
| 31 Dec 07 | 31 Dec 06 | |||||||
| $’000 | $’000 | |||||||
Assets |
925 | 406 | ||||||
Liabilities |
— | — | ||||||
Page 15 of 20
Enstar
Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
16. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL NSTRUMENTS (continued)
The following table demonstrates the impact of a 5% increase or decrease in GBP rate against the
AUD. It is assumed that the relevant change occurs at reporting date.
| 31 Dec 07 | 31 Dec 06 | |||||||
| Impact on Profit after |
Impact on Profit after |
|||||||
| Change in Variable | tax
and equity $’000 |
tax
and equity $’000 |
||||||
+5% |
46 | 20 | ||||||
- 5% |
(46 | ) | (20 | ) | ||||
Liquidity risk
Liquidity risk is the risk that the Company will not be able to met its debt obligations or other
cash outflows as they fall due because of lack of liquid assets. The Company manages liquidity risk
by maintaining adequate reserves and by continuously monitoring forecast and actual cash flows and
matching the maturity profiles of assets and liabilities.
The table below summaries the maturity profile of the company’s financial liabilities at 31
December based on contractual obligations.
| 31 Dec 07 | ||||||||||||
| Up to 1 year | More than 1 year | Total | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Financial liabilities: |
||||||||||||
Payables |
3,942 | 703 | 4,645 | |||||||||
Total |
3,942 | 703 | 4,645 | |||||||||
| 31 Dec 06 | ||||||||||||
| Up to 1 year | More than 1 year | Total | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Financial liabilities: |
||||||||||||
Payables |
4,815 | — | 4,815 | |||||||||
Total |
4,815 | — | 4,815 | |||||||||
Page 16 of 20
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
16. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL NSTRUMENTS (continued)
Credit risk
Credit risk is the risk of loss that arises from a counterparty failing to meet their contractual
commitments in full and on time, or from losses arising from the change in value of traded
financial instruments as a result of changes in credit risk on that instrument.
Credit risk in trade receivables in managed by analysing the terms of trade against outstanding
debtors
Other than intercompany receivables, there are no significant concentrations of credit risk.
The following table provides an aged analysis of financial assets neither past due or impaired,
past due and not impaired and impaired assets. Impairment is assessed in accordance with note 1(f).
| Neither past due | Past due but not impaired | |||||||||||||||||||||||||||
| nor impaired | <30 days | 31 to 60 days | 61 to 90 days | More than 91 days | Impaired | Total | ||||||||||||||||||||||
| 31 Dec 07 | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |||||||||||||||||||||
Receivables |
7,757 | 122 | 11 | 10 | 10 | — | 7,910 | |||||||||||||||||||||
| Neither past due | Past due but not impaired | |||||||||||||||||||||||||||
| nor impaired | <30 days | 31 to 60 days | 61 to 90 days | More than 91 days | Impaired | Total | ||||||||||||||||||||||
| 31 Dec 06 | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |||||||||||||||||||||
Receivables |
648 | 5,591 | 28 | 24 | — | 6,291 | ||||||||||||||||||||||
Fair Value
Details of the significant accounting policies and methods adopted, including the criteria for
recognition, the basis of measurement and the basis on which revenue and expenses are recognised,
in respect of each class of financial asset, financial liability and other investments are under
and in Note 1.
Categories of financial instruments
| 2007 | 2006 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Financial assets |
||||||||||||
Receivables |
5 | 7,910 | 6,291 | |||||||||
Cash & cash equivalents |
12 | 8,032 | 8,990 | |||||||||
Financial Liabilities |
||||||||||||
Payables |
7 | 4,645 | 4,815 | |||||||||
For the following financial instruments, the cost carrying amount is considered to equate to their
fair value:
| • | cash deposits | ||
| • | receivables | ||
| • | payables. |
Page 17 of 20
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
17. CAPITAL MANAGEMENT
The primary capital management objective is to ensure the company will be able to continue as a
going concern while minimising excess capital through capital initiatives, such as dividends, where
appropriate.
The company’s capital position is monitored by the Company’s Board. As the Company forms part of
the AMP Group, the company’s capital management policies and processes are determined in line with
AMP Group’s capital management strategy.
There have been no changes in the capital management objectives, policies and processes from the
previous period.
The company’s capital comprises contributed equity, reserves and retained earnings. These balances
and the movements in these balances are disclosed in the Statement of Changes in Equity.
18. RELATED PARTY DISCLOSURES
(a) The parent of Enstar Australia Limited (formerly Cobalt Solutions Australia Limited) at 31
December 2007 is AMP Group Services Limited. The ultimate controlling entity is AMP Limited.
Key management personnel compensation
The following individuals were the key management personnel of Enstar Australia Limited (formerly
Cobalt Solutions Australia Limited) for the current and prior reporting periods (unless stated
otherwise):
| Name | Date of Appointment/Resignation of directors during the current or prior reporting period | |
Simon J Hoole |
||
Peter W Clarke |
||
Peter M Hodgett
|
Resigned 31 December 2007 | |
Paul D Leaming
|
Appointed 31 December 2007 | |
The following table provides aggregate details of the compensation of key management personnel of
The Company.
| Short-term employee | Post-employment | Other long-term | Termination | Share-based | ||||||||||||||||||||
| benefits | benefits | benefits | benefits | payments | Total | |||||||||||||||||||
| Year | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
2007 |
2,309,865 | 242,536 | — | 2,335,571 | 633,581 | 5,521,553 | ||||||||||||||||||
2006 |
2,256,909 | 236,871 | — | — | 633,268 | 3,127,048 | ||||||||||||||||||
Key management personnel disclosed above, also provided services to other related entities during
the year. The above remuneration amounts include all amounts paid for services rendered to related
entities and those services rendered to Enstar Australia Limited (formerly Cobalt Solutions
Australia Limited).
Directors were in office for the entire period unless otherwise stated.
The directors and their director related entities receive normal dividends on their ordinary share
holdings in AMP Limited.
Page 18 of 20
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
Notes to the Financial Statements for the year ended 31 December 2007
Notes to the Financial Statements for the year ended 31 December 2007
18. RELATED PARTY DISCLOSURES (continued)
Other transactions with key management personnel of the Company
During the year, transactions may have been entered into between key management personnel and
entities within the AMP Limited Group. These transactions are within a normal employee, customer or
supplier relationship on terms and conditions no more favourable than those available to other
employees, customers or members (unless otherwise described below) and may include:
| • | normal personal banking with AMP Bank Limited including the provision of credit cards; | ||
| • | the purchase of AMP superannuation and related products; | ||
| • | financial investment services; | ||
| • | other advisory services. |
These transactions do not have the potential to adversely affect the decisions about the allocation
of scarce resources made by users of the entity’s financial statements, or discharge of
accountability by key management personnel. The transactions are considered to be trivial or
domestic in nature.
Transactions with other related parties
The following related party transactions occurred during the financial year:
Enstar Australia Limited (formerly Cobalt Solutions Australia Limited) is a company in the wholly
owned group comprising AMP Limited (the ultimate parent entity) and its wholly owned controlled
entities.
Services provided to the entity are in the normal course of business and on normal commercial terms
and conditions. Management fee expenses of $19,500,000 (2006:$18,900,000) were charged during the
year from a related party. At reporting date, $1,600,000 (2006: $1,400,000) remained outstanding,
forming part of the balance payable to related parties.
Management services were provided by the entity to related parties pursuant to management
agreements. Fee revenue totalled $27,000,000 (2006:$27,800,000). At reporting date, there were no
outstanding amounts remaining from related parties (2006: $700,000).
19. ECONOMIC DEPENDENCY
A substantial part of the company’s Revenue and Profit before Income Tax, is and will likely
continue to be derived from the provision of management services to a related entity.
20. EVENTS OCCURRING AFTER THE REPORTING DATE
On 11 December 2007 a Sale and Purchase Agreement was entered into by the ultimate parent AMP
Limited and Enstar Australia Holdings Pty Ltd for the sale of the entity.
The sale was subject to a number of conditions including regulatory approval by the Australian
Prudential Regulatory Authority (APRA) and was expected to be completed in quarter one 2008.
APRA subsequently approved the Sale Agreement on 22 February 2008. The sale was then completed on 5
March 2008. Enstar Australia Holdings Pty Ltd assumed ownership of the company at this point.
Effective from March 2008 the company changed its name to Enstar Australia Limited.
Page 19 of 20
Report of Independent Auditors
The Board of Directors of Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
We have audited the accompanying balance sheets of Enstar Australia Limited (formerly Cobalt
Solutions Australia Limited) as of December 31, 2007 and 2006, and the related income statements,
statements of changes in equity, and cash flow statements for the years then ended. These
financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Enstar Australia Limited (formerly Cobalt Solutions Australia
Limited) at December 31, 2007 and 2006, and the results of its operations and its cash flows for
the years then ended in accordance with International Financial Reporting Standards as issued by
the International Accounting Standards Board.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Sydney, Australia
May 15, 2008
Liability limited by a scheme
approved under Professional
Standards Legislation
approved under Professional
Standards Legislation
ENSTAR AUSTRALIA LIMITED (Formerly
COBALT SOLUTIONS AUSTRALIA LIMITED)
COBALT SOLUTIONS AUSTRALIA LIMITED)
ABN 99 096 363 923
FINANCIAL REPORT
31 DECEMBER 2006
31 DECEMBER 2006
Contents:
| Page | ||||
Financial Report |
||||
- Income Statement |
2 | |||
- Balance Sheet |
3 | |||
- Statement of Cash Flows |
4 | |||
- Statement of Changes in Equity |
5 | |||
Notes to the Financial Statements |
6 | |||
Report of Independent Auditors |
19 | |||
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
Income Statement
For the year ended 31 December 2006
For the year ended 31 December 2006
| 2006 | 2005 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Revenues |
2 | 30,020 | 38,935 | |||||||||
Expenses |
3 | (23,748 | ) | (23,095 | ) | |||||||
Profit before income tax expense |
6,272 | 15,840 | ||||||||||
Income tax expense |
4 | (2,459 | ) | (4,829 | ) | |||||||
Net profit after income tax
expense, attributable to
members of Enstar Australia Ltd
(formerly Cobalt Solutions
Australia Ltd) |
3,813 | 11,011 | ||||||||||
The above Income Statement should be read in conjunction with the accompanying notes.
Page 2 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
Balance Sheet
As at 31 December 2006
As at 31 December 2006
| 2006 | 2005 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Current Assets |
||||||||||||
Cash & Cash equivalents |
11 | 8,990 | 29,158 | |||||||||
Receivables |
5 | 6,291 | 1,783 | |||||||||
Total current assets |
15,281 | 30,941 | ||||||||||
Non-current assets |
||||||||||||
Plant & Equipment |
6 | 34 | 37 | |||||||||
Deferred tax assets |
4 | 717 | 1,342 | |||||||||
Total non-current assets |
751 | 1,379 | ||||||||||
Total assets |
16,032 | 32,320 | ||||||||||
Current liabilities |
||||||||||||
Payables |
7 | 4,815 | 4,713 | |||||||||
Deferred Income |
7 | — | 50 | |||||||||
Current tax liabilities |
— | 2,153 | ||||||||||
Provisions |
8 | — | 8,000 | |||||||||
Total current liabilities |
4,815 | 14,916 | ||||||||||
Total liabilities |
4,815 | 14,916 | ||||||||||
Net assets |
11,217 | 17,404 | ||||||||||
Equity |
10 | — | — | |||||||||
Retained profits |
11,217 | 17,404 | ||||||||||
Total equity |
11,217 | 17,404 | ||||||||||
The above Balance Sheet should be read in conjunction with the accompanying notes.
Page 3 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
Statement of Cash Flows
For the year ended 31 December 2006
For the year ended 31 December 2006
| 2006 | 2005 | |||||||||||
| Note | $ 000 | $ 000 | ||||||||||
Cash flows from operating activities |
||||||||||||
Cash receipts in the course of operations |
72,560 | 87,407 | ||||||||||
Cash payments in the course of operations |
(69,967 | ) | (73,134 | ) | ||||||||
Investment income received |
940 | 1,347 | ||||||||||
Income tax paid |
(5,672 | ) | (5,657 | ) | ||||||||
Cash flows from operating activities |
11 | (2,139 | ) | 9,963 | ||||||||
Cash flows from investing activities |
||||||||||||
Payments for plant and equipment |
(29 | ) | (29 | ) | ||||||||
Cash flows used in investing activities |
(29 | ) | (29 | ) | ||||||||
Cash flows from financing activities |
||||||||||||
Dividend Paid |
(18,000 | ) | (10,000 | ) | ||||||||
Cash flows used in financing activities |
(18,000 | ) | (10,000 | ) | ||||||||
Net increase/(decrease) in cash held |
(20,168 | ) | (66 | ) | ||||||||
Balance at the beginning of the year |
29,158 | 29,224 | ||||||||||
Balance at the end of the year |
11 | 8,990 | 29,158 | |||||||||
The above Statement of Cash Flows should be read in conjunction with the accompanying notes.
Page 4 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
Statement Of Changes in Equity
For the year ended 31 December 2006
For the year ended 31 December 2006
| Issued | Accumulated | |||||||||||||||
| Capital | Profit | Total | ||||||||||||||
| Note | $000 | $000 | $000 | |||||||||||||
Balance as at 1 January 2006 |
— | 17,404 | 17,404 | |||||||||||||
Net Profit after income tax |
3,813 | 3,813 | ||||||||||||||
Total Recognised income and expense |
3,813 | 3,813 | ||||||||||||||
Other changes in equity |
— | — | ||||||||||||||
Dividends paid & payable |
9 | (10,000 | ) | (10,000 | ) | |||||||||||
Balance as at 31 December 2006 |
— | 11,217 | 11,217 | |||||||||||||
Balance as at 1 January 2005 |
— | 24,393 | 24,393 | |||||||||||||
Net Profit after income tax |
11,011 | 11,011 | ||||||||||||||
Total Recognised income and expense |
11,011 | 11,011 | ||||||||||||||
Other changes in equity |
— | — | ||||||||||||||
Dividends paid & payable |
9 | (18,000 | ) | (18,000 | ) | |||||||||||
Balance as at 31 December 2005 |
— | 17,404 | 17,404 | |||||||||||||
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Page 5 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Preparation
This Financial Report, comprising the financial statements and the notes thereto, complies with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
The Financial Report has been prepared in accordance with the historical cost convention except for
investments, which have been measured at fair value.
The principal accounting policies adopted in the preparation of the Financial Report are set out
below. These policies have been consistently applied to the current year and comparative period,
unless otherwise stated. The same accounting policies and methods of computation are followed by
this Financial Report as compared with the 31 December 2005 Financial Report. Where necessary,
comparative information has been reclassified to be consistent with current period disclosures.
Accounting Standards that have recently been issued or amended but are not yet effective have not
been adopted for the reporting period ending 31 December 2006. When applied in future periods,
these recently issued or amended standards are not expected to have a material impact on the
company’s results or financial position; however they may impact Financial Report disclosures.
b) Revenue Recognition
Rendering of Services
Revenue from the rendering of services is recognised in the period in which the service is
provided, having regard to the stage of completion of the contract.
In certain circumstances revenue may be received in advance of the period to which it relates. In
these instances, the revenue is deferred to future periods as disclosed in Deferred Income, Note 7
to the accounts.
Interest Income
Interest income is recognised when the right to receive interest has been established.
c) Taxes
Income tax
Income tax expense is the tax payable on taxable income for the current period based on the income
tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities
attributable to:
| (i) | temporary differences between the tax bases of assets and liabilities and their balance sheet carrying amounts, and | ||
| (ii) | unused tax losses. |
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates
expected to apply when the assets are recovered or liabilities are settled, based on those tax
rates which are enacted or substantively enacted for each jurisdiction.
Page 6 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
c) Taxes (continued)
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary
differences to measure the deferred tax asset or liability. An exception is made for certain
temporary differences arising from the initial recognition of an asset or a liability. No deferred
tax asset or liability is recognised in relation to these temporary differences if they arose in a
transaction, other than a business combination, that at the time of the transaction did not affect
either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only
if it is probable that future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the
carrying amount and tax bases of investments in controlled entities where the parent entity is able
to control the timing of the reversal of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future.
The tax impact on income and expense items recognised directly in equity is also recognised
directly in equity.
Deferred tax is not discounted to present value.
Tax Consolidation
AMP Limited, Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd), and certain other
wholly owned controlled entities of AMP Limited comprise a tax-consolidated group of which AMP
Limited is the head entity. The implementation date for the tax-consolidated group was 30 June
2003.
Under tax consolidation, AMP Limited as head entity, assumes the following balances from
subsidiaries within the tax-consolidated group:
| i) | Current tax balances arising from external transactions recognised by entities in the tax- consolidated group occurring after the implementation date, and; | |
| ii) | Deferred tax assets arising from unused tax losses and unused tax credits recognised by entities in the tax-consolidated group occurring after the implementation date. |
A tax funding agreement has been entered into by the head entity and the controlled entities in the
tax-consolidated group. Controlled entities in the tax-consolidated group will continue to be
responsible, by the operation of the tax funding agreement, for funding tax payments required to be
made by the head entity arising from underlying transactions of the controlled entities. Controlled
entities will make (receive) contributions to (from) the head entity for the balances recognised by
the head entity described in (i) and (ii) above. The contributions will be calculated in accordance
with the tax funding agreement. . The contributions are payable as set out in the agreement and
reflect the timing of AMP Limited’s obligations to make payments to the relevant tax authorities.
Assets and liabilities which arise as a result of balances transferred from entities within the tax
consolidated group to the head entity, are recognised as related party balances receivable and
payable in the Balance sheet. The recoverability of balances arising from the tax funding
arrangements is based on the ability of the tax-consolidated group to utilise the amounts
recognised by the head entity.
Page 7 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
c) Taxes (continued)
Goods and Services Tax
All revenues, expenses and assets are recognised net of any GST paid, except where they relate to
products and services which are input taxed for GST purposes or the GST incurred is not recoverable
from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of the cost of acquisition of the assets or as part of the particular expense.
from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of the cost of acquisition of the assets or as part of the particular expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from or payable to the tax authorities is included as a receivable or payable in the
balance sheet.
Cash flows are reported on a gross basis reflecting any GST paid or collected. The GST component of
cash flows arising from investing or financing activities which are recoverable from, or payable
to, local tax authorities are classified as operating cash flows.
d) Foreign Currencies
Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic
environment in which that entity operates (the functional currency).
The presentation currency of this Financial Report, and the functional currency of the parent
entity, is Australian dollars.
Transactions and balances
Revenue and expenditure items denominated in a currency other than the functional currency are
translated at the spot exchange rate at the date of transaction. Monetary assets and liabilities
denominated in foreign currencies are translated at the rate of exchange ruling at the balance
sheet date, with exchange gains and losses being recognised in the income statement.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value was determined.
e) Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand that is available on demand and deposits that are
held at call with financial institutions. Cash and cash equivalents are carried at fair value,
being the principal amount.
For the purpose of the cash flow statement, cash also includes other highly liquid investments not
subject to significant risk of change in value, with short periods to maturity net of outstanding
bank overdrafts.
f) Receivables
Receivables are carried at nominal amounts due less any provision for impairment. A provision for
impairment is recognised when collection of the full nominal amount is no longer probable.
Impairment of an asset is reviewed each balance date. Any applicable terms or conditions are set
out in Note 5.
Page 8 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
g) Plant & Equipment
Cost
Plant & equipment is carried at historical cost less accumulated depreciation and any accumulated
impairment losses.
Depreciation
Items of plant and equipment are depreciated over their estimated useful lives.
The assets residual lives, useful lives and amortisation methods are reviewed, and adjusted for if
appropriate, at each financial year end.
The depreciation rates and method used for each class, for the current year, is:
| Depreciation rate | Depreciation method | |||||
Computer racks
|
10 | % | Straight line | |||
Computer hardware
|
25 | % | Straight line | |||
Computer peripherals
|
40 | % | Straight line | |||
Computers
|
50 | % | Straight line | |||
Previous years,
|
||||||
| Depreciation rate | Depreciation method | |||||
Computers
|
40 | % | Prime cost | |||
h) Leases
Leases are classified at their inception as either operating or finance leases based on the
economic substance of the agreement so as to reflect the risks and benefits incidental to
ownership.
Operating leases
The minimum lease payments of operating leases, where the lessor effectively retains substantially
all of the risks and benefits of ownership of the leased item, are recognised as an expense on a
straight-line basis.
Contingent rentals are recognised as an expense in the financial year in which they are incurred.
Finance leases
There are no leases that have been classified as finance leases.
i) Payables
Trade Creditors and accruals are recognised as liabilities for amounts to be paid in the future for
goods and services received, whether or not billed to the entity.
Terms and conditions are set out in Note 7.
j) Provisions
Provisions are recognised when:
| • | There is a present obligation (legal or constructive) as a result of a past event. | ||
| • | It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. | ||
| • | A reliable estimate can be made of the amount of the obligation. |
Page 9 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
k) Issued Capital
Issued and paid up capital is recognised at the fair value of the consideration received by the
company. Any transaction costs arising on the issue of ordinary shares are recognised directly in
equity as a reduction of the share proceeds received.
2. REVENUE
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Revenue from operating activities |
||||||||
Management fees |
29,083 | 32,588 | ||||||
Other Revenue |
— | 5,000 | ||||||
Total Revenue from operating activities |
29,083 | 37,588 | ||||||
Revenue from non-operating activities |
||||||||
Investment income |
937 | 1,347 | ||||||
Total Revenue from non-operating activities |
937 | 1,347 | ||||||
Total Revenues |
30,020 | 38,935 | ||||||
3. EXPENSES
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Profit before income tax is arrived after charging the following items: |
||||||||
Personnel Costs |
16,206 | 16,941 | ||||||
Occupancy and Related property expenses |
3,440 | 3,346 | ||||||
IT & Communication |
1,623 | 1,722 | ||||||
Advertising & Promotions |
484 | 219 | ||||||
Other expenses |
1,995 | 867 | ||||||
Total expenses |
23,748 | 23,095 | ||||||
The majority of the costs above are incurred by way of management fee paid to AMP Services
Ltd.
Page 10 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
4. INCOME TAX
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
a) Analysis of income tax expense
Current tax |
1,663 | 4,121 | ||||||
Decrease in deferred tax assets |
458 | 646 | ||||||
Write off of prior year losses |
338 | 62 | ||||||
Income tax expense |
2,459 | 4,829 | ||||||
b) Relationship between income tax expense and accounting profit
The table below provides a reconciliation of differences between prima facie tax calculated as
30% of the profit before income tax for the period and the actual income tax expense recognised
in the income statement for the period.
In respect of income tax expense, the tax rate which applies in both 2006 and 2005 is 30% for
Australia and UK.
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Operating profit before income tax |
6,272 | 15,840 | ||||||
Prima facie income tax calculated at 30% (2005: 30 %) |
1,882 | 4,752 | ||||||
Tax effect of differences between amounts of income and
expenses recognised for accounting and the amounts
deductible/assessable in calculating taxable income: |
||||||||
Other |
577 | 77 | ||||||
Income tax expense per income statement |
2,459 | 4,829 | ||||||
c) Analysis of deferred tax asset
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Amounts recognised in income: |
||||||||
Accruals |
308 | 413 | ||||||
Unrealised gains/losses |
— | 2 | ||||||
Other |
409 | 589 | ||||||
Current year’s tax losses |
— | 338 | ||||||
Total deferred tax assets |
717 | 1,342 | ||||||
Page 11 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
5. RECEIVABLES (CURRENT)
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Trade debtors |
88 | 121 | ||||||
Amounts receivable from related parties |
2,680 | 1,363 | ||||||
Other debtors |
3,523 | 299 | ||||||
Total receivables (current) |
6,291 | 1,783 | ||||||
Receivables are non-interest bearing and are normally settled on 30-day terms.
In 2006, other debtors include income tax recoverable under the tax sharing
agreement of $1,701k as PAYG instalments made throughout the year exceed the
current tax payable. |
6. PLANT AND EQUIPMENT
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Gross carrying amount |
83 | 59 | ||||||
Less accumulated depreciation and impairment loss |
49 | 22 | ||||||
Total Plant & Equipment |
34 | 37 | ||||||
Carrying amount at beginning of the year |
37 | 94 | ||||||
Additions |
29 | 29 | ||||||
Recoverable amount write-down |
(5 | ) | (42 | ) | ||||
Depreciation expense |
(27 | ) | (44 | ) | ||||
Total Plant & Equipment |
34 | 37 | ||||||
7. PAYABLES AND DEFERRED INCOME (CURRENT)
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Amount due to other related parties |
2,331 | 2,617 | ||||||
Sundry Payables |
146 | 658 | ||||||
Trade creditors and accruals |
2,338 | 1,438 | ||||||
Total Payables (current) |
4,815 | 4,713 | ||||||
Deferred Income |
— | 50 | ||||||
Total Deferred Income (current) |
— | 50 | ||||||
Sundry payables are non-interest bearing balances due to third parties pursuant to client
management agreements. Trade creditors are non-interest bearing and are normally settled on less
than
30 day terms.
Page 12 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
8. PROVISIONS (CURRENT)
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Provision for dividend payable |
— | 8,000 | ||||||
Total Provisions |
— | 8,000 | ||||||
Movements in Provisions |
||||||||
Balance at the beginning of the year |
8,000 | 1,490 | ||||||
Additional provisions recognised (dividend Payable ) |
— | 18,000 | ||||||
Amount paid during the period |
(8,000 | ) | (10,000 | ) | ||||
Unused amounts reversed during the period |
— | (1,490 | ) | |||||
Balance at the end of the year |
— | 8,000 | ||||||
9. DIVIDENDS PAID
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
(a) Dividends paid on ordinary shares during the year |
||||||||
-Dividend paid on 9 February 2006 |
8,000 | |||||||
Unfranked Dividend of $4m per Ordinary Share |
||||||||
-Dividend paid on 27 June 2006 |
10,000 | |||||||
Unfranked Dividend of $5m per Ordinary Share |
||||||||
-Dividend paid on 10 June 2005 |
10,000 | |||||||
Unfranked Dividend of $5m per Ordinary Share |
||||||||
Dividends paid during year |
18,000 | 10,000 | ||||||
(b) Dividends proposed but not recognised at 31 December |
||||||||
- Dividends on ordinary shares: |
— | — | ||||||
Unfranked Dividend of $4m per Ordinary Share |
||||||||
10. CONTRIBUTED EQUITY
| 2006 | 2005 | |||||||
| $ | $ | |||||||
Issued & Paid up capital |
||||||||
Two fully paid ordinary shares at $1 each |
— | — | ||||||
Ordinary shares attract the following rights:
(a) to receive notice of and to attend and vote at all
general meetings of the Company;
(b) to receive dividends; and in a winding up, to
participate equally in the distribution of the assets of;
(c) the Company (both capital and surplus), subject only
to any amounts unpaid on the share.
Page 13 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
11. STATEMENT OF CASH FLOWS
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
(a) Reconciliation of the profit after tax to the net cash
flows from operating activities |
||||||||
Net Profit after tax |
3,813 | 11,011 | ||||||
Non-Cash Items: |
||||||||
Depreciation and impairment of plant & equipment |
32 | 85 | ||||||
Changes in assets/liabilities: |
||||||||
(Increase)/decrease in receivables/other assets |
(4,508 | ) | (300 | ) | ||||
Decrease/(Increrase) in current year tax losses |
338 | — | ||||||
(Increase)/decrease in deferred tax assets |
287 | 308 | ||||||
Increase/(decrease) in current Tax liabilities |
(2,153 | ) | (1,283 | ) | ||||
Increase/(decrease) in payables/ deferred income/provisions |
52 | 142 | ||||||
Net cash flows from/(used in) operating activities |
(2,139 | ) | 9,963 | |||||
(b) Reconciliation of cash |
||||||||
Cash balance comprises: |
||||||||
- cash at bank |
8,990 | 29,158 | ||||||
Closing cash balance |
8,990 | 29,158 | ||||||
12. FRANKING ACCOUNT
The AMP Limited group entered into Tax Consolidation during 2003. Under Tax Consolidation, the
franking account balances for group companies are transferred to the Head Entity, AMP Limited.
Page 14 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
13. SEGMENT INFORMATION
Primary Segment
The company operates predominantly in one business segment, which is the provision of professional
run-off and management services to insurance and reinsurance companies.
Secondary Segment
There are two geographical segments, UK and Australia.
The company generally accounts for inter-segment sales and transfers as if the sales and transfers
were to third parties at current market prices. Revenues are attributed to geographic areas based
on the location of the assets producing the revenues.
Segment accounting policies are the same as the company’s policies described in Note 1.
| UK | Aust | Consolidated | ||||||||||||||||||||||
| 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||
| $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |||||||||||||||||||
Segment Revenue |
150 | 134 | 29,870 | 38,801 | 30,020 | 38,935 | ||||||||||||||||||
Segment Assets |
406 | 420 | 15,626 | 31,900 | 16,032 | 32,320 | ||||||||||||||||||
Segment liabilities |
1,763 | 712 | 3,052 | 14,204 | 4,815 | 14,916 | ||||||||||||||||||
Depreciation |
— | — | 27 | 44 | 27 | 44 | ||||||||||||||||||
14. LEASE EXPENDITURE COMMITMENTS
Operating leases
| 2006 | 2005 | |||||||
| Minimum lease payments | $’000 | $’000 | ||||||
- not later than one year |
407 | 107 | ||||||
- later than one year and not later than five years |
566 | 64 | ||||||
Aggregate leases expenditure contracted for at balance date |
973 | 171 | ||||||
Aggregate expenditure commitments comprise: |
||||||||
Amounts not provided for : |
||||||||
rental commitments |
973 | 171 | ||||||
Aggregate leases expenditure contracted for at balance date |
973 | 171 | ||||||
Page 15 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
15. AUDITORS’ REMUNERATION
Auditors’ remuneration for the year ended 31 December 2006 is paid on the Company’s behalf by a
controlled entity within the AMP Limited Group.
| 2006 | 2005 | |||||||
| $ | $ | |||||||
Amounts paid or payable to auditors of the company for: |
||||||||
— Other services |
10,047 | 15,193 | ||||||
Total Auditors’ Remuneration |
10,047 | 15,193 | ||||||
16. FINANCIAL INSTRUMENTS
(a) Terms, Conditions and Accounting Policies
The accounting policies and terms and conditions for each class of financial asset and financial
liability at the balance date are detailed in Note 1 and throughout other notes to the financial
statements.
(b) Interest Rate Risk
The following tables provide information about certain financial assets and financial liabilities
showing the interest rate categories for each class and the weighted average interest rate for each
class.
2006
| Floating | Non- | Total | Weighted | |||||||||||||
| Interest Rate | Interest- Bearing | $ | Average | |||||||||||||
| $’000 | $’000 | $’000 | Interest rate % | |||||||||||||
Financial Assets |
||||||||||||||||
Cash |
8,990 | — | 8,990 | 5.15 | ||||||||||||
Trade and other receivables |
— | 3,611 | 3,611 | |||||||||||||
Receivables— other related parties |
— | 2,680 | 2,680 | |||||||||||||
Total Financial Assets |
8,990 | 6,291 | 15,281 | |||||||||||||
Financial Liabilities |
||||||||||||||||
Payables & Provision |
— | 4,815 | 4,815 | |||||||||||||
Total Financial Liabilities |
— | 4,815 | 4,815 | |||||||||||||
Page 16 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
16. FINANCIAL INSTRUMENTS (continued)
2005
| Floating | Non-Interest- | Total | Weighted | |||||||||||||
| Interest Rate | Bearing | $ | Average | |||||||||||||
| $’000 | $’000 | $’000 | Interest rate % | |||||||||||||
Financial Assets |
||||||||||||||||
Cash |
29,158 | — | 29,158 | 4.69 | ||||||||||||
Trade and other receivables |
— | 420 | 420 | |||||||||||||
Receivables— other related parties |
— | 1,363 | 1,363 | |||||||||||||
Total Financial Assets |
29,158 | 1,783 | 30,941 | |||||||||||||
Financial Liabilities |
||||||||||||||||
Payables & Provision |
— | 14,916 | 14,916 | |||||||||||||
Total Financial Liabilities |
14,916 | 14,916 | ||||||||||||||
(c) Net Fair Values
All financial assets and liabilities are recorded at the cost carrying amounts, which approximates
net fair values, except as described elsewhere in the notes.
(d) Credit Risk Exposure
The economic entity’s maximum exposure to credit risk at balance date in relation to each class of
recognised financial asset is the carrying amount of these assets as indicated in the balance
sheet.
17. RELATED PARTY DISCLOSURES
(a) The parent of Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd) is AMP Group
Services Limited. The ultimate controlling entity is AMP Limited.
Key management personnel compensation
The following individuals were the key management personnel of Enstar Australia Ltd (formerly
Cobalt Solutions Australia Ltd) for the current and prior reporting periods (unless stated
otherwise):
| Date of Appointment/Resignation of directors | ||
| Name | during the current or prior reporting period | |
Simon J Hoole
|
Appointed 13 November 2002 | |
Peter W Clarke
|
Appointed 12 February 2003 | |
Peter M Hodgett
|
Appointed 20 November 2003 | |
Key management personnel disclosed above, also provided services to other related entities during
the year. The below remuneration amounts include all amounts paid for services rendered to related
entities and those services rendered to Enstar Australia Ltd (formerly Cobalt Solutions Australia
Ltd).
Page 17 of 19
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd)
Notes to the Financial Statements for the year ended 31 December 2006
Notes to the Financial Statements for the year ended 31 December 2006
17. RELATED PARTY DISCLOSURES (continued)
The following table provides aggregate details of the compensation of key management personnel of
Cobalt Solutions Services Limited.
| Short-term | Post- | Other | ||||||||||||||||||||||
| employee | employment | long-term | Termination | Share-based | ||||||||||||||||||||
| benefits | benefits | benefits | benefits | payments | Total | |||||||||||||||||||
| Year | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
2006 |
2,256,909 | 236,871 | — | — | 633,268 | 3,127,048 | ||||||||||||||||||
2005 |
2,134,756 | 297,035 | — | — | 544,202 | 2,975,993 | ||||||||||||||||||
Directors were in office for the entire period unless otherwise stated.
The directors and their director related entities receive normal dividends on their ordinary share
holdings in AMP Limited.
Other transactions with key management personnel of the Company
During the year, transactions were entered into between Directors or their Director related
entities and entities within the AMP Limited Group. These transactions are within a normal
employee, customer or supplier relationship on terms and conditions no more favourable than those
available to other employees, customers or members (unless otherwise described below) and include:
| • | normal personal banking with AMP Bank Limited including the provision of credit cards; | |
| • | the purchase of AMP superannuation and related products; | |
| • | financial investment services; | |
| • | other advisory services. |
These transactions do not have the potential to adversely affect the decisions about the allocation
of scarce resources made by users of the entity’s financial statements, or discharge of
accountability by key management personnel. The transactions are considered to be trivial or
domestic in nature.
Transactions with other related parties
The following related party transactions occurred during the financial year:
Enstar Australia Ltd (formerly Cobalt Solutions Australia Ltd) is a company in the wholly owned
group comprising AMP Limited (the ultimate parent entity) and its wholly owned controlled entities.
Services provided to the entity are in the normal course of business and on normal commercial terms
and conditions. Management fee expenses of $18,900,000 (2005:$15,200,000) were charged during the
year from a related party. At reporting date, $1,400,000 (2005: $2,600,000) remained outstanding,
forming part of the balance payable to related parties.
Management services were provided by the entity to related parties pursuant to management
agreements. Fee revenue totalled $27,800,000 (2005:$30,000,000). At reporting date, $700,000
remained outstanding, (2005: $1,400,000) and is included in the receivables balance from related
parties.
18. ECONOMIC DEPENDENCY
A substantial part of the company’s Revenue and Profit before Income Tax, is and will likely
continue to be derived from the provision of management services to a related entity.
Page 18 of 19
Report of Independent Auditors
The Board of Directors of Enstar Australia Limited (formerly Cobalt Solutions Australia Limited)
We have audited the accompanying balance sheets of Enstar Australia Limited (formerly Cobalt
Solutions Australia Limited) as of December 31, 2006 and 2005, and the related income statements,
statements of changes in equity, and cash flow statements for the years then ended. These
financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Enstar Australia Limited (formerly Cobalt Solutions Australia
Limited) at December 31, 2006 and 2005, and the results of its operations and its cash flows for
the years then ended in accordance with International Financial Reporting Standards as issued by
the International Accounting Standards Board.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Sydney, Australia
May 15, 2008
Liability limited by a scheme
approved under Professional
Standards Legislation
approved under Professional
Standards Legislation
Exhibit 99.5
HARRINGTON SOUND LIMITED
(formerly AMP GENERAL INSURANCE LIMITED)
ABN 30 008 405 632
(formerly AMP GENERAL INSURANCE LIMITED)
ABN 30 008 405 632
Financial Report
31 DECEMBER 2007
31 DECEMBER 2007
Contents:
| Page | ||||
Financial Report |
||||
Financial Statements |
||||
- Income Statement |
1 | |||
- Balance Sheet |
2 | |||
- Statement of Changes in Equity |
3 | |||
- Cash Flow Statement |
4 | |||
Notes to the Financial Statements |
5 | |||
Report of Independent Auditors |
25 | |||
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Income Statement
For the year ended 31 December 2007
| 31 Dec 07 | 31 Dec 06 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Direct Premium Revenue |
— | — | ||||||||||
Outwards reinsurance expense |
— | — | ||||||||||
Net premium revenue |
— | — | ||||||||||
Direct claims benefit |
30,939 | 19,985 | ||||||||||
Reinsurance and other recoveries expense |
(30,556 | ) | (19,982 | ) | ||||||||
Net Claims Benefit |
383 | 3 | ||||||||||
Other underwriting expenses |
7 | — | (1 | ) | ||||||||
Underwriting result |
383 | 4 | ||||||||||
Other Income |
6 | 203 | 124 | |||||||||
Net Investment Revenue |
5 | 151 | 20,314 | |||||||||
General and administration expenses/(revenue) |
7 | 57 | (52 | ) | ||||||||
Net profit before tax |
680 | 20,494 | ||||||||||
Income tax expense |
8 | 196 | 112 | |||||||||
Net profit attributable to members of Harrington
Sound Ltd |
484 | 20,382 | ||||||||||
The above Income Statement should be read in conjunction with the accompanying notes.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
1 of 25 | |||
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Balance Sheet
As at 31 December 2007
| 2007 | 2006 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Current Assets |
||||||||||||
Cash and cash equivalents |
21 | 599 | 145 | |||||||||
Receivables |
9 | — | 112,836 | |||||||||
Reinsurance and other recoveries receivable |
10 | 17,817 | 25,252 | |||||||||
Other financial assets |
11 | — | 4,154 | |||||||||
Total Current Assets |
18,416 | 142,387 | ||||||||||
Non — Current Assets |
||||||||||||
Reinsurance and other recoveries receivable |
10 | 43,057 | 66,576 | |||||||||
Other financial assets |
11 | 30,000 | 30,167 | |||||||||
Deferred tax assets |
8 | 3 | 16 | |||||||||
Total Non — Current Assets |
73,060 | 96,759 | ||||||||||
Total Assets |
91,476 | 239,146 | ||||||||||
Current Liabilities |
||||||||||||
Outstanding Claims liability |
12 | 17,570 | 24,990 | |||||||||
Payables |
13 | 256 | 1,101 | |||||||||
Current tax liabilities |
203 | 125 | ||||||||||
Total Current Liabilities |
18,029 | 26,216 | ||||||||||
Non — Current Liabilities |
||||||||||||
Outstanding Claims liability |
12 | 43,057 | 66,576 | |||||||||
Total Non — Current Liabilities |
43,057 | 66,576 | ||||||||||
Total Liabilities |
61,086 | 92,792 | ||||||||||
Net Assets |
30,390 | 146,354 | ||||||||||
Shareholder’s Equity |
||||||||||||
Contributed equity |
14 | 210,552 | 327,000 | |||||||||
Retained profits |
15 | (180,162 | ) | (180,646 | ) | |||||||
Total Shareholders’ Equity |
30,390 | 146,354 | ||||||||||
The above Balance Sheet should be read in conjunction with the accompanying notes.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
2 of 25 | |||
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Statement of Changes in Equity
For the year ended 31 December 2007
For the year ended 31 December 2007
| Issued | Retained | |||||||||||
| Capital | Earnings | Total | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Balance as at 1 January 2007 |
327,000 | (180,646 | ) | 146,354 | ||||||||
Net Profit/(loss) after income tax |
— | 484 | 484 | |||||||||
Other changes in equity — capital returns |
(116,448 | ) | — | (116,448 | ) | |||||||
Balance as at 31 December 2007 |
210,552 | (180,162 | ) | 30,390 | ||||||||
Balance as at 1 January 2006 |
327,000 | (181,028 | ) | 145,972 | ||||||||
Net Profit/(loss) after income tax |
— | 20,382 | 20,382 | |||||||||
Other changes in equity — Dividends paid |
— | (20,000 | ) | (20,000 | ) | |||||||
Balance as at 31 December 2006 |
327,000 | (180,646 | ) | 146,354 | ||||||||
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
3 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Cash Flow Statement
For the year ended 31 December 2007
For the year ended 31 December 2007
| 2007 | 2006 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Cash Flows from Operating Activities: |
||||||||||||
Dividends Received |
10 | 20,020 | ||||||||||
Reinsurance recoveries received |
399 | 9 | ||||||||||
Levies and charges received/(paid) |
— | 1 | ||||||||||
Other underwriting and administration income/(expenses) |
(902 | ) | (2,182 | ) | ||||||||
Investment expenses |
(2 | ) | (8 | ) | ||||||||
Interest received |
44 | 17 | ||||||||||
Other income received |
270 | 397 | ||||||||||
Income taxes (paid) / received |
(104 | ) | (398 | ) | ||||||||
Total Cash Flows from Operating Activities |
21 | (285 | ) | 17,856 | ||||||||
Cash Flows from Investing Activities |
||||||||||||
Proceeds from sale of investments |
197 | — | ||||||||||
Total Cash Flows from Investing Activities |
197 | — | ||||||||||
Cash Flows from Financing Activities |
||||||||||||
Loans repaid from related entities |
112,836 | |||||||||||
Dividends Paid |
— | (20,000 | ) | |||||||||
Payment for capital reduction |
(116,448 | ) | — | |||||||||
Total Cash Flows from Financing Activities |
(3,612 | ) | (20,000 | ) | ||||||||
Net (decrease) / increase in cash |
(3,700 | ) | (2,144 | ) | ||||||||
Cash at the beginning of the financial year |
4,299 | 6,443 | ||||||||||
Cash at the end of the financial year |
21 | 599 | 4,299 | |||||||||
The above Statement of Cash Flow should be read in conjunction with the accompanying notes.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
4 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
This Financial Report, comprising the financial statements and the notes thereto, complies with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
The financial statements are separate financial statements as the exemption from preparing
consolidated financial statements has been used. The entity and its subsidiaries have been
consolidated into the financial statements of AMP Limited, of 33 Alfred St Sydney NSW Australia,
an entity incorporated in Australia. Copies of these accounts can be requested from AMP Limited at
this address.
The entity’s significant investments in subsidiaries, including the name, country of incorporation
or residence, proportion of ownership interest and can found in Note 11 to these accounts. A
description of the method used to account for these investments is described under Shares in
subsidiaries later in this note.
Where necessary, comparative information has been reclassified to be consistent with current period
disclosures.
The Financial Report has been prepared in accordance with the historical cost convention except for
investments, which have been measured at fair value.
Accounting judgements and estimates
In the course of its operations the company applies judgements and makes estimates that
affect the amounts recognised in the financial report. Estimates are based on a combination of
historical experience and expectations of future events that are believed to be reasonable at
the time.
Accounting Standards issued but not yet effective
Accounting Standards that have recently been issued or amended but are not yet effective have not
been adopted for the reporting period ending 31 December 2007, except IFRS8 Operating Segments. The
adoption of IFRS8 has removed the requirement for Operating Segment disclosures in this Financial
Report.
When applied in future periods, all other recently issued or amended standards are not expected to
have a material impact on the company’s results or financial position; however they may impact
Financial Report disclosures.
Changes in accounting policy
Since 1 January 2007, the company has adopted a number of Accounting Standards and Interpretations
which were mandatory for annual periods beginning on or after 1 January 2007. Adoption of these
Standards and Interpretations has not had any effect on the financial position or performance of
the Company.
Operating revenue
Operating revenue comprises general insurance earned premiums, recoveries and investment income.
Investment income is brought to account on an accrual basis.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
5 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Outstanding Claims
The liability for outstanding claims is measured as the best estimate of the present value of
expected future payments against claims incurred at the reporting date under general insurance
contracts issued by the Company, with an additional risk margin to allow for the inherent
uncertainty in the best estimate.
The expected future payments include those in relation to claims reported but not yet paid; claims
incurred but not reported (IBNR), claims incurred but not enough reported (IBNER) and anticipated
claims handling costs.
Claims handling costs include costs that can be associated directly with individual claims, such as
legal and other professional fees, and costs that can only be indirectly associated with individual
claims, such as claims administration costs.
The liability includes an allowance for inflation and superimposed inflation and is measured as the
present value of the expected future ultimate cost of settling claims. The expected future payments
are discounted to present value using a risk free rate.
A risk margin is applied to the outstanding claims liability, net of reinsurance and other
recoveries, to reflect the inherent uncertainty in the best estimate. This risk margin increases
the probability that the net liability is adequately provided for to a 75% confidence level.
Reinsurance and other recoveries
Reinsurance and other recoveries or receivables on paid claims and outstanding claims are
recognised as revenue when claims are paid or the outstanding claim is raised. Reinsurance
receivables are discounted to present value consistent with the discounting of outstanding claims.
Investment gains and losses
Dividend and interest income is recognised in the income statement on an effective interest method
when the entity obtains control of the right to receive the revenue.
Realised gains and losses represent the change in value between the previously reported value and
the amount received on sale of the asset. Unrealised gains and losses represent changes in the
fair value of financial assets recognised in the period.
Financial assets
Financial assets, except for shares in subsidiaries, are designated at fair value through profit or
loss. Initial recognition is at cost in the balance sheet and subsequent measurement is at fair
value with any resultant unrealised gains or losses recognised in the income statement. Details of
fair value for the different types of financial assets are listed below:
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand that is available on demand and deposits
held at call with financial institutions. Cash and cash equivalents are carried at fair value,
being the principal amount. For the purposes of the cash flow statement, cash also includes
other highly liquid investments not subject to significant risk of change in value.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
6 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash trusts
The fair value of units in a listed cash trust reflects the quoted bid price at balance date.
There is no reduction for realisation costs in the value of units in a cash trust. Unlisted unit
trusts are recorded at fund managers valuations.
Shares in subsidiaries
Investments in subsidiaries are valued at original cost.
Income Tax
Taxes
Income tax
Income tax expense is the tax payable on taxable income for the current period based on the income
tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities
attributable to: (i) temporary differences between the tax bases of assets and liabilities and
their balance sheet carrying amounts, and (ii) unused tax losses.
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates
expected to apply when the assets are recovered or liabilities are settled, based on those tax
rates which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary
differences to measure the deferred tax asset or liability. An exception is made for certain
temporary differences arising from the initial recognition of an asset or a liability. No deferred
tax asset or liability is recognised in relation to these temporary differences if they arose in a
transaction, other than a business combination, that at the time of the transaction did not affect
either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only
if it is probable that future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the
carrying amount and tax bases of investments in controlled entities where the parent entity is able
to control the timing of the reversal of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future.
The tax impact on income and expense items recognised directly in equity is also recognised
directly in equity.
Tax Consolidation
AMP Limited, Gordian Runoff Limited and certain other wholly owned controlled entities of AMP
Limited comprise a tax-consolidated group of which AMP Limited is the head entity. The
implementation date for the tax-consolidated group was 30 June 2003.
The entity will be required to make a payment to terminate its liability under the tax funding
agreement if it leaves the tax consolidation group.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
7 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Under tax consolidation, AMP Limited as head entity, assumes the following balances from
subsidiaries within the tax-consolidated group:
| (i) | Current tax balances arising from external transactions recognised by entities in the tax-consolidated group occurring after the implementation date, and; | |
| (ii) | Deferred tax assets arising form unused tax losses and unused tax credits recognised by entities in the tax-consolidated group occurring after the implementation date. |
A tax funding agreement has been entered into by the head entity and the controlled entities in the
tax-consolidated group. Controlled entities in the tax-consolidated group will continue to be
responsible, by the operation of the tax funding agreement, for funding tax payments required to be
made by the head entity arising from underlying transactions of the controlled entities. Controlled
entities will make (receive) contributions to (from) the head entity for the balances recognised by
the head entity described in (i) and (ii) above. The contributions will be calculated in accordance
with the tax funding agreement.
Assets and liabilities which arise as a result of differences between the periods in which the
underlying transactions occur, and the period in which the funding payments under the tax funding
agreement are made, are recognised as intercompany balances receivable and payable in the balance
sheet. The recoverability of balances arising from the tax funding arrangements is based on the
ability of the tax-consolidated group to utilise the amounts recognised by the head entity.
Goods and Services Tax (GST)
All revenues, expenses and assets are recognised net of any GST paid, except where they relate to
products and services which are input taxed for GST purposes or the GST incurred is not recoverable
from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of
the cost of acquisition of the assets or as part of the particular expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from or payable to the tax authorities is included as a receivable or payable in the
balance sheet.
Cash flows are reported on a gross basis reflecting any GST paid or collected. The GST component of
cash flows arising from investing or financing activities which are recoverable from, or payable
to, local tax authorities are classified as operating cash flows.
Receivables
Receivables are financial assets and are measured at fair value. Given the short-term nature of
most receivables, the recoverable amount approximates fair value. A provision for impairment is
recognised when there is objective evidence that the Company will not be able to collect all
amounts due according to the original terms of the receivables. The impairment charge is
recognised in the income statement. Bad debts are written off as incurred.
Payables
Trade creditors and accruals are recognised as liabilities for amounts to be paid in the future
for goods and services received, whether or not billed to the entity.
Amounts Due To or From Related Parties
Amounts are carried at fair value being nominal amounts due and payable. Interest is taken up as
income on an accrual basis. A provision for impairment is recognised when there is objective
evidence that the related party will not be able to pay its debt.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
8 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Company makes estimates and assumptions in respect of certain key assets and liabilities.
Estimates and judgements are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances. The key areas in which critical estimates and judgements are applied are described
below.
(a) The ultimate liability arising from claims made under insurance contracts
Provision is made at year-end for the estimated cost of claims incurred but not settled at the
balance sheet date, including the cost of claims incurred but not yet reported to the Company.
The estimated cost of claims includes direct expenses to be incurred in settling claims gross of
the expected value of salvage and other recoveries. The Company takes all reasonable steps to
ensure that it has appropriate information regarding its claims exposures. However, given the
uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be
different from the original liability established.
The estimation of claims incurred but not reported (“IBNR”) is generally subject to a greater
degree of uncertainty than the estimation of the cost of settling claims already notified to the
Company, where more information about the claim event is generally available. IBNR claims may
often not be reported to the insurer until many years after the events giving rise to the claims
has happened. The liability class of business will typically display greater variations between
initial estimates and final outcomes because there is a greater degree of difficulty in estimating
IBNR reserves. For the short tail class, claims are typically reported soon after the claim event,
and hence tend to display lower levels of volatility. In calculating the estimated cost of unpaid
claims the Company uses a variety of estimation techniques, generally based upon analysis of
historical experience, which assumes that the development pattern of the current claims will be
consistent with past experience. Allowance is made, however, for changes or uncertainties which
may create distortions in the underlying statistics or which might cause the cost of unsettled
claims to increase or reduce when compared with the cost of previously settled claims including:
| • | changes in Company processes which might accelerate or slow down the development and/or recording of paid or incurred claims, compared with the statistics from previous periods; | ||
| • | changes in the legal environment; | ||
| • | the effects of inflation; | ||
| • | the impact of large losses; | ||
| • | movements in industry benchmarks. |
Where possible the Company adopts multiple techniques to estimate the required level of provisions.
This assists in giving greater understanding of the trends inherent in the data being projected.
The projections given by the various methodologies also assist in setting the range of possible
outcomes. The most appropriate estimation technique is selected taking into account the
characteristics of the business class and the extent of the development of each accident year.
Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the
amounts that will be recoverable from reinsurers based upon the gross provisions.
Details of specific assumptions used in deriving the outstanding claims liability at year-end are
detailed in note 3.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
9 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
(b) Assets arising from reinsurance contracts
Assets arising from reinsurance contracts are also computed using the above methods. In addition,
the recoverability of these assets is assessed on a periodic basis to ensure that the balance is
reflective of the amounts that will ultimately be received, taking into consideration factors such
as counterparty and credit risk. Impairment is recognised where there is objective evidence that
the Company may not receive amounts due to it and these amounts can be reliably measured.
3. ACTUARIAL METHODS AND ASSUMPTIONS
Claims estimates are derived from analysis of the results of several different actuarial models.
These models take case estimates as well as payments into account and assume that reported incurred
amounts or reported payment amounts will develop steadily from period to period. Other models
adopt an ultimate loss ratio for each year that reflects both the long term expected level, as well
as incorporating recent experience. The analysis is performed by accident year for the direct
insurance class.
Claims are first estimated on an undiscounted basis and are then discounted to allow for the time
value of money. The valuation methods adopted include an implicit allowance for future inflation.
The liability class of business may be subject to the emergence of new types of latent claims, but
no specific allowance is included for this as at the balance sheet date. Such uncertainties are
considered when setting the risk margin appropriate for this class.
A description of the processes used to determine the key assumptions is provided below:
The average weighted term to settlement is calculated separately by class of business, based on
historical settlement patterns.
The discount rates are derived from market yields on Government securities as at the balance date,
in the currency of the expected claim payments.
Expense rate. Claim handling expenses are calculated based on the projected costs of administering
the remaining claims until expiry.
The ultimate to incurred claims ratio is derived by accident or underwriting year based on
historical development of claims from period to period.
The effect of changes in the assumptions have been shown in the reconciliations of general
insurance assets and liabilities in Note 12.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
10 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
3. ACTUARIAL METHODS AND ASSUMPTIONS (continued)
Process for determining risk margin
The risk margin was determined initially for each portfolio, allowing for the uncertainty of the
outstanding claims estimate for each portfolio. Uncertainty was analysed for each portfolio taking
into account past volatility in general insurance claims, potential uncertainties relating to the
actuarial models and assumptions, the quality of the underlying data used in the models, and the
general insurance environment. The estimate of uncertainty is generally greater for long tailed
classes when compared to short tail classes due to the longer time until settlement of outstanding
claims.
The overall risk margin was determined allowing for diversification between the different
portfolios and the relative uncertainty of each portfolio. The assumptions regarding uncertainty
for each class were applied to the net central estimates, and the results were aggregated, allowing
for diversification in order to arrive at an overall provision.
Sensitivity analysis — general insurance contracts
There are a number of variables which impact the amounts recognised in the financial statements
arising from insurance contracts.
The profit or loss and equity of the Company are sensitive to movements in a number of key
variables as described below.
| Variable | Description of variable | |
Average weighted term to settlement
|
Expected payment patterns are used in determining the outstanding claims liability. A decrease in the average term to settlement would lead to claims being paid sooner than anticipated. | |
Discount rate
|
The outstanding claims liability is calculated by reference to expected future payments. These payments are discounted to adjust for the time value of money. | |
Expense rate
|
An estimate for the internal costs of administering claims is included in the outstanding claims liability. | |
Ultimate to incurred claims ratio
|
The estimated ultimate claims cost is generally greater than the claims reported as incurred to date, due to claims that are incurred but not reported (IBNR) or due to future developments on existing claims. | |
The following table provides and analysis of the sensitivity of the profit after income tax and
total equity to changes in these assumptions both gross and net of reinsurance for the non-core
business that was transferred to TGI. It is not practical to assess the impact on the
indemnification of the residual risks arising from the sale of core business to GIO General Ltd.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
11 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
3. ACTUARIAL METHODS AND ASSUMPTIONS (continued)
2007
| Change in | Assumption at 12/07 | Profit/Loss (after tax) | ||||||||||||||||||
| Variable | variable | Gross % | Net % | Gross $’000 | Net $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 year | 3.3 | 3.7 | 1,671 | — | |||||||||||||||
| -0.5 year | 3.3 | 3.7 | (1,767 | ) | — | |||||||||||||||
Discount Rate1 |
+1 | % | 6.4 | 6.2 | 1,522 | — | ||||||||||||||
| -1 | % | 6.4 | 6.2 | (1,629 | ) | — | ||||||||||||||
Expense Rate |
+1 | % | 17.0 | 17.0 | (474 | ) | — | |||||||||||||
| -1 | % | 17.0 | 17.0 | 474 | — | |||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 101.7 | 101.7 | (3,310 | ) | — | |||||||||||||
| -1 | % | 101.7 | 101.7 | 1,497 | — | |||||||||||||||
2006
| Change in | Assumption at 12/06 | Profit/Loss (after tax) | ||||||||||||||||||
| Variable | variable | Gross % | Net % | Gross $’000 | Net $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 year | 3.3 | 3.6 | 2,010 | — | |||||||||||||||
| -0.5 year | 3.3 | 3.6 | (2,214 | ) | — | |||||||||||||||
Discount Rate1 |
+1 | % | 5.9 | 5.9 | 2,058 | — | ||||||||||||||
| -1 | % | 5.9 | 5.9 | (2,201 | ) | — | ||||||||||||||
Expense Rate |
+1 | % | 17.3 | 17.3 | (623 | ) | — | |||||||||||||
| -1 | % | 17.3 | 17.3 | 623 | — | |||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 102.5 | 102.5 | (3,732 | ) | — | |||||||||||||
| -1 | % | 102.5 | 102.5 | 2,066 | — | |||||||||||||||
| 1 | — This sensitivity reflects the liability movements only. As assets are invested to match the term of abilities, there is little overall profit impact from a change to interest rates. | |
| 2 | — This ratio has only been adjusted for years that are not considered to be fully developed. |
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
12 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS
During 2001 the company sold its core insurance business to GIO General Ltd. This was undertaken
via a portfolio transfer supported by actuarial valuation and approved by the Australian Prudential
Regulatory Authority. The remaining non-core portfolio was transferred to its subsidiary TGI
Australia Ltd. These entities managed risks associated with these portfolios.
The Board has ultimate responsibility for risk management and governance, including ensuring an
appropriate risk framework is in place and is operating effectively.
Financial risks include:
Liquidity risk
Liquidity risk is the risk that the Company will not be able to met its debt obligations or
other cash outflows as they fall due because of lack of liquid assets. The Company manages
liquidity risk by maintaining adequate reserves and by continuously monitoring forecast and
actual cash flows and matching the maturity profiles of assets and liabilities.
The table below summaries the maturity profile of the company’s financial liabilities at 31
December based on contractual discounted obligations.
31 Dec 07
| $’000 | $’000 | $’000 | $’000 | $’000 | ||||||||||||||||
| Up to 1 year | 2 to 3 years | 4 to 5 years | Over 5 years | Total | ||||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Payables |
256 | — | — | — | 256 | |||||||||||||||
Total |
256 | — | — | — | 256 | |||||||||||||||
31 Dec 06
| $’000 | $’000 | $’000 | $’000 | $’000 | ||||||||||||||||
| Up to 1 year | 2 to 3 years | 4 to 5 years | Over 5 years | Total | ||||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Payables |
1,101 | — | — | — | 1,101 | |||||||||||||||
Total |
1,101 | — | — | — | 1,101 | |||||||||||||||
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
13 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Credit exposure by credit rating
The table below provides information regarding the credit risk exposure of the Company by
classifying assets according to the Company’s credit rating of counter parties:
| 31 Dec 07 | 31 Dec 06 | |||||||||||||||
| Reinsurance & | Financial | Reinsurance & | Financial | |||||||||||||
| Other Recoveries | Instruments | Other Recoveries | Instruments | |||||||||||||
| $ | 000 | $ | 000 | $ | 000 | $ | 000 | |||||||||
AAA |
54 | — | 54 | — | ||||||||||||
AA |
77 | 599 | 77 | 145 | ||||||||||||
A |
18,157 | — | 25,545 | — | ||||||||||||
BBB |
— | — | — | — | ||||||||||||
Below BBB |
— | — | — | — | ||||||||||||
Not rated |
42,586 | — | 66,164 | 117,158 | ||||||||||||
Total |
60,874 | 599 | 91,840 | 117,303 | ||||||||||||
Note that the above table is gross of provision for impairment of asset.
The following table provides an aged analysis of financial assets neither past due or impaired,
past due and not impaired and impaired assets. Impairment is calculated in accordance with note 1.
Credit risk in trade receivables in managed by analysing the credit ratings of the underlying
debts.
| Neither past | ||||||||||||||||||||
| due nor | Past due but not impaired | |||||||||||||||||||
| impaired | Up to 1 year | More than 1 year | Impaired | TOTAL | ||||||||||||||||
| 31 Dec 07 | $000 | $000 | $000 | $000 | $000 | |||||||||||||||
Receivables |
— | — | — | — | ||||||||||||||||
Reinsurance and
other recoveries |
60,627 | 247 | 60,874 | |||||||||||||||||
Total |
— | 60,627 | 247 | 60,874 | ||||||||||||||||
| Neither past | ||||||||||||||||||||
| due nor | Past due but not impaired | |||||||||||||||||||
| impaired | Up to 1 year | More than 1 year | Impaired | TOTAL | ||||||||||||||||
| 31 Dec 06 | $000 | $000 | $000 | $000 | $000 | |||||||||||||||
Receivables |
112,836 | — | — | — | 112,836 | |||||||||||||||
Reinsurance and
other recoveries |
— | — | 91,578 | 262 | 91,840 | |||||||||||||||
Total |
112,836 | — | 91,578 | 262 | 204,676 | |||||||||||||||
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
14 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Details of the significant accounting policies and methods adopted, including the criteria for
recognition, the basis of measurement and the basis on which revenue and expenses are recognised,
in respect of each class of financial asset, financial liability and other are under and in Note 1.
Categories of financial instruments
| 2007 | 2006 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Financial assets |
||||||||||||
Receivables |
9 | — | 112,836 | |||||||||
Reinsurance Recoveries |
10 | 60,874 | 91,828 | |||||||||
Cash & cash equivalents |
21 | 599 | 145 | |||||||||
Financial Liabilities |
||||||||||||
Payables |
13 | 256 | 1,101 | |||||||||
Income tax payable |
203 | 125 | ||||||||||
For the following financial instruments, the cost carrying amount is considered to equate to their
fair value:
| • | cash deposits | |
| • | loans to related parties | |
| • | receivables | |
| • | payables. |
5. Net Investment Revenue
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Interest |
44 | 17 | ||||||
Distributions received |
68 | 308 | ||||||
Dividends |
10 | 20,020 | ||||||
Changes in fair value of investments: |
||||||||
Realised |
(14 | ) | (35 | ) | ||||
Unrealised |
43 | 4 | ||||||
Total Net investment revenue |
151 | 20,314 | ||||||
6. Other income
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Fire Services Levy fund |
— | 124 | ||||||
Other |
203 | — | ||||||
Total other income |
203 | 124 | ||||||
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
15 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
7. Operating Expenses
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Expense by nature |
||||||||
Reversal of prior Impairment — reinsurance recoverable |
(2 | ) | (111 | ) | ||||
Investment management fee |
2 | 8 | ||||||
Other Management fees |
50 | 50 | ||||||
Legal fees |
5 | — | ||||||
Other expenses |
2 | — | ||||||
Total Expenses |
57 | (53 | ) | |||||
Represented by: |
||||||||
Other underwriting (benefit)/expense |
— | (1 | ) | |||||
General administration expenses/(benefit) |
57 | (52 | ) | |||||
| 57 | (53 | ) | ||||||
8. Income Tax
(a) Analysis of income tax expense
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Current tax |
203 | 123 | ||||||
(Decrease) increase in deferred tax assets |
(1 | ) | (10 | ) | ||||
Over provided in previous years |
(6 | ) | (1 | ) | ||||
Income tax expense |
196 | 112 | ||||||
(b) Relationship between income tax expense and accounting profit
The table below provides a reconciliation of differences between prima facie tax calculated as
30% of the profit before income tax for the period and the actual income tax expense recognised
in the income statement for the period.
In respect of income tax expense attributable to shareholders, the tax rate which applies in
both 2007 and 2006 is 30%.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
16 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
8. Income Tax (continued)
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Operating profit before income tax |
680 | 20,494 | ||||||
Prima facie income tax at the rate of 30% |
204 | 6,148 | ||||||
Tax effect of differences between amounts of income and expenses
recognised for accounting and the amounts deductible/assessable in
calculating taxable income: |
||||||||
Other |
(2 | ) | (6,035 | ) | ||||
Over provided in prior years — deferred tax balances |
(6 | ) | (1 | ) | ||||
Income tax expense per income statement |
196 | 112 | ||||||
c) Analysis of deferred tax asset |
||||||||
Amounts recognised in income: |
||||||||
- Provision for doubtful debts |
3 | 3 | ||||||
- Unrealised gains/losses |
— | 13 | ||||||
Total deferred tax assets |
3 | 16 | ||||||
9. Receivables
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Other receivables from related parties |
||||||||
- Other related parties |
— | 112,836 | ||||||
Total Current Receivables |
— | 112,836 | ||||||
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
17 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
10. Reinsurance and Other Recoveries Receivable
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Reinsurance and other recoveries receivable undiscounted |
||||||||
- on claims paid |
257 | 273 | ||||||
- on outstanding claims |
73,446 | 110,654 | ||||||
Discount to present value |
(12,820 | ) | (19,088 | ) | ||||
less: provision for impairement of reinsurance assets |
(9 | ) | (11 | ) | ||||
Total Reinsurance and other Recoveries |
60,874 | 91,828 | ||||||
Reinsurance and other recoveries receivable- current |
17,826 | 25,263 | ||||||
less: provision for impairement of reinsurance assets |
(9 | ) | (11 | ) | ||||
| 17,817 | 25,252 | |||||||
Reinsurance and other recoveries receivable- non current |
43,057 | 66,576 | ||||||
less: provision for impairement of reinsurance assets |
— | — | ||||||
| 43,057 | 66,576 | |||||||
11. Other financial assets
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Unquoted investments — at fair value: |
||||||||
Units held in cash managed trust
— other related parties |
— | 4,154 | ||||||
Total current financial assets |
— | 4,154 | ||||||
Non-Current |
||||||||
Unquoted investments — at fair value: |
||||||||
Preference shares |
— | 167 | ||||||
Unquoted investments — at cost: |
||||||||
Ordinary shares — subsidiaries |
30,000 | 30,000 | ||||||
Total non-current financial assets |
30,000 | 30,167 | ||||||
Total other financial assets |
30,000 | 34,321 | ||||||
Investment in controlled entities
| Percentage of equity Interest | Dollar Amount held | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
| Name of Entity | % | % | $’000 | $’000 | ||||||||||||
TGI Australia Ltd |
100 | 100 | 30,000 | 30,000 | ||||||||||||
| 30,000 | 30,000 | |||||||||||||||
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
18 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
12. Outstanding Claims
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Expected future claims payments (undiscounted) |
73,446 | 110,654 | ||||||
Discount to present value |
(12,819 | ) | (19,088 | ) | ||||
Total Outstanding Claims |
60,627 | 91,566 | ||||||
Current |
17,570 | 24,990 | ||||||
Non Current |
43,057 | 66,576 | ||||||
Total Outstanding Claims |
60,627 | 91,566 | ||||||
Outstanding claims details
The weighted average expected term to settlement of the outstanding claims from the balance date is
estimated to be 3.68 years (06:3.94 years).
The Company has effectively portfolio transferred its insurance contracts to GIO General Ltd and
TGI Australia Ltd in 2001. No new contracts have been issued from the entity. The production of a
claims development table prior to 2004 is impracticable as the information required to complete
this for the business transferred to GIO General Ltd is not available to the Company.
| Net | Gross | |||||||
| Estimate of Cumulative claims | $’000’s | $’000’s | ||||||
31 December 2004 |
— | 660,999 | ||||||
31 December 2005 |
— | 647,156 | ||||||
31 December 2006 |
— | 639,624 | ||||||
32 December 2007 |
— | 611,558 | ||||||
Estimate of Cumulative Claims at 31 December 2007 |
— | 611,558 | ||||||
Cumulative Payments |
— | 555,708 | ||||||
Undiscounted central estimate |
— | 55,850 | ||||||
Effect of Discounting |
— | 12,819 | ||||||
Discounted Central Estimate |
— | 43,031 | ||||||
Risk Margin |
— | 7,516 | ||||||
Claims Handling Provision |
— | 10,080 | ||||||
Gross Outstanding Claims as per the Balance Sheet |
— | 60,627 | ||||||
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
19 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
13. Payables
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Other creditors |
256 | 1,101 | ||||||
Total Payables |
256 | 1,101 | ||||||
14. Contributed Equity
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Paid up Capital |
||||||||
Paid up capital - 327,000 $0.64 ordinary shares |
210,552 | 327,000 | ||||||
(2006: 327,000 $1 ordinary shares) |
||||||||
Movements in contributed equity |
||||||||
Balance at the beginning of the period |
327,000 | 327,000 | ||||||
Capital
return — 31 May 2007 |
(115,908 | ) | — | |||||
Capital return - 19 September 2007 |
(540 | ) | — | |||||
Balance at the end of the period |
210,552 | 327,000 | ||||||
Rights attaching to Ordinary Shares
Ordinary shares attract the following rights:
| (a) | to receive notice of and to attend and vote at all general meetings of the Company; |
||
| (b) | to receive dividends; and | ||
| (c) | in a winding up, to participate equally in the distribution of the assets of the Company (both capital and surplus), subject only to any amounts unpaid on the Share. |
15. Retained profits
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Accumulated Losses at beginning of the financial year |
(180,646 | ) | (181,028 | ) | ||||
Operating Profit after Income Tax |
484 | 20,382 | ||||||
Dividends paid |
— | (20,000 | ) | |||||
Accumulated Losses at the end of the financial year |
(180,162 | ) | (180,646 | ) | ||||
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
Dividends paid on ordinary shares |
||||||||
- Dividend paid on 12 April 2006
Unfranked dividend of $61.16 per share |
— | 20,000 | ||||||
Dividends paid during the year |
— | 20,000 | ||||||
16. Franking account
The AMP Limited group entered into Tax Consolidation during 2003. Under Tax Consolidation, the
franking account balances for group companies are transferred to the Head Entity, AMP Limited. The
entity will be required to make a payment to terminate its liability under the tax funding
agreement if it leaves the tax consolidation group.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
20 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
17. Key management personnel compensation
The following individuals were the key management personnel of Harrington Sound Limited (formerly
AMP General Insurance Limited) for the current and prior reporting periods (unless stated
otherwise):
| Date of | ||||
| Appointment/Resignation | ||||
| during the current or prior | ||||
| Name | reporting period | |||
Peter Hodgett
|
Resigned 31 December 2007 | |||
Simon Hoole
|
||||
Paul Leaming |
||||
Bryan Dean
|
Appointed 20 December 2007, | |||
The following table provides aggregate details of the compensation of key management personnel of
Harrington Sound Ltd (formerly AMP General Insurance Limited).
| Short-term | Post- | Other | Share- | |||||||||||||||||||||
| employee | employment | long-term | Termination | based | ||||||||||||||||||||
| benefits | benefits | benefits | benefits | payments | Total | |||||||||||||||||||
| Year | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
2007 |
3,562,459 | 374,053 | — | 2,335,571 | 1,043,535 | 7,315,618 | ||||||||||||||||||
2006 |
3,396,808 | 355,930 | — | — | 1,019,052 | 4,771,790 | ||||||||||||||||||
18. Auditors’ remuneration
Auditors’ remuneration for the year ended 31 December 2007 is paid on the Company’s behalf by a
controlled entity within the AMP Limited Group.
19. Contingent Liabilities
There are no contingent liabilities as at 31 December 2007 (2006: Nil)
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
21 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
20. Related Parties
Transactions between Harrington Sound Ltd (formerly AMP General Insurance Limited) and other
related parties for the financial year consisted of:
| • | Payment of management fees for services provided | ||
| • | Provision of share capital | ||
| • | Provision of intercompany loans |
Controlling Entity
The immediate parent entity as at 31 December 2007 is Shelly Bay Holdings Limited (formerly AMP
General Insurance Holdings Limited). AMP Limited is the ultimate parent entity as at 31 December
2007.
Directors
The directors of the company during the financial year and the dates of appointments and
resignations during the year are:
P D Leaming
|
||||
P M Hodgett
|
Resigned 31 December 2007 | |||
S J Hoole |
||||
B Dean
|
Appointed 20 December 2007 |
Key management personnel disclosed above, also provided services to other related entities during
the year. The above remuneration amounts include all amounts paid for services rendered to related
entities and those services rendered to Harrington Sound Ltd (formerly AMP General Insurance
Limited).
Other transactions with directors of the Company and their director-related entities
The directors and their director related entities receive normal dividends on their ordinary share
holdings in AMP Limited.
During the year, transactions were entered into between Directors or their Director related
entities and entities within the AMP Limited Group. These transactions are within a normal
employee, customer or supplier relationship on terms and conditions no more favourable than those
available to other employees, customers or members (unless otherwise described below) and include:
| • | normal personal banking with AMP Bank Limited including the provision of credit cards; | |
| • | the purchase of AMP superannuation products; | |
| • | Financial investment services; | |
| • | Other advisory services. |
These transactions do not have the potential to adversely affect the decisions about the allocation
of scarce resources made by users of AMP’s financial statements, or discharge of accountability by
the Directors. The transactions are considered to be trivial or domestic in nature.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
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Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
20. Related Parties (continued)
Transactions with related parties
The aggregate amounts brought to account in respect of the following types of transactions and each
class of related party involved were:
| 2007 | 2006 | |||||||
| $ | $ | |||||||
Amounts attributable to transactions with related parties |
||||||||
Operating (loss) before income tax for the financial year includes
aggregate amounts attributable to transactions in respect of: |
||||||||
Investment Expenses/(benefit) — other related parties |
1,969 | 7,940 | ||||||
Management Expense — other related parties |
50,000 | 50,000 | ||||||
Amounts receivable from and payable to related parties |
||||||||
Aggregate amounts receivable at balance date : |
||||||||
Current |
||||||||
Receivable — other related parties |
— | 112,836,536 | ||||||
AMP Services Limited and Enstar Australia Holdings Pty Ltd (formerly Cobalt Solutions Australia
Limited), fellow wholly controlled entities at 31 December 2007, provide operational and
administrative (including employee related) services to the company with the exception of certain
financing arrangements, finance leasing and agent related services. The services provided are in
the normal course of the business and are on normal commercial terms and conditions.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
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23 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2007
21. Cashflow Reconciliation
| 2007 | 2006 | |||||||
| $’000 | $’000 | |||||||
(i) Reconciliation of cash |
||||||||
Cash at call |
599 | 145 | ||||||
Cash in Trust |
— | 4,154 | ||||||
Total Cash |
599 | 4,299 | ||||||
| (ii) Reconciliation of net cash flows from operating activities to operating profit after income tax: | ||||||||
Operating profit / (loss) after income tax |
484 | 20,382 | ||||||
Change in assets and liabilities |
||||||||
Unrealised profit / (loss) on investments |
43 | (4 | ) | |||||
Increase in doubtful debts provision |
9 | — | ||||||
(Increase)/Decrease in deferred tax asset |
13 | (10 | ) | |||||
(Increase) /Decrease in reinsurance recoveries |
30,944 | 19,992 | ||||||
(Decrease) in accounts payable |
(845 | ) | (1,228 | ) | ||||
(Decrease) / Increase in outstanding claims |
(30,938 | ) | (19,985 | ) | ||||
(Decrease) / Increase in provisions |
78 | (277 | ) | |||||
(Increase) / decrease in other assets |
(73 | ) | (1,014 | ) | ||||
Net cash inflow from operating activities |
(285 | ) | 17,856 | |||||
22. Events Occurring After the Reporting Date
On 11 December 2007 a Sale and Purchase Agreement was entered into by the ultimate parent AMP
Limited and Enstar Australia Holdings Pty Ltd for the sale of the entity.
The sale was subject to a number of conditions including regulatory approval by the Australian
Prudential Regulatory Authority (APRA) and was expected to be completed in quarter one 2008.
APRA subsequently approved the Sale Agreement on 22 February 2008. The sale was then completed on 5
March 2008. Enstar Australia Holdings Pty Ltd assumed ownership of the company at this point.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
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24 of 25 | |
Report of Independent Auditors
The Board of Directors of Harrington Sound Limited (formerly AMP General Insurance Limited)
We have audited the accompanying balance sheets of Harrington Sound Limited (formerly AMP General
Insurance Limited) as of December 31, 2007 and 2006, and the related income statements, statements
of changes in equity, and cash flow statements for the years then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Harrington Sound Limited (formerly AMP General Insurance
Limited) at December 31, 2007 and 2006, and the results of its operations and its cash flows for
the years then ended in accordance with International Financial Reporting Standards as issued by
the International Accounting Standards Board.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Sydney, Australia
May 15, 2008
|
Liability limited by a scheme approved under Professional Standards Legislation |
||||
HARRINGTON SOUND LIMITED
(formerly AMP GENERAL INSURANCE LIMITED
ABN 30 008 405 632
(formerly AMP GENERAL INSURANCE LIMITED
ABN 30 008 405 632
Financial Report
31 DECEMBER 2006
31 DECEMBER 2006
Contents:
| Page | ||||
Financial Report |
||||
Financial Statements |
||||
— Income Statement |
1 | |||
— Balance Sheet |
2 | |||
— Statement of Changes in Equity |
3 | |||
— Cash Flow Statement |
4 | |||
Notes to the Financial Statements |
5 | |||
Report of Independent Auditors |
25 | |||
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Income Statement
For the year ended 31 December 2006
For the year ended 31 December 2006
| 31 Dec 06 | 31 Dec 05 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Direct Premium Revenue |
— | — | ||||||||||
Outwards reinsurance expense |
— | — | ||||||||||
Net premium revenue |
— | — | ||||||||||
Direct claims benefit |
19,985 | 48,161 | ||||||||||
Reinsurance and other recoveries expense |
(19,982 | ) | (47,949 | ) | ||||||||
Net Claims Incurred |
8 | 3 | 212 | |||||||||
Other underwriting expenses |
7 | (1 | ) | 7 | ||||||||
Underwriting result |
4 | 205 | ||||||||||
Other Income |
6 | 124 | 1,236 | |||||||||
Net Investment Revenue |
5 | 20,314 | 697 | |||||||||
General and administration expenses revenue |
7 | (52 | ) | (5 | ) | |||||||
Net profit before tax |
20,494 | 2,143 | ||||||||||
Income tax expense |
9 | 112 | 385 | |||||||||
Net profit attributable to members of AMP
General Insurance Ltd |
20,382 | 1,758 | ||||||||||
The above Income Statement should be read in conjunction with the accompanying notes.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
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1 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Balance Sheet
As at 31 December 2006
As at 31 December 2006
| 2006 | 2005 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Current Assets |
||||||||||||
Cash and cash equivalents |
23 | 145 | 600 | |||||||||
Receivables |
10 | 112,836 | 111,822 | |||||||||
Reinsurance and other recoveries receivable |
11 | 25,252 | 29,911 | |||||||||
Other financial assets |
12 | 4,154 | 5,843 | |||||||||
Total Current Assets |
142,387 | 148,176 | ||||||||||
Non — Current Assets |
||||||||||||
Reinsurance and other recoveries receivable |
11 | 66,576 | 81,909 | |||||||||
Other financial assets |
12 | 30,167 | 30,163 | |||||||||
Deferred tax assets |
9 | 16 | 6 | |||||||||
Total Non — Current Assets |
96,759 | 112,078 | ||||||||||
Total Assets |
239,146 | 260,254 | ||||||||||
Current Liabilities |
||||||||||||
Outstanding Claims liability |
13 | 24,990 | 29,642 | |||||||||
Payables |
14 | 1,101 | 2,329 | |||||||||
Current tax liabilities |
125 | 402 | ||||||||||
Total Current Liabilities |
26,216 | 32,373 | ||||||||||
Non — Current Liabilities |
||||||||||||
Outstanding Claims liability |
13 | 66,576 | 81,909 | |||||||||
Total Non — Current Liabilities |
66,576 | 81,909 | ||||||||||
Total Liabilities |
92,792 | 114,282 | ||||||||||
Net Assets |
146,354 | 145,972 | ||||||||||
Shareholder’s Equity |
||||||||||||
Contributed equity |
15 | 327,000 | 327,000 | |||||||||
Retained profits |
16 | (180,646 | ) | (181,028 | ) | |||||||
Total Shareholders’ Equity |
146,354 | 145,972 | ||||||||||
The above Balance Sheet should be read in conjunction with the accompanying notes.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
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Harrington Sound Ltd (formerly AMP General Insurance Limited)
Statement of Changes in Equity
For the year ended 31 December 2006
For the year ended 31 December 2006
| Issued | Retained | |||||||||||
| Capital | Earnings | Total | ||||||||||
| $’000 | $’000 | $’000 | ||||||||||
Balance as at 1 January 2006 |
327,000 | (181,028 | ) | 145,972 | ||||||||
Net Profit/(loss) after income tax |
— | 20,382 | 20,382 | |||||||||
Other changes in equity — Dividends paid |
— | (20,000 | ) | (20,000 | ) | |||||||
Balance as at 31 December 2006 |
327,000 | (180,646 | ) | 146,354 | ||||||||
Balance as at 1 January 2005 |
327,000 | (182,786 | ) | 144,214 | ||||||||
Net Profit/(loss) after income tax |
— | 1,758 | 1,758 | |||||||||
Balance as at 31 December 2005 |
327,000 | (181,028 | ) | 145,972 | ||||||||
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
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Harrington Sound Ltd (formerly AMP General Insurance Limited)
Cash Flow Statement
For the year ended 31 December 2006
For the year ended 31 December 2006
| 2006 | 2005 | |||||||||||
| Note | $’000 | $’000 | ||||||||||
Cash Flows from Operating Activities |
||||||||||||
Dividends Received |
20,020 | — | ||||||||||
Reinsurance recoveries received |
9 | 267 | ||||||||||
Levies and charges received/(paid) |
1 | 209 | ||||||||||
Other underwriting and administration income/(expenses) |
(2,182 | ) | 470 | |||||||||
Investment expenses |
(8 | ) | 47 | |||||||||
Interest received |
17 | — | ||||||||||
Other income received |
397 | 1,951 | ||||||||||
Income taxes (paid) / received |
(398 | ) | 9,065 | |||||||||
Total Cash Flows from Operating Activities |
23 | 17,856 | 12,009 | |||||||||
Cash Flows from Investing Activities |
||||||||||||
Total Cash Flows from Investing Activities |
— | — | ||||||||||
Cash Flows from Financing Activities |
||||||||||||
Loans granted to related entities |
— | (25,000 | ) | |||||||||
Dividends Paid |
(20,000 | ) | — | |||||||||
Total Cash Flows from Financing Activities |
(20,000 | ) | (25,000 | ) | ||||||||
Net (decrease) / increase in cash |
(2,144 | ) | (12,991 | ) | ||||||||
Cash at the beginning of the financial year |
6,443 | 19,434 | ||||||||||
Cash at the end of the financial year |
23 | 4,299 | 6,443 | |||||||||
The above Statement of Cash Flow should be read in conjunction with the accompanying notes.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
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Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
This Financial Report, comprising the financial statements and the notes thereto, complies with
International Financial Reporting Standards as issued by the International Accounting Standards
Board.
The financial statements are separate financial statements as the exemption from preparing
consolidated financial statements has been used. The entity and its subsidiaries have been
consolidated into the financial statements of AMP Limited, of 33 Alfred St Sydney NSW Australia,
an entity incorporated in Australia. Copies of these accounts can be requested from AMP Limited at
this address.
The entity’s significant investments in subsidiaries, including the name, country of incorporation
or residence, proportion of ownership interest and can found in Note 12 to these accounts. A
description of the method used to account for these investments is described under Shares in
subsidiaries later in this note.
The Financial Report has been prepared in accordance with the historical cost convention except
for investments, which have been measured at fair value, and insurance liabilities, which have
been discounted to present value.
The principal accounting policies adopted in the preparation of the Financial Report are set out
below. These policies have been consistently applied to the current year and comparative period,
unless otherwise stated. The same accounting policies and methods of computation are followed by
this Financial Report as compared with the 31 December 2005 Financial Report. Where necessary,
comparative information has been reclassified to be consistent with current period disclosures.
Accounting Standards that have recently been issued or amended but are not yet effective have
not been adopted for the reporting period ending 31 December 2006. When applied in future
periods, these recently issued or amended standards are not expected to have a material impact
on the company’s results or financial position; however they may impact Financial Report
disclosures.
Operating revenue
Operating revenue comprises general insurance earned premiums, recoveries and investment income.
Investment income is brought to account on an accrual basis.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
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Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
Outstanding Claims
The liability for outstanding claims is measured as the best estimate of the present value of
expected future payments against claims incurred at the reporting date under general insurance
contracts issued by the Company, with an additional risk margin to allow for the inherent
uncertainty in the best estimate.
The expected future payments include those in relation to claims reported but not yet paid; claims
incurred but not reported (IBNR), claims incurred but not enough reported (IBNER) and anticipated
claims handling costs.
The liability includes an allowance for inflation and superimposed inflation and is measured as the
present value of the expected future ultimate cost of settling claims. The expected future payments
are discounted to present value using a risk free rate.
A risk margin is applied to the outstanding claims liability, net of reinsurance and other
recoveries, to reflect the inherent uncertainty in the best estimate. This risk margin increases
the probability that the net liability is adequately provided for.
Reinsurance and other recoveries
Reinsurance and other recoveries or receivables on paid claims and outstanding claims are
recognised as revenue when claims are paid or the outstanding claim is raised. Reinsurance
receivables are discounted to present value consistent with the discounting of outstanding claims.
Investment gains and losses
Dividend, interest income and trust distributions are recognised in the income statement on an
effective interest method when the entity obtains control of the right to receive the revenue.
Realised gains and losses represent the change in value between the previously reported value and
the amount received on sale of the asset. Unrealised gains and losses represent changes in the
fair value of financial assets recognised in the period.
Financial assets
Financial assets, except for shares in subsidiaries, are designated at fair value through profit or
loss. Initial recognition is at cost in the balance sheet and subsequent measurement is at fair
value with any resultant unrealised gains or losses recognised in the income statement. Details of
fair value for the different types of financial assets are listed below:
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand that is available on demand and deposits
held at call with financial institutions. Cash and cash equivalents are carried at fair value,
being the principal amount. For the purposes of the cash flow statement, cash also includes
other highly liquid investments not subject to significant risk of change in value.
Cash trusts
The fair value of units in a listed cash trust reflects the quoted bid price at balance date.
There is no reduction for realisation costs in the value of units in a cash trust. Unlisted unit
trusts are recorded at fund managers valuations.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
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Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
Shares in subsidiaries
Investments in subsidiaries are valued at original cost, unless the net realisable value is
measured to be lower than cost, in which case an impairment would be recognised.
Income Tax
Taxes
Income tax
Income tax expense is the tax payable on taxable income for the current period based on the income
tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities
attributable to: (i) temporary differences between the tax bases of assets and liabilities and
their balance sheet carrying amounts, and (ii) unused tax losses.
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates
expected to apply when the assets are recovered or liabilities are settled, based on those tax
rates which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary
differences to measure the deferred tax asset or liability. An exception is made for certain
temporary differences arising from the initial recognition of an asset or a liability. No deferred
tax asset or liability is recognised in relation to these temporary differences if they arose in a
transaction, other than a business combination, that at the time of the transaction did not affect
either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only
if it is probable that future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the
carrying amount and tax bases of investments in controlled entities where the parent entity is able
to control the timing of the reversal of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future.
The tax impact on income and expense items recognised directly in equity is also recognised
directly in equity.
Tax Consolidation
AMP Limited, Harrington Sound Ltd (formerly AMP General Insurance Limited) and certain other wholly
owned controlled entities of AMP Limited comprise a tax-consolidated group of which AMP Limited is
the head entity. The implementation date for the tax-consolidated group was 30 June 2003.
Under tax consolidation, AMP Limited as head entity, assumes the following balances from
subsidiaries within the tax-consolidated group:
(i) Current tax balances arising from external transactions recognised by entities in the
tax-consolidated group occurring after the implementation date, and;
(ii) Deferred tax assets arising form unused tax losses and unused tax credits recognised by
entities in the
tax-consolidated group occurring after the implementation date.
A tax funding agreement has been entered into by the head entity and the controlled entities in the
tax-consolidated group. Controlled entities in the tax-consolidated group will continue to be
responsible, by the operation of the tax funding agreement, for funding tax payments required to be
made by the head entity arising from underlying transactions of the controlled entities. Controlled
entities will make (receive) contributions to (from) the head entity for the balances recognised by
the head entity described in (i) and (ii) above. The contributions will be calculated in accordance
with the tax funding agreement.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
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Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
Assets and liabilities which arise as a result of differences between the periods in which the
underlying transactions occur, and the period in which the funding payments under the tax funding
agreement are made, are recognised as intercompany balances receivable and payable in the balance
sheet. The recoverability of balances arising from the tax funding arrangements is based on the
ability of the tax-consolidated group to utilise the amounts recognised by the head entity.
Goods and Services Tax (GST)
All revenues, expenses and assets are recognised net of any GST paid, except where they relate to
products and services which are input taxed for GST purposes or the GST incurred is not recoverable
from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of
the cost of acquisition of the assets or as part of the particular expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from or payable to the tax authorities is included as a receivable or payable in the
balance sheet.
Cash flows are reported on a gross basis reflecting any GST paid or collected. The GST component of
cash flows arising from investing or financing activities which are recoverable from, or payable
to, local tax authorities are classified as operating cash flows.
Receivables
Receivables are financial assets and are measured at fair value. Given the short-term nature of
most receivables, the recoverable amount approximates fair value. A provision for impairment is
recognised when there is objective evidence that the Company will not be able to collect all
amounts due according to the original terms of the receivables. The impairment charge is
recognised in the income statement. Bad debts are written off as incurred.
Payables
Trade creditors and accruals are recognised as liabilities for amounts to be paid in the future
for goods and services received, whether or not billed to the entity.
Amounts Due To or From Related Parties
Amounts are carried at fair value being nominal amounts due and payable. Interest is taken up as
income on an accrual basis. A provision for impairment is recognised when there is objective
evidence that the related party will not be able to pay its debt.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
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8 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Company makes estimates and assumptions in respect of certain key assets and liabilities.
Estimates and judgements are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances. The key areas in which critical estimates and judgements are applied are described
below.
(a) The ultimate liability arising from claims made under insurance contracts
Provision is made at year-end for the estimated cost of claims incurred but not settled at the
balance sheet date, including the cost of claims incurred but not yet reported to the Company.
The estimated cost of claims includes direct expenses to be incurred in settling claims gross of
the expected value of salvage and other recoveries. The Company takes all reasonable steps to
ensure that it has appropriate information regarding its claims exposures. However, given the
uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be
different from the original liability established.
The estimation of claims incurred but not reported (“IBNR”) is generally subject to a greater
degree of uncertainty than the estimation of the cost of settling claims already notified to the
Company, where more information about the claim event is generally available. IBNR claims may
often not be reported to the insurer until many years after the events giving rise to the claims
has happened. The liability class of business will typically display greater variations between
initial estimates and final outcomes because there is a greater degree of difficulty in estimating
IBNR reserves. For the short tail class, claims are typically reported soon after the claim event,
and hence tend to display lower levels of volatility. In calculating the estimated cost of unpaid
claims the Company uses a variety of estimation techniques, generally based upon analysis of
historical experience, which assumes that the development pattern of the current claims will be
consistent with past experience. Allowance is made, however, for changes or uncertainties which
may create distortions in the underlying statistics or which might cause the cost of unsettled
claims to increase or reduce when compared with the cost of previously settled claims including:
| • | changes in Company processes which might accelerate or slow down the development and/or recording of paid or incurred claims, compared with the statistics from previous periods; | ||
| • | changes in the legal environment; | ||
| • | the effects of inflation; | ||
| • | the impact of large losses; | ||
| • | movements in industry benchmarks. |
Where possible the Company adopts multiple techniques to estimate the required level of provisions.
This assists in giving greater understanding of the trends inherent in the data being projected.
The projections given by the various methodologies also assist in setting the range of possible
outcomes. The most appropriate estimation technique is selected taking into account the
characteristics of the business class and the extent of the development of each accident year.
Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the
amounts that will be recoverable from reinsurers based upon the gross provisions.
Details of specific assumptions used in deriving the outstanding claims liability at year-end are
detailed in note 3.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
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Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
(b) Assets arising from reinsurance contracts
Assets arising from reinsurance contracts are also computed using the above methods. In addition,
the recoverability of these assets is assessed on a periodic basis to ensure that the balance is
reflective of the amounts that will ultimately be received, taking into consideration factors such
as counterparty and credit risk. Impairment is recognised where there is objective evidence that
the Company may not receive amounts due to it and these amounts can be reliably measured.
3. ACTUARIAL METHODS AND ASSUMPTIONS
Claims estimates are derived from analysis of the results of several different actuarial models.
These models take case estimates as well as payments into account and assume that reported incurred
amounts or reported payment amounts will develop steadily from period to period. Other models
adopt an ultimate loss ratio for each year that reflects both the long term expected level, as well
as incorporating recent experience. The analysis is performed by accident year for the direct
insurance class.
Claims are first estimated on an undiscounted basis and are then discounted to allow for the time
value of money. The valuation methods adopted include an implicit allowance for future inflation.
The liability class of business may be subject to the emergence of new types of latent claims, but
no specific allowance is included for this as at the balance sheet date. Such uncertainties are
considered when setting the risk margin appropriate for this class.
A description of the processes used to determine the key assumptions is provided below:
The average weighted term to settlement is calculated separately by class of business, based on
historical settlement patterns.
The discount rates are derived from market yields on Government securities as at the balance date,
in the currency of the expected claim payments.
Expense rate. Claim handling expenses are calculated based on the projected costs of administering
the remaining claims until expiry.
The ultimate to incurred claims ratio is derived by accident or underwriting year based on
historical development of claims from period to period.
The effect of changes in the assumptions have been shown below.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
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Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
Process for determining risk margin
The risk margin has been determined having regard to the company’s net exposure after reinsurance
and other recoveries. The only material risk to the portfolio on a net basis is the risk of
reinsurer failure, which the Director’s believe to be remote. As such the Director’s do not believe
a risk margin is required to achieve a probability of adequacy of 75%.
Sensitivity analysis — general insurance contracts
There are a number of variables which impact the amounts recognised in the financial statements
arising from insurance contracts.
The profit or loss and equity of the Company are sensitive to movements in a number of key
variables as described below.
| Variable | Description of variable | |
Average weighted term to settlement
|
Expected payment patterns are used in determining the outstanding claims liability. A decrease in the average term to settlement would lead to claims being paid sooner than anticipated. | |
Discount rate
|
The outstanding claims liability is calculated by reference to expected future payments. These payments are discounted to adjust for the time value of money. | |
Expense rate
|
An estimate for the internal costs of administering claims is included in the outstanding claims liability. | |
Ultimate to incurred claims ratio
|
The estimated ultimate claims cost is generally greater than the claims reported as incurred to date, due to claims that are incurred but not reported (IBNR) or due to future developments on existing claims. | |
The following table provides and analysis of the sensitivity of the profit after income tax and
total equity to changes in these assumptions both gross and net of reinsurance for the non-core
business that was transferred to TGI. It is not practical to assess the impact on the
indemnification of the residual risks arising from the sale of core business to GIO General Ltd.
| Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632 | 11 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
2006
| Change in | Assumption at 12/06 | Profit/(Loss) (after tax) | ||||||||||||||||||
| Variable | variable | Gross % | Net % | Gross $’000 | Net $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 year | 3.3 | 3.6 | 2,010 | — | |||||||||||||||
| -0.5 year | 3.3 | 3.6 | (2,214 | ) | — | |||||||||||||||
Discount Rate1 |
+1 | % | 5.9 | 5.9 | 2,058 | — | ||||||||||||||
| -1 | % | 5.9 | 5.9 | (2,201 | ) | — | ||||||||||||||
Expense Rate |
+1 | % | 17.3 | 17.3 | (623 | ) | — | |||||||||||||
| -1 | % | 17.3 | 17.3 | 623 | — | |||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 102.5 | 102.5 | (3,732 | ) | — | |||||||||||||
| -1 | % | 102.5 | 102.5 | 2,066 | — | |||||||||||||||
2005
| Change in | Assumption at 12/05 | Profit/(Loss) (after tax) | ||||||||||||||||||
| Variable | variable | Gross % | Net % | Gross $’000 | Net $’000 | |||||||||||||||
Average weighted term to settlement |
+0.5 year | 3.48 | 3.59 | 2,008 | — | |||||||||||||||
| -0.5 year | 3.48 | 3.59 | (2,163 | ) | — | |||||||||||||||
Discount Rate1 |
+1 | % | 5.24 | 5.24 | 2,014 | — | ||||||||||||||
| -1 | % | 5.24 | 5.24 | (2,148 | ) | — | ||||||||||||||
Expense Rate |
+1 | % | 21.90 | 21.90 | (669 | ) | — | |||||||||||||
| -1 | % | 21.90 | 21.90 | 669 | — | |||||||||||||||
Ultimate to incurred claims ratio2 |
+1 | % | 103.34 | 103.34 | (4,901 | ) | — | |||||||||||||
| -1 | % | 103.34 | 103.34 | 2,940 | — | |||||||||||||||
| 1 | - This sensitivity reflects the liability movements only. As assets are invested to match the term of abilities, there is little overall profit impact from a change to interest rates. | |
| 2 | - This ratio has only been adjusted for years that are not considered to be fully developed. | |
| Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632 | 12 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
4. Insurance Contracts — Risk Management policies and procedures.
During 2001 the company sold its core insurance business to GIO General Ltd. This was undertaken
via a portfolio transfer supported by actuarial valuation and approved by the Australian Prudential
Regulatory Authority. The remaining non-core portfolio was transferred to its subsidiary TGI
Australia Ltd. These entities managed risks associated with these portfolios.
6. Net Investment Revenue
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Interest |
17 | 21 | ||||||
Trust distributions received |
308 | 609 | ||||||
Dividends |
20,020 | — | ||||||
Changes in fair value of investments: |
||||||||
Realised |
(35 | ) | 72 | |||||
Unrealised |
4 | (5 | ) | |||||
Total Net investment revenue |
20,314 | 697 | ||||||
6. Other income
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Fire Services Levy |
— | 1,124 | ||||||
Other |
124 | 112 | ||||||
Total expenses |
124 | 1,236 | ||||||
7. Operating Expenses
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Expense by nature |
||||||||
Reversal of prior Impairment — reinsurance recoverable |
— | (5 | ) | |||||
Bad Debts written off |
(111 | ) | — | |||||
Investment management fee |
8 | (47 | ) | |||||
Other Management fees |
50 | 50 | ||||||
External consultant costs |
— | (3 | ) | |||||
Legal fees |
— | 7 | ||||||
Total Expenses |
(53 | ) | 2 | |||||
Represented by: |
||||||||
Other underwriting (benefit)/expense |
(1 | ) | 7 | |||||
General administration expenses |
(52 | ) | (5 | ) | ||||
| (53 | ) | 2 | ||||||
| Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632 | 13 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
8. Net
Claims Incurred
| 31-Dec-06 | 31-Dec-05 | |||||||||||||||||||||||
| Current | Prior | Current | Prior | |||||||||||||||||||||
| year | years | Total | year | years | Total | |||||||||||||||||||
| $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |||||||||||||||||||
Gross claims benefit |
||||||||||||||||||||||||
Gross claims incurred — undiscounted |
— | 25,092 | 25,092 | — | 59,442 | 59,442 | ||||||||||||||||||
Discount movement |
— | (5,107 | ) | (5,107 | ) | — | (11,281 | ) | (11,281 | ) | ||||||||||||||
Claims incurred — discounted |
— | 19,985 | 19,985 | — | 48,161 | 48,161 | ||||||||||||||||||
Reinsurance and other recoveries expense |
||||||||||||||||||||||||
Reinsurance and other recoveries — undiscounted |
— | 25,089 | 25,089 | — | 59,230 | 59,230 | ||||||||||||||||||
Discount movement |
— | (5,107 | ) | (5,107 | ) | — | (11,281 | ) | (11,281 | ) | ||||||||||||||
Reinsurance and other recoveries — discounted |
— | 19,982 | 19,982 | — | 47,949 | 47,949 | ||||||||||||||||||
Net claims incurred — discounted |
— | 3 | 3 | — | 212 | 212 | ||||||||||||||||||
9. Income Tax
(a) Analysis of income tax expense
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current tax |
123 | 401 | ||||||
(Decrease)/ increase in deferred tax assets |
(10 | ) | 242 | |||||
Over provided in previous years |
(1 | ) | (258 | ) | ||||
Income tax expense |
112 | 385 | ||||||
(b) Relationship between income tax expense and accounting profit
The table below provides a reconciliation of differences between prima facie tax calculated as
30% of the profit before income tax for the period and the actual income tax expense recognised
in the income statement for the period.
In respect of income tax expense attributable to shareholders, the tax rate which applies in both
2006 and 2005 is 30%.
| Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632 | 14 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
9. Income tax (Continued)
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Operating profit before income tax |
20,494 | 2,142 | ||||||
Prima facie income tax at the rate of 30% |
6,148 | 643 | ||||||
Tax effect of differences between amounts of income and
expenses recognised for accounting and the amounts
deductible/assessable in calculating taxable income: |
||||||||
Dividend from subsidiary |
(6,000 | ) | — | |||||
Other |
(35 | ) | — | |||||
Over provided in prior years — deferred tax balances |
(1 | ) | (258 | ) | ||||
Income tax expense per income statement |
112 | 385 | ||||||
c) Analysis of deferred tax asset |
||||||||
Amounts recognised in income: |
||||||||
- Provision for doubtful debts |
3 | 4 | ||||||
- Unrealised gains/losses |
13 | 2 | ||||||
Total deferred tax assets |
16 | 6 | ||||||
10. Receivables
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Other receivables from related parties |
||||||||
- Other related parties |
112,836 | 111,822 | ||||||
Total Current Receivables |
112,836 | 111,822 | ||||||
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
15 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
11. Reinsurance and Other Recoveries Receivable
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Reinsurance and other recoveries receivable undiscounted |
||||||||
- on claims paid |
273 | 268 | ||||||
- on outstanding claims |
110,654 | 135,758 | ||||||
Discount to present value |
(19,088 | ) | (24,195 | ) | ||||
less: provision for impairment of reinsurance assets |
(11 | ) | (11 | ) | ||||
Total Reinsurance and other Recoveries |
91,828 | 111,820 | ||||||
Reinsurance and other recoveries receivable- current |
25,263 | 29,922 | ||||||
less: provision for impairment of reinsurance assets |
(11 | ) | (11 | ) | ||||
| 25,252 | 29,911 | |||||||
Reinsurance and other recoveries receivable- non current |
66,576 | 81,909 | ||||||
less: provision for impairment of reinsurance assets |
— | — | ||||||
| 66,576 | 81,909 | |||||||
Notes to the financial statements for the year ended 31 December 2006
12. Other financial assets
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Current |
||||||||
Unquoted investments — at fair value: |
||||||||
Units held in cash managed trust |
||||||||
- other related parties |
4,154 | 5,843 | ||||||
Total current financial assets |
4,154 | 5,843 | ||||||
Non-Current |
||||||||
Unquoted investments — at fair value: |
||||||||
Preference shares |
167 | 163 | ||||||
Unquoted investments — at cost: |
||||||||
Ordinary shares — subsidiaries |
30,000 | 30,000 | ||||||
Total non-current financial assets |
30,167 | 30,163 | ||||||
Total other financial assets |
34,321 | 36,006 | ||||||
Investment
in controlled entities
| Percentage of equity Interest | Dollar Amount held | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
| Name of Entity | % | % | $’000 | $’000 | ||||||||||||
TGI Australia Ltd |
100 | 100 | 30,000 | 30,000 | ||||||||||||
Maritime Insurance
Agency Pty Ltd |
— | 100 | — | — | ||||||||||||
| 30,000 | 30,000 | |||||||||||||||
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
16 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
13. Outstanding Claims
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Expected future claims payments (undiscounted) |
110,654 | 135,746 | ||||||
Discount to present value |
(19,088 | ) | (24,195 | ) | ||||
Total Outstanding Claims |
91,566 | 111,551 | ||||||
Current |
24,990 | 29,642 | ||||||
Non Current |
66,576 | 81,909 | ||||||
Total Outstanding Claims |
91,566 | 111,551 | ||||||
Outstanding claims details
The liability for outstanding claims is determined in accordance with Note 1.
The Company has effectively portfolio transferred its insurance contracts to GIO General Ltd and
TGI Australia Ltd in 2001. No new contracts have been issued from the entity. The production of a
claims development table prior to 2004 is impracticable as the information required to complete
this for the business transferred to GIO General Ltd is not available to the Company.
Any movement to the gross outstanding claims provisions and reinsurance recoveries are taken
directly to the income statement.
| Net | Gross | |||||||
| Estimate of Cumulative claims | $’000’s | $’000’s | ||||||
31 December 2004 |
— | 679,816 | ||||||
31 December 2005 |
— | 662,654 | ||||||
31 December 2006 |
— | 646,071 | ||||||
Estimate of Cumulative Claims at 31 December 2006 |
— | 646,071 | ||||||
Cumulative Payments |
— | 549,057 | ||||||
Undiscounted central estimate |
— | 97,014 | ||||||
Effect of Discounting |
— | 19,088 | ||||||
Discounted Central Estimate |
— | 77,926 | ||||||
Claims Handling Provision |
— | 13,640 | ||||||
Gross Outstanding Claims as per the Balance Sheet |
— | 91,566 | ||||||
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
17 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
14. Payables
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Other creditors |
1,101 | 2,173 | ||||||
Other borrowings — related parties |
— | 156 | ||||||
Total Payables |
1,101 | 2,329 | ||||||
15. Contributed Equity
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Paid up capital - 327,000,000 $1 ordinary shares |
327,000 | 327,000 | ||||||
(2005: 327,000,000 $1 ordinary shares) |
||||||||
Rights attaching to Ordinary Shares
Ordinary shares attract the following rights:
| (a) | to receive notice of and to attend and vote at all general meetings of the Company; |
||
| (b) | to receive dividends; and | ||
| (c) | in a winding up, to participate equally in the distribution of the assets of the Company (both capital and surplus), subject only to any amounts unpaid on the Share. |
16. Retained profits
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Accumulated Losses at beginning of the financial year |
(181,028 | ) | (182,786 | ) | ||||
Operating Profit after Income Tax |
20,382 | 1,758 | ||||||
Dividends paid |
(20,000 | ) | — | |||||
Accumulated Losses at the end of the financial year |
(180,646 | ) | (181,028 | ) | ||||
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Dividends paid on ordinary shares |
||||||||
- Dividend paid on 12 April 2006 Unfranked dividend of $0.06 per share |
20,000 | — | ||||||
Dividends paid during the year |
20,000 | — | ||||||
17. Franking account
The AMP Limited group entered into Tax Consolidation during 2003. Under Tax Consolidation, the
franking account balances for group companies are transferred to the Head Entity, AMP Limited.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
18 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
18. Segment Reporting
The company operated in one industry, being direct insurance, underwritten in Australia.
19. Key management personnel compensation
The following individuals were the key management personnel of Harrington Sound Ltd (formerly AMP
General Insurance Limited) for the current and prior reporting periods (unless stated otherwise):
| Date of | ||
| Appointment/Resignation | ||
| during the current or prior | ||
| Name | reporting period | |
Peter Hodgett |
||
Simon Hoole |
||
Paul Leaming |
||
The following table provides aggregate details of the compensation of key management personnel of
Harrington Sound Ltd (formerly AMP General Insurance Limited).
| Short-term | Post- | Other | Share- | |||||||||||||||||||||
| employee | employment | long-term | Termination | based | ||||||||||||||||||||
| Year | benefits | benefits | benefits | benefits | payments | Total | ||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
2006 |
3,396,808 | 355,930 | — | — | 1,019,052 | 4,771,790 | ||||||||||||||||||
2005 |
3,164,278 | 389,654 | — | — | 956,156 | 4,510,088 | ||||||||||||||||||
Key management personnel disclosed above, also provided services to other related entities during
the year. The above remuneration amounts include all amounts paid for services rendered to related
entities and those services rendered to Harrington Sound Ltd (formerly AMP General Insurance
Limited).
20. Auditors’ remuneration
Auditors’ remuneration for the year ended 31 December 2006 is paid on the Company’s behalf by a
controlled entity within the AMP Limited Group.
21. Contingent Liabilities
There are no contingent liabilities as at 31 December 2006 (2005: Nil)
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
19 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
22. Related Parties
Transactions between Harrington Sound Ltd (formerly AMP General Insurance Limited) and other
related parties for the financial year consisted of:
| • | Payment of management fees for services provided | ||
| • | Provision of share capital | ||
| • | Provision of intercompany loans |
Controlling Entity
The immediate parent entity is Shelly Bay Holdings Ltd (formerly AMP General Insurance Holdings
Limited). AMP Limited is the ultimate parent entity.
Directors
The directors of the company during the financial year and the dates of appointments and
resignations during the year are:
P D Leaming
P M Hodgett
S J Hoole
P M Hodgett
S J Hoole
Other transactions with key management personnel and related entities
The directors and their director related entities receive normal dividends on their ordinary share
holdings in AMP Limited.
During the year, transactions were entered into between Directors or their Director related
entities and entities within the AMP Limited Group. These transactions are within a normal
employee, customer or supplier relationship on terms and conditions no more favourable than those
available to other employees, customers or members (unless otherwise described below) and include:
| • | normal personal banking with AMP Bank Limited including the provision of credit cards; | |
| • | the purchase of AMP superannuation products; | |
| • | Financial investment services; | |
| • | Other advisory services. |
These transactions do not have the potential to adversely affect the decisions about the allocation
of scarce resources made by users of AMP’s financial statements, or discharge of accountability by
the Directors. The transactions are considered to be trivial or domestic in nature.
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
20 of 25 | |
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
22. Related Parties (continued)
Transactions with related parties
The aggregate amounts brought to account in respect of the following types of transactions and each
class of related party involved were:
| 2006 | 2005 | |||||||
| $ | $ | |||||||
Amounts attributable to transactions with related parties |
||||||||
Operating (loss) before income tax for the financial year includes
aggregate amounts attributable to transactions in respect of: |
||||||||
Investment Expenses/(benefit) — other related parties |
7,940 | (46,693 | ) | |||||
Management Expense — other related parties |
50,000 | 50,000 | ||||||
Amounts receivable from and payable to related parties |
||||||||
Aggregate amounts receivable at balance date : |
||||||||
Current |
||||||||
Receivable — other related parties |
112,836,536 | 111,821,320 | ||||||
Aggregate amounts payable at balance date : |
||||||||
Current |
||||||||
Accounts Payable — other related parties |
— | 156,114 | ||||||
AMP Capital Investors Limited, a related entity within the wholly owned group, manages the majority
of the investments of the company under a management contract which follows the normal terms and
conditions for such contracts. Fees are paid or are due and payable for the management of
investment portfolios under normal terms and conditions.
AMP Services Limited and Enstar Australia Ltd (formerly Cobalt Solutions Australia Limited), fellow
wholly controlled entities, provide operational and administrative (including employee related)
services to the company with the exception of certain financing arrangements, finance leasing and
agent related services. The services provided are in the normal course of the business and are on
normal commercial terms and conditions.
| Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632 | 21 of 25 | |||
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
23. Cashflow Reconciliation
| (i) | Reconciliation of cash |
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Cash at call |
145 | 600 | ||||||
Cash in Trust |
4,154 | 5,843 | ||||||
Total Cash |
4,299 | 6,443 | ||||||
| (ii) | Reconciliation of net cash flows from operating activities to operating profit after income tax: |
| 2006 | 2005 | |||||||
| $’000 | $’000 | |||||||
Operating profit / (loss) after income tax |
20,382 | 1,758 | ||||||
Unrealised profit / (loss) on investments |
(4 | ) | 27 | |||||
Change in assets and liabilities |
||||||||
(Decrease) in doubtful debts provision |
— | (6 | ) | |||||
(Increase)/Decrease in deferred tax asset |
(10 | ) | 9,055 | |||||
(Increase) /Decrease in reinsurance recoveries |
19,992 | 48,217 | ||||||
(Decrease) in accounts payable |
(1,228 | ) | 27 | |||||
(Decrease) / Increase in outstanding claims |
(19,985 | ) | (48,162 | ) | ||||
(Decrease) / Increase in current tax provision |
(277 | ) | 396 | |||||
(Increase) / decrease in other assets |
(1,014 | ) | 697 | |||||
Net cash inflow from operating activities |
17,856 | 12,009 | ||||||
| Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632 | 22 of 25 | |||
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
24. Financial Instruments
(a) Net Fair Values
The recorded net market value equates to net fair value for listed and unlisted debt and equity
securities. For the following financial instruments, the cost carrying amount is considered to
equate to their net fair value.
| • | Cash | ||
| • | Debtors | ||
| • | Cash trusts and short term money market investments | ||
| • | Trade creditors |
(b) Special terms and conditions
All financial instruments of the Company are held or issued on normal commercial terms at market
rates of interest. There are no special terms or conditions affecting the nature and timing of the
financial instruments not otherwise disclosed in these accounts.
(c) Credit risk
Trading investments are recorded in the accounts at net market value which represents the Group’s
exposure to credit risk in relation to these instruments.
The credit risk of the Company arising from exposure of their investment portfolio is monitored and
controlled by AMP Capital Investors Limited in accordance with Credit Policy guidelines.
Credit risk in trade receivables in managed by analysing the credit ratings of the underlying
debts.
(d) Interest rate risk on financial instruments
The accounting policy notes describe the policies used to measure and report the assets and
liabilities of the Company. Where the applicable market value is determined by discounting future
cash flows, movements in interest rates will result in a reported unrealised gain or loss in the
profit and loss account.
AMP Capital Investors Limited manages investment portfolios on behalf of the Company. The Company
seeks to reduce its interest rate risk through the use of investment portfolios as a hedge against
the insurance liabilities of the Company. To the extent that these assets and liabilities can be
matched, unrealised gains or losses on revaluation of liabilities resulting from interest rate
movements will be offset by unrealised losses or gains on revaluation of investment assets.
The Company’s exposure to interest rate risks and the effective interest rates of financial assets
and liabilities at the reporting date, are as follows:
| Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632 | 23 of 25 | |||
Harrington Sound Ltd (formerly AMP General Insurance Limited)
Notes to the financial statements for the year ended 31 December 2006
24. Financial Instruments (Continued)
For the year ended 2006
| Floating | Non | Weighted | ||||||||||||||
| Interest | Interest | Average | ||||||||||||||
| Rate | Bearing | Total | Interest | |||||||||||||
| $000’s | $000’s | $000’s | rate | |||||||||||||
Financial Assets |
||||||||||||||||
Receivables |
— | 112,836 | 112,836 | — | ||||||||||||
Debtors and reinsurance recoveries |
— | 91,828 | 91,828 | — | ||||||||||||
Cash deposits |
145 | — | 145 | 6.00 | % | |||||||||||
Cash Trusts |
4,154 | — | 4,154 | 2.01 | % | |||||||||||
Shares |
— | 30,167 | 30,167 | — | ||||||||||||
Total Financial Assets |
4,299 | 234,831 | 239,130 | |||||||||||||
Financial Liabilities |
||||||||||||||||
Payables |
— | 1,101 | 1,101 | — | ||||||||||||
Total Financial Liabilities |
— | 1,101 | 1,101 | |||||||||||||
For the year ended 2005
| Floating | Non | Weighted | ||||||||||||||
| Interest | Interest | Average | ||||||||||||||
| Rate | Bearing | Total | Interest | |||||||||||||
| $000’s | $000’s | $000’s | rate | |||||||||||||
Financial Assets |
||||||||||||||||
Receivables |
— | 111,822 | 111,822 | — | ||||||||||||
Debtors and reinsurance recoveries |
— | 111,820 | 111,820 | — | ||||||||||||
Cash deposits |
600 | 600 | 5.36 | % | ||||||||||||
Cash Trusts |
5,843 | — | — | 4.79 | % | |||||||||||
Shares |
30,163 | 30,163 | — | |||||||||||||
Total Financial Assets |
6,443 | 253,805 | 254,405 | |||||||||||||
Financial Liabilities |
||||||||||||||||
Payables |
— | 2,329 | 2,329 | — | ||||||||||||
Total Financial Liabilities |
— | 2,329 | 2,329 | |||||||||||||
Harrington Sound Ltd (formerly AMP General Insurance Limited) ABN 30 008 405 632
|
24 of 25 | |
Report of Independent Auditors
The Board of Directors of Harrington Sound Limited (formerly AMP General Insurance Limited)
We have audited the accompanying balance sheets of Harrington Sound Limited (formerly AMP General
Insurance Limited) as of December 31, 2006 and 2005, and the related income statements, statements
of changes in equity, and cash flow statements for the years then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Harrington Sound Limited (formerly AMP General Insurance
Limited) at December 31, 2006 and 2005, and the results of its operations and its cash flows for
the years then ended in accordance with International Financial Reporting Standards as issued by
the International Accounting Standards Board.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Sydney, Australia
May 15, 2008
| Liability limited by a scheme approved under Professional Standards Legislation |
Exhibit
99.6
ENSTAR GROUP LIMITED
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements are based on the
historical financial statements of Enstar Group Limited (“Enstar”) and Gordian Runoff Limited, TGI
Australia Limited, AG Australia Holdings Ltd., Gordian Runoff (UK) Limited, Shelly Bay Holdings
Limited (formerly AMP General Insurance Holdings Limited), Enstar Australia Limited (formerly
Cobalt Solutions Australia Limited), Harrington Sound Limited (formerly AMP General Insurance
Limited), and Church Bay Limited (formerly AMPG (1992) Limited) (the acquired companies
collectively, “Gordian”), and have been prepared to illustrate the effects of the acquisition of
all of the outstanding share capital of Gordian by Enstar Australia Holdings Pty Limited (“Enstar
Australia”), a wholly-owned subsidiary of Enstar, which was completed on March 5, 2008. The
following data is presented as if the acquisition was completed as of December 31, 2007 for the
unaudited pro forma condensed combined balance sheet and as of
January 1, 2007 for the unaudited pro forma condensed combined
consolidated statement of earnings. The unaudited condensed combined pro
forma financial information (i) is based on the acquisition price paid by Enstar of approximately
$405.4 million to the former shareholders of Gordian and (ii) reflects the purchase of Gordian
under the purchase method of accounting and represents a current estimate of the financial
information based on available information from Enstar and Gordian.
The pro forma information includes adjustments to record the assets and liabilities of Gordian
at their estimated fair market values and is subject to adjustment as additional information
becomes available and as additional analyses are performed. To the extent there are significant
changes to Gordian’s business, the assumptions and estimates herein could change significantly. The
pro forma financial information is presented for illustrative purposes only under one set of
assumptions and does not reflect the financial results of the combined companies had consideration
been given to other assumptions or to the impact of possible operating efficiencies, asset
dispositions, and other factors. Further, the pro forma financial information does not necessarily
reflect the historical results of the combined company that actually would have occurred had the
transaction been in effect during the period indicated or that may be obtained in the future. The
unaudited pro forma condensed combined financial statements should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the
historical financial statements, including the related notes, of Enstar covering the twelve-month
period ended December 31, 2007 included in Enstar’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2007, which was filed with the
United States Securities and Exchange Commission on February 29,
2008, as well as the historical
financial statements of Gordian included elsewhere in this Current
Report on Form 8-K, with the exception of
historical information for AG Australia Holdings Ltd., Gordian Runoff (UK) Limited and Shelly Bay
Holdings Limited (formerly AMP General Insurance Holdings Limited) as these entities were
materially insignificant to the transaction as a whole.
ENSTAR GROUP LIMITED
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
As of December 31, 2007
(Expressed in thousands of U.S dollars)
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
As of December 31, 2007
(Expressed in thousands of U.S dollars)
| Enstar Group | Gordian | Adjustment | Combined | |||||||||||||
| Limited | Entries | |||||||||||||||
Assets |
||||||||||||||||
Total investments |
$ | 637,196 | $ | 393,841 | $ | 1,031,037 | ||||||||||
Cash and cash equivalents |
995,237 | 633,400 | (89,390 | )(a) | 1,396,999 | |||||||||||
| (142,248 | )(b) | |||||||||||||||
Restricted cash and cash equivalents |
168,096 | 168,096 | ||||||||||||||
Reinsurance balances receivable |
465,277 | 145,186 | (37,630 | )(c) | 572,833 | |||||||||||
Other assets |
151,337 | 355,911 | (18,867 | )(c) | 158,837 | |||||||||||
| (329,544 | )(b) | |||||||||||||||
Total Assets |
$ | 2,417,143 | $ | 1,528,338 | $ | (617,679 | ) | $ | 3,327,802 | |||||||
Liabilities |
||||||||||||||||
Loss and loss adjustment expenses |
$ | 1,591,449 | $ | 578,052 | $ | (29,917 | )(c) | $ | 2,139,584 | |||||||
Reinsurance balances payable |
189,870 | 8,214 | (1,502 | )(c) | 196,582 | |||||||||||
Loans payable |
60,227 | 276,500 | (a) | 336,727 | ||||||||||||
Other liabilities |
61,561 | 17,959 | 7,499 | (c) | 87,019 | |||||||||||
| 1,903,107 | 604,225 | 252,580 | 2,759,912 | |||||||||||||
Minority Interest |
63,437 | 39,522 | (a) | 102,959 | ||||||||||||
Shareholders’ Equity |
||||||||||||||||
Share capital |
14,893 | 396,872 | (396,872 | )(a) | 14,893 | |||||||||||
Treasury stock |
(421,559 | ) | (421,559 | ) | ||||||||||||
Additional paid-in capital |
590,934 | 590,934 | ||||||||||||||
Accumulated other comprehensive income |
6,035 | 4,598 | (d) | 10,633 | ||||||||||||
Retained earnings |
260,296 | 527,241 | (58,820 | )(a) | 270,030 | |||||||||||
| (32,576 | )(c) | |||||||||||||||
| (471,792 | )(b) | |||||||||||||||
| (4,598 | )(d) | |||||||||||||||
| 50,280 | (a) | |||||||||||||||
| 450,599 | 924,113 | (909,781 | ) | 464,931 | ||||||||||||
Total Liabilities & Shareholders’ Equity |
$ | 2,417,143 | $ | 1,528,338 | $ | (617,679 | ) | $ | 3,327,802 | |||||||
Note a
To record the acquisition of Gordian by Enstar Group Limited
using the purchase method of accounting. A summary of the adjustments is as follows:
Purchase price |
$ | 401,086 | ||||||
Direct costs of acquisitions |
4,326 | |||||||
Total purchase price (cash of $128,912 and notes payable of $276,500) |
405,412 | |||||||
Net assets acquired at fair value: |
||||||||
Cash and investments |
872,755 | |||||||
Reinsurance balances receivable |
99,645 | |||||||
Other assets |
31,253 | |||||||
Losses and loss adjustment expenses |
(509,638 | ) | ||||||
Insurance and reinsurance balances payable |
(22,660 | ) | ||||||
Other liabilities |
(15,663 | ) | ||||||
Net assets acquired at fair value |
455,692 | |||||||
Excess of net assets over purchase price (negative goodwill) |
$ | (50,280 | ) | |||||
Cash of $39,522 to fund the acquisition was provided by a third party who retained a minority interest in the transaction
Note
b
To reflect the return of capital of $471,292 paid by Gordian to its former parent prior to completion of the acquisition
Note c
To record the fair value adjustments recorded as at date of acquisition
Note
d
To
record the adjustment required to conform to Enstar Group
Limited’s accounting policy for investments.
ENSTAR GROUP LIMITED
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF EARNINGS
for the year ended December 31, 2007
(Expressed in thousands of U.S dollars, except per share data)
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF EARNINGS
for the year ended December 31, 2007
(Expressed in thousands of U.S dollars, except per share data)
| Enstar Group | Gordian | Adjustment | Combined | |||||||||||||
| Limited | Entries | |||||||||||||||
INCOME |
||||||||||||||||
Consulting fees |
$ | 31,918 | $ | 7,499 | $ | $ | 39,417 | |||||||||
Net investment income and net realized gains |
64,336 | 59,600 | (4,395 | )(c) | 119,541 | |||||||||||
| 96,254 | 67,099 | (4,395 | ) | 158,958 | ||||||||||||
EXPENSES |
||||||||||||||||
Net reduction in loss and loss adjustment expense liabilities |
(24,482 | ) | (102,974 | ) | 19,833 | (a) | (107,623 | ) | ||||||||
Salaries and benefits |
46,977 | 12,708 | 59,685 | |||||||||||||
General and administrative expenses |
31,413 | 10,717 | 42,130 | |||||||||||||
Interest expense |
4,876 | 28,461 | (b) | 33,337 | ||||||||||||
Foreign exchange gain |
(7,921 | ) | (4,910 | ) | (12,831 | ) | ||||||||||
| 50,863 | (84,459 | ) | 48,294 | 14,698 | ||||||||||||
EARNINGS BEFORE INCOME TAXES
AND MINORITY INTEREST |
45,391 | 151,558 | (52,689 | ) | 144,260 | |||||||||||
INCOME TAXES |
7,441 | (40,472 | ) | 1,319 | (c) | (31,712 | ) | |||||||||
MINORITY INTEREST |
(6,730 | ) | (6,730 | ) | ||||||||||||
EARNINGS FROM CONTINUING OPERATIONS |
$ | 46,102 | $ | 111,086 | $ | (51,370 | ) | $ | 105,818 | |||||||
Earnings per share — basic |
$ | 3.93 | $ | 9.02 | ||||||||||||
Earnings per share — diluted |
$ | 3.84 | $ | 8.81 | ||||||||||||
Weighted average shares outstanding — basic |
11,731,908 | 11,731,908 | ||||||||||||||
Weighted average shares outstanding — diluted |
12,009,683 | 12,009,683 | ||||||||||||||
Note a
Amortization of fair value adjustments
Note b
Represents the loan interest expense based on the assumption that the loan used to fund
the acquisition was made on January 1, 2007
Note c
Represents the after tax
impact of Gordian’s adoption of Enstar’s accounting policy for investments
Non-recurring credit
Not shown as part of the above pro-forma income statement is $50,280 of extraordinary gain relating to
the negative goodwill recorded on the acquisition of Gordian