Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p18
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
Provision Reference: 
Character Range: 45668–48655

costs such as advertising and risk assessment, the administrative costs of recording policy information and premium collection costs.
8.1.2 Because such costs are usually incurred at acquisition whilst the pattern of earnings occurs throughout the contract periods, which may extend beyond the end of the reporting period, those acquisition costs which lead to obtaining future benefits for the insurer are recognised as assets.
8.1.3 For an asset to be recognised, it will be probable that the future economic benefits will eventuate, and that it possesses a cost or other value that can be measured reliably.  Direct acquisition costs such as commission or brokerage are readily measurable.  However, it may be difficult to reliably measure indirect costs that give rise to premium revenue, such as administration costs, because it is difficult to associate them with particular insurance contracts.

9 Liability Adequacy Test

9.1 The adequacy of the unearned premium liability shall be assessed by considering current estimates of the present value of the expected future cash flows relating to future claims arising from the rights and obligations under current general insurance contracts.  If the present value of the expected future cash flows relating to future claims arising from the rights and obligations under current general insurance contracts, plus an additional risk margin to reflect the inherent uncertainty in the central estimate, exceed the unearned premium liability less related intangible assets and related deferred acquisition costs, then the unearned premium liability is deficient.  The entire deficiency shall be recognised in the statement of comprehensive income.  In recognising the deficiency in the statement of comprehensive income the insurer shall first write-down any related intangible assets and then the related deferred acquisition costs.  If an additional liability is required this shall be recognised in the statement of financial position as an unexpired risk liability.  The liability adequacy test for the unearned premium liability shall be performed at the level of a portfolio of contracts that are subject to broadly similar risks and are managed together as a single portfolio.
9.1.1 In determining the present value of the expected future cash flows relating to future claims arising from the rights and obligations under current general insurance contracts, the insurer applies sections 5 and 6 and includes an appropriate risk margin to reflect inherent uncertainty in the central estimate, as set out in paragraphs 5.1.6 to 5.1.11.
9.1.2 Whilst the probability of adequacy adopted in performing the liability adequacy test may be the same or similar to the probability of adequacy adopted in determining the outstanding claims liability, this Standard does not require the same or similar probabilities of adequacy.  However, the users of financial statements need to be presented with information explaining any differences in