Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p7
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
Provision Reference: 
Character Range: 17026–19838

an insurer or reinsurer transfers significant insurance risk to another reinsurer.

Recognition
4.2 Premium revenue shall be recognised from the attachment date as soon as there is a basis on which it can be reliably estimated.
4.2.1 The amount of premium is determined by a general insurer or reinsurer so as to cover anticipated claims, reinsurance premiums, administrative, acquisition and other costs, and a profit component (having regard to expected income from the investment of premiums).  The amounts collected in respect of these components are income of an insurer on the basis that they are collected in consideration for the insurer rendering services by indemnifying those insured against specified losses.
4.2.2 For certain classes of general insurance business, government authorities may require the payment of levies and charges.  For example, workers' compensation insurance levies, annual licence fees and fire brigade charges may apply.  Such levies and charges are expenses of the insurer, rather than government charges directly upon those insured.  The insurer is not acting simply as a collector of these levies and charges.  Although not compelled to collect these amounts from those insured, the insurer is entitled to include in premiums an amount to cover the estimated amount of the levies and charges.  The insurer is usually responsible for paying the levies and charges at a later date.  The amount paid by the insurer does not depend on the amounts collected from those insured in relation to the levies and charges.  Therefore, the amounts collected to meet levies and charges are income of the insurer.  The insurer accrues for all levies and charges expected under the general insurance contracts written in the period.
4.2.3 In most States, stamp duty is charged on individual general insurance contracts and is separately identified by insurers on policy documents.  The insurer is normally required to collect and pass on to the government an equivalent amount.  Because such stamp duty is a tax collected on behalf of a third party and there is no choice on the part of the insurer but to collect the duty from the insured, it is not income of the insurer.  Similarly, Goods and Services Tax (GST) is not income of the insurer.
4.2.4 Premium revenue needs to be recognised from the date of the attachment of risk in relation to each general insurance contract because insurers earn premium revenue by assuming insurance risks from that date on behalf of those insured.  However, for reasons of practicality, many general insurers use bases of recognition that attempt to approximate this date.  Such bases are acceptable provided that they do not result in the recognition of a materially different amount of premium revenue in a particular reporting period than would be