Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p9
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
Provision Reference: 
Character Range: 22166–25006

from the attachment date:
(a) over the period of the general insurance contract for direct business; or
(b) over the period of indemnity for reinsurance business;
in accordance with the pattern of the incidence of risk expected under the general insurance contract.
4.4 In the case of business where the premium is subject to later adjustment, the adjusted premium shall be used, where possible, as the basis for recognising premium revenue.  Where this is not possible, the deposit premium, adjusted for any other relevant information, shall be recognised as the premium revenue, provided that it is expected that this amount will not be materially different from the actual amount of premium.
4.4.1 Premium revenue is recognised in the statement of comprehensive income when it has been earned.  An insurance contract involves the transfer of significant insurance risk.  The insurer estimates the pattern of the incidence of risk over the period of the contract for direct business, or over the period of indemnity for reinsurance business, and the premium revenue is recognised in accordance with this pattern.  This results in the allocation of the premium revenue and the claims incurred expense and hence the gross underwriting result over the period of the contract for direct business, or over the period of indemnity for reinsurance business, in accordance with the pattern of the incidence of risk.
4.4.2 Measuring premium revenue involves the following steps:
(a) estimating the total amount of premium revenue expected under the contract;
(b) estimating the total amount of claims expenses expected under the contract and estimating when the claims are expected to arise;
(c) estimating the pattern of the incidence of risk from the result of (b); and
(d) recognising the premium revenue under the contract identified in (a) when it will be earned, that is, in accordance with the pattern of the incidence of risk determined in (c).
4.4.3 For some general insurance contracts, especially complex multi-year reinsurance contracts, these estimations involve the use of significant judgement.  The estimates are reassessed at the end of each reporting period.  This prospective estimate of all of the income and expenses expected under the contract is also necessary for the purposes of the liability adequacy test.  Refer to section 9.
Direct business
4.4.4 For most direct general insurance contracts the specified period of the contract is one year.  For many direct insurance contracts the pattern of the incidence of risk will be linear, that is, the risk of events occurring that will give rise to claims is evenly spread throughout the contract period.  For these contracts the premium revenue will be earned evenly over the period of the contract.  However, for some direct insurance contracts the risk of events occurring