Document ID: chunk:federal_register_of_legislation:F2023C00194:body:0:p12
Version: federal_register_of_legislation:F2023C00194
Segment Type: other
Provision Reference: 
Character Range: 29997–32851

that only become known during or after the insurance contract period.  For example, marine cargo insurance is a type of "adjustable" business for which a deposit premium is paid at the beginning of the contract period and subsequently adjusted on the basis of a cargo declaration.

Unclosed Business
4.5 Premium revenue relating to unclosed business shall be recognised in accordance with paragraphs 4.2, 4.3 and 4.4.
4.5.1 Frequently, there is insufficient information available at the end of a reporting period to enable a general insurer to accurately identify the business written close to the end of the reporting period for which the date of attachment of risk is prior to the end of the reporting period.  This is often referred to as unclosed business.  Consistent with the principle stated in paragraph 4.2, that premium revenue is to be recognised from the attachment date, all unclosed business is estimated and the premium relating to unclosed business included in premium revenue.
4.5.2 Estimates of the amount of unclosed business can be made using information from prior periods adjusted for the impact of recent trends and events.  In addition, information about unclosed business may become available after the reporting period and before the financial statements are authorised for issue and may enable more reliable estimates to be made.

5 Outstanding Claims Liability

Recognition and Measurement
5.1 An outstanding claims liability shall be recognised in respect of direct business and reinsurance business and shall be measured as the central estimate of the present value of the expected future payments for claims incurred with an additional risk margin to allow for the inherent uncertainty in the central estimate.
5.1.1 The recognition and measurement approach requires estimation of the probability-weighted expected cost (discounted to a present value) of settling claims incurred, and the addition of a risk margin to reflect inherent uncertainty in the central estimate.
5.1.2 The longer the expected period from the end of the reporting period to settlement, the more likely it is that the ultimate cost of settlement will be affected by inflationary factors likely to occur during the period to settlement.  These factors include changes in specific price levels, for example, trends in average periods of incapacity and in the amounts of court awards for successful claims.  For claims expected to be settled within one year of the end of the reporting period, the impact of inflationary factors might not be material.
5.1.3 For claims expected to be settled within one year of the end of the reporting period, where the amount of the expected future payments does not differ materially from the present value of those payments, insurers would not need to discount the expected future payments.

Central Estimate
5.1.4