My first Publication ocbc_ar17_fullreport_english | Page 177

2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
2.18 SHARE CAPITAL AND DIVIDEND (continued)
Where share capital recognised as equity is repurchased
(treasury shares), the amount of the consideration paid, including
directly attributable costs, is presented as a deduction from
equity. Treasury shares which are subsequently reissued, sold or
cancelled, are recognised as changes in equity.
Interim dividends on ordinary shares and dividends on preference
shares are recorded in the year in which they are declared
payable by the Board of Directors. Final dividends are recorded in
the year when the dividends are approved by shareholders at the
annual general meeting.
2.19 RECOGNITION OF INCOME AND EXPENSE
2.19.1 Interest income and expense
Interest income and expense are recognised in the income
statement using the effective interest method. The effective
interest rate is the rate that discounts estimated future
cash payments or receipts through the expected life of the
financial instruments or, when appropriate, a shorter period
to the net carrying amount. When calculating the effective
interest rate, significant fees and transaction costs integral to
the effective interest rate, as well as premiums or discounts,
are considered.
For impaired financial assets, interest income is recognised on
the carrying amount based on the original effective interest rate
of the financial asset.
2.19.2 Profit from life assurance
Profit from life assurance business derived from the insurance
funds is categorised as follows:
(a) Participating Fund
Profits to shareholders from the participating fund are
allocated from the surplus or surplus capital, based on the
results of the annual actuarial valuation (such valuation also
determines the liabilities relating to all the policyholders’
benefits of the participating fund). Parameters for the
valuation are set out in the insurance regulations governing
the Group’s insurance subsidiaries in the respective
jurisdictions in which they operate. The provisions in the
Articles of Association of the Group’s insurance subsidiaries
are applied in conjunction with the prescriptions in the
respective insurance regulations, such that the distribution
for any year to policyholders of the participating fund and
shareholders approximate 90% and 10% respectively of
total distribution from the participating fund. The annual
declaration of the quantum of policyholders’ bonus and
correspondingly the profits to shareholders to be distributed
out of the participating fund is approved by the Board of
Directors of each insurance subsidiary under the advice of the
Appointed Actuary of the respective subsidiary, in accordance
with the insurance regulations and the Articles of Association
of the respective subsidiaries.
(b) Non-participating Fund
Revenue consists of premiums, interest and investment
income; including changes in the fair value of certain assets
as prescribed by the appropriate insurance regulations.
Expenses include reinsurance costs, acquisition costs, benefit
payments and management expenses. Profit or loss from the
non-participating fund is determined from the revenue and
expenses of the non-participating fund and the results of
the annual actuarial valuation of the liabilities in accordance
with the requirements of the insurance regulations of the
respective jurisdictions in which the insurance subsidiaries
operate. In addition, profit transfers from the Singapore and
Malaysia non-participating funds include changes in the fair
value of assets measured in accordance with the respective
insurance regulations.
(c) Investment-linked Fund
Revenue comprises bid-ask spread, fees for mortality and other
insured events, asset management, policy administration
and surrender charges. Expenses include reinsurance costs,
acquisition costs, benefit payments and management expenses.
Profit is derived from revenue net of expenses and provision for
the annual actuarial valuation of liabilities in accordance with
the requirements of the insurance regulations, in respect of the
non-unit-linked part of the fund.
First year premiums of insurance policies are recognised from
inception date and subsequent renewal premiums are recognised
when due. Single premiums are recognised on the dates on which
the policies are effective. Premiums from the investment-linked
business, universal life and certain Takaful non-participating
products are recognised as revenue when payment is received.
2.19.3 Premium income from general insurance
Premiums from the general insurance business are recognised
as revenue upon commencement of insurance cover. Premiums
pertaining to periods after the balance sheet date are adjusted
through the unexpired risk reserve (Note 2.17). Commission is
recognised as an expense when incurred, typically upon the risk
underwritten as reflected in the premium recognised.
Premiums ceded out and the corresponding commission income
from general insurance contracts are recognised in the income
statement upon receipt of acceptance confirmation from the
ceding company or in accordance with provisions incorporated in
the treaty contracts. Premiums ceded out pertaining to periods
after the balance sheet date are adjusted through the movement
in unexpired risk reserve.
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