Barclays 2011 Annual Report Download - page 247

Accruals, provisions and contingent liabilities
The section describes the Group’s accruals, provisions and contingent liabilities arising from
its banking and insurance businesses. Provisions are recognised for present obligations arising
as consequences of past events where it is probable that a transfer of economic benefit will be
necessary to settle the obligation, and it can be reliably estimated. Contingent liabilities reflect
potential liabilities that are not recognised on the balance sheet.
28 Accruals, deferred income and other liabilities
2011
£m
2010
£m
Accruals and deferred income 4,959 5,539
Other creditors 5,171 5,198
Obligations under finance leases (see Note 22) 64 87
Insurance contract liabilities, including unit-linked liabilities 2,386 2,409
Accruals, deferred income and other liabilities 12,580 13,233
Insurance liabilities relate principally to the Group’s long-term business. Insurance contract liabilities associated with the Group’s short-term non-life
business are £118m (2010: £131m). The maximum amounts payable under all of the Group’s insurance products, ignoring the probability of insured
events occurring and the contribution from investments backing the insurance policies were £104bn (2010: £114bn)a or £82bn (2010: £95bn)a after
reinsurance. Of this insured risk £89bn (2010: £99bn)a or £69bn (2010: £82bn)a after reinsurances was concentrated in short-term insurance contracts
in Africa.
The impact to the income statement and equity under a reasonably possible change in the assumptions used to calculate the insurance liabilities would
be £8m (2010: £12m).
Accounting for insurance contracts
The Group applies IFRS 4 Insurance Contracts to its insurance contracts. An insurance contract is a contract that protects a third party against a loss
from non-financial risk. Some wealth management and other products, such as life assurance contracts, combine investment and insurance
features; these are treated as insurance contracts when they pay benefits that are at least 5% more than they would pay if the insured event does
not occur.
Insurance liabilities include current best estimates of future contractual cash flows, claims handling, and administration costs in respect of claims.
Liability adequacy tests are performed at each balance sheet date to ensure the adequacy of contract liabilities. Where a deficiency is highlighted by
the tests, insurance liabilities are increased, any deficiency being recognised in the income statement.
Insurance premium revenue is recognised in the income statement in the period earned, net of reinsurance premiums payable, in net premiums
from insurance contracts. Increases and decreases in insurance liabilities are recognised in the income statement in net claims and benefits on
insurance contracts.
The Financial Services Compensation Scheme (FSCS)
The FSCS is the UK’s compensation fund for customers of authorised financial services firms that are unable to pay claims. The FSCS raises levies on all
UK deposit taking institutions. Previously compensation has been paid out by loan facilities provided by HM Treasury to FSCS in support of FSCS’s
obligations to the depositors of banks declared in default. The outstanding loan facilities, totalling approximately £18.5bn, are to be reviewed from 1
April 2012 and the ongoing terms are still to be agreed with HM Treasury. While it is anticipated that the substantial majority of these loans will be
repaid wholly from recoveries from the institutions concerned, there is the risk of a shortfall, such that the FSCS may place additional levies on all FSCS
participants. Barclays has included an accrual of £58m in other liabilities as at 31 December 2011 (2010: £63m) in respect of levies raised by the FSCS,
based on the indicative costs published by the FSCS.
Note
a Comparatives have been restated to include Motor, Liability and Engineering insured exposures within ABSA Group Ltd.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 245
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