Barclays 2009 Annual Report Download - page 203

www.barclays.com/annualreport09 Barclays PLC Annual Report 2009 201
Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity in the period in which
they are paid or, if earlier, approved by the Barclays PLC (the Company)
shareholders.
Treasury shares
Where the Company or any member of the Group purchases the Company’s
share capital, the consideration paid is deducted from shareholders’ equity
as treasury shares until they are cancelled. Where such shares are
subsequently sold or reissued, any consideration received is included in
shareholders’ equity.
19. Insurance contracts and investment contracts
The Group offers wealth management, term assurance, annuity, property
and payment protection insurance products to customers that take the form
of long- and short-term insurance contracts.
The Group classifies its wealth management and other products as
insurance contracts where these transfer significant insurance risk, generally
where the benefits payable on the occurrence of an insured event are at
least 5% more than the benefits that would be payable if the insured event
does not occur.
Contracts that do not contain significant insurance risk or discretionary
participation features are classified as investment contracts. Financial assets
and liabilities relating to investment contracts, and assets backing insurance
contracts are classified and measured as appropriate under IAS 39, ‘Financial
Instruments: Recognition and Measurement’ as set out in policy 7.
Long-term insurance contracts
These contracts insure events associated with human life (for example,
death or survival) over a long duration. Premiums are recognised as revenue
when they become payable by the contract holder. Claims and surrenders
are accounted for when notified. Maturities on the policy maturity date and
regular withdrawals are accounted for when due.
A liability for contractual benefits that are expected to be incurred in
the future is recorded when the premiums are recognised, based on the
expected discounted value of the benefit payments and directly related
administration costs, less the expected discounted value of the future
premiums that would be required to meet the benefits and other expenses.
The calculation of the liability contains assumptions regarding mortality,
maintenance expenses and investment income.
Liabilities under unit-linked life insurance contracts (such as
endowment policies) in addition reflect the value of assets held within
unitised investment pools.
Short-term insurance contracts
Under its payment protection insurance products the Group is committed to
paying benefits to the policyholder rather than forgiving interest or principal
on the occurrence of an insured event, such as unemployment, sickness, or
injury. Property insurance contracts mainly compensate the policyholders
for damage to their property or for the value of property lost.
Premiums are recognised as revenue proportionally over the period
of the coverage. Claims and claims handling costs are charged to income
as incurred, based on the estimated liability for compensation owed to
policyholders arising from events that have occurred up to the balance
sheet date even if they have not yet been reported to the Group, based
on assessments of individual cases reported to the Group and statistical
analyses for the claims incurred but not reported.
Deferred acquisition costs (DAC)
Commissions and other costs that are related to securing new insurance
and investment contracts are capitalised and amortised over the estimated
lives of the relevant contracts.
Deferred income liability
Fees that are designed to recover commissions and other costs related to
either securing new insurance and investment contracts or renewing
existing investment contracts are included as a liability and amortised over
the estimated life of the contract.
Value of business acquired
On acquisition of a portfolio of contracts, such as through the acquisition
of a subsidiary, the Group recognises an intangible asset representing
the value of business acquired (VOBA), representing the future profits
embedded in acquired insurance contracts and investment contracts with
a discretionary participation feature. The asset is amortised over the
remaining terms of the acquired contracts.
Liability adequacy test
Liability adequacy tests are performed at each balance sheet date to ensure
the adequacy of contract liabilities net of DAC and VOBA assets. Current best
estimates of future contractual cash flows, claims handling and
administration costs, and investment returns from the assets backing
the liabilities are taken into account in the tests. Where a deficiency is
highlighted by the test, DAC and VOBA assets are written off first,
and insurance liabilities increased when these are written off in full.
Any deficiency is immediately recognised in the income statement.
Reinsurance
Short- and long-term insurance business is ceded to reinsurers under
contracts to transfer part or all of one or more of the following risks:
mortality, investment and expenses. All such contracts are dealt with as
insurance contracts. The benefits to which the Group is entitled under its
reinsurance contracts are recognised as reinsurance assets. The Group
assesses reinsurance assets at each balance sheet date. If there is objective
evidence of impairment, the carrying amount of the reinsurance asset is
reduced accordingly, resulting in a charge to the income statement.
20. Leases
Lessor
Assets leased to customers under agreements, which transfer substantially
all the risks and rewards of ownership, with or without ultimate legal title, are
classified as finance leases. When assets are held subject to a finance lease,
the present value of the lease payments, discounted at the rate of interest
implicit in the lease, is recognised as a receivable. The difference between
the total payments receivable under the lease and the present value of the
receivable is recognised as unearned finance income, which is allocated to
accounting periods under the pre-tax net investment method to reflect a
constant periodic rate of return.
Assets leased to customers under agreements which do not transfer
substantially all the risks and rewards of ownership are classified as
operating leases. The leased assets are included within property, plant
and equipment on the Group’s balance sheet and depreciation is provided
on the depreciable amount of these assets on a systematic basis over their
estimated useful lives. Lease income is recognised on a straight-line basis
over the period of the lease unless another systematic basis is more
appropriate.
Lessee
The leases entered into by the Group are primarily operating leases.
Operating lease rentals payable are recognised as an expense in the income
statement on a straight-line basis over the lease term unless another
systematic basis is more appropriate.