e8vkza
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): February 28, 2008
Enstar Group Limited
(Exact name of registrant as specified in its charter)
         
Bermuda   001-33289   N/A
         
(State or other jurisdiction
of incorporation)
  (Commission
File Number)
  (IRS Employer
Identification No.)
     
P.O. Box HM 2267, Windsor Place, 3rd Floor
18 Queen Street, Hamilton HM JX Bermuda
 
N/A
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (441) 292-3645
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 


 

     We are amending the Current Report on Form 8-K that we filed on March 5, 2008 to include the Financial Statements of Business Acquired and Pro Forma Financial Information set forth below under Item 9.01 Financial Statements and Exhibits.
Item 9.01. Financial Statements and Exhibits.
     
(a)
  Financial Statements of Business Acquired.
 
   
 
  The required financial statements are attached hereto as Exhibits 99.1 through 99.5 and are incorporated in their entirety herein by reference.
 
   
(b)
  Pro Forma Combined Financial Information.
 
   
 
  The required pro forma combined financial information is attached hereto as Exhibit 99.6 and is incorporated in its entirety herein by reference.
 
   
(d)
  Exhibits.
 
   
23.1
  Consent of Ernst & Young for Church Bay Limited (formerly AMPG (1992) Limited).
 
   
23.2
  Consent of Ernst & Young for Gordian Runoff Limited.
 
   
23.3
  Consent of Ernst & Young for TGI Australia Limited.
 
   
23.4
  Consent of Ernst & Young for Enstar Australia Limited (formerly Cobalt Solutions Australia Limited).
 
   
23.5
  Consent of Ernst & Young for Harrington Sound Limited (formerly AMP General Insurance Limited).
 
   
99.1
  Audited financial statements for Church Bay Limited (formerly AMPG (1992) Limited).
 
   
99.2
  Audited financial statements for Gordian Runoff Limited.
 
   
99.3
  Audited financial statements for TGI Australia Limited.
 
   
99.4
  Audited financial statements for Enstar Australia Limited (formerly Cobalt Solutions Australia Limited).
 
   
99.5
  Audited Financial Statements for Harrington Sound Limited (formerly AMP General Insurance Limited).
 
   
99.6
  Pro Forma Condensed Combined Consolidated Financial Statements of Enstar Group Limited as of December 31, 2007 (Unaudited).

 


 

SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
 
  ENSTAR GROUP LIMITED    
 
       
Date: May 21, 2008
  By: /s/ Richard J. Harris
 
Richard J. Harris
   
 
  Chief Financial Officer    

 


 

EXHIBIT INDEX
23.1
  Consent of Ernst & Young for Church Bay Limited (formerly AMPG (1992) Limited).
 
   
23.2
  Consent of Ernst & Young for Gordian Runoff Limited.
 
   
23.3
  Consent of Ernst & Young for TGI Australia Limited.
 
   
23.4
  Consent of Ernst & Young for Enstar Australia Limited (formerly Cobalt Solutions Australia Limited).
 
   
23.5
  Consent of Ernst & Young for Harrington Sound Limited (formerly AMP General Insurance Limited).
 
99.1   Audited financial statements for Church Bay Limited (formerly AMPG (1992) Limited).
 
99.2   Audited financial statements for Gordian Runoff Limited.
 
99.3   Audited financial statements for TGI Australia Limited.
 
99.4   Audited financial statements for Enstar Australia Limited (formerly Cobalt Solutions Australia Limited).
 
   
99.5
  Audited Financial Statements for Harrington Sound Limited (formerly AMP General Insurance Limited).
 
99.6   Pro Forma Condensed Combined Consolidated Financial Statements of Enstar Group Limited as of December 31, 2007 (Unaudited).

 

exv23w1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements No. 333-149551, No. 333-148863, No. 333-148862, and No. 333-141793 on Form S-8, pertaining to the Enstar Group Limited Employee Share Purchase Plan, Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors, The Enstar Group, Inc. 1997 Omnibus Incentive Plan and The Enstar Group, Inc. 2001 Outside Directors Stock Option Plan, and Enstar Group Limited 2006 Equity Incentive Plan, our reports dated May 15, 2008, with respect to the financial statements of Church Bay Limited (formerly AMPG (1992) Limited) as of and for the years ended December 31, 2007, 2006 and 2005 included in the Current Report on Form 8-K/A of Enstar Group Limited dated May 19, 2008 filed with the Securities and Exchange Commission.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008

exv23w2
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements No. 333-149551, No. 333-148863, No. 333-148862, and No. 333-141793 on Form S-8, pertaining to the Enstar Group Limited Employee Share Purchase Plan, Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors, The Enstar Group, Inc. 1997 Omnibus Incentive Plan and The Enstar Group, Inc. 2001 Outside Directors Stock Option Plan, and Enstar Group Limited 2006 Equity Incentive Plan, our reports dated May 15, 2008, with respect to the financial statements of Gordian Runoff Limited as of and for the years ended December 31, 2007, 2006 and 2005 included in the Current Report on Form 8-K/A of Enstar Group Limited dated May 19, 2008 filed with the Securities and Exchange Commission.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008

 

exv23w3
Exhibit 23.3
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements No. 333-149551, No. 333-148863, No. 333-148862, and No. 333-141793 on Form S-8, pertaining to the Enstar Group Limited Employee Share Purchase Plan, Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors, The Enstar Group, Inc. 1997 Omnibus Incentive Plan and The Enstar Group, Inc. 2001 Outside Directors Stock Option Plan, and Enstar Group Limited 2006 Equity Incentive Plan, our reports dated May 15, 2008, with respect to the financial statements of TGI Australia Limited as of and for the years ended December 31, 2007, 2006 and 2005 included in the Current Report on Form 8-K/A of Enstar Group Limited dated May 19, 2008 filed with the Securities and Exchange Commission.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008

 

exv23w4
Exhibit 23.4
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements No. 333-149551, No. 333-148863, No. 333-148862, and No. 333-141793 on Form S-8, pertaining to the Enstar Group Limited Employee Share Purchase Plan, Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors, The Enstar Group, Inc. 1997 Omnibus Incentive Plan and The Enstar Group, Inc. 2001 Outside Directors Stock Option Plan, and Enstar Group Limited 2006 Equity Incentive Plan, our reports dated May 15, 2008, with respect to the financial statements of Enstar Australia Limited (formerly Cobalt Solutions Australia Limited) as of and for the years ended December 31, 2007, 2006 and 2005 included in the Current Report on Form 8-K/A of Enstar Group Limited dated May 19, 2008 filed with the Securities and Exchange Commission.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008

exv23w5
Exhibit 23.5
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements No. 333-149551, No. 333-148863, No. 333-148862, and No. 333-141793 on Form S-8, pertaining to the Enstar Group Limited Employee Share Purchase Plan, Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors, The Enstar Group, Inc. 1997 Omnibus Incentive Plan and The Enstar Group, Inc. 2001 Outside Directors Stock Option Plan, and Enstar Group Limited 2006 Equity Incentive Plan, our reports dated May 15, 2008, with respect to the financial statements of Harrington Sound Limited (formerly AMP General Insurance Limited) as of and for the years ended December 31, 2007, 2006 and 2005 included in the Current Report on Form 8-K/A of Enstar Group Limited dated May 19, 2008 filed with the Securities and Exchange Commission.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008

exv99w1
Exhibit 99.1
CHURCH BAY LIMITED
(formerly AMPG (1992) LIMITED)
ABN 42 000 488 362
FINANCIAL REPORT
31 DECEMBER 2007
Contents:
         
    Page
Financial Report
       
Financial Statements
       
- Income Statement
    1  
- Balance Sheet
    2  
- Statement of Changes in Equity
    3  
- Cash Flow Statement
    4  
Notes to the Financial Statements
    5  
Report of Independent Auditors
    32  

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Income Statement
For the year ended 31 December 2007
                         
            2007     2006  
    Notes     $     $  
 
                       
Direct premium revenue
            5,327       7,064  
Outwards reinsurance premium expense
            533       1,078  
             
Net premium revenue
    4       4,794       5,986  
 
                       
Direct claims benefit
            (51,042 )     (67,239 )
Reinsurance and other recoveries (expense)
            (17,623 )     (13,017 )
             
Net claims incurred
    5       (33,419 )     (54,222 )
 
                       
Other underwriting Income
            8,695        
 
                       
Underwriting result
            46,908       60,208  
Net investment revenue
    6       445,035       494,893  
General administration expenses
    7       135,067       131,995  
             
 
                       
Net profit before tax
            356,876       423,106  
 
                       
Income tax expense attributable to operating profit
    8       125,684       111,429  
             
 
                       
Net profit attributable to members of Church Bay Limited (formerly AMPG(1992) Limited)
      231,192       311,677  
             
The above Income Statement should be read in conjunction with the accompanying notes.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  1 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Balance Sheet
As at 31 December 2007
                         
            2007     2006  
    Notes     $     $  
 
                       
Current Assets
                       
Cash and cash equivalents
    22       6,878,030       6,854,659  
Receivables
    9       74,202       39,955  
Reinsurance & other recoveries receivable
    10       14,706       24,613  
Other Financial assets
    11       446,009       466,353  
Other
    12       2,592       533  
             
Total Current Assets
            7,415,539       7,386,113  
             
 
                       
Non-Current Assets
                       
Reinsurance & other recoveries receivable
    10       10,789       18,505  
Deferred tax assets
    8       21,894       22,208  
             
Total Non-Current Assets
            32,683       40,713  
             
Total Assets
            7,448,222       7,426,826  
             
 
                       
Current Liabilities
                       
Unearned premium liability
    13             2,523  
Outstanding claims liability
    14       31,958       53,216  
Payables
    15       10,000       11,892  
Current tax liability
            122,397       276,904  
             
Total Current Liabilities
            164,355       344,535  
             
 
                       
Non-Current Liabilities
                       
Unearned premium liability
    13             2,805  
Outstanding claims liability
    14       10,789       40,573  
Deferred tax liabilities
    8       15,734       12,761  
             
Total Non-Current Liabilities
            26,523       56,139  
             
Total Liabilities
            190,878       400,674  
             
Net Assets
            7,257,344       7,026,152  
             
 
                       
Shareholders’ Equity
                       
Issued Capital
    16       41,784,468       41,784,468  
Accumulated losses
            (34,527,124 )     (34,758,316 )
             
Total Shareholders’ Equity
            7,257,344       7,026,152  
             
The above Balance Sheet should be read in conjunction with the accompanying notes.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  2 of 32 

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Statement of Changes in Equity
For the year ended 31 December 2007
                         
    Issued Capital     Accumulated     Total  
          Losses        
    $     $     $  
 
                       
Balance as at 1 January 2007
    41,784,468       (34,758,316 )     7,026,152  
Net Profit after income tax
          231,192       231,192  
     
Balance as at 31 December 2007
    41,784,468       (34,527,124 )     7,257,344  
     
 
                       
Balance as at 1 January 2006
    62,526,468       (35,069,992 )     27,456,476  
Net Profit after income tax
          311,676       311,676  
Other changes in equity
    (20,742,000 )           (20,742,000 )
     
Balance as at 31 December 2006
    41,784,468       (34,758,316 )     7,026,152  
     
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   3 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Cash Flow Statement
For the year ended 31 December 2007
                         
            2007     2006  
    Notes     $     $  
 
                       
Cash flows from operating activities
                       
Receipts from customers and reinsurers
            2,010       411,364  
Claims paid
            (1 )      
Payments to customers, suppliers and employees
            (116,300 )     (116,478 )
Interest received
            414,567       371,319  
Income tax paid
            (276,905 )     (1,208,351 )
             
 
    22       23,371       (542,146 )
             
 
                       
Cash flows from financing activities
                       
 
                       
Repayment of loan from related party
                  20,742,000  
Payment for capital reduction
                  (20,742,000 )
             
 
                   
             
 
                       
Net increase in cash held
    22       23,371       (542,146 )
 
                       
Cash at the beginning of the year
            6,854,659       7,396,805  
             
 
                       
Cash at the end of the year
            6,878,030       6,854,659  
             
The above Cash Flow Statement should be read in conjunction with the accompanying notes.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   4 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
This Financial Report, comprising the financial statements and the notes thereto, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Where necessary, comparative information has been reclassified to be consistent with current period disclosures.
The Financial Report has been prepared in accordance with the historical cost convention except for investments, which have been measured at fair value.
Accounting judgements and estimates
In the course of its operations the company applies judgements and makes estimates that affect the amounts recognised in the financial report. Estimates are based on a combination of historical experience and expectations of future events that are believed to be reasonable at the time.
Accounting Standards issued but not yet effective
Accounting Standards that have recently been issued or amended but are not yet effective have not been adopted for the reporting period ending 31 December 2007, except IFRS8 Operating Segments. The adoption of IFRS8 has removed the requirement for Operating Segment disclosures in this Financial Report.
When applied in future periods, all other recently issued or amended standards are not expected to have a material impact on the company’s results or financial position; however they may impact Financial Report disclosures.
Changes in accounting policy
Since 1 January 2007, the company has adopted a number of Accounting Standards and Interpretations which were mandatory for annual periods beginning on or after 1 January 2007. Adoption of these Standards and Interpretations has not had any effect on the financial position or performance of the Company.
Operating revenue
Operating revenue comprises general insurance earned premiums, recoveries, interest income and investment income. Investment income is brought to account on an accrual basis.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   5 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Premium revenue and unearned premium
(i) Premium revenue
Premium revenue comprises premium from direct business.
Premium revenue comprises amounts charged to the policyholder or other insurers, excluding stamp duties, GST and other amounts collected on behalf of third parties. The earned portion of premiums received and receivable is recognised as operating revenue.
Premium revenue is recognised in the income statement when it has been earned. Premium revenue is recognised in the income statement from the attachment date over the period of the contract. Where time does not approximate the pattern of risk, previous claims experience is used to derive the incidence of risk.
The proportion of premium received or receivable not earned in the income statement at the reporting date is recognised in the balance sheet as an unearned premium liability. Actuarial techniques are used to estimate the ultimate premium and are based on historical premium booking patterns.
(ii) Unearned premiums
Unearned premiums represent premium revenue attributable to future accounting periods. Unearned premium is determined by apportioning the premiums written in the year over the period of insurance cover, reflecting the pattern in which risk emerges under these policies.
Outward reinsurance premium expense and deferred reinsurance premium
Premiums ceded to reinsurers are recognised as an expense over the period of cover using the methods applicable to premium revenue as set out above.
Outstanding claims
The liability for outstanding claims is measured as the best estimate of the present value of expected future payments against claims incurred at the reporting date under general insurance contracts issued by the Company, with an additional risk margin to allow for the inherent uncertainty in the best estimate.
The expected future payments include those in relation to claims reported but not yet paid; claims incurred but not reported (IBNR), claims incurred but not enough reported (IBNER) and anticipated claims handling costs.
Claims handling costs include costs that can be associated directly with individual claims, such as legal and other professional fees, and costs that can only be indirectly associated with individual claims, such as claims administration costs.
The expected future payments are discounted to present value using a risk free rate.
A risk margin is applied to the outstanding claims liability, net of reinsurance and other recoveries, to reflect the inherent uncertainty in the central estimate. This risk margin increases the probability that the net liability is adequately provided for to a 75% confidence level.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   6 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reinsurance and other recoveries
Reinsurance and other recoveries consist of receivables on paid claims and outstanding claims, and are recognised as revenue when claims are paid or the outstanding claim is raised. Reinsurance receivables are discounted to present value consistent with the discounting of outstanding claims set out above.
Investment income
Interest income is recognised in the income statement on an effective interest method when the entity obtains control of the right to receive the revenue.
Realised gains and losses represent the change in value between the previously reported value and the amount received on sale of the asset. Unrealised gains and losses represent changes in the fair value of financial assets recognised in the period.
Assets backing general insurance liabilities
The Company has determined that all assets are held to back general insurance liabilities on the basis that all assets of the Company are available for the settlement of claims if required.
The following policies apply:
Financial assets
Financial assets are designated at fair value through profit or loss. Initial recognition is at cost in the balance sheet and subsequent measurement is at fair value with any resultant unrealised gains or losses recognised in the income statement. Details of fair value for the different types of financial assets are listed below:
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand that is available on demand and deposits held at call with financial institutions. Cash and cash equivalents are carried at fair value, being the principal amount. For the purposes of the cash flow statement, cash also includes other highly liquid investments not subject to significant risk of change in value.
Debt securities
Debt securities are initially recognised at fair value, representing the purchase cost of the asset exclusive of any transaction costs. Debt securities are subsequently measured at fair value, with any realised and unrealised gains or losses arising from changes in the fair value being recognised in the income statement for the period in which they arise. The fair value of a traded interest bearing security reflects the bid price at balance date. Interest bearing securities that are not frequently traded are valued by discounting the estimated recoverable amounts, using prevailing interest rates.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   7 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Taxes
Income tax
Income tax expense is the tax payable on taxable income for the current period based on the income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to: (i) temporary differences between the tax bases of assets and liabilities and their balance sheet carrying amounts, and (ii) unused tax losses.
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. The tax impact on income and expense items recognised directly in equity is also recognised directly in equity.
Tax Consolidation
AMP Limited, Church Bay Limited (formerly AMPG(1992) Limited) and certain other wholly owned controlled entities of AMP Limited comprise a tax-consolidated group of which AMP Limited is the head entity. The implementation date for the tax-consolidated group was 30 June 2003.
Under tax consolidation, AMP Limited as head entity, assumes the following balances from subsidiaries within the tax-consolidated group:
(i) Current tax balances arising from external transactions recognised by entities in the tax-consolidated group occurring after the implementation date, and;
(ii) Deferred tax assets arising from unused tax losses and unused tax credits recognised by entities in the tax-consolidated group occurring after the implementation date.
A tax funding agreement has been entered into by the head entity and the controlled entities in the tax-consolidated group. Controlled entities in the tax-consolidated group will continue to be responsible, by the operation of the tax funding agreement, for funding tax payments required to be made by the head entity arising from underlying transactions of the controlled entities. Controlled entities will make (receive) contributions to (from) the head entity for the balances recognised by the head entity described in (i) and (ii) above. The contributions will be calculated in accordance with the tax funding agreement.
Assets and liabilities which arise as a result of differences between the periods in which the underlying transactions occur, and the period in which the funding payments under the tax funding agreement are made, are recognised as intercompany balances receivable and payable in the balance sheet. The recoverability of balances arising from the tax funding arrangements is based on the ability of the tax-consolidated group to utilise the amounts recognised by the head entity.
The entity will be required to make a payment to terminate its liability under the tax funding agreement if it leaves the tax consolidation group.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   8 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Goods and services tax
All revenues, expenses and assets are recognised net of any GST paid, except where they relate to products and services which are input taxed for GST purposes or the GST incurred is not recoverable from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of the cost of acquisition of the assets or as part of the particular expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from or payable to the tax authorities is included as a receivable or payable in the balance sheet.
Cash flows are reported on a gross basis reflecting any GST paid or collected. The GST component of cash flows arising from investing or financing activities which are recoverable from, or payable to, local tax authorities are classified as operating cash flows.
Foreign currency transactions and translation
Functional and Presentation currency
Items included in the financial statements are measured using the currency of the primary economic environment in which that entity operates (the functional currency). The presentation currency of this financial report, and the functional currency of the parent entity, is Australian dollars.
Transactions and balances
Income and expense items denominated in a currency other than the functional currency are translated at the spot exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at balance sheet date, with exchange gains and losses recognised in the income statement. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Receivables
Receivables are financial assets and are measured at fair value. Given the short-term nature of most receivables, the recoverable amount approximates fair value.
Payables
Creditors and accruals are recognised as liabilities for amounts to be paid in the future for goods and services received, whether or not billed to the entity.
Amounts Due To or From Related Parties
Amounts are carried at fair value being nominal amounts due and payable. Interest is taken up as income on an accrual basis. A provision for impairment is recognised when there is objective evidence that the related party will not be able to pay its debt.
Issued Capital
Issued and paid up capital is recognised at the fair value of the consideration received by the company.
Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   9 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Company makes estimates and assumptions in respect of certain key assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key areas in which critical estimates and judgements are applied are described below.
(a) The ultimate liability arising from claims made under insurance contracts
Provision is made at the year end for the estimated cost of claims incurred but not settled at the balance sheet date, including the cost of claims incurred but not yet reported to the Company.
The estimated cost of claims includes direct expenses to be incurred in settling claims gross of the expected value of salvage and other recoveries. The Company takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the original liability established.
The estimation of claims incurred but not reported (“IBNR”) is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Company, where more information about the claim event is generally available. IBNR claims may often not be reported to the insurer until many years after the events giving rise to the claims has happened. In calculating the estimated cost of unpaid claims the Company uses a variety of estimation techniques, generally based upon statistical analyses of historical experience, which assumes that the development pattern of the current claims will be consistent with past experience. Allowance is made, however, for changes or uncertainties which may create distortions in the underlying statistics or which might cause the cost of unsettled claims to increase or reduce when compared with the cost of previously settled claims including:
    changes in the legal environment
 
    changes in the economic environment
 
    the impact of large losses
 
    movements in industry benchmarks
A component of these estimation techniques is usually the estimation of the cost of notified but not paid claims. In estimating the cost of these the Company has regard to the claim circumstance as reported, any information available from loss adjusters and information on the cost of settling claims with similar characteristics in previous period.
Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the amounts that will be recoverable from reinsurers based upon the gross provisions.
Details of specific assumptions used in deriving the outstanding claims liability at year-end are detailed below.
(b) Assets arising from reinsurance contracts
Assets arising from reinsurance contracts are also calculated using the above methods. In addition, the recoverability of these assets is assessed on a periodic basis to ensure that the balance is reflective of the amounts that will ultimately be received, taking into consideration factors such as counterparty and credit risk. Impairment is recognised where there is objective evidence that the Company may not receive amounts due to it and these amounts can be reliably measured.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   10 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
(c) Process used to determine assumptions
The company wrote one class of business: lenders mortgage insurance. Lenders mortgage insurance is short tail in nature, meaning that claims are typically settled within one year of being reported. Claims estimates are derived from analysis of the results of several different actuarial models. These models take past defaults and claim payments into account and assume that reported claims will develop steadily from period to period. Other models apply a loss ratio to each loan that reflects loan data, past claims experience and industry benchmarks.
A description of the processes used to determine these assumptions is provided below:
Average weighted term to settlement
The average weighted term to settlement is calculated separately by class of business based on historic settlement patterns.
Reinsurance percentage
The reinsurance percentage is calculated based on past reinsurance recovery rates and the structure of the reinsurance arrangements in place.
Discount rate
Discount rates derived from market yields on Commonwealth Government securities as at the balance date have been adopted.
Expense rate
Claims handling expenses are calculated based on projected costs of administering the remaining claims until expiry.
Average claim amount
The average claim amount is estimated by considering historical settlement amounts, industry benchmarks and sensitivity testing.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   11 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
(d) Sensitivity analysis — insurance contracts
Summary
The Company conducts sensitivity analyses to quantify the exposure to risk of changes in the key underlying variables. The valuations included in the reported results are calculated using certain assumptions about these variables as disclosed above. The movement in any key variable will impact the performance and equity of the Company. The tables below describe how a change in each assumption will affect the insurance liabilities and show an analysis of the sensitivity of the profit/(loss) to changes in these assumptions both gross and net of reinsurance.
     
Variable   Impact of movement in variable
Average weighted term to settlement
  Expected payment patterns are used in determining the outstanding claims liability. A decrease in the average term to settlement rates would lead to claims being paid sooner than anticipated (increase in outstanding claims liability).
 
   
Reinsurance percentage
  The company assumes money will be recoverable from reinsurers on future claims paid. A decrease in the reinsurance percentage would lead to a reduction in expected recoveries and an increase outstanding claims liability. Similarly, an increase in the reinsurance percentage would result in a reduction in the outstanding claims liability.
 
   
Discount rate
  The outstanding claims liability is calculated by reference to expected future payments. These payments are discounted to adjust for the time value of money. An increase or decrease in the assumed discount rate will have an opposing impact on outstanding claims liability.
 
   
Expense rate
  An estimate for the internal costs of administering claims is included in the outstanding claims liability. An increase or decrease in the expense rate assumption would have a corresponding impact on claims expense and outstanding claims liability.
 
   
Average claim amount
  Average claim size is used in determining the outstanding claim liability. An increase or decrease in the average claim amount assumption would have a corresponding impact on the outstanding claims liability.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   12 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)
The company successfully commuted its portfolio with AMP Bank Ltd. As a result the only remaining risk is 100% reinsured. There is no impact to profit or loss from changes in variables and therefore no impact to the financial statements.
2006
                                     
Variable   Change in   Assumption at 12/06   Change in Shareholder
    Variable           Profit/(loss) (after tax)
        Gross   Net   Gross $   Net $
Average weighted term to settlement
  +0.5yr   1.06yr   1.02yr        
 
  -0.5yr                        
 
                                   
Reins % (as % of Gross Outstanding Claims)
  +1%     n/a       99.8 %        
 
  -1%                        
 
                                   
Discount Rate
  +1%     5.9 %     5.9 %        
 
  -1%                        
 
                                   
Expense Rate (as % of Outstanding Claims)
  +1%     97 %     83 %     (305 )  
 
  -1%                     305    
 
                                   
Average Claim Amount
  +10%     20,216       n/a       (3,194 )     (35 )
 
  -10%                     3,194       35  
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   13 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
3. EVENTS OCCURRING AFTER THE REPORTING DATE
On 11 December 2007 a Sale and Purchase Agreement was entered into by the ultimate parent AMP Limited and Enstar Australia Holdings Pty Ltd for the sale of the entity.
The sale was subject to a number of conditions including regulatory approval by the Australian Prudential Regulatory Authority (APRA) who subsequently approved the Sale Agreement on 22 February 2008. The sale was then completed on 5 March 2008. Enstar Australia Holdings Pty Ltd assumed ownership of the company at this point.
4. NET PREMIUM REVENUE
                 
    2007     2006  
    $     $  
 
               
Movement in unearned premiums
    5,327       7,064  
     
Premium revenue
    5,327       7,064  
Outwards reinsurance premiums
    533       1,078  
     
 
               
Net premium revenue
    4,794       5,986  
     
5. NET CLAIMS INCURRED
                                                 
    2007     2006  
    Current     Prior years     Total     Current     Prior     Total  
    year                 year     years        
    $     $     $     $     $     $  
Gross claims expense
                                               
Gross claims incurred — undiscounted
          (51,042 )     (51,042 )           (67,239 )     (67,239 )
 
                                               
Discount movement
                                   
     
 
          (51,042 )     (51,042 )           (67,239 )     (67,239 )
     
 
                                               
Reinsurance and other recoveries revenue
                                               
Reinsurance and other recoveries — undiscounted
          17,623       17,623             13,017       13,017  
 
                                               
Discount movement
                                   
     
 
          17,623       17,623             13,017       13,017  
     
Net claims incurred
          (33,419 )     (33,419 )           (54,222 )     (54,222 )
     
Current year claims relate to risks borne in the current financial year. Prior year claims relate to a reassessment of the risks borne in all previous financial years.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   14 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
6. NET INVESTMENT REVENUE
                 
    2007     2006  
    $     $  
Investment income
               
Interest
    455,898       415,805  
Interest from related parties
               
— other related parties
          84,224  
Changes in fair value of investments
               
Unrealised
    (10,863 )     (5,136 )
     
Total net investment revenue
    445,035       494,893  
     
7. General Administration Expenses
                 
Expenses by Nature   2007     2006  
    $     $  
 
               
Net gain on foreign currency
    9,567       15,849  
Other management fees
    100,000       100,000  
External consultant costs
    20,000       10,000  
Other expenses
    5,500       6,146  
     
Total Expenses
    135,067       131,995  
     
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   15 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
8. INCOME TAX
(a) Analysis of income tax expense
                 
    2007     2006  
    $     $  
 
               
Current tax
    101,822       267,409  
Decrease in deferred tax assets
    314       9,270  
Increase/(Decrease) in deferred tax liabilities
    2,974       (165,250 )
Under provided in previous years
    20,574        
 
               
     
Income tax expense
    125,684       111,429  
     
(b) Relationship between income tax expense and accounting profit
The table below provides a reconciliation of differences between prima facie tax calculated as 30% of the profit before income tax for the period and the actual income tax expense recognised in the income statement for the period.
In respect of income tax expense attributable to shareholders, the tax rate which applies in both 2007 and 2006 is 30% for Australia.
                 
    2007     2006  
    $     $  
 
               
Operating profit before income tax
    356,876       423,106  
 
               
Prima facie income tax at the rate of 30%
    107,063       126,932  
 
               
Tax effect of differences between amounts of income and expenses recognised for accounting and the amounts deductible/assessable in calculating taxable income:
               
Non assessable income
          (6,717 )
Under provided in prior years — deferred tax balances
    20,574        
All other items
    (1,953 )     (8,786 )
     
Income tax expense per income statement
    125,684       111,429  
     
 
               
(c) Analysis of deferred tax asset
               
Amounts recognised in income:
               
- Indirect Claims Costs Adjustments
    5,176       14,618  
- Accrued Expenses
    3,000        
- Unrealised gains/losses
    13,718       7,590  
     
Total deferred tax assets
    21,894       22,208  
     
 
               
(d) Analysis of deferred tax liability
               
Amounts recognised in income
               
- Accrued Interest Receivable
    15,734       12,761  
     
Total deferred tax liability
    15,734       12,761  
     
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  16 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
9. RECEIVABLES
                 
    2007     2006  
    $     $  
 
               
Current
               
 
               
Interest free advance
               
- Other related parties
          1,000  
Receivable from related parties
               
- Other related parties
    21,754        
Other
    52,448       38,955  
     
Total receivables
    74,202       39,955  
     
10. REINSURANCE AND OTHER RECOVERIES
                 
    2007     2006  
    $     $  
Expected future reinsurance recoveries undiscounted
               
- on outstanding claims
    25,495       45,548  
- Discount to present value
          (2,431 )
     
 
               
Reinsurance and other recoveries receivable
    25,495       43,118  
     
 
               
Reinsurance recoveries receivable-current
    14,706       24,613  
Reinsurance recoveries receivable- non current
    10,789       18,505  
     
 
    25,495       43,118  
     
11. OTHER FINANCIAL ASSETS
                 
    2007     2006  
    $     $  
 
               
Current
               
Quoted Investments- at fair value:
               
Government bonds
    446,009       466,353  
Total current investments
    446,009       466,353  
     
Total other financial assets
    446,009       466,353  
     
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  17 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
12. OTHER ASSETS
                 
    2007     2006  
    $     $  
 
               
Current deferred reinsurance premiums
          533  
Prepayments
    2,592        
     
Total current other assets
    2,592       533  
     
 
               
Deferred reinsurance premiums as at 1 January
    533       1,611  
Earning of reinsurance premiums
    (533 )     (1,078 )
     
Deferred reinsurance premiums as at 31 December
          533  
     
13. UNEARNED PREMIUM LIABILITY
                 
    2007     2006  
    $     $  
 
               
Current unearned premium
          2,523  
Non-current unearned premium
          2,804  
     
Total unearned premium
          5,327  
     
 
               
Unearned premium liability as at 1 January
    5,327       12,391  
Earning of premiums written in previous periods
    (5,327 )     (7,064 )
     
Unearned premium liability as at 31 December
          5,327  
     
The unearned premium liability was found to be sufficient for the current and prior periods, as a result no unexpired risk liability has been raised.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  18 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
14. OUTSTANDING CLAIMS
                 
    2007     2006  
    $     $  
 
               
Central estimate
    44,463       95,234  
Risk margin
          1,555  
     
 
    44,463       96,789  
Discount to present value
    (1,716 )     (3,000 )
     
Gross outstanding claims liability
    42,747       93,789  
     
 
               
Current
    31,958       53,216  
Non-current
    10,789       40,573  
     
Total outstanding claims
    42,747       93,789  
     
Process for determining risk margin
The risk margin was determined, allowing for the uncertainty of the outstanding claims estimate for each portfolio. As the remaining policies are 100% reinsured, with no net exposure, and the claim administration fee is fixed, no risk margin is held for Church Bay Limited (formerly AMPG(1992) Limited).
                 
Risk margins applied   2007     2006  
 
Mortgage insurance
    0 %     16 %
Reconciliation of movement in discounted outstanding claims liability
                         
    2007  
    Gross     Reins     Net  
    $     $     $  
Amount outstanding brought forward
    93,789       44,118       49,671  
less Claim payments/recoveries received in the period
    (1 )           (1 )
Effect of change in discounting
    4,464       2,402       2,062  
Effect of change in assumptions
    (55,505 )     (21,025 )     (34,480 )
     
Outstanding amount carried forward
    42,747       25,495       17,252  
     
                         
    2006  
    Gross     Reins     Net  
    $     $     $  
Amount outstanding brought forward
    161,028       57,127       103,901  
less Claim payments/recoveries received in the period
                 
Effect of change in discounting
    4,384       2,215       2,169  
Effect of change in assumptions
    (71,623 )     (15,224 )     (56,399 )
     
Outstanding amount carried forward
    93,789       44,118       49,671  
     
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  19 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
Claims Development Table
Current year claims relate to risks borne in the current financial year. Prior year claims relate to a reassessment of the risks borne in all previous financial years.
The Company is closed to new business and there have been no new mortgage insurance contracts issued in the six years prior and to and including this report.
As described in Note 1, the outstanding claims liability is the best estimate of the present value of the expected future payments, after the inclusion of a risk margin. At each balance date, the amount of the liability is reassessed and it is likely that changes will arise in the estimates of liabilities. The table under shows the estimates of total ultimate claims at successive year ends.
                 
    Net     Gross  
    $     $  
31 December 2001
    170,132       31,568,123  
31 December 2002
    165,072       31,207,548  
31 December 2003
    155,042       31,150,804  
31 December 2004
    151,690       31,109,688  
31 December 2005
    149,957       31,115,553  
31 December 2006
    149,411       31,120,753  
31 December 2007
    148,999       31,096,197  
Current estimate of cumulative claims
    148,999       31,096,197  
Cumulative payments
    148,999       31,068,987  
     
Undiscounted central estimate
          27,210  
 
               
Effect of discounting
          1,716  
     
Discounted central estimate
          25,494  
     
 
               
Risk margin
            0  
Claims handling provision
            17,253  
 
             
Outstanding Claims as per the balance sheet
            42,747  
 
             
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  20 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
15. PAYABLES
                 
    2007     2006  
    $     $  
 
               
Current
               
Other creditors
    10,000       8,686  
Other borrowings from related parties
               
— other related parties
          3,206  
 
               
     
 
    10,000       11,892  
     
16. ISSUED CAPITAL
                 
    2007     2006  
    $     $  
 
Paid up capital
               
     
62,526,468 ordinary shares at $0.67 each (2006:62,526,468 ordinary shares at $0.67 each)
    41,784,468       41,784,468  
     
 
               
Movement in share capital
               
Balance beginning of the year
    41,784,468       62,526,468  
Capital return 62,526,468 shares at $0.33 each
          (20,742,000 )
     
 
    41,784,468       41,784,468  
     
Rights attaching to Ordinary Shares
Ordinary shares attract the following rights:
  (a)   to receive notice of and to attend and vote at all general meetings of the Company;
 
  (b)   to receive dividends; and
 
  (c)   in a winding up, to participate equally in the distribution of the assets of the Company (both capital and surplus), subject only to any amounts unpaid on the Share.
17. FRANKING ACCOUNT
The AMP Limited group entered into Tax Consolidation during 2003. Under Tax Consolidation, the franking account balances for group companies were transferred to the Head Entity, AMP Limited.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  21 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
18. KEY MANAGEMENT PERSONNEL
The following individuals were the key management personnel of Church Bay Limited (formerly AMPG(1992) Limited) , for the current and prior reporting periods (unless stated otherwise):
     
Peter Clarke
   
Richard Grellman
   
Paul Leaming
  31-12-2007, Appointed
William Roberts
   
Felix Zaccar
   
Peter Hodgett
  31-12-2007, Resigned
Andrew Mohl
  31-12-2007, Resigned
The following table provides aggregate details of the compensation of key management personnel of Church Bay Limited (formerly AMPG(1992) Limited).
                                                 
    Short-term   Post-   Other            
    employee   employment   long-term   Termination   Share-based    
    benefits   benefits   benefits   benefits   payments   Total
Year   $   $   $   $   $   $
 
                                               
2007
    6,396,418       204,889             7,667,817       2,837,771       17,106,895  
 
                                               
2006
    6,306,101       205,061                   2,318,215       8,829,377  
Key management personnel disclosed above, also provided services to other related entities during the year. The above remuneration amounts include all amounts paid for services rendered to related entities and those services rendered to Church Bay Limited (formerly AMPG(1992) Limited).
19. AUDITOR’S FEES
Auditors’ remuneration for the year ended 31 December 2007 is paid on the Company’s behalf by a controlled entity within the AMP Limited Group.
20. CONTINGENT LIABILITIES
There are no contingent liabilities as at 31 December 2007 (2006: Nil).
21. RELATED PARTIES
Transactions between Church Bay Limited (formerly AMPG(1992) Limited) and other related parties during the financial year consisted of:
    Interest receivable on loans to related parties
 
    Payment of management fees for services provided
Controlling Entity
The immediate parent entity as at 31 December 2007 is Shelly Bay Holdings Limited (formerly AMP General Insurance Holdings Limited). AMP Limited is the ultimate parent entity at 31 December 2007.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  22 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
21. RELATED PARTIES (continued)
Directors
The directors of the Company during the financial year, and the dates of appointments and resignations during the year are:
     
Peter Clarke
   
Richard Grellman
   
Paul Leaming
  31-12-07, Appointed
William Roberts
   
Felix Zaccar
   
Peter Hodgett
   
Andrew Mohl
  31-12-07, Resigned
Other Transactions
The directors and their director related entities receive normal dividends on their ordinary share holdings in AMP Limited.
Other transactions with directors of the Company and their director-related entities.
During the year, transactions were entered into between Directors or their Director related entities and entities within the AMP Limited Group. These transactions are within a normal employee, customer or supplier relationship on terms and conditions no more favourable than those available to other employees, customers or members (unless otherwise described below) and include:
  normal personal banking with AMP Bank Limited including the provision of credit cards;
 
  the purchase of AMP superannuation and related products;
 
  Financial investment services;
 
  Other advisory services.
These transactions do not have the potential to adversely affect the decisions about the allocation of scarce resources made by users of AMP’s financial statements, or discharge of accountability by the Directors. The transactions are considered to be trivial or domestic in nature.
Transactions within the wholly owned group
The aggregate amounts brought to account in respect of the following types of transactions and each class of related party involved were:
AMP Services Limited and Enstar Australia Ltd (formerly Cobalt Solutions Australia Limited), both related entities within the wholly owned group, provide operational and administrative (including employee related) services to the entity. The services provided are in the normal course of the business and are on normal commercial terms and conditions.
The Company settled an interest-bearing loan to AMP Finance Services Limited, a related entity within the wholly owned group. This transaction was made under normal terms and conditions.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  23 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
21. RELATED PARTIES (continued)
Amounts attributable to transactions with entities in the wholly-owned group
Operating profit before income tax for the financial year includes aggregate amounts attributable to transactions in respect of:
                 
    2007     2006  
    $     $  
 
               
Interest Revenue — other related parties
          84,224  
Management Expense — other related parties
    100,000       100,000  
     
 
               
Amounts receivable from and payable to entities in the wholly-owned group
               
 
               
Aggregate amounts receivable at balance date from:
               
Current
               
 
               
Interest receivable — other related parties
          1,000  
Loan — other related parties
           
     
Aggregate amounts payable at balance date from:
               
 
               
Current
               
Payables — other related parties
          3,000  
     
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  24 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
22. CASH FLOW RECONCILIATION
(i) Reconciliation of cash
                 
    2007     2006  
    $     $  
 
               
Cash balance comprises:
               
Cash at call
    751,954       728,583  
Cash on deposit
    6,126,076       6,126,076  
     
 
    6,878,030       6,854,659  
     
 
               
(ii) Reconciliation of net cash flows from operating activities to operating profit after income tax
               
 
               
Operating profit after income tax
    231,192       311,676  
 
               
Changes in net market value of investments
    10,863       4,524  
FX Gains & Losses
    9,567       15,849  
Changes in assets and liabilities net of the effects of acquisitions:
               
(Increase)/ decrease in receivables and other assets
    (36,391 )     276,522  
(Increase)/ decrease in reinsurance and other recoveries receivable
    17,623       16,302  
Increase/(decrease) in payables
    (1,892 )     3,206  
Increase/(decrease) in current tax liabilities
    (154,508 )     (940,941 )
(Decrease)/ increase in unearned premiums
    (5,327 )     (7,064 )
(Decrease)/ increase in outstanding claims
    (51,042 )     (67,239 )
(Decrease)/ increase in deferred tax liabilities net of future tax benefit
    3,286       (155,981 )
     
 
               
Net cash inflows / (outflows) from operating activities
    23,371       (543,146 )
     
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  25 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
23. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS
The company’s policies and procedures in respect of managing risks are set out in this note below.
The Board has ultimate responsibility for risk management and governance, including ensuring an appropriate risk framework is in place and is operating effectively. There are, however, other bodies and individuals associated with the Company that manage and monitor financial risk.
The Board
The Board is responsible for the approval of policy regarding shareholder capital investment strategy, policyholder asset and liability strategy and setting the financial risk appetite.
The Audit Committee
The Audit Committee is responsible for ensuring the existence of effective financial risk management policies and procedures.
The RMS and REMS identify the Company’s policies and procedures, processes and controls that comprise its risk management and control systems. These systems address all material risks, financial and non-financial, likely to be faced by the Company. Annually, the Board certifies to APRA that adequate strategies have been put in place to monitor those risks, that the Company has systems in place to ensure compliance with legislative and prudential requirements and that the Board has satisfied itself as to the compliance with the RMS and REMS. The RMS and REMS have been approved by both the Board and APRA.
Key aspects of the processes established in the RMS to mitigate risks include:
    A formal regular process of risk identification and evaluation, supplemented by a documented control assessment process, is completed by management and communicated to the Board in line with the Board approved Risk Management Strategy.
 
    Actuarial models, using information from management information systems, to monitor claims patterns and other relevant statistics. Past experience and statistical methods are used as part of the process.
 
    The maintenance and use of various specialist information systems, which provide up to date and reliable data on claims liabilities.
 
    Documented procedures that are followed by claims staff that are experienced in the various classes of business previously written.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  26 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
23. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (continued)
Risk and Mitigation
The Company’s activities expose it to a variety of risks.
The major risks associated with insurance contracts include:
a)   Development of claims
 
    There is a possibility that changes may occur in the estimate of our obligations at the end of a contract period. The tables in note 14 show the estimates of total ultimate claims at successive year-ends.
 
b)   Terms and conditions of direct and inwards reinsurance business
 
    There is limited scope to improve the existing terms and conditions. The company has been in orderly run off since 2000, and no new contracts have been entered into since that time.
 
c)   Concentration of insurance risk
 
    The exposure to concentrations of insurance risk has been mitigated with the purchase of reinsurance where management believes that the price /risk transfer is suitable.
Financial risks include:
Market risk
a)   Interest rate risk
 
    Interest rate risk arises to the extent that there is a mismatch between the fixed-interest portfolios used to back the outstanding claims liability and those outstanding claims. The interest rate risk is managed by matching the duration profiles of the investments assets and the outstanding claims liability.
 
    The accounting policy notes describe the policies used to measure and report the assets and liabilities of the Company. Where the applicable market value is determined by discounting future cash flows, movements in interest rates will result in a reported unrealised gain or loss in the profit and loss account.
 
    The Company is well capitalized and funds are held in liquid fixed interest term deposits.
 
    Interest rate sensitivity analysis
 
    The following table demonstrates the impact of a 100 basis point change in Australian interest rates, with all other variables held constant, on the company’s shareholder profit after tax. It is assumed that the change occurs as at the reporting date (31 December) and there are concurrent movements in interest rates and parallel shifts in yield curves.
                 
    31 Dec 07   31 Dec 06
    Impact on   Impact on
    Profit after tax   Profit after tax
Change in Variable   $   $
+100 basis points
    (7,900 )     (8,300 )
- 100 basis points
    8,000       8,400  
b)   Foreign Currency risk analysis
 
    The Company’s financial assets are primarily dominated in Australian dollar with a small exposure in New Zealand Dollars via its branch operations in New Zealand.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  27 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
23. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (continued)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to met its debt obligations or other cash outflows as they fall due because of lack of liquid assets. The Company manages liquidity risk by maintaining adequate reserves in short term cash. As required by APRA prudential Standard GPS 220, the Company has developed and implemented a risk management strategy which is described earlier in this note to control this risk.
The table below summaries the maturity profile of the company’s financial liabilities at 31 December based on contractual undiscounted obligations.
                         
    31 Dec 07  
    Up to 1     More than 1        
    year     year     Total  
 
                       
Financial liabilities:
                       
Payables
    10,000             10,000  
     
Total
    10,000             10,000  
     
                         
    31 Dec 06  
    Up to 1     More than 1        
    year     year     Total  
 
                       
Financial liabilities:
                       
Payables
    11,892             11,892  
     
Total
    11,892             11,892  
     
Credit risk
Credit risk is the risk of loss that arises from a counterparty failing to meet their contractual commitments in full and on time, or from losses arising from the change in value of traded financial instruments as a result of changes in credit risk on that instrument.
The Company has exposure to the significant counterparty PMI Mortgage Insurance Limited for its reinsurance and ANZ for its investment. Both of these are regularly reviewed and maintained for changes.
Credit exposure by credit rating
The table below provides information regarding the credit risk exposure of the Company by classifying assets according to the Company’s credit rating of counter parties:
                                 
    31 Dec 07     31 Dec 06  
    Reinsurance &     Financial     Reinsurance &     Financial  
    Other Recoveries     Instruments     Other Recoveries     Instruments  
    $     $     $     $  
AAA
                       
AA
    25,495       6,930,478       43,118       6,893,614  
A
                       
BBB
                       
Below BBB
                       
Not rated
          21,754             1,000  
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  28 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
23. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (continued)
The following table provides an aged analysis of financial assets neither past due or impaired, past due and not impaired and impaired assets. Impairment is calculated in accordance with note 1.
31 Dec 07
                                         
    Neither            
    past due            
    nor   Past due but not impaired        
    impaired   <365 days   >365 days   Impaired   Total
Receivables
    74,202                         74,202  
Reinsurance and other recoveries receivable
    25,495                         25,495  
31 Dec 06
                                         
    Neither            
    past due            
    nor   Past due but not impaired        
    impaired   <365 days   >365 days   Impaired   Total
Receivables
    39,955                         39,955  
Reinsurance and other recoveries receivable
    43,118                         43,118  
Fair Value
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenue and expenses are recognised, in respect of each class of financial asset, financial liability and other investments are under and in Note 1.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  29 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
23. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (continued)
Categories of financial instruments
                         
            2007     2006  
    Note     $’000     $’000  
 
                       
Financial assets
                       
Fair value through the profit and loss:
                       
Receivables
    10       74,202       39,955  
Cash & cash equivalents
    23       6,878,030       6,854,659  
The recorded bid price equates to net fair value for listed debt and equity securities. For derivative contracts, fair value equates to the unrealised gain/loss on the outstanding contract. For the following financial instruments, the cost carrying amount is considered to equate to their fair value:
  cash deposits
  receivables
  payables.
CAPITAL MANAGEMENT
The Company is subject to externally imposed capital management requirements. The Company must comply with Capital requirements as specified under APRA General Insurance Prudential Standards.
The primary capital management objective is to ensure the company will be able to continue as a going concern while minimising excess capital through capital initiatives where appropriate.
The Company’s capital position is monitored by the Company’s Board. There have been no changes in the capital management objectives, policies and processes from the previous period.
The company has at all times during the current and prior financial year complied with the externally imposed capital requirements imposed by Prudential Standard GPS110 and the requirements set out in its insurance license.
The Minimum Capital Requirement (MCR) as a ratio of the Company’s capital base is shown in the table under.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  30 of 32

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2007
23. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (continued)
                 
    2007     2006  
    $     $  
 
               
Tier 1 Capital
               
 
               
Paid up ordinary shares
    41,784,468       41,784,468  
 
               
Retained earnings
    (34,758,316 )     (35,069,992 )
Current year earnings
    231,193       311,676  
Less: Deductions
    (6,160 )     (9,447 )
     
Net tier 1 capital
    7,251,185       7,016,705  
     
 
               
Net tier 2 capital
           
 
               
     
Total capital base
    7,251,185       7,016,705  
     
 
               
Minimum capital requirement
    5,000,000       5,000,000  
 
               
Capital adequacy multiple
    1.45       1.40  
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  31 of 32

 


 

(LETTERHEAD)
Report of Independent Auditors
The Board of Directors of Church Bay Limited (formerly AMPG (1992) Limited)
We have audited the accompanying balance sheets of Church Bay Limited (formerly AMPG (1992) Limited) as of December 31, 2007 and 2006, and the related income statements, statements of changes in equity, and cash flow statements for the years then ended. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Church Bay Limited (formerly AMPG (1992) Limited) at December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Liability limited by a scheme
approved under Professional
Standards Legislation

 


 

CHURCH BAY LIMITED
(formerly AMPG (1992) LIMITED)
ABN 42 000 488 362
FINANCIAL REPORT
31 DECEMBER 2006
Contents:
         
    Page  
Financial Report
       
Financial Statements
       
- Income Statement
    1  
- Balance Sheet
    2  
- Statement of Changes in Equity
    3  
- Cash Flow Statement
    4  
Notes to the Financial Statements
    5  
Report of Independent Auditors
    30  

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Income Statement
For the year ended 31 December 2006
                         
            2006     2005  
    Notes     $’000     $’000  
 
                       
Direct premium revenue
            7       22  
Outwards reinsurance premium expense
            1       3  
             
Net premium revenue
    4       6       19  
 
                       
Direct claims benefit
            (67 )     (250 )
Reinsurance and other recoveries (expense)/ revenue
            (13 )     9  
             
Net claims incurred
    5       (54 )     (259 )
 
                       
Underwriting result
            60       278  
 
                       
Net investment revenue
    6       495       1,497  
General administration expenses
    7       132       180  
             
 
                       
Net profit before tax
            423       1,595  
 
                       
Income tax expense attributable to operating profit
    8       111       482  
             
 
                       
Net profit attributable to members of Church Bay Limited (formerly AMPG(1992) Limited)
          312       1,113  
             
The above Income Statement should be read in conjunction with the accompanying notes.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  1 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Balance Sheet
As at 31 December 2006
                         
            2006     2005  
    Notes     $’000     $’000  
Current Assets
                       
Cash and cash equivalents
    23       6,855       7,397  
Receivables
    10       40       4,282  
Reinsurance & other recoveries receivable
    11       25       33  
Financial Assets at Fair Value
    12       466       474  
Other
    13       1       1  
             
Total Current Assets
            7,387       12,187  
             
 
                       
Non-Current Assets
                       
Reinsurance & other recoveries receivable
    11       19       24  
Financial Assets at Fair Value
    12             16,791  
Deferred tax assets
    8       22       31  
Other
    13             1  
             
Total Non-Current Assets
            41       16,847  
             
 
Total Assets
            7,428       29,034  
             
 
                       
Current Liabilities
                       
Unearned premium liability
    14       3       7  
Outstanding claims liability
    15       53       93  
Payables
    16       12       9  
Current tax liabilities
            277       1,218  
             
Total Current Liabilities
            345       1,327  
             
 
                       
Non-Current Liabilities
                       
Unearned premium liability
    14       3       5  
Outstanding claims liability
    15       41       68  
Deferred tax liabilities
    8       13       178  
             
Total Non-Current Liabilities
            57       251  
             
 
Total Liabilities
            402       1,578  
             
 
Net Assets
            7,026       27,456  
             
 
                       
Shareholders’ Equity
                       
Issued Capital
    17       41,784       62,526  
Accumulated losses
            (34,758 )     (35,070 )
             
Total Shareholders’ Equity
            7,026       27,456  
             
The above Balance Sheet should be read in conjunction with the accompanying notes.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  2 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Statement of Changes in Equity
For the year ended 31 December 2006
                         
    Issued Capital     Accumulated     Total  
          Losses        
    $’000     $’000     $’000  
 
                       
Balance as at 1 January 2006
    62,526       (35,070 )     27,456  
Net Profit after income tax
          312       312  
Other changes in equity
    (20,742 )           (20,742 )
     
Balance as at 31 December 2006
    41,784       (34,758 )     7,026  
     
 
                       
Balance as at 1 January 2005
    62,526       (36,183 )     26,343  
Net Profit after income tax
          1,113       1,113  
     
Balance as at 31 December 2005
    62,526       (35,070 )     27,456  
     
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   3 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Cash Flow Statement
For the year ended 31 December 2006
                         
            2006     2005  
    Notes     $’000     $’000  
 
                       
Cash flows from operating activities
                       
Receipts from customers and reinsurers
            412       37  
Payments to customers, suppliers and employees
            (117 )     (178 )
Interest received
            371       373  
Income tax refund/(paid)
            (1,208 )     272  
Goods and Services tax paid
                  3  
             
 
    23       (542 )     507  
             
 
                       
Cash flows from investing activities
                       
Purchase of investments
                   
             
 
                   
             
 
                       
Cash flows from financing activities
                       
Repayment of loan from related party
            20,742        
Payment for capital reduction
            (20,742 )      
             
 
                   
             
 
                       
Net increase in cash held
            (542 )     507  
 
                       
Cash at the beginning of the year
            7,397       6,890  
             
 
                       
Cash at the end of the year
            6,855       7,397  
             
The above Cash Flow Statement should be read in conjunction with the accompanying notes.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   4 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
This Financial Report, comprising the financial statements and the notes thereto, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.
The Financial Report has been prepared in accordance with the historical cost convention except for investments, which have been measured at fair value, and insurance liabilities, which have been discounted to present value.
The principal accounting policies adopted in the preparation of the Financial Report are set out below. These policies have been consistently applied to the current year and comparative period, unless otherwise stated. The same accounting policies and methods of computation are followed by this Financial Report as compared with the 31 December 2005 annual Financial Report. Where necessary, comparative information has been reclassified to be consistent with current period disclosures.
Accounting Standards that have recently been issued or amended but are not yet effective have not been adopted for the reporting period ending 31 December 2006. When applied in future periods, these recently issued or amended standards are not expected to have a material impact on the company’s results or financial position; however they may impact Financial Report disclosures.
Operating revenue
Operating revenue comprises general insurance earned premiums, recoveries, interest income and investment income. Investment income is brought to account on an accrual basis.
Premium revenue and unearned premium
(i) Premium revenue
Premium revenue comprises premium from direct business.
Premium revenue comprises amounts charged to the policyholder or other insurers, excluding stamp duties, GST and other amounts collected on behalf of third parties. The earned portion of premiums received and receivable is recognised as operating revenue.
Premium revenue is recognised in the income statement when it has been earned. Premium revenue is recognised in the income statement from the attachment date over the period of the contract. Where time does not approximate the pattern of risk, previous claims experience is used to derive the incidence of risk.
The proportion of premium received or receivable not earned in the income statement at the reporting date is recognised in the balance sheet as an unearned premium liability. Actuarial techniques are used to estimate the ultimate premium and are based on historical premium booking patterns.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   5 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
(ii) Unearned premiums
Unearned premiums represent premium revenue attributable to future accounting periods. Unearned premium is determined by apportioning the premiums written in the year over the period of insurance cover, reflecting the pattern in which risk emerges under these policies.
Outward reinsurance premium expense and deferred reinsurance premium
Premiums ceded to reinsurers are recognised as an expense over the period of cover using the methods applicable to premium revenue as set out above.
Outstanding claims
The liability for outstanding claims is measured as the best estimate of the present value of expected future payments against claims incurred at the reporting date under general insurance contracts issued by the Company, with an additional risk margin to allow for the inherent uncertainty in the best estimate.
The expected future payments include those in relation to claims reported but not yet paid; claims incurred but not reported (IBNR), claims incurred but not enough reported (IBNER) and anticipated claims handling costs.
Claims handling costs include costs that can be associated directly with individual claims, such as legal and other professional fees, and costs that can only be indirectly associated with individual claims, such as claims administration costs.
The expected future payments are discounted to present value using a risk free rate.
A risk margin is applied to the outstanding claims liability, net of reinsurance and other recoveries, to reflect the inherent uncertainty in the central estimate. This risk margin increases the probability that the net liability is adequately provided for to a 75% confidence level.
Reinsurance and other recoveries
Reinsurance and other recoveries consist of receivables on paid claims and outstanding claims, and are recognised as revenue when claims are paid or the outstanding claim is raised. Reinsurance receivables are discounted to present value consistent with the discounting of outstanding claims set out above.
Investment income
Interest income is recognised in the income statement on an effective interest method when the entity obtains control of the right to receive the revenue.
Realised gains and losses represent the change in value between the previously reported value and the amount received on sale of the asset. Unrealised gains and losses represent changes in the fair value of financial assets recognised in the period.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   6 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)
Assets backing general insurance liabilities
The Company has determined that all assets are held to back general insurance liabilities on the basis that all assets of the Company are available for the settlement of claims if required.
The following policies apply:
Financial assets
Financial assets are designated at fair value through profit or loss. Initial recognition is at cost in the balance sheet and subsequent measurement is at fair value with any resultant unrealised gains or losses recognised in the income statement. Details of fair value for the different types of financial assets are listed below:
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand that is available on demand and deposits held at call with financial institutions. Cash and cash equivalents are carried at fair value, being the principal amount. For the purposes of the cash flow statement, cash also includes other highly liquid investments not subject to significant risk of change in value.
Debt securities
Debt securities are initially recognised at fair value, representing the purchase cost of the asset exclusive of any transaction costs. Debt securities are subsequently measured at fair value, with any realised and unrealised gains or losses arising from changes in the fair value being recognised in the income statement for the period in which they arise. The fair value of a traded interest bearing security reflects the bid price at balance date. Interest bearing securities that are not frequently traded are valued by discounting the estimated recoverable amounts, using prevailing interest rates.
Taxes
Income tax
Income tax expense is the tax payable on taxable income for the current period based on the income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to: (i) temporary differences between the tax bases of assets and liabilities and their balance sheet carrying amounts, and (ii) unused tax losses.
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   7 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Taxes (continued)
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.
The tax impact on income and expense items recognised directly in equity is also recognised directly in equity.
Tax Consolidation
AMP Limited, Church Bay Limited (formerly AMPG(1992) Limited) and certain other wholly owned controlled entities of AMP Limited comprise a tax-consolidated group of which AMP Limited is the head entity. The implementation date for the tax-consolidated group was 30 June 2003.
Under tax consolidation, AMP Limited as head entity, assumes the following balances from subsidiaries within the tax-consolidated group:
(i) Current tax balances arising from external transactions recognised by entities in the tax-consolidated group occurring after the implementation date, and;
(ii) Deferred tax assets arising from unused tax losses and unused tax credits recognised by entities in the tax-consolidated group occurring after the implementation date.
A tax funding agreement has been entered into by the head entity and the controlled entities in the tax-consolidated group. Controlled entities in the tax-consolidated group will continue to be responsible, by the operation of the tax funding agreement, for funding tax payments required to be made by the head entity arising from underlying transactions of the controlled entities. Controlled entities will make (receive) contributions to (from) the head entity for the balances recognised by the head entity described in (i) and (ii) above. The contributions will be calculated in accordance with the tax funding agreement.
Assets and liabilities which arise as a result of differences between the periods in which the underlying transactions occur, and the period in which the funding payments under the tax funding agreement are made, are recognised as intercompany balances receivable and payable in the balance sheet. The recoverability of balances arising from the tax funding arrangements is based on the ability of the tax-consolidated group to utilise the amounts recognised by the head entity.
Goods and services tax
All revenues, expenses and assets are recognised net of any GST paid, except where they relate to products and services which are input taxed for GST purposes or the GST incurred is not recoverable from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of the cost of acquisition of the assets or as part of the particular expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from or payable to the tax authorities is included as a receivable or payable in the balance sheet.
Cash flows are reported on a gross basis reflecting any GST paid or collected. The GST component of cash flows arising from investing or financing activities which are recoverable from, or payable to, local tax authorities are classified as operating cash flows.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   8 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currency transactions and translation
Functional and Presentation currency
Items included in the financial statements are measured using the currency of the primary economic environment in which that entity operates (the functional currency). The presentation currency of this financial report, and the functional currency of the parent entity, is Australian dollars.
Transactions and balances
Income and expense items denominated in a currency other than the functional currency are translated at the spot exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at balance sheet date, with exchange gains and losses recognised in the income statement. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Receivables
Receivables are financial assets and are measured at fair value. Given the short-term nature of most receivables, the recoverable amount approximates fair value.
Payables
Creditors and accruals are recognised as liabilities for amounts to be paid in the future for goods and services received, whether or not billed to the entity.
Amounts Due To or From Related Parties
Amounts are carried at fair value being nominal amounts due and payable. Interest is taken up as income on an accrual basis. A provision for impairment is recognised when there is objective evidence that the related party will not be able to pay its debt.
Issued Capital
Issued and paid up capital is recognised at the fair value of the consideration received by the company.
Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   9 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Company makes estimates and assumptions in respect of certain key assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key areas in which critical estimates and judgements are applied are described below.
(a) The ultimate liability arising from claims made under insurance contracts
Provision is made at the year end for the estimated cost of claims incurred but not settled at the balance sheet date, including the cost of claims incurred but not yet reported to the Company.
The estimated cost of claims includes direct expenses to be incurred in settling claims gross of the expected value of salvage and other recoveries. The Company takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the original liability established.
The estimation of claims incurred but not reported (“IBNR”) is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Company, where more information about the claim event is generally available. IBNR claims may often not be reported to the insurer until many years after the events giving rise to the claims has happened. In calculating the estimated cost of unpaid claims the Company uses a variety of estimation techniques, generally based upon statistical analyses of historical experience, which assumes that the development pattern of the current claims will be consistent with past experience. Allowance is made, however, for changes or uncertainties which may create distortions in the underlying statistics or which might cause the cost of unsettled claims to increase or reduce when compared with the cost of previously settled claims including:
    changes in the legal environment
 
    changes in the economic environment
 
    the impact of large losses
 
    movements in industry benchmarks
A component of these estimation techniques is usually the estimation of the cost of notified but not paid claims. In estimating the cost of these the Company has regard to the claim circumstance as reported, any information available from loss adjusters and information on the cost of settling claims with similar characteristics in previous period.
Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the amounts that will be recoverable from reinsurers based upon the gross provisions.
Details of specific assumptions used in deriving the outstanding claims liability at year-end are detailed below.
(b) Assets arising from reinsurance contracts
Assets arising from reinsurance contracts are also calculated using the above methods. In addition, the recoverability of these assets is assessed on a periodic basis to ensure that the balance is reflective of the amounts that will ultimately be received, taking into consideration factors such as counterparty and credit risk. Impairment is recognised where there is objective evidence that the Company may not receive amounts due to it and these amounts can be reliably measured.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   10 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
(c) Process used to determine assumptions
The company wrote one class of business: lenders mortgage insurance. Lenders mortgage insurance is short tail in nature, meaning that claims are typically settled within one year of being reported. Claims estimates are derived from analysis of the results of several different actuarial models. These models take past defaults and claim payments into account and assume that reported claims will develop steadily from period to period. Other models apply a loss ratio to each loan that reflects loan data, past claims experience and industry benchmarks.
A description of the processes used to determine these assumptions is provided below:
Average weighted term to settlement
The average weighted term to settlement is calculated separately by class of business based on historic settlement patterns.
Reinsurance percentage
The reinsurance percentage is calculated based on past reinsurance recovery rates and the structure of the reinsurance arrangements in place.
Discount rate
Discount rates derived from market yields on Commonwealth Government securities as at the balance date have been adopted.
Expense rate
Claims handling expenses are calculated based on projected costs of administering the remaining claims until expiry.
Average claim amount
The average claim amount is estimated by considering historical settlement amounts, industry benchmarks and sensitivity testing.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   11 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
(d) Sensitivity analysis — insurance contracts
Summary
The Company conducts sensitivity analyses to quantify the exposure to risk of changes in the key underlying variables. The valuations included in the reported results are calculated using certain assumptions about these variables as disclosed above. The movement in any key variable will impact the performance and equity of the Company. The tables below describe how a change in each assumption will affect the insurance liabilities and show an analysis of the sensitivity of the profit/(loss) to changes in these assumptions both gross and net of reinsurance.
     
Variable   Impact of movement in variable
Average weighted term to settlement
  Expected payment patterns are used in determining the outstanding claims liability. A decrease in the average term to settlement rates would lead to claims being paid sooner than anticipated (increase in outstanding claims liability).
 
   
Reinsurance percentage
  The company assumes money will be recoverable from reinsurers on future claims paid. A decrease in the reinsurance percentage would lead to a reduction in expected recoveries and an increase outstanding claims liability. Similarly, an increase in the reinsurance percentage would result in a reduction in the outstanding claims liability.
 
   
Discount rate
  The outstanding claims liability is calculated by reference to expected future payments. These payments are discounted to adjust for the time value of money. An increase or decrease in the assumed discount rate will have an opposing impact on outstanding claims liability.
 
   
Expense rate
  An estimate for the internal costs of administering claims is included in the outstanding claims liability. An increase or decrease in the expense rate assumption would have a corresponding impact on claims expense and outstanding claims liability.
 
   
Average claim amount
  Average claim size is used in determining the outstanding claim liability. An increase or decrease in the average claim amount assumption would have a corresponding impact on the outstanding claims liability.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  12 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
2006
                                         
                            Change in Shareholder  
    Change in     Assumption at 12/06     Profit/(loss) (after tax)  
Variable   Variable     Gross     Net     Gross $’000     Net $’000  
Average weighted term to settlement
  +0.5yr   1.06yr   1.02yr            
 
  -0.5yr                            
       
Reins % (as % of Gross Outstanding
  +1%   n/a   99.8%            
Claims)
  -1%                            
       
Discount Rate
  +1%   5.9%   5.9%            
 
  -1%                            
       
Expense Rate (as % of Outstanding
  +1%   97%   83%            
Claims)
  -1%                            
 
                                       
Average Claim Amount
  +10%     20,216       n/a       (3 )      
 
  -10%                     3        
2005
                                 
                    Change in Shareholder  
    Change in     Assumption at 12/05     Profit/(loss) (after tax)  
Variable   Variable     Gross/Net     Gross $’000     Net $’000  
Average weighted term to settlement
  +0.5yr   1.06yr     1        
 
  -0.5yr             (1 )      
     
Reins % (as % of Gross Outstanding Claims)
  +1%   91.98%            
 
  -1%                    
     
Discount Rate
  +1%   5.19%            
 
  -1%                    
     
Expense Rate (as % of Outstanding Claims)
  +1%   163.9%            
 
  -1%                    
     
Average Claim Amount
  +10%     20,907       (4 )      
 
  -10%             4        
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  13 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
3. INSURANCE CONTRACTS- RISK MANAGEMENT POLICIES AND PROCEDURES
The Company has an objective to control insurance risk thus reducing volatility. The company’s policies and procedures in respect of managing risks are set out in this note below.
a)   Objective in managing risks arising from insurance contracts and policies for mitigating those risks.
In accordance with Prudential Standards GPS 220 Risk Management and GPS 230 Reinsurance issued by the Australian Prudential Regulation Authority (APRA), the Boards and senior management have developed, implemented and maintain a sound and prudent Risk Management Strategy (RMS) and a Reinsurance Management Strategy (REMS).
The RMS and REMS identify the Company’s policies and procedures, processes and controls that comprise its risk management and control systems. These systems address all material risks, financial and non-financial, likely to be faced by the Company. Annually, the Board certifies to APRA that adequate strategies have been put in place to monitor those risks, that the Company has systems in place to ensure compliance with legislative and prudential requirements and that the Board has satisfied itself as to the compliance with the RMS and REMS. The RMS and REMS have been approved by the Board and APRA.
Key aspects of the processes established in the RMS to mitigate risks include:
  A formal regular process of risk identification and evaluation, supplemented by a documented control assessment process, is completed by management and communicated to the Board in line with the Board approved Risk Management Strategy.
 
  Actuarial models monitor claims patterns and other relevant statistics. Past experience and statistical methods are used as part of the process.
 
  Reinsurance has been used to limit the Company’s exposure to large single sums. The REMS provides that exposures continue to be monitored and where feasible reinsurance be purchased as means of limiting risk.
 
  The mix of investment assets is driven by the nature and term of the insurance liabilities.
b) Development of claims
There is a possibility that changes may occur in the estimate of our obligations at the end of a contract period. The tables in Note 15 show our estimates of total ultimate claims at successive year-ends.
c) Terms and conditions of insurance contracts
There is limited scope to improve the existing terms and conditions. The company is in orderly run off, and no new contracts are been entered into.
d) Concentration of insurance risk
The exposure to concentrations of insurance risk is able to be mitigated with the purchase of reinsurance where management believes that the price /risk transfer is suitable.
e) Interest rate risk
Interest rate risk arises to the extent that there is a mismatch between the fixed-interest portfolios used to back the outstanding claims liability and those outstanding claims. This is not considered to be significant.
f) Credit risk
There are no significant concentrations of credit risk.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  14 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
4. NET PREMIUM REVENUE
                 
    2006     2005  
    $’000     $’000  
 
               
Movement in unearned premiums
    7       22  
     
Premium revenue
    7       22  
Outwards reinsurance premiums
    1       3  
     
 
               
Net premium revenue
    6       19  
     
5. NET CLAIMS INCURRED
                                                 
    2006             2005        
    Current     Prior             Current     Prior        
    year     years     Total     year     years     Total  
    $’000     $’000     $’000     $’000     $’000     $’000  
Gross claims expense
                                               
Gross claims incurred — undiscounted
          (67 )     (67 )           (250 )     (250 )
 
                                               
Discount movement
                                   
     
 
          (67 )     (67 )           (250 )     (250 )
     
 
                                               
Reinsurance and other recoveries revenue
                                               
Reinsurance and other recoveries — undiscounted
          13       13             (9 )     (9 )
 
                                               
Discount movement
                                   
     
 
          13       13             (9 )     (9 )
     
Net claims incurred
          (54 )     (54 )           (259 )     (259 )
     
Current year claims relate to risks borne in the current financial year. Prior year claims relate to a reassessment of the risks borne in all previous financial years.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  15 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
6. NET INVESTMENT REVENUE
                 
    2006     2005  
    $’000     $’000  
 
               
Investment income
               
Interest
    416       384  
Interest from related parties
               
— other related parties
    84       1,122  
Changes in fair value of investments
               
Unrealised
    (5 )     (9 )
     
Total net investment revenue
    495       1,497  
     
7. OPERATING EXPENSES
Expenses by Nature
                 
    2006     2005  
    $’000     $’000  
 
               
Net gain on foreign currency
    16       (4 )
Other management fees
    100       150  
External consultant costs
    10       34  
Other expenses
    6        
     
Total Expenses
    132       180  
     
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  16 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
8. INCOME TAX
(a) Analysis of income tax expense
                 
    2006     2005  
    $’000     $’000  
 
               
Current tax
    267       1,218  
Decrease in deferred tax assets
    9       24  
Decrease in deferred tax liabilities
    (165 )     (765 )
Over provided in previous years
          5  
     
Income tax expense
    111       482  
     
(b) Relationship between income tax expense and accounting profit
The table below provides a reconciliation of differences between prima facie tax calculated as 30% of the profit before income tax for the period and the actual income tax expense recognised in the income statement for the period.
In respect of income tax expense attributable to shareholders, the tax rate which applies in both
2006 and 2005 is 30% for Australia.
                 
    2006     2005  
    $’000     $’000  
Operating profit before income tax
    423       1,595  
 
               
Prima facie income tax at the rate of 30%
    127       479  
 
               
Tax effect of differences between amounts of income and expenses recognised for accounting and the amounts deductible/assessable in calculating taxable income:
               
Non assessable income
    (6 )     (2 )
Over provided in prior years — deferred tax balances
          5  
All Other items
    (10 )      
     
Income tax expense per income statement
    111       482  
     
 
(c) Analysis of deferred tax asset
               
Amounts recognised in income:
               
- Indirect Claims Costs Adjustments
    15       29  
- Unrealised gains/losses
    7       2  
     
Total deferred tax assets
    22       31  
     
 
               
(d) Analysis of deferred tax liability
               
Amounts recognised in income
               
- Accrued Interest Receivable
    13       178  
     
Total deferred tax liability
    13       178  
     
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  17 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
9. SEGMENT REPORTING
Primary Segment
The Company operates predominantly in one geographical segment being Australia and one business segment, which is the provision of lenders mortgage insurance.
10. RECEIVABLES
                 
    2006     2005  
    $’000     $’000  
Current
               
 
               
Interest free advance
               
- Other related parties
    1       3,689  
Interest receivable from related parties
               
- Other related parties
          574  
Other
    39       19  
     
Total receivables
    40       4,282  
     
11. REINSURANCE AND OTHER RECOVERIES
                 
    2006     2005  
    $’000     $’000  
Expected future reinsurance recoveries undiscounted
               
- on outstanding claims
    45       59  
- Discount to present value
    (1 )     (2 )
     
 
               
Reinsurance and other recoveries receivable
    44       57  
     
 
               
Reinsurance recoveries receivable-current
    25       33  
Reinsurance recoveries receivable- non current
    19       24  
     
 
    44       57  
     
     
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  18 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
12. FINANCIAL ASSETS AT FAIR VALUE
                 
    2006     2005  
    $’000     $’000  
Current
               
Quoted Investments- at fair value:
               
Government bonds
    466       474  
     
Total current investments
    466       474  
     
 
               
Non- Current
               
Unquoted Investments- at fair value:
               
Loans to related party
          16,791  
     
Total non-current investments
          16,791  
     
Total investments
    466       17,265  
     
13. OTHER ASSETS
                 
    2006     2005  
    $’000     $’000  
Current deferred reinsurance premiums
    1       1  
Non-current deferred reinsurance premiums
          1  
     
Total current other assets
    1       2  
     
 
               
Deferred reinsurance premiums as at 1 January
    2       5  
Earning of reinsurance premiums
    (1 )     (3 )
     
Deferred reinsurance premiums as at 31 December
    1       2  
     
14. UNEARNED PREMIUM LIABILITY
                 
    2006     2005  
    $’000     $’000  
Current unearned premium
    3       7  
Non-current unearned premium
    3       5  
     
Total unearned premium
    6       12  
     
 
               
Unearned premium liability as at 1 January
    12       34  
Earning of premiums written in previous periods
    (6 )     (22 )
     
Unearned premium liability as at 31 December
    6       12  
     
The unearned premium liability was found to be sufficient for the current and prior periods, as a result no unexpired risk liability has been raised.
     
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  19 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
15. OUTSTANDING CLAIMS
                 
    2006     2005  
    $’000     $’000  
Central estimate
    95       146  
Risk margin
    2       17  
     
 
    97       163  
Discount to present value
    (3 )     (2 )
     
Gross outstanding claims liability
    94       161  
     
 
               
Current
    53       93  
Non-current
    41       68  
     
Total outstanding claims
    94       161  
     
Process for determining risk margin
The risk margin was determined for each portfolio, allowing for the uncertainty of the outstanding claims estimate for each portfolio. A risk margin of 16% of net central estimate was applied, based on industry benchmarks for a portfolio of this size. Given the similar nature of business in the remaining portfolios no risk margin diversification has been allowed for.
Risk margins applied
                 
    2006     2005  
Direct insurance
    16 %     30 %
Reconciliation of movement in discounted outstanding claims liability
                         
    2006  
    Gross     Reins     Net  
    $000     $000     $000  
Amount outstanding brought forward
    161       57       104  
less Claim payments/recoveries received in the period
                 
Effect of change in discounting
    4       2       2  
Effect of change in assumptions
    (71 )     (15 )     (56 )
     
Outstanding amount carried forward
    94       44       50  
     
                         
    2005  
    Gross     Reins     Net  
    $000     $000     $000  
Amount outstanding brought forward
    411       47       364  
less Claim payments/recoveries received in the period
    (140 )           (140 )
Effect of change in discounting
    4       1       3  
Effect of change in assumptions
    (114 )     9       (123 )
     
Outstanding amount carried forward
    161       57       104  
     
     
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  20 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
Claims Development Table
Current year claims relate to risks borne in the current financial year. Prior year claims relate to a reassessment of the risks borne in all previous financial years.
The Company is closed to new business and there have been no new mortgage insurance contracts issued in the five years prior and to and including this report.
As described in Note 1, the outstanding claims liability is the best estimate of the present value of the expected future payments, after the inclusion of a risk margin. At each balance date, the amount of the liability is reassessed and it is likely that changes will arise in the estimates of liabilities. The table under shows the estimates of total ultimate claims at successive year ends.
                 
    Net     Gross  
    $000     $000  
31 December 2001
    170       31,568  
31 December 2002
    165       31,208  
31 December 2003
    155       31,151  
31 December 2004
    152       31,110  
31 December 2005
    150       31,116  
31 December 2006
    150       31,121  
Current estimate of cumulative claims
    150       31,121  
Cumulative payments
    149       31,075  
     
Undiscounted central estimate
    1       46  
 
               
Effect of discounting
    1       3  
     
Discounted central estimate
          43  
     
 
               
Risk margin
            2  
Claims handling provision
            49  
 
             
Outstanding Claims as per the balance sheet
            94  
 
             
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   21 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
16. PAYABLES
                 
    2006     2005  
    $’000     $’000  
Current
               
Other creditors
    9       9  
Other borrowings from related parties - - other related parties
    3        
 
               
     
 
    12       9  
     
17. ISSUED CAPITAL
                 
    2006     2005  
    $’000     $’000  
Paid up capital
               
     
 
               
62,526,468 ordinary shares at $0.67 each (2005:62,526,468 ordinary shares at $1 each)
    41,784       62,526  
     
 
               
Movement in share capital
               
Balance beginning of the year
    62,526       62,526  
Capital return 62,526,468 shares at $0.33 each
    (20,742 )      
     
 
    41,784       62,526  
     
Rights attaching to Ordinary Shares
Ordinary shares attract the following rights:
  (a)   to receive notice of and to attend and vote at all general meetings of the Company;
 
  (b)   to receive dividends; and
 
  (c)   in a winding up, to participate equally in the distribution of the assets of the Company (both capital and surplus), subject only to any amounts unpaid on the Share.
18. FRANKING ACCOUNT
The AMP Limited group entered into Tax Consolidation during 2003. Under Tax Consolidation, the franking account balances for group companies were transferred to the Head Entity, AMP Limited.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   22 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
19. KEY MANAGEMENT PERSONNEL
The following individuals were the key management personnel of Church Bay Limited (formerly AMPG(1992) Limited), for the current and prior reporting periods (unless stated otherwise):
     
Peter Clarke
   
Richard Grellman
   
Peter Hodgett (Alternate for Andrew Mohl)
   
Andrew Mohl
   
William Roberts
   
Bruce Robertson
  Resigned 09 May 2005
Felix Zaccar
   
The following table provides aggregate details of the compensation of key management personnel of Church Bay Limited (formerly AMPG(1992) Limited).
                                                 
    Short-term     Post-     Other long-             Share-        
    employee     employment     term     Termination     based        
Year   benefits     benefits     benefits     benefits     payments     Total  
    $     $     $     $     $     $  
2006
    6,306,101       205,061                   2,318,215       8,829,377  
2005
    5,737,253       254,791                   2,079,046       8,071,090  
Key management personnel disclosed above, also provided services to other related entities during the year. The above remuneration amounts include all amounts paid for services rendered to related entities and those services rendered to Church Bay Limited (formerly AMPG(1992) Limited).
20. AUDITOR’S FEES
Auditors’ remuneration for the year ended 31 December 2006 is paid on the Company’s behalf by a controlled entity within the AMP Limited Group.
21. CONTINGENT LIABILITIES
There are no contingent liabilities as at 31 December 2006 (2005: Nil).
22. RELATED PARTIES
Transactions between Church Bay Limited (formerly AMPG(1992) Limited) and other related parties during the financial year consisted of:
    Interest receivable on loans to related parties
 
    Payment of management fees for services provided
Controlling Entity
The immediate parent entity is Shelly Bay Holdings Ltd (formerly AMP General Insurance Holdings Limited). AMP Limited is the ultimate parent entity.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362   23 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
22. RELATED PARTIES (continued)
Directors
The directors of the Company during the financial year, and the dates of appointments and resignations during the year are:
P W Clarke
R J Grellman
P M Hodgett (Alternate for A M Mohl)
A M Mohl
W K Roberts
F Zaccar
Other Transactions
The directors and their director related entities receive normal dividends on their ordinary share holdings in AMP Limited.
Other transactions with directors of the Company and their director-related entities.
During the year, transactions were entered into between Directors or their Director related entities and entities within the AMP Limited Group. These transactions are within a normal employee, customer or supplier relationship on terms and conditions no more favourable than those available to other employees, customers or members (unless otherwise described below) and include:
  normal personal banking with AMP Bank Limited including the provision of credit cards;
 
  the purchase of AMP superannuation and related products;
 
  Financial investment services;
 
  Other advisory services.
These transactions do not have the potential to adversely affect the decisions about the allocation of scarce resources made by users of AMP’s financial statements, or discharge of accountability by the Directors. The transactions are considered to be trivial or domestic in nature.
Transactions within the wholly owned group
The aggregate amounts brought to account in respect of the following types of transactions and each class of related party involved were:
AMP Services Limited and Enstar Australia Limited (formerly Cobalt Solutions Australia Limited), both related entities within the wholly owned group, provide operational and administrative (including employee related) services to the entity. The services provided are in the normal course of the business and are on normal commercial terms and conditions.
The Company settled an interest-bearing loan to AMP Finance Services Limited, a related entity within the wholly owned group. This transaction was made under normal terms and conditions.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  24 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
22. RELATED PARTIES (continued)
Amounts attributable to transactions with entities in the wholly-owned group
Operating profit before income tax for the financial year includes aggregate amounts attributable to transactions in respect of:
                 
    2006     2005  
    $     $  
Interest Revenue — other related parties
    84,224       1,121,723  
Management Expense — other related parties
    100,000       150,000  
     
 
               
Amounts receivable from and payable to entities in the wholly-owned group
               
 
               
Aggregate amounts receivable at balance date from:
               
 
               
Current
               
Interest receivable — other related parties
    1,000       574,455  
Loan — other related parties
          3,689,810  
     
 
               
Non Current
               
Loan — other related parties
          16,791,000  
     
 
               
Aggregate amounts payable at balance date from:
               
 
               
Current
               
Payables — other related parties
    3,000        
     
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  25 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
23. CASH FLOW RECONCILIATION
                 
    2006     2005  
    $’000     $’000  
(i) Reconciliation of cash
               
 
               
Cash balance comprises:
               
Cash at call
    729       3,108  
Cash on deposit
    6,126       4,289  
     
 
    6,855       7,397  
     
 
               
(ii) Reconciliation of net cash flows from operating activities to operating profit after income tax
               
 
               
Operating profit after income tax
    312       1,113  
 
               
Changes in net market value of investments
    5       9  
FX Gains & Losses
    16       (4 )
Changes in assets and liabilities net of the effects of acquisitions:
               
(Increase)/ decrease in receivables and other assets
    277       (1,090 )
(Increase)/ decrease in reinsurance and other recoveries receivable
    16       (6 )
Increase/(decrease) in payables
    3       9  
Increase/(decrease) in current tax liabilities
    (941 )     1,218  
(Decrease)/ increase in unearned premiums
    (7 )     (22 )
(Decrease)/ increase in outstanding claims
    (67 )     (250 )
(Decrease)/ increase in deferred tax liabilities net of future tax benefit
    (156 )     (470 )
     
 
               
Net cash inflows / (outflows) from operating activities
    (542 )     507  
     
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  26 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
24. FINANCIAL INSTRUMENTS
(a) Net fair values
The recorded net market value equates to net fair value for listed and unlisted debt and equity securities. For the following financial instruments, the cost carrying amount is considered to equate to their net fair value:
  Cash
 
  Cash on deposit — short term
 
  Investment income accrued
 
  Reinsurance & other recoveries
 
  Government security
 
  Loans to related company
 
  Other creditors and accruals
(b) Special terms and conditions
All financial investments of the Company are held or issued on normal commercial terms at market rates of interest. There are no special terms or conditions affecting the nature and timing of the financial instruments not otherwise disclosed in these accounts. An interest-free advance has been made to the immediate parent entity. All other loans have been issued on normal commercial terms.
(c) Credit risk
Trading investments are recorded in the accounts at net market value, which represents the Company’s exposure to credit risk in relation to these instruments.
Credit risk in trade receivables is managed by analysing the credit ratings of the underlying debts.
(d) Interest rate risk on financial instruments
The accounting policy notes describe the policies used to measure and report the assets and liabilities of the Company. Where the applicable market value is determined by discounting future cash flows, movements in interest rates will result in a reported unrealised gain or loss in the profit and loss account.
The Company seeks to reduce its interest rate risk through the use of investment portfolios as a hedge against the insurance liabilities of the Company. To the extent that these assets and liabilities can be matched, unrealised gains or losses on revaluation of liabilities resulting from interest rate movements will be offset by unrealised losses or gains on revaluation of investment assets.
The Company’s exposure to interest rate risks and the effective interest rates of financial assets and liabilities at the reporting date, are as follows:
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  27 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
                                                 
For the year ended 2006           Fixed interest rate            
            Maturing in            
    Floating   0-1   1 - 5   Non   Total   Weighted
    Interest   year   years   Interest           Average
    Rate                   Bearing           Interest
    $’000   $’000   $’000   $’000   $’000   rate
 
Financial Assets
                                               
Cash
    729                         729       3.90 %
Cash on deposit — short term
          6,126                   6,126       6.27 %
Receivables — related parties
                            1       1          
Investment income accrued
                      39       39          
Reinsurance & other recoveries
                      44       44          
Government security
          466                   466       6.35 %
 
                                               
         
Total Financial Assets
    729       6,592             84       7,405          
         
 
                                               
Financial Liabilities
                                               
Other creditors
                      12       12          
         
Total Financial Liabilities
                      12       12          
         
                                                 
For the year ended 2005           Fixed interest rate            
            Maturing in            
    Floating   0-1   1 - 5   Non   Total   Weighted
    Interest   year   years   Interest           Average
    Rate                   Bearing           Interest
    $’000   $’000   $’000   $’000   $’000   rate
 
Financial Assets
                                               
Cash
    3,108                         3,108       3.73 %
Cash on deposit — short term
          4,289                   4,289       5.26 %
Investment income accrued
                      593       593          
Reinsurance & other recoveries
                      57       57          
Government security
          474                   474       6.62 %
Loans to Related Company
                16,791       3,689       20,480       6.79 %
 
                                               
         
Total Financial Assets
    3,108       4,763       16,791       4,339       29,001          
         
 
                                               
Financial Liabilities
                                               
Other creditors
                      9       9          
         
Total Financial Liabilities
                      9       9          
         
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  28 of 30

 


 

Church Bay Limited (formerly AMPG(1992) Limited)
Notes to the financial statements for the year ended 31 December 2006
25. CAPITAL ADEQUACY
                 
    2006     2005  
    $’000     $’000  
Tier 1 Capital
               
 
               
Paid up ordinary shares
    41,784       62,526  
Retained earnings
    (35,069 )     (36,183 )
Current year earnings
    312       1,113  
Less: Deductions
    9        
     
Net tier 1 capital
    7,018       27,456  
     
 
               
Net tier 2 capital
           
     
 
               
Total capital base
    7,018       27,456  
     
 
               
Minimum capital requirement
    5,000       8,247  
 
               
Capital adequacy multiple
    1.40       3.33  
The entity complies with Prudential Standard GPS110 and the requirements set out in its insurance license.
     
 
Church Bay Limited (formerly AMPG(1992) Limited) ABN 42 000 488 362
  29 of 30

 


 

(LETTERHEAD)
Report of Independent Auditors
The Board of Directors of Church Bay Limited (formerly AMPG (1992) Limited)
We have audited the accompanying balance sheets of Church Bay Limited (formerly AMPG (1992) Limited) as of December 31, 2006 and 2005, and the related income statements, statements of changes in equity, and cash flow statements for the years then ended. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Church Bay Limited (formerly AMPG (1992) Limited) at December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
/s/ Ernst & Young
Sydney, Australia
May 15, 2008
Liability limited by a scheme
approved under Professional
Standards Legislation

 

exv99w2
Exhibit 99.2
GORDIAN RUNOFF LIMITED
ABN 11 052 179 647
FINANCIAL REPORT
31 DECEMBER 2007
Contents:
         
    Page  
 
       
Financial Report
       
Financial Statements
       
— Income Statement
    2  
— Balance Sheet
    3  
— Statement of Changes in Equity
    4  
— Cash Flow Statement
    5  
Notes to the Financial Statements
    6  
Report of Independent Auditors
    38  
     
  |
Gordian Runoff Limited ABN 11 052 179 647
  1 of 38

 


 

Gordian RunOff Limited
Income Statement
For the year ended 31 December 2007
                         
      2007     2006  
    Note   $’000     $’000  
 
                       
Direct premium revenue
            4       28  
Inwards reinsurance premium revenue/(expense)
            4,689       (1,168 )
Outwards reinsurance premium expense
            (280 )     (323 )
             
Net premium (expense)/revenue
    5       4,413       (1,463 )
 
                       
Direct claims (benefit)/expense
            (88,929 )     (34,739 )
Inwards Reinsurance claims benefit
            (29,975 )     (36,523 )
Reinsurance & other recoveries (expense)/revenue
            (6,502 )     (2,888 )
             
Net claims incurred
    6       (112,402 )     (68,374 )
 
                       
Other underwriting income
            26       1,040  
 
                       
Acquisition benefit
            (114 )     (1,618 )
Other underwriting expenses
            231       1,043  
             
Underwriting expense/(benefit)
    7       117       (575 )
 
                       
Underwriting result
            116,724       68,526  
 
                       
Net investment revenue
    8       43,345       45,960  
General administration expenses
    7       6,857       10,537  
Finance costs
    7       1,061        
             
 
                       
Net profit before tax
            152,151       103,949  
 
                       
Income tax expense/(benefit) attributable to operating profit
    9       45,672       29,476  
             
 
                       
Net profit attributable to members of Gordian RunOff Limited
            106,479       74,473  
             
The above Income Statement should be read in conjunction with the accompanying notes.
     
  |
Gordian Runoff Limited ABN 11 052 179 647
  2 of 38

 


 

Gordian RunOff Limited
Balance Sheet
As at 31 December 2007
                         
        2007     2006  
    Note   $’000     $’000  
 
                       
Current assets
                       
Cash and cash equivalents
    24       13,857       42,291  
Receivables
    10       10,046       11,169  
Reinsurance and other recoveries receivable
    11       13,703       19,090  
Other financial assets
    12       590,748       549,602  
Other assets
    13       164       240  
             
 
                       
Total current assets
            628,518       622,392  
             
 
                       
Non-current assets
                       
Receivables
    10       1,796       3,134  
Reinsurance and other recoveries receivable
    11       15,798       29,757  
Other financial assets
    12       427,621       726,542  
Deferred tax assets
    9       32,679       44,573  
             
 
                       
Total non-current assets
            477,894       804,006  
             
 
                       
Total assets
            1,106,412       1,426,398  
             
 
                       
Current liabilities
                       
Outstanding claims liability
    15       90,891       112,751  
Payables
    16       9,547       8,431  
Interest Bearing Loan
    17       25,723        
Current Tax Liabilities
            26,227       24,649  
             
 
                       
Total current liabilities
            152,388       145,831  
             
 
                       
Non-current liabilities
                       
Outstanding claims liability
    15       356,065       584,453  
Payables
    16       288       422  
 
                       
Total non-current liabilities
            356,353       584,875  
             
 
                       
Total liabilities
            508,741       730,706  
             
 
                       
Net assets
            597,671       695,692  
             
 
                       
Shareholders’ equity
                       
Issued Capital
    18       1,610,100       1,814,600  
Accumulated losses
            (1,012,429 )     (1,118,908 )
             
 
                       
Total shareholders’ equity
            597,671       695,692  
             
The above Balance Sheet should be read in conjunction with the accompanying notes.
     
  |
Gordian Runoff Limited ABN 11 052 179 647
  3 of 38

 


 

Gordian RunOff Limited
Statement of Changes in Equity
For the year ended 31 December 2007
                         
            Accumulated        
    Issued Capital     Losses     Total  
    $’000     $’000     $’000  
Balance as at 1 January 2007
    1,814,600       (1,118,908 )     695,692  
Net Profit/(loss) after income tax
          106,479       106,479  
Change in Equity — Capital reduction
    (204,500 )           (204,500 )
     
Balance as at 31 December 2007
    1,610,100       (1,012,429 )     597,671  
     
 
                       
Balance as at 1 January 2006
    1,978,600       (1,193,381 )     785,219  
Net Profit/(loss) after income tax
          74,473       74,473  
Change in Equity — Capital reduction
    (164,000 )           (164,000 )
     
Balance as at 31 December 2006
    1,814,600       (1,118,908 )     695,692  
     
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  4 of 38

 


 

Gordian RunOff Limited
Cash Flow Statement
For the year ended 31 December 2007
                         
            2007     2006  
    Note     $’000     $’000  
 
                       
Cash flows from operating activities
                       
Premiums received
            5,929       16,828  
Reinsurance and other recoveries
            11,520       25,237  
Dividends received
            3,580       2,833  
Interest received
            66,509       80,902  
Other sundry receipts
            529       7,082  
(Payments)/refunds of outward reinsurance
            (354 )     (774 )
Claims paid
            (112,791 )     (149,686 )
Other underwriting (costs)/benefits
            (252 )     (1,362 )
Payments to suppliers and employees
            (34,470 )     (43,116 )
Income taxes (paid)/received
            (32,198 )     2,020  
             
Cash flows from/(used in) operating activities
    24       (91,998 )     (60,036 )
             
 
                       
Cash flows from investing activities
                       
Proceeds from sale of investments
            808,708       807,810  
Payments for investments
            (555,036 )     (613,805 )
Proceeds from share cancellation — related party
                     
Loans received from subsidiary
            25,723       40,000  
Loans from related party
            6,760        
             
Cash flows from/(used in) investing activities
            286,155       234,005  
             
 
                       
Cash flows from/(used in) financing activities
                       
Payment for capital reduction
            (204,500 )     (164,000 )
             
Cash flows from/(used in) financing activities
            (204,500 )     (164,000 )
             
 
                       
Net decrease in cash held
            (10,343 )     9,969  
 
                       
Balance at the beginning of the year
            42,291       32,322  
Reclass of cash to Investments
            (18,091 )      
 
                       
Balance at the end of the year
    24       13,857       42,291  
             
The above Cash Flow Statement should be read in conjunction with the accompanying notes.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  5 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
This Financial Report, comprising the financial statements and the notes thereto, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.
The financial statements are separate financial statements as the exemption from preparing consolidated financial statements has been used. The entity and its subsidiaries have been consolidated into the financial statements of AMP Limited, of  33 Alfred St Sydney NSW Australia, an entity incorporated in Australia. Copies of these accounts can be requested from AMP Limited at this address.  
The entity’s significant investments in subsidiaries, including the name, country of incorporation or residence, proportion of ownership interest and can found in Note 12 to these accounts. A description of the method used to account for these investments is described under Investment in controlled entities later in this note.
Where necessary, comparative information has been reclassified to be consistent with current period disclosures.
The Financial Report has been prepared in accordance with the historical cost convention except for investments, which have been measured at fair value.
Accounting judgements and estimates
In the course of its operations the company applies judgements and makes estimates that affect the amounts recognised in the financial report. Estimates are based on a combination of historical experience and expectations of future events that are believed to be reasonable at the time.
Accounting Standards issued but not yet effective
Accounting Standards that have recently been issued or amended but are not yet effective have not been adopted for the reporting period ending 31 December 2007, except IFRS8 Operating Segments. The adoption of IFRS8 has removed the requirement for Operating Segment disclosures in this Financial Report.
When applied in future periods, all other recently issued or amended standards are not expected to have a material impact on the company’s results or financial position; however they may impact Financial Report disclosures.
Changes in accounting policy
Since 1 January 2007, the company has adopted a number of Accounting Standards and Interpretations which were mandatory for annual periods beginning on or after 1 January 2007. Adoption of these Standards and Interpretations has not had any effect on the financial position or performance of the Company.
Operating revenue
Operating revenue comprises reinsurance and general insurance earned premiums, recoveries, interest income and investment income. Investment income is brought to account on an accrual basis. Other underwriting income comprises sundry receipts.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  6 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Premium revenue and unearned premiums
Premium revenue
Premium revenue comprises premiums from direct business and from reinsurance business.
Premium revenue includes amounts charged to the policyholders or other insurers, including fire service levies but excluding stamp duties, GST and other amounts collected on behalf of third parties.
Premium revenue, including that on unclosed business, is recognised in the income statement when it has been earned. Premium revenue is recognised in the income statement from the attachment date over the period of the contract for direct business and over the period of indemnity for reinsurance business. Where time does not approximate the pattern of risk, previous claims experience is used to derive the incidence of risk.
The proportion of premium received or receivable not earned in the income statement at the reporting date is recognised in the balance sheet as an unearned premium liability.
Premiums on unclosed business are calculated as the difference between an estimate of the ultimate and booked premiums. Actuarial techniques are used to estimate the ultimate premium and are based on historical premium booking patterns.
Unearned premiums
Unearned premiums represent premium revenue attributable to future accounting periods. For direct insurances and certain inwards reinsurance classes of business, unearned premium is determined by apportioning the premiums written in the year over the period of insurance cover, reflecting the pattern in which risk emerges under these policies.
In respect of inwards reinsurance space business, premiums are unearned until the satellite launch date, and thereafter are recognised as earned according to the risks associated with the launch, post launch and in-orbit periods.
Outward reinsurance premium expense and deferred reinsurance premium
Premiums ceded to reinsurers are recognised as an expense over the period of cover using the methods applicable to premium revenue as set out above.
Outstanding claims
The liability for outstanding claims is measured as the best estimate of the present value of expected future payments against claims incurred at the reporting date under general insurance contracts issued by the Company, with an additional risk margin to allow for the inherent uncertainty in the best estimate.
The expected future payments include those in relation to claims reported but not yet paid; claims incurred but not reported (IBNR), claims incurred but not enough reported (IBNER) and anticipated claims handling costs.
Claims handling costs include costs that can be associated directly with individual claims, such as legal and other professional fees, and costs that can only be indirectly associated with individual claims, such as claims administration costs.
The liability for direct insurance includes an allowance for inflation and superimposed inflation and is measured as the present value of the expected future ultimate cost of settling claims. The expected future payments are discounted to present value using a risk free rate.
A risk margin is applied to the outstanding claims liability, net of reinsurance and other recoveries, to reflect the inherent uncertainty in the best estimate. This risk margin increases the probability that the net liability is adequately provided for to a 75% confidence level.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  7 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Reinsurance and other recoveries
Reinsurance and other recoveries consist of receivables on paid claims and outstanding claims, and are recognised as revenue when claims are paid or the outstanding claim is raised. Reinsurance receivables are discounted to present value consistent with the discounting of outstanding claims set out above. A provision for impairment is recognised when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. The impairment charge is recognised in the income statement. Bad debts are written off as incurred.
Fire brigade levies and other statutory charges
A liability for fire brigade levies and other statutory charges is recognised on business written to the balance date. Levies and charges payable are expensed on the same basis as the recognition of the related premium revenue, with the portion relating to unearned premiums being reported as deferred statutory charges in Note 13.
Investment income
Dividend and interest income is recognised in the income statement on an effective interest method when the entity obtains control of the right to receive the revenue.
Realised gains and losses represent the change in value between the previously reported value and the amount received on sale of the asset. Unrealised gains and losses represent changes in the fair value of financial assets recognised in the period.
Assets backing general insurance liabilities
As part of its investment strategy, the Company actively manages its investment portfolio to ensure that investments mature in accordance with the expected pattern of future cash flows arising from general insurance liabilities.
The Company has determined that all assets are held to back general insurance liabilities on the basis that all assets are available for the settlement of claims if required.
The following policies apply to assets held to back general insurance liabilities.
Financial assets
Financial assets are designated at fair value through profit or loss. Initial recognition is at cost in the balance sheet and subsequent measurement is at fair value with any resultant unrealised gains or losses recognised in the income statement. Details of fair value for the different types of financial assets are listed below:
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand that is available on demand and deposits held at call with financial institutions. Cash and cash equivalents are carried at fair value, being the principal amount. For the purposes of the cash flow statement, cash also includes other highly liquid investments not subject to significant risk of change in value.
Cash trusts
The fair value of units in a listed cash trust reflects the quoted bid price at balance date. There is no reduction for realisation costs in the value of units in a cash trust. Unlisted unit trusts are recorded at fund managers valuations.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  8 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Debt securities
Debt securities are initially recognised at fair value, representing the purchase cost of the asset exclusive of any transaction costs. Debt securities are subsequently measured at fair value, with any realised and unrealised gains or losses arising from changes in the fair value being recognised in the income statement for the period in which they arise. The fair value of a traded interest bearing security reflects the bid price at balance date. Interest bearing securities that are not frequently traded are valued by discounting the estimated recoverable amounts, using prevailing interest rates. Debt securities are accounted for on a trade date basis.
Derivatives
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently measured at their fair value. All derivatives are carried as assets when their fair value is positive, and as liabilities when their fair value is negative. Derivatives are exchange traded and are fair valued using their publicly quoted bid price on the date of valuation.
Equity securities
Equity securities are initially recognised at fair value, representing the purchase cost of the asset exclusive of any transaction costs. Equity securities are subsequently measured at fair value, with any realised and unrealised gains or losses arising from changes in the fair value being recognised in the income statement. The fair value of a quoted equity security reflects the quoted bid price at balance date. Equity securities not traded in an organised financial market are valued at estimated fair value based on future cash flows discounted at appropriate interest rates.
Investments in controlled entities
Investments in controlled entities are valued at net assets which is an appropriate proxy for fair value. Any write down in value to recoverable amount is reported in the Income Statement.
Taxes
Income tax
Income tax expense is the tax payable on taxable income for the current period based on the income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to: (i) temporary differences between the tax bases of assets and liabilities and their balance sheet carrying amounts, and (ii) unused tax losses.
Deferred tax
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction.
The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.
The tax impact on income and expense items recognised directly in equity is also recognised directly in equity.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  9 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Tax Consolidation
AMP Limited, Gordian Runoff Limited and certain other wholly owned controlled entities of AMP Limited comprise a tax-consolidated group of which AMP Limited is the head entity. The implementation date for the tax-consolidated group was 30 June 2003.
Under tax consolidation, AMP Limited as head entity, assumes the following balances from subsidiaries within the tax-consolidated group:
(i)   Current tax balances arising from external transactions recognised by entities in the tax-consolidated group occurring after the implementation date, and;
 
(ii)   Deferred tax assets arising from unused tax losses and unused tax credits recognised by entities in the tax-consolidated group occurring after the implementation date.
A tax funding agreement has been entered into by the head entity and the controlled entities in the tax-consolidated group. Controlled entities in the tax-consolidated group will continue to be responsible, by the operation of the tax funding agreement, for funding tax payments required to be made by the head entity arising from underlying transactions of the controlled entities. Controlled entities will make (receive) contributions to (from) the head entity for the balances recognised by the head entity described in (i) and (ii) above. The contributions will be calculated in accordance with the tax funding agreement.
Assets and liabilities which arise as a result of differences between the periods in which the underlying transactions occur, and the period in which the funding payments under the tax funding agreement are made, are recognised as intercompany balances receivable and payable in the balance sheet. The recoverability of balances arising from the tax funding arrangements is based on the ability of the tax-consolidated group to utilise the amounts recognised by the head entity.
The entity will be required to make a payment to terminate its liability under the tax funding agreement if it leaves the tax consolidation group.
Goods and services tax
All revenues, expenses and assets are recognised net of any GST paid, except where they relate to products and services which are input taxed for GST purposes or the GST incurred is not recoverable from the relevant tax authorities. In such circumstances, the GST paid is recognised as part of the cost of acquisition of the assets or as part of the particular expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from or payable to the tax authorities is included as a receivable or payable in the balance sheet.
Cash flows are reported on a gross basis reflecting any GST paid or collected. The GST component of cash flows arising from investing or financing activities which are recoverable from, or payable to, local tax authorities are classified as operating cash flows.
Foreign currency transactions and translation
Functional and presentation currency
Items included in the financial statements in each of the Gordian group entities are measured using the currency of the primary economic environment in which that entity operates (the functional currency). The presentation currency of this financial report, and the functional currency of the parent entity, is Australian dollars.
Transactions and balances
Income and expense items denominated in a currency other than the functional currency are translated at the spot exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at balance sheet date, with exchange gains and losses recognised in the income statement. The corresponding foreign currency translations of foreign currency denominated outstanding claims liabilities and receivables are reported as a component of claims expense and premium revenue, respectively. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  10 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
Receivables
Receivables are financial assets and are measured at fair value. Given the short-term nature of most receivables, the recoverable amount approximates fair value. A provision for impairment is recognised when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. The impairment charge is recognised in the income statement. Bad debts are written off as incurred.
Payables
Trade creditors and accruals are recognised as liabilities for amounts to be paid in the future for goods and services received, whether or not billed to the entity.
Amounts Due To or From Related Parties
Amounts are carried at fair value being nominal amounts due and payable. Interest is taken up as income on an accrual basis. A provision for impairment is recognised when there is objective evidence that the related party will not be able to pay its debts.
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Company makes estimates and assumptions in respect of certain key assets and liabilities. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key areas in which critical estimates and judgments are applied are described below.
(a) The ultimate liability arising from claims made under insurance contracts
Provision is made at year-end for the estimated cost of claims incurred but not settled at the balance sheet date, including the cost of claims incurred but not yet reported to the Company.
The estimated cost of claims includes direct expenses to be incurred in settling claims gross of the expected value of salvage and other recoveries. The Company takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the original liability established.
The estimation of claims incurred but not reported (“IBNR”) is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Company, where more information about the claim event is generally available. IBNR claims may often not be reported to the insurer until many years after the events giving rise to the claims has happened. The liability class of business will typically display greater variations between initial estimates and final outcomes because there is a greater degree of difficulty in estimating IBNR reserves. For the short tail class, claims are typically reported soon after the claim event, and hence tend to display lower levels of volatility. In calculating the estimated cost of unpaid claims the Company uses a variety of estimation techniques, generally based upon analysis of historical experience, which assumes that the development pattern of the current claims will be consistent with past experience. Allowance is made, however, for changes or uncertainties which may create distortions in the underlying statistics or which might cause the cost of unsettled claims to increase or reduce when compared with the cost of previously settled claims including:
    changes in Company processes which might accelerate or slow down the development and/or recording of paid or incurred claims, compared with the statistics from previous periods;
 
    changes in the legal environment;
 
    the effects of inflation;
 
    the impact of large losses;
 
    movements in industry benchmarks.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  11 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued)
Large claims impacting each relevant business class are generally assessed separately, being measured on a case by case basis or projected separately in order to allow for the possible distortive effect of the development and incidence of these large claims.
Where possible the Company adopts multiple techniques to estimate the required level of provisions. This assists in giving greater understanding of the trends inherent in the data being projected. The projections given by the various methodologies also assist in setting the range of possible outcomes. The most appropriate estimation technique is selected taking into account the characteristics of the business class and the extent of the development of each accident year.
Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the amounts that will be recoverable from reinsurers based upon the gross provisions. Details of specific assumptions used in deriving the outstanding claims liability at year-end are detailed in note 3.
(b) Assets arising from reinsurance contracts
Assets arising from reinsurance contracts are also computed using the above methods. In addition, the recoverability of these assets is assessed on a periodic basis to ensure that the balance is reflective of the amounts that will ultimately be received, taking into consideration factors such as counterparty and credit risk. Impairment is recognised where there is objective evidence that the Company may not receive amounts due to it and these amounts can be reliably measured.
3. ACTUARIAL METHODS AND ASSUMPTIONS
The entity ceased writing new business and renewals in late 1999 for both its direct insurance and inwards reinsurance business and has run an orderly runoff since. The process for determining the value of outstanding claims liabilities is generally consistent between these two portfolios. This process is described below.
Claims estimates are derived from analysis of the results of several different actuarial models. These models take case estimates as well as payments into account and assume that reported incurred amounts or reported payment amounts will develop steadily from period to period. Other models adopt an ultimate loss ratio for each year that reflects both the long term expected level, as well as incorporating recent experience. The analysis is performed by underwriting year for the inwards reinsurance class and by accident year for the direct insurance class.
Claims are first estimated on an undiscounted basis and are then discounted to allow for the time value of money. The valuation methods adopted include an implicit allowance for future inflation but do not identify the explicit rate. This allows for both general economic inflation as well as any superimposed inflation detected in the modelling of payments experience. Superimposed inflation arises from non-economic factors such as developments of legal precedent.
The liability class of business may be subject to the emergence of new types of latent claims, but no specific allowance is included for this as at the balance sheet date. Such uncertainties are considered when setting the risk margin appropriate for this class.
A description of the processes used to determine the key assumptions is provided below:
The average weighted term to settlement is calculated separately by class of business, based on historical settlement patterns.
The reinsurance percentage for the direct insurance business is calculated based on past reinsurance recovery rates and the structure of the reinsurance arrangements in place.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  12 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
3. ACTUARIAL METHODS AND ASSUMPTIONS (Continued)
The discount rates are derived from market yields on Government securities as at the balance date, in the currency of the expected claim payments.
Expense rate Claim handling expenses are calculated based on the projected costs of administering the remaining claims until expiry.
The ultimate to incurred claims ratio is derived by accident or underwriting year based on historical development of claims from period to period.
The effect of changes in the assumptions have been shown in the reconciliations of general insurance assets and liabilities in note 15 below.
Process for determining risk margin
The risk margin was determined initially for each portfolio, allowing for the uncertainty of the outstanding claims estimate for each portfolio. Uncertainty was analysed for each portfolio taking into account past volatility in general insurance claims, potential uncertainties relating to the actuarial models and assumptions, the quality of the underlying data used in the models, and the general insurance environment. The estimate of uncertainty is generally greater for long tailed classes when compared to short tail classes due to the longer time until settlement of outstanding claims.
The overall risk margin was determined allowing for diversification between the different portfolios and the relative uncertainty of each portfolio. The assumptions regarding uncertainty for each class were applied to the net central estimates, and the results were aggregated, allowing for diversification in order to arrive at an overall provision that is intended to have a 75% probability of adequacy.
                 
    2007     2006  
Risk Margins applied   %     %  
 
               
Direct insurance
    18.8       23.6  
Inwards reinsurance
    17.6       15.8  
Sensitivity analysis — general insurance contracts
There are a number of variables which impact the amounts recognised in the financial statements arising from insurance contracts.
The profit or loss and equity of the company are sensitive to movements in a number of key variables as described below.
     
Variable   Description of variable
 
Direct and reinsurance
   
Average weighted term to settlement
  Expected payment patterns are used in determining the outstanding claims liability. A decrease in the average term to settlement would lead to claims being paid sooner than anticipated.
 
   
Discount rate
  The outstanding claims liability is calculated by reference to expected future payments. These payments are discounted to adjust for the time value of money.
 
   
Expense rate
  An estimate for the internal costs of administering claims is included in the outstanding claims liability.
 
   
Ultimate to incurred claims ratio
  The estimated ultimate claims cost is generally greater than the claims reported as incurred to date, due to claims that are incurred but not reported (IBNR) or due to future developments on existing claims.
 
   
Direct only
   
Reinsurance percentage
  The direct class assumes money will be recoverable from reinsurers on future claims paid.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  13 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
3. ACTUARIAL METHODS AND ASSUMPTIONS (Continued)
The following table provides an analysis of the sensitivity of the profit after income tax and total equity to changes in these assumptions both gross and net of reinsurance.
2007
Direct Insurance
                                         
            Assumption at 12/07     Profit/(Loss) (after tax)  
    Change                     Gross of     Net of  
    in         Reinsurance     Reinsurance  
Variable   variable     Gross     Net     $’000     $’000  
 
 
                                       
Average weighted term to settlement
  +0.5 year   4.6 years   4.7 years     2,945       2,468  
 
  -0.5 year                     (4,134 )     (3,491 )
 
                                       
Reinsurance percentage
    +1 %     n/a       12.0 %           212  
(as % of gross IBNR)
    -1 %                           196  
 
                                       
Discount Rate1
    +1 %     6.4 %     6.4 %     4,596       3,886  
 
    -1 %                     (4,842 )     (4,197 )
 
                                       
Expense Rate
    +1 %     15.0 %     15.0 %     (1,086 )     (1,086 )
 
    -1 %                     1,086       1,086  
 
Ultimate to incurred claims ratio2
    +1 %     105.0 %     106.0 %     (5,965 )     (2,797 )
 
    -1 %                     4,478       3,841  
Inwards Reinsurance
                                         
            Assumption at 12/07     Profit/(Loss) (after tax)  
    Change                     Gross of     Net of  
    in         Reinsurance     Reinsurance  
Variable   variable     Gross     Net     $’000     $’000  
 
 
Average weighted term to settlement
  +0.5 year   5.7 years   5.7 years     2,606       2,584  
 
  -0.5 year                     (4,394 )     (4,411 )
 
                                       
Reinsurance percentage
    +1 %     n/a       n/a              
(as % of gross IBNR)
    -1 %                            
 
                                       
Discount Rate1
    +1 %     4.2 %     4.2 %     8,171       8,146  
 
    -1 %                     (10,484 )     (10,498 )
 
                                       
Expense Rate
    +1 %     18.0 %     18.0 %     (1,446 )     (1,445 )
 
    -1 %                     1,446       1,445  
 
                                       
Ultimate to incurred claims ratio2
  +1 %     103.0 %     103.0 %     (11,890 )     (11,890 )
 
    -1 %                     7,772       7,772  
 
1 —   This sensitivity reflects the liability movements only. As assets are invested to match the term of liabilities there is little overall profit impact from a change to interest rates.
 
2 —   This ratio has only been adjusted for years that are not considered to be fully developed.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  14 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
3. ACTUARIAL METHODS AND ASSUMPTIONS (Continued)
2006
Direct Insurance
                                         
            Assumption at 12/06     Profit/(Loss) (after tax)  
    Change                     Gross of     Net of  
    in         Reinsurance     Reinsurance  
Variable   variable     Gross     Net     $’000     $’000  
 
 
                                       
Average weighted term to settlement
  +0.5 year   4.5 years   4.6 years     3,949       3,379  
 
  -0.5 year                     (5,202 )     (4,248 )
 
                                       
Reinsurance percentage
    +1 %     n/a       10.3 %           149  
(as % of gross IBNR)
    -1 %                           (295 )
 
                                       
Discount Rate1
    +1 %     6.0 %     6.0 %     5,603       5,133  
 
    -1 %                     (7,011 )     (5,557 )
 
                                       
Expense Rate
    +1 %     8.8 %     8.8 %     (2,176 )     (2,176 )
 
    -1 %                     2,176       2,176  
 
                                       
Ultimate to incurred claims ratio2
    +1 %     107.9 %     108.9 %     (6,862 )     (4,383 )
 
    -1 %                     4,392       3,626  
Inwards Reinsurance
                                         
            Assumption at 12/06     Profit/(Loss) (after tax)  
    Change                     Gross of     Net of  
    in         Reinsurance     Reinsurance  
Variable   variable     Gross     Net     $’000     $’000  
 
 
Average weighted term to settlement
  +0.5 year     4.4       4.4       5,615       5,582  
 
  -0.5 year                     (5,755 )     (5,775 )
 
                                       
Reinsurance percentage
    +1 %     n/a       n/a       n/a       n/a  
(as % of gross IBNR)
    -1 %                     n/a       n/a  
 
                                       
Discount Rate1
    +1 %     5.0 %     5.0 %     9,420       9,384  
 
    -1 %                     (9,917 )     (9,933 )
 
                                       
Expense Rate
    +1 %     15.8 %     15.8 %     (1,997 )     (1,994 )
 
    -1 %                     1,997       1,994  
 
                                       
Ultimate to incurred claims ratio2
    +1 %     102.9 %     103.0 %     (13,739 )     (13,739 )
 
    -1 %                     7,727       7,727  
 
1 —   This sensitivity reflects the liability movements only. As assets are invested to match the term of liabilities there is little overall profit impact from a change to interest rates.
 
2 —   This ratio has only been adjusted for years that are not considered to be fully developed.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  15 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS
The company’s policies and procedures in respect of managing risks are set out in this note below.
The Board has ultimate responsibility for risk management and governance, including ensuring an appropriate risk framework is in place and is operating effectively. There are, however, other bodies and individuals associated with the Company that manage and monitor financial risk.
The Board
The Board is responsible for the approval of policy regarding shareholder capital investment strategy, policyholder asset and liability strategy and setting the financial risk appetite.
The Audit Committee
The Audit Committee is responsible for ensuring the existence of effective financial risk management policies and procedures.
The Approved Actuary
The Approved Actuary is responsible for reporting on solvency and capital adequacy. A Financial Condition report (FCR) and an Insurance Liability Valuation report (ILVR) must be provided to the Board and the Australian Prudential Regulatory Authority (APRA) at least annually, the ILVR must be peer reviewed annually by an external independent actuary. The Insurance Act also imposers obligations on the Approved Actuary to bring to the attention of the company or in certain circumstances APRA any matter that the Approved Actuary thinks requires action to be taken to avoid prejudice in the interests of the policy holders.
As part of the overall governance framework the and in accordance with Prudential Standards GPS 220 Risk Management and GPS 230 Reinsurance Management issued APRA, the Board and senior management have developed, implemented and maintain a sound and prudent Risk Management Strategy (RMS) and a Reinsurance Management Strategy (REMS).
The RMS and REMS identify the Company’s policies and procedures, processes and controls that comprise its risk management and control systems. These systems address all material risks, financial and non-financial, likely to be faced by the Company. Annually, the Board certifies to APRA that adequate strategies have been put in place to monitor those risks, that the Company has systems in place to ensure compliance with legislative and prudential requirements and that the Board has satisfied itself as to the compliance with the RMS and REMS. The RMS and REMS have been approved by both the Board and APRA.
     
 
Gordian Runoff Limited ABN 11 052 179 647   16 of 38

 


 

Gordian RunOff Limite
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Key aspects of the processes established in the RMS to mitigate risks include:
    A formal regular process of risk identification and evaluation, supplemented by a documented control assessment process, is completed by management and communicated to the Board in line with the Board approved Risk Management Strategy.
 
    Actuarial models, using information from management information systems, to monitor claims patterns and other relevant statistics. Past experience and statistical methods are used as part of the process.
 
    The maintenance and use of various specialist information systems, which provide up to date and reliable data on claims liabilities.
 
    Documented procedures that are followed by claims staff that are experienced in the various classes of business previously written.
 
    Reinsurance has been used, particularly in the early period of the run-off to limit the Company’s exposure to large single claims. The REMS provides that exposures continue to be monitored and where feasible reinsurance be purchased as means of limiting risk.
 
    The mix of investment assets is driven by the nature and term of the insurance liabilities. The management of assets and liabilities is closely monitored in an attempt to match the maturity dates of assets with the expected pattern of claim payments.
Risk and Mitigation
The Company’s activities expose it to a variety of risks. The major risks associated with insurance contracts include:
a)   Development of claims
 
    There is a possibility that changes may occur in the estimate of our obligations at the end of a contract period. The tables in note 15 show the estimates of total ultimate claims at successive year-ends.
 
b)   Terms and conditions of direct and inwards reinsurance business
 
    There is limited scope to improve the existing terms and conditions. The company has been in orderly run off since 1999, and no new contracts have been entered into since that time.
 
c)   Concentration of insurance risk
 
    The exposure to concentrations of insurance risk can be mitigated with the purchase of reinsurance where management believes that the price /risk transfer is suitable.
Financial risks include:
    Market risk
 
a)   Interest rate risk
 
    Interest rate risk arises to the extent that there is a mismatch between the fixed-interest portfolios used to back the outstanding claims liability and those outstanding claims. The interest rate risk is managed by matching the duration profiles of the investments assets and the outstanding claims liability.
 
    The accounting policy notes describe the policies used to measure and report the assets and liabilities of the Company. Where the applicable market value is determined by discounting future cash flows, movements in interest rates will result in a reported unrealised gain or loss in the profit and loss account.
 
    AMP Capital Investors Limited manages the investment portfolios on behalf of the Company. The Company seeks to reduce its interest rate risk through the use of investment portfolios as a hedge against its insurance liabilities. To the extent that these assets and liabilities can be matched, unrealised gains or losses on revaluation of liabilities resulting from interest rate movements will be offset by unrealised losses or gains on revaluation of investment assets.
     
 
Gordian Runoff Limited ABN 11 052 179 647   17 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Interest rate sensitivity analysis
The following table demonstrates the impact of a 100 basis point change in Australian interest rates, with all other variables held constant, on the company’s shareholder profit after tax. It is assumed that the change occurs as at the reporting date (31 December) and there are concurrent movements in interest rates and parallel shifts in yield curves.
                 
    31 Dec 07     31 Dec 06  
Change in Variable   Impact on     Impact on  
    Profit after tax     Profit after tax  
    $’000     $’000  
+100 basis points
    (2,797 )     (6,000 )
- 100 basis points
    2,797       6,000  
b)   Foreign Currency risk analysis
 
    Currency risk is the risk that the fair value of future cash flows of a financial instrument will            fluctuate because of changes in exchange rates.
 
    The Company’s financial assets are primarily dominated in the same currencies as its insurance contract liabilities, being United States dollar (USD), Great Britain pounds (GBP) and the European Union Currency (EURO). Where insurance contract liabilities are payable in a foreign currency other than the three mentioned above, the assets backing these liabilities are held in one of the three currencies (or Australian dollars) which best resembles an appropriate proxy.
 
    Other exposures to foreign currency are immaterial.
 
    The following table demonstrates the impact of a 10% increase or decrease in the relevant proxy currencies if the underlying liability currency moved 10% . It is assumed that the relevant change occurs at reporting date.
                 
    31 Dec 07     31 Dec 06  
Change in Variable   Impact on     Impact on  
    Profit after tax     Profit after tax  
    $’000     $’000  
+10%
    (1,055 )     (1,354 )
- 10%
    1,055       1,354  
     
 
Gordian Runoff Limited ABN 11 052 179 647   18 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to met its debt obligations or other cash outflows as they fall due because of lack of liquid assets. The Company manages liquidity risk by maintaining adequate reserves and by continuously monitoring forecast and actual cash flows and matching the maturiy profiles of assets and liabilities. As required by APRA prudential Standard GPS 220, the Company has developed and implemented a risk management strategy which is described earlier in this note to control this risk.
The table below summaries the maturity profile of the company’s financial liabilities at 31 December based on contractual undiscounted obligations.
31 Dec 07
                                         
    $’000     $’000     $’000     $’000     $’000  
    Up to 1     2 to 3     4 to 5     Over 5     Total  
    year     years     years     years        
Financial liabilities:
                                       
Payables
    9,835                         9,835  
Derivatives
          535             443       978  
     
Total
    9.835       535             443       10,813  
     
31 Dec 06
                                         
    $’000     $’000     $’000     $’000     $’000  
    Up to 1     2 to 3     4 to 5     Over 5     Total  
    year     years     years     years        
Financial liabilities:
                                       
Payables
    8,853                         8,853  
Derivatives
          308             753       1,061  
     
Total
    8,853       308             753       9,914  
     
Credit risk
Credit risk is the risk of loss that arises from a counterparty failing to meet their contractual commitments in full and on time, or from losses arising from the change in value of traded financial instruments as a result of changes in credit risk on that instrument.
Credit risk arising from exposure to individual counter parties in the investment portfolios is managed by the investment manager, AMP Capital Investors’ Compliance and Business Risk team, according to a separate investment mandate approved by the Board which aims to duration band match the insurance liability profile within specified credit criteria constraints. Compliance with the mandate is reported to the Board of Directors.
Credit risk in trade receivables in managed by analysing the credit ratings of the underlying debts.
Other than loans to related parties, there are no significant concentrations of credit risk.
     
 
Gordian Runoff Limited ABN 11 052 179 647   19 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Credit exposure by credit rating
The table below provides information regarding the credit risk exposure of the Company by classifying assets according to the Company’s credit rating of counter parties:
                                 
    31 Dec 07     31 Dec 06  
    Reinsurance &     Other Financial     Reinsurance &     Other Financial  
    Other Recoveries     Instruments     Other Recoveries     Instruments  
    $ 000     $ 000     $ 000     $ 000  
AAA
    1,168       363,098       4,309       610,982  
AA
    8,883       535,309       13,661       561,868  
A
    7,417       49,239       11,721       42,806  
BBB
    1,272             1,410        
Below BBB
    64             109        
Not rated
    10,696       70,723       17,637       60,488  
     
Total
    29,501       1,018,369       48,847       1,276,144  
     
The following table provides an aged analysis of financial assets neither past due or impaired, past due and not impaired and impaired assets. Impairment is calculated in accordance with note 1.
                                         
31 Dec 07   Neither past     Past due but not impaired              
    due nor     Under     More than     Impaired     TOTAL  
    impaired     90 days     91 days              
    $000     $000     $000     $000     $000  
Receivables
    6,626       (107 )     5,276       47       11,842  
Reinsurance and Other recoveries
    12,164       12       1,361       15,964       29,501  
                                         
31 Dec 06   Neither past     Past due but not impaired              
    due nor     Less than     More than              
    impaired     90 days     91 days     Impaired     TOTAL  
    $000     $000     $000     $000     $000  
Receivables
    8,898       (14 )     5,419             14,303  
Reinsurance and Other recoveries
    5,060       15,800       205       27,782       48,847  
     
 
Gordian Runoff Limited ABN 11 052 179 647   20 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Fair Value
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenue and expenses are recognised, in respect of each class of financial asset, financial liability and other investments are under and in Note 1.
Categories of financial instruments
                         
            2007     2006  
    Note     $’000     $’000  
 
                       
Reinsurance and other recoveries
    11       29,501       48,847  
Financial assets
                       
Fair value through the profit and loss:
                       
Cash & cash equivalents
    24       13,857       42,291  
Receivables
    10       11,842       14,303  
Other financial assets
    12       1,018,369       1,276,144  
Financial Liabilities
                       
Payables
    16       9,835       8,853  
Income tax payable
            26,227       24,649  
The recorded bid price equates to net fair value for listed debt and equity securities. For derivative contracts, fair value equates to the unrealised gain/loss on the outstanding contract. For the following financial instruments, the cost carrying amount is considered to equate to their fair value:
  cash deposits
  loans to related parties
  receivables
  payables.
Derivative transactions
The Company uses derivatives in the following way:
Investment management operations
Authority has been given to the investment managers to use derivatives in managing the investment portfolios. There may be various reasons why investment in derivatives is more appropriate than investment in the underlying physical asset including hedging, liquidity and pricing.
The types of derivatives, which the investment manager can use include, interest rate swaps and futures, share price index futures and forward currency agreements.
     
 
Gordian Runoff Limited ABN 11 052 179 647   21 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
4. RISK MANAGEMENT POLICIES AND PROCEDURES & FINANCIAL INSTRUMENTS (Continued)
Extent of derivative transactions
                                 
    Notional     Fair     Notional     Fair  
    value     value     value     value  
    2007     2007     2006     2006  
    $’000     $’000     $’000     $’000  
Investment management operations
                               
Interest Rate Swap Contracts
                10,500       (235 )
Interest Rate Futures Contracts
    75,006       27       104,668       (480 )
Equity Futures & Options Contracts
    7,170       (220 )     16,762       1,133  
The notional value refers to the value of the underlying assets of the derivatives contract. The fair value is the unrealised gain/(loss) on the outstanding contracts.
Capital Management
The Company is subject to externally imposed capital management requirements. The Company must comply with Capital requirements as specified under APRA General Insurance Prudential Standards.
The primary capital management objective is to ensure the company will be able to continue as a going concern while minimising excess capital; through capital initiatives, where appropriate.
The Company’s capital position is monitored by the Company’s Board. There have been no changes in the capital management objectives, policies and processes from the previous period.
The company has at all times during the current and prior financial year complied with the externally imposed capital requirements imposed by Prudential Standard GPS110 and the requirements set out in its insurance license.
The Minimum Capital Requirement (MCR) as a ratio of the Company’s capital base is shown in the table under.
                 
    2007     2006  
    $’000     $’000  
Tier 1 Capital
               
Paid-up ordinary shares
    1,610,100       1,814,600  
General reserves
           
Retained earnings
    (1,118,908 )     (1,193,381 )
Current year earnings
    106,479       74,473  
Excess technical provisions (net of tax)
               
Less : deductions
    32,679       44,573  
     
Net Tier 1 Capital
    564,992       651,119  
     
 
               
Net Tier 2 Capital
           
     
 
               
Total Capital Base
    564,992       651,119  
     
 
               
     
Minimum Capital Requirement
    91,649       133,113  
     
 
               
Capital Adequacy Multiple
    6.16       4.89  
The entity complies with Prudential Standard GPS110 and the requirements set out in its insurance license.
     
 
Gordian Runoff Limited ABN 11 052 179 647   22 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
5. NET PREMIUM REVENUE
                 
    2007     2006  
    $’000     $’000  
Gross written premium — direct
    4       8  
Movement in unearned premium — direct
          20  
     
Direct premium revenue
    4       28  
 
               
Gross written premium (expense)/benefit — inwards
    4,689       (1,168 )
Movement in unearned premium — inwards
           
     
Inwards reinsurance premium (expense)/revenue
    4,689       (1,168 )
 
               
Premium (expense)/revenue
    4,693       (1,140 )
     
 
               
Outwards reinsurance premium (expense)/revenue
    (280 )     (323 )
 
               
     
Net Premium Revenue /(Expense)
    4,413       (1,463 )
     
6. NET CLAIMS INCURRED
2007
                         
    Current year     Prior years     Total  
    $’000     $’000     $’000  
Gross claims expense
                       
Direct
          (101,038 )     (101,038 )
Inwards reinsurance
          (43,307 )     (43,307 )
     
Gross claims incurred — undiscounted
          (144,345 )     (144,345 )
Discount movement
          25,441       25,441  
     
Total gross claims expense
          (118,904 )     (118,904 )
 
                       
Reinsurance and other recoveries revenue
                       
Reinsurance and other recoveries — undiscounted
          10,018       10,018  
Discount movement
          (3,516 )     (3,516 )
     
Total reinsurance and other recoveries revenue
          6,502       6,502  
 
                       
     
Net claims incurred
          (112,402 )     (112,402 )
     
2006
                         
    Current year     Prior years     Total  
    $’000     $’000     $’000  
Gross claims expense
                       
Direct
          (25,847 )     (25,847 )
Inwards reinsurance
          (59,464 )     (59,464 )
     
Gross claims incurred — undiscounted
          (85,311 )     (85,311 )
Discount movement
          14,049       14,049  
     
Total gross claims expense
          (71,262 )     (71,262 )
 
                       
Reinsurance and other recoveries revenue
                       
Reinsurance and other recoveries — undiscounted
          3,444       3,444  
Discount movement
          (556 )     (556 )
     
Total reinsurance and other recoveries revenue
          2,888       2,888  
 
                       
     
Net claims incurred
          (68,374 )     (68,374 )
     
Current year claims relate to risks borne in the current financial year. Prior year claims relate to a reassessment of the risks borne in all previous financial years.
As the company stopped writing new business in late 1999, all claims development relates to prior years.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  23 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
7. OPERATING EXPENSES
                 
    2007     2006  
    $’000     $’000  
Expenses by Nature
               
Commission expenses
    142       959  
Write-off of Bad Debt
    6       2,634  
Impairment expense — premium receivables
    (396 )     304  
Impairment expense — reinsurance receivables
    (1,151 )     (3,331 )
Net gain on foreign currency
    (2,588 )     (1,059 )
Investment management fees
    1,279       2,142  
Other management fees
    23,892       25,652  
External consultant costs
    971       1,245  
Interest on loan — subsidiary
    1,061        
Other expenses
    3,372       (972 )
     
Total Expenses
    26,588       27,574  
     
 
               
represented by:
               
General administration expenses included in net claims incurred
    18,553       17,612  
Acquisition benefit
    (114 )     (1,618 )
Other underwriting expenses
    231       1,043  
General administration expenses
    6,857       10,537  
Finance costs
    1,061        
     
Total expenses
    26,588       27,574  
     
8. NET INVESTMENT REVENUE
                 
    2007     2006  
    $’000     $’000  
Investment income
               
Interest
    37,568       49,005  
Interest from/(to) related parties:
               
- other related parties
    28,941       31,912  
Dividends and other distributions received
    3,580       2,187  
Dividends from related parties:
               
- subsidiaries
          645  
Changes in fair value of investments:
               
Realised
    (29,919 )     (21,115 )
Unrealised
    3,175       (16,674 )
     
Total net investment revenue
    43,345       45,960  
     
     
 
Gordian Runoff Limited ABN 11 052 179 647
  24 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
9. INCOME TAX
a) Analysis of income tax expense
                 
    2007     2006  
    $’000     $’000  
Current tax
    37,049       24,055  
Decrease in deferred tax assets
    7,539       7,209  
Decrease in deferred tax liabilities
          (3 )
Under provided in previous years
    1,584       (1,785 )
Other adjustments
    (500 )      
Prior year tax losses not recognised now recouped
           
     
Income tax expense
    45,672       29,476  
     
b) Relationship between income tax expense and accounting profit
The table below provides a reconciliation of differences between prima facie tax calculated as 30% of the profit before income tax for the period and the actual income tax expense recognised in the income statement for the period
In respect of income tax expense attributable to shareholders, the tax rate which applies in both 2007 and 2006 is 30% for Australia and 33% for New Zealand.
                 
    2007     2006  
    $’000     $’000  
Operating profit before income tax
    152,151       103,948  
 
               
Prima facie income tax at the rate of 30%
    45,645       31,184  
Tax effect of differences between amounts of income and expenses recognised for accounting and the amounts deductible/assessable in calculating taxable income:
               
Non assessable income
          3  
Unrealised revaluation of controlled entity
    233        
Capital Loss on subsidiary
    (1,181 )      
Other
    (609 )     74  
Over/(Under) provided in prior years
    1,584       (1,785 )
     
Income tax expense per income statement
    45,672       29,476  
     
c) Analysis of deferred tax asset
                 
    2007     2006  
    $’000     $’000  
Amounts recognised in income:
               
- Provision for doubtful debts
    8,510       14,713  
- Accruals
    60       239  
- Indirect Claims Costs Adjustments
    16,726       20,070  
- Unrealised gains/losses
    6,202       9,561  
- Other
          6  
- Current year’s tax losses
    1,181        
     
Total deferred tax assets
    32,679       44,589  
     
d) Analysis of deferred tax liability
                 
    2007     2006  
    $’000     $’000  
Amounts recognised in income:
               
- Other
          16  
     
Total deferred tax liability
          16  
     
                 
    2007     2006  
    $’000     $’000  
Deferred tax asset
    32,679       44,589  
Deferred tax liability
          (16 )
     
Net deferred tax asset
    32,679       44,573  
     
     
 
Gordian Runoff Limited ABN 11 052 179 647
  25 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
10. RECEIVABLES
                 
    2007     2006  
    $’000     $’000  
Current
               
Premiums receivable — direct insurance
    9       13  
less: provision for impairment of premium receivable
    (9 )     (13 )
     
             
 
               
Premiums receivable — inwards reinsurance
    9,518       9,411  
less: provision for impairment of premium receivable
    (2,201 )     (2,594 )
     
 
    7,317       6,817  
 
               
     
Premium receivables — direct & inwards reinsurance
    7,317       6,817  
     
 
               
Other receivables
    235       529  
Other receivables from related parties
               
-other related parties
          1,325  
Interest receivable from related parties
               
-other related parties
    2,494       2,498  
     
Total current receivables
    10,046       11,169  
     
 
               
Non-current
               
Premiums receivable — inwards reinsurance
    1,796       3,134  
     
Total non-current receivables
    1,796       3,134  
     
11. REINSURANCE AND OTHER RECOVERIES
                 
    2007     2006  
    $’000     $’000  
Expected future reinsurance recoveries undiscounted
               
- on claims paid
    23,191       25,988  
- on outstanding claims
    41,173       62,389  
     
 
    64,364       88,377  
 
               
Discount to present value
    (8,706 )     (12,222 )
less: provision for impairment of reinsurance assets
    (26,157 )     (27,308 )
     
Reinsurance and other recoveries receivable
    29,501       48,847  
     
 
               
Current
               
Reinsurance and other recoveries receivable
    31,448       39,701  
less: provision for impairment of reinsurance assets
    (17,745 )     (20,611 )
     
 
    13,703       19,090  
     
 
               
Non-current
               
Reinsurance and other recoveries receivable
    24,211       36,454  
less: provision for impairment of reinsurance assets
    (8,413 )     (6,697 )
     
 
    15,798       29,757  
     
Refer to note 15 for a reconciliation of the movement in reinsurance and other recoveries on incurred claims over the year.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  26 of 38


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
12. OTHER FINANCIAL ASSETS
                 
    Company  
    2007     2006  
    $’000     $’000  
Current
               
Quoted investments — at fair value
               
Government and semi-government bonds*
    63,208       31,147  
Corporate bonds
    44,563       79,335  
Derivatives
    1,818       1,875  
     
 
    109,589       112,357  
     
 
               
Unquoted investments — at fair value value
               
Units held in cash management trusts
               
- Other related parties
    4,193        
Units held in other unit trusts
               
- Other related parties
    34,847       15,151  
Loan to related party in the wholly owned group
    442,119       422,094  
     
 
    481,159       437,245  
     
Total current financial assets
    590,748       549,602  
     
 
               
Non-current
               
Quoted investments — at fair value
               
Government and semi-government bonds*
    223,969       400,150  
Corporate bonds
    171,969       293,922  
Shares in other corporations
    926       935  
     
 
    396,864       695,007  
     
 
               
Unquoted investments — at fair value
               
Shares in controlled entities
    30,689       31,467  
Shares in associated entities
    68       68  
     
 
    30,757       31,535  
     
Total non-current financial assets
    427,621       726,542  
     
Total financial assets
    1,018,369       1,276,144  
     
 
*   The Company has given security over government and semi-government bonds against letters of credit of $28.3m (31 December 2006: $44.9m). These assets provide security to the extent of 105% to 110% of the outstanding letters of credit. The security agreements do not restrict the investments from being traded.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  27 of 38


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
12. OTHER FINANCIAL ASSETS (continued)
Investments in controlled entities
                                 
    2007     2007     2006     2006  
Name of entity   %     $’000     %     $’000  
 
                               
Gordian RunOff (UK) Limited
    100       30,689       100       31,467  
 
                           
 
            30,689               31,467  
 
                           
Gordian RunOff (UK) Limited is incorporated in the United Kingdom and is audited by Ernst & Young UK.
13. OTHER ASSETS
                 
    2007     2006  
    $’000     $’000  
 
               
Current
               
Deferred acquisition costs
           
Prepayments
    164       240  
     
Total current other assets
    164       240  
     
                 
    2007     2006  
    $’000     $’000  
Deferred acquisition costs as at 1 January
          3  
Amortisation charged to income
          (3 )
     
Deferred acquisition costs as at 31 December
           
     
     
 
Gordian Runoff Limited ABN 11 052 179 647
  28 of 38


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
14. UNEARNED PREMIUM
                 
    2007     2006  
    $’000     $’000  
 
               
Unearned premium liability as at 1 January
          20  
 
               
Earning of premiums written in previous periods
          (20 )
     
Unearned premium liability as at 31 December
           
     
15. OUTSTANDING CLAIMS
                 
    2007     2006  
    $’000     $’000  
Central estimate
    467,488       703,638  
Risk margin
    64,931       103,293  
     
 
    532,419       806,931  
Discount to present value
    (85,463 )     (109,727 )
     
Gross outstanding claims liability
    446,956       697,204  
     
 
               
Current
    90,891       112,751  
Non-current
    356,065       584,453  
     
Total outstanding claims
    446,956       697,204  
     
Investment assets in the form of debt securities are held to back the liability for outstanding claims and are realised on a regular basis to meet claims. The amount of claims likely to be settled within 12 months of the reporting date is classified as current.
The Company has been closed to new business since 1999 and there have been no new direct or inwards reinsurance contracts issued in the five years prior to and including this report.
As described in note 1, the outstanding claims liability is the best estimate of the present value of the expected future payments, after the inclusion of a risk margin. At each balance date, the amount of the liability is reassessed and it is likely that changes will arise in the estimates of liabilities. The tables in the following pages show the estimates of total ultimate claims at successive year ends.
     
 
Gordian Runoff Limited ABN 11 052 179 647
  29 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
15. OUTSTANDING CLAIMS (continued)
Reconciliation of movement in discounted outstanding claims liability
2007
                         
    Gross     Reinsurance     Net  
    $’000     $’000     $’000  
Amount outstanding brought forward
    697,204       48,847       648,357  
     
 
                       
Claim payments/ recoveries during the period
    (112,791 )     (11,520 )     (101,271 )
Effect of changes in assumptions
    (118,509 )     (7,853 )     (110,656 )
Effect of changes in exchange rates
    (18,948 )     27       (18,975 )
     
Amount outstanding carried forward
    446,956       29,501       417,455  
     
2006
                         
    Gross     Reinsurance     Net  
    $’000     $’000     $’000  
Amount outstanding brought forward
    918,152       71,196       846,956  
     
 
                       
Claim payments/ recoveries during the period
    (149,686 )     (25,237 )     (124,449 )
Effect of changes in assumptions
    (57,129 )     2,857       (59,986 )
Effect of changes in exchange rates
    (14,133 )     31       (14,164 )
     
Amount outstanding carried forward
    697,204       48,847       648,357  
     
     
 
Gordian Runoff Limited ABN 11 052 179 647
  30 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
15. OUTSTANDING CLAIMS (continued)
Claims Development Table
                                                 
    Inwards Reinsurance     Direct Insurance     Total  
    Net     Gross     Net     Gross     Net     Gross  
Estimate of Cumulative claims   $’000     $’000     $’000     $’000     $’000     $’000  
 
31 December 2001
    5,064,881       5,402,510       1,384,633       1,857,817       6,449,514       7,260,327  
31 December 2002
    5,026,838       5,389,980       1,415,333       1,920,262       6,442,171       7,310,242  
31 December 2003
    5,044,587       5,439,170       1,462,533       1,952,003       6,507,120       7,391,173  
31 December 2004
    4,990,587       5,379,685       1,432,295       1,882,078       6,422,882       7,261,763  
31 December 2005
    4,966,996       5,344,998       1,491,990       1,933,978       6,458,986       7,278,976  
31 December 2006
    4,938,503       5,313,834       1,463,731       1,901,401       6,402,234       7,215,235  
31 December 2007
    4,930,513       5,305,046       1,393,892       1,822,020       6,324,405       7,127,066  
 
                                               
Estimate of Cumulative Claims at 31 December 2007
    4,930,513       5,305,046       1,393,892       1,822,020       6,324,405       7,127,066  
 
                                               
Cumulative Payments
    4,691,017       5,064,768       1,259,843       1,650,593       5,950,860       6,715,361  
 
                                               
 
Undiscounted central estimate
    239,496       240,278       134,049       171,427       373,545       411,705  
 
                                               
Effect of Discounting
    43,160       43,160       33,614       42,303       76,774       85,463  
 
                                               
 
Discounted Central Estimate
    196,336       197,118       100,435       129,124       296,771       326,242  
 
 
                                               
Risk Margin
                                            64,931  
Claims Handling Provision
                                            55,783  
 
Gross Outstanding Claims as per the Balance Sheet                             446,956  
 
16. PAYABLES
                 
    2007     2006  
    $’000     $’000  
 
               
Current
               
Trade & other creditors
    1,996       3,303  
Other borrowings from related parties
               
- subsidiaries
             
- other related parties
    7,551       5,128  
     
Total current payables
    9,547       8,431  
     
 
               
Non-current
               
Trade & other creditors
    288       422  
     
Total non-current payables
    288       422  
     
     
 
Gordian Runoff Limited ABN 11 052 179 647
  31 of 38

 


 

Gordian RunOff Limited
Notes to the financial statements for the year ended 31 December 2007
17. INTEREST BEARING LOAN
                 
    2007     2006  
    $’000     $’000  
Current
               
Loan
               
— subsidiaries
    25,723        
     
Total current payables
    25,723        
     
18. ISSUED CAPITAL
                 
    2007     2006  
    $’000     $’000