TSC Annual Report 2024 final - Flipbook - Page 54
Notes - Financial statements
sheet in accordance with their 昀椀nancial substance rather than
their legal form whenever there is a difference between the two.
Items reported as insurance contracts must transfer substantial
insurance risk from the policyholder to the Club. They must
also obligate the Club to compensate the policyholder, or another
bene昀椀ciary, if a predetermined or not excluded (depending on
applicability) insured event were to occur.
Income tax
Income taxes are comprised of current tax and deferred
tax. Income taxes are reported in the income statement,
attributable to pro昀椀t and loss or other comprehensive income.
Current tax is tax that is payable or refunded for the current year,
applying tax rates that have been decided or effectively adopted
as of the reporting date. This also includes adjustments of
current tax related to prior periods.
Deferred tax is measured according to the balance sheet
method. The starting point is thus temporary differences
between the carrying amount of an asset or liability and its tax
base. The valuation of deferred tax is based on the extent to
which the underlying assets and liabilities are expected to be
realised or settled. Deferred tax is calculated by applying the
tax rates and tax rules that have been decided or effectively
adopted as of the reporting date. Untaxed reserves are
reported including deferred tax liability.
Premiums written, net of reinsurance
Gross premium written is normally reported according to
the maturity principle. This means that the gross premium
written is reported in the income statement when the annual
premium fall due for payment, or, when the first partial
premium falls due for payment (this happens in cases where
the contractual insurance period’s premiums have been
divided into several partial premiums). Furthermore, in order
for the gross premium written to be included, the term of the
underlying insurance contract must start during the current
accounting period. The method described above is also used
for reinsurers’ share of premiums written.
Premiums earned, net of reinsurance
Premiums earned reflect the proportion of the gross premium
written that is attributable to the accounting period. The share
of the premium income from insurance contracts pertaining
to periods after the closing date is allocated to the premium
reserve in the balance sheet. Calculation of the provision to the
premium reserve is done by allocating the premium income
to the proper period based on the underlying duration of the
insurance contract. The method described above is also used
for reinsurers’ share of earned premiums.
The provision for unearned premiums for own account is
revalued using the closing day rate of exchange. The result
of this revaluation is shown under the heading “Investment
income” or “Investment costs”.
A provision for remaining risks is made when future revenue
and expenses during the remaining term of the insurance
contract yield a de昀椀cit.
Investment income transferred from the
non-technical account
Investment income is reported gross in the non-technical
54 The Swedish Club | Annual Report 2024
result. The Club uses a model for the calculation of investment
income transferred to the technical account. It is based on
the interest rate that corresponds to the United States 1-year
bond yield at the beginning of the year in relation to average
provisions for claims outstanding net of reinsurance The
model compensates the insurance business with interest
for the float generated during the period between premium
payments and claim payments. No transfer is made in 昀椀scal
years in which the calculation yields an amount that is lower
than the equivalent of USD 1 million annually.
Net claims incurred
The total net claims incurred for the accounting period includes
claims paid during the period and changes in the provision
for claims outstanding. In addition to claims in themselves,
net claims incurred also includes claims handling costs. The
provision for claims outstanding is calculated using expected
nominal cash flows.
The provision for claims outstanding net of reinsurance is
revalued using the closing day rate of exchange. Historical
data on claims payments provides the basis for allocation
of the provision to each relevant currency. Based on these
statistics, the Club has chosen to make the assessment that
the reserves are fully comprised of USD.
Net operating expenses
The proportion of the operating expenses related to claims
handling is reported under the heading “Net claims incurred”.
A portion of net operating expenses is also related to investment
administration and this portion is reported as “Internal
management expenses”. Operating expenses in the insurance
business include, besides administrative costs, also acquisition
costs. Internal acquisition costs and internal management
expenses are allocated in accordance with a model (see
Note 7 and Note 11).
Investment income - realised and unrealised pro昀椀t
on investments
Realised pro昀椀t/loss on divestment of investments is equivalent
to the difference between the sales proceeds and acquisition
cost. The Club’s investments are reported at fair value.
Unrealised changes in values are reported in the income
statement and can be de昀椀ned as the annual change in the
difference between fair value and acquisition cost.
Hedge accounting
The Club applies hedge accounting according to IFRS 9 as
from 1 January 2022. For forward currency contracts entered
into before 2022, the exchange rate as of 1 January 2022 will
be used as the reference for the hedge accounting (instead
of the spot rate at contract inception). The hedging contracts
are expected to be effective over the entire contractual
period. The hedged item consists of operating expenses
denominated in SEK, mostly employee-related costs. Cash
flows are spread throughout a month. The cash flow for
the hedging instrument on the other hand is exchanged
once a month. The fact that the hedged item and the
hedging instrument are not matched on the same day will
entail a limited ineffectiveness, however, this inef昀椀ciency
is not material. The effectiveness is tested partly through
a forward-looking (prospective) assessment and partly
a retrospective evaluation. The type of hedging activity
performed is related to the cash flows where the foreign
