NOTES
TO THE FINANCIAL STATEMENTS OF HM COVER
DECEMBER
31 2005
Note
1-Purpose & Constitution
The Association stands on a
mutual basis and is to uphold prestige and safeguard the interests of its
Members, for which the Association affords insurance cover and offers
professional services. The
liability of the Members is limited to the calls and supplementary calls set by
the directors and in the event of its liquidation, any net assets of the
Association are to be returned equitably to those Members insured by it during
its final underwriting year.
Note
2-Accounting Principle
a
Accounting Convention
These Financial
Statements have been prepared in accordance with the material Accounting
Principles based on applicable Chinese accounting standards and Generally
Accepted Accounting Principles.
b Accounting
Year
These Financial
Statements reflect the period from January 1st 2004 to December 31st 2005.
c
Annual Accounting and Policy Year
Accounting
The Income And
Expenditure Account is prepared on an annual accounting basis and includes all
the premiums for policies incepting in the year and the cost of claims and
reinsurance for the current year and any adjustments relating to earlier years
together with operating expenses, financial expenses and investment income. All revenue transactions appear in the
Income And Expenditure Account and are allocated to a
policy year or to a reserve.
Calls and
premiums, reinsurance premiums, claims and claim recoverable from reinsurers or
third parties are allocated to the policy years to which they relate. Both the realised and unrealised
investment income and operating expenses are allocated to the current policy
year.
d
Valuation basis
The Association
adopts accrual basis in accounting unless otherwise stipulated. The values of all assets except the
equity investment of listed company which is stated at its book value at the
balance sheet date are to be recorded at historical costs at the time of
acquisition.
e
Bookkeeping base currency
The United
States Dollar is the bookkeeping base currency of the Association. The
Association adopts the principle of separate accounting for similar accounts.
Balances of RMB accounts at the end of year shall be translated into the US
Dollar at the official exchange rate prevailing on December 31st. The
differences arising from the translation are stated as gains or losses in the
Income and Expenditure Account.
f
Cash Balance
Cash in hand,
bank deposits and other monetary assets are listed separately for their
different keeping place and certain purpose in bookkeeping. Their total amount
in the name of cash balance is showed as a current asset in the Balance Sheet.
g
Calls and Premiums Receivable
It refers to
the accumulated amount of calls and premiums receivable due from members. The Association conducts the direct write-off
method and the bad debts are charged to the reserves directly under the
Directors decision when the calls and premiums are discovered to be
uncollectible.
h
Guarantee
It refers to cash
balance held by domestic or overseas Banks for issuing letters of guarantee.
i
Investments
The equity
method is used when the Association has significant influence, control or
co-control over the operation of the invested listed company. In the equity method, the initial or
supplementary investment is firstly recorded at cost but later is adjusted each
year for changes in the equity in the invested company. The Association recognizes the balance
from the changes of the equity in the invested company as an investment income
or loss. The cost method is used
for other long-term investments.
The investment
income includes all the gains and losses.
The investment income(or loss) less the
investment management cost is stated in the Income and Expenditure Account.
Since the
policy year of 1998 developed the new cover of
j
Liabilities Provision
Liabilities
provisions and reinsurance recoveries receivable of open and closed policy
years are drawn based on the best estimates of the managers and consent of the
chief underwriter to prepare for the claims which belong to the policy years
separately and their difference is charged to the Income and Expenditure
Account. They are also stated in
the Balance Sheet separately.
k
Reserves
The reserves
are the net assets of the Association and available to meet any deterioration
in the open and closed policy years and to contribute to overspill claims, actual or potential investment losses or other
certain purposes.
l
Calls and Premiums
Calls and
premiums include gross calls, supplementary premiums and release call, less
return premiums. These calls and premiums are the total receivable for the
whole period of cover provided by the contracts incepting during the accounting
period together with any premium adjustments relating to prior accounting
periods. The amount of calls and
premiums less reinsurance premiums is credited to the Income and Expenditure
Account.
m
Reinsurance Premiums
The liabilities
of the Association are reinsured above certain levels with other association
abroad. This item shows the amount
of the reinsurance premiums the Association paid to other association abroad.
n
Claims
The claims
include all claims incurred during the year, whether paid or estimated, and
adjustments for claims outstanding from previous years. The estimates for known outstanding
claims are based on the best estimates and judgement
of the managers of the likely final cost of individual cases based on current
information. The reinsured
recoveries and the claims recoveries from the third party are both as the
anti-items to the claims and credited in Income and Expenditure Account.
o
Claims Recoveries From the Third
Party
It refers to
the amount recovered from the third liability party, which is credited into
Income and Expenditure Account as the deduction of claims.
p
Reinsured Recoveries
The liabilities
of the Association are reinsured above certain levels with other association
abroad. It is the anti-item to the
claims paid and credited in the Income and Expenditure Account. Accordingly the
reinsurance recoveries receivable is listed as an asset in the Balance Sheet.
q
Operating Expenses
These include
management costs and costs of Board of Directors. The management costs cover the cost of
providing offices, staff, communications, travel and administration. The costs of Directors include the cost
of meetings of members and Board meetings, travels and other costs. It has been drawn on the ratio in
accordance with the board of Director's instruction and is listed in the Income
and Expenditure Account.
r
Taxation
The Association
enforces the relevant tax policies of People’s Republic of
s
Related Party Disclosures
The Association
has no share capital and is controlled by the Members who are also the insureds. The
subsequent insurance transactions are consequently deemed to be between related
parties but these are the only transactions between the Association and the
Members.
|
Note
3-Reinsurance recoveries receivable(see Note 2p) |
|
|
|||||
|
|
2005 |
2004 |
|
||||
|
Reinsurance
recoveries receivable |
306,820.91 |
115,851.77 |
|
||||
|
Estimated
reinsurance recoveries receivable |
8,370,457.95 |
4,314,813.00 |
|
||||
|
Gross
reinsurance recoveries receivable |
8,677,278.86 |
4,430,664.77 |
|
||||
|
Note
4-Long-term investments & Investment income(see Note 2i) |
|
||||||
|
|
|
|
|
||||
|
Net investment income |
|
||||||
|
|
2005 |
2004 |
|||||
|
Long-term
investment income |
1,008,561.37 |
971,348.29 |
|||||
|
Other investment
income |
(42,605.47) |
(6,356.55) |
|||||
|
Investment
income |
965,955.90 |
964,991.74 |
|||||
|
Less: Investment
management cost |
77,276.47 |
77,199.34 |
|||||
|
Net investment
income |
888,679.43 |
887,792.40 |
|||||
|
The balance
amount with P&I current account at the balance sheet date which is credited
in these Financial Statements as the Long-Term Investments is USD7,010,238.28. |
|
|
|||||
|
|
|
|
|||||
Note 5-Liabilities provision
(see Note 2j)
|
|
|
2005 |
2004 |
|
Policy year |
|
|
|
|
2005 |
|
2,159,738.88 |
|
|
2004 |
|
549,548.43 |
1,313,913.00 |
|
2003 |
|
(71,820.36) |
975,221.00 |
|
2002 |
|
810,500.00 |
1,129,400.00 |
|
2001 |
|
96,613.00 |
130,000.00 |
|
2000 |
|
- |
51,000.00 |
|
1999 |
|
39,336.00 |
39,336.00 |
|
Total |
|
3,583,915.95 |
3,638,870.00 |
|
Gross
liabilities provision |
11,954,373.90 |
7,953,683.00 |
|
|
Reinsurance
recoveries receivable for outstanding claims |
(8,370,457.95) |
(4,314,813.00) |
|
|
Net liabilities
provision |
3,583,915.95 |
3,638,870.00 |
|
Note 6-Reserves (see Note 2k)
|
|
|
2005 |
2004 |
|
Policy Year |
|
|
|
|
2005 |
|
4,387,219.20 |
|
|
2004 |
|
2,544,476.72 |
(149,553.50) |
|
2003 |
|
187,491.38 |
(372,255.46) |
|
2002 |
|
(302,794.70) |
(480,495.02) |
|
2001 |
|
(444,477.12) |
1,304,589.55 |
|
2000 |
|
1,191,092.03 |
722,770.71 |
|
1999 |
|
704,919.80 |
1,080,484.28 |
|
1998 |
|
1,099,563.44 |
4,830,154.20 |
|
Total |
|
9,367,490.75 |
4,830,154.20 |
Note 7-Calls & premiums (see
Note
|
Net Calls & Premiums |
||||
|
|
|
2005 |
2004 |
|
|
Calls &
premiums |
A |
11,689,987.11 |
6,701,061.37 |
|
|
Reinsurance
premiums |
B |
5,420,272.35 |
3,000,693.28 |
|
|
Net calls &
premiums |
A－B |
6,269,714.76 |
3,700,368.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calls & Premiums |
||||
|
|
2005 |
2004 |
||
|
Policy year |
|
|
||
|
2005 |
11,578,868.09 |
|
||
|
2004 |
115,299.02 |
6,821,226.09 |
||
|
2003 |
(4,180.00) |
(305.00) |
||
|
2002 |
|
(119,859.72) |
||
|
Total |
11,689,987.11 |
6,701,061.37 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance Premiums |
||||
|
|
2005 |
2004 |
||
|
Policy year |
|
|
||
|
2005 |
5,375,732.06 |
|
||
|
2004 |
26,146.65 |
3,032,966.35 |
||
|
2003 |
18,393.64 |
(85,142.98) |
||
|
2002 |
|
52,869.91 |
||
|
Total |
5,420,272.35 |
3,000,693.28 |
||
Note 8-Claims (see Note
2n/o/p)
Net Claims
|
|
|
|
2005 |
2004 |
|
Gross claims
paid |
A |
4,751,844.34 |
1,018,988.44 |
|
|
Less: Recoveries
from 3rd party |
B |
- |
- |
|
|
Other P&I
association |
C |
2,882,241.59 |
689,220.78 |
|
|
Net claims paid |
A-B-C=D |
1,869,602.75 |
329,767.66 |
|
|
Movement in
provision for outstanding claims: |
|
|
||
|
Provision
carried forward |
11,954,373.90 |
7,953,683.00 |
||
|
Provision
brought forward |
(7,953,683.00) |
(5,995,637.00) |
||
|
Transfers to
liabilities provision |
E |
4,000,690.90 |
1,958,046.00 |
|
|
Less: Movement in provision
for ××××× reinsurance
recoveries |
|
|
|
|
|
Provision
carried forward |
(8,370,457.95) |
(4,314,813.00) |
||
|
Provision
brought forward |
4,314,813.00 |
2,226,529.74 |
||
|
Provision for
reinsurance recoveries |
F |
(4,055,644.95) |
(2,088,283.26) |
|
|
Net changes in
claims provision |
G=E+F |
(54,954.05) |
(130,237.26) |
|
|
Net incurred
claims |
D+G |
1,814,648.70 |
199,530.40 |
|
|
Gross Claims Paid |
||||||
|
Policy year Items |
2005 |
2004 |
2003 |
2002 |
2000 |
Total |
|
Particular
average |
146,206.81 |
2,422,411.83 |
765,767.43 |
248,823.38 |
- |
3,583,209.45 |
|
Collision
liabilities |
72,424.34 |
633,484.04 |
168,623.35 |
- |
165,280.41 |
1,039,812.14 |
|
Survey fee |
32,714.00 |
16,722.33 |
3,419.68 |
- |
- |
52,856.01 |
|
Correspondents
fee |
1,067.00 |
4,841.16 |
- |
- |
- |
5,908.16 |
|
Lawyer's fee |
- |
6,443.00 |
36,195.64 |
- |
- |
42,638.64 |
|
Others |
1,017.97 |
25,160.71 |
- |
1,241.26 |
- |
27,419.94 |