Cordlife Group Limited
Annual Report 2016
71
Notes to
The Financial Statements
for the financial year ended 30 June 2016
2.
Summary of significant accounting policies (cont’d)
2.18
Insurance contracts (cont’d)
Once a contract has been classified as an insurance contract, it remains an insurance contract for the
remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and
obligations are extinguished or expire.
Some business units within the Group offered Cordlife Transplant Coverage (or “Transplant coverage”) as a part
of the cord blood and cord lining banking contracts to certain customers in certain jurisdictions. The Transplant
coverage provides a one-time fixed amount of benefit to eligible members for sickness and transplant expenses
arising from stem cell transplant on treatment. The Group determines that this coverage qualifies as an
insurance contract as the Group accepts significant risk from its customers by agreeing to compensate the
customer if the transplant (specified uncertain future event) adversely affects the customer. The Group currently
cedes this insurance risk by entering into a yearly renewable agreement with a reinsurance company. The
ceded reinsurance arrangement does not relieve the Group from its obligations to its customers under Cordlife
Transplant Coverage. The Group is still exposed to certain liabilities from the insurance contract.
The insurance liabilities include liability for outstanding claims and liability for expected future claims.
Outstanding claims provisions are based on the estimated ultimate cost of all claims incurred but not settled
at the balance sheet date, whether reported or not, together with related claims handling costs and reduction
for the expected value of salvage and other receivables. Delays can be experienced in the notification and
settlement of certain types of claims, therefore, the ultimate cost of these claims cannot be known with
certainty at the balance sheet date. The liability is calculated at the reporting date using standard actuarial
projection techniques based on empirical data and current assumptions that may include a margin for
adverse deviation. The outstanding claims liability will be reinsured by the reinsurance agreement effective for
the financial year. Reinsurance assets, representing the corresponding balances due from reinsurers, will be
recognised.
The liabilities for expected future claims have been determined as the present value of expected future claims.
The Group engages independent actuarial consultant in the valuation of the liabilities. The valuation of the
future liabilities at balance sheet date is based on reasonable measure of key assumptions such as policy claim
incidence rates, policy lapses and provision for adverse deviation. No reinsurance asset, corresponding to the
liabilities for expected future claims, will be recognised as at balance sheet date until reinsurance agreements
effective for the future period are concluded.
The liabilities are de-recognised when contracts expire, are discharged or are cancelled.
2.19 Borrowing costs
Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the
acquisition, construction or production of that asset. Capitalisation of borrowing costs commences when the
activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing
costs are incurred. Borrowing costs are capitalised until the assets are substantially completed for their
intended use or sale. All other borrowing costs are expensed in the period they occur. Borrowing costs consist
of interest and other costs that an entity incurs in connection with the borrowing of funds.
2.20 Government grants
Government grants are recognised when there is reasonable assurance that the grant will be received and all
attaching conditions will be complied with. Where the grant relates, to an asset, the fair value is recognised
as deferred capital grant on the statements of financial position and is amortised to profit or loss over the
expected useful life of the relevant asset by equal annual instalments.
Where loans or similar assistance are provided by governments or related institutions with an interest rate
below the current applicable market rate, the effect of this favourable interest is regarded as additional
government grant.
