Interest income and expense are recognised in the statement of income for all interest bearing instruments on an accrual basis using the effective interest rate method based on the initial carrying value. This also includes transaction costs for financial instruments not valued at fair value through P&L.
Transaction costs are the incremental costs that are directly attribut- able to the acquisition of a financial asset or liability and are included in the calculation of the effective interest rate. An incremental cost is one that would not have been incurred if the entity had not acquired the financial instrument.
Accrued interest is reported in the same line as the related financial asset or liability in the balance sheet.
Once an interest-bearing financial asset has been impaired, interest income is thereafter recognised based on the interest that was used to discount the future cash flows for measuring the recoverable amount.
Consolidated financial statements Notes to the consolidated financial statements
Provision for beneficiary participation and funds for future alloca- tions (discretionary beneficiary participation)
Discretionary beneficiary participation is a contractual but conditional entitlement to receive additional benefits on top of a guaranteed return. Belfius has opted to present this beneficiary participation separately until it is allocated to individual insurance policies after approval by the general meeting of shareholders. From that time onwards, it forms part of the provisions for life insurance and there is a definitive waiver by the insurance company to the policyholder.
In the main, the provision for beneficiary participation consists of the share in the profits for the financial year just closed which the insurance company, in line with its profit-sharing plan and after approval by the general meeting of shareholders that rules on the past financial year, that is expected to be allocated to policyholders.
The funds set aside in accordance with local accounting standards for future allocations also form part of the discretionary beneficiary participation and are processed via the profit-and-loss account. In making allocations and withdrawals from these funds, Belfius takes account of the investment results achieved and the estimate made by it on the reporting date of any conditional future beneficiary participa- tion. A new estimate is made on each reporting date and account is taken of the market conditions and the fund’s financial position at the time.
If the total estimate of the beneficiary participation is higher than the sum of the provision set aside for beneficiary participation and the funds for future allocations, this shortfall will be entered separately in the figures for equity capital by separating out a portion of the non-realised profits in the available for sale portfolio.
Reinsurance assets
A special reduction in value is applied to the reinsurance assets if:
→ there is objective evidence, resulting from an event that occurred after the initial acknowledgment of the reinsurance assets, that the assignor is not to receive all of the amounts owed to it under the policy. Among other things in this case, account is taken of the rating and solvency of the reinsurer; and
→ this event has a reliable measurable impact on the amounts that the assignor will receive from the reinsurer.
We refer here to the rules relating to special reductions in value that apply.
10.2.2. Shadow accounting
Belfius has opted to use shadow accounting in this case to take account of the differences in the valuation principles between assets classified as available for sale and technical provisions. If the realisation of unrealised profits from available for sale assets entered under equity capital has an effect on the valuation of the technical provisions, shadow accounting offers a solution through the partial transfer of unrealised investment results from equity capital to technical provisions. First and foremost, Belfius applies shadow accounting if the statu- tory or contractual conditions in the insurance policies state that the realisation of recorded but unrealised profits on clearly defined assets belonging to the insurer has a direct effect on the valuation of the corresponding insurance and investment policies with discretionary
10.2. Valuation
10.2.1. Application of local accounting standards
Under IFRS 4 (phase 1), local accounting standards are used for valuing the (re)insurance policies that come under the field of application set out above. Under IFRS, no provision may be made for equalisation and disaster.
Provision for unearned premiums
The provision for unearned premiums is calculated by the pro rata
temporis method for each agreement separately, based on the net
premium. In the reinsurance policy taken out, the reserves are applied based on data passed on by the assigning companies.
Provision for life insurance
The provision for life insurance is calculated taking account of the statutory requirements and terms regarding the life insurance business. As such, the following apply:
→ Valuation using the forward-looking method: this method is applied for provisions in classical branch 21 insurance policies and modern branch 21 policies with guaranteed returns on future premiums. The calculation is based on the technical terms of the policies.
→ Valuation using the retrospective method: this method is applied for provisions in modern branch 21 insurance policies. The calcula- tion is based on the technical terms of the policies, without taking future deposits into account.
For business accepted, a provision is applied separately for each agree- ment based on the information provided by the assignor.
As a supplement to the rules set out above, an additional provision is applied in line with statutory local requirements in relation to the low rate risk.
Provision for damages to be paid
The amount of the provision for claims to be paid in direct cases of the non-life business is equal to the amount owed to beneficiaries, plus the management charges for the claims.
For claims stated, the provision for the damages to be paid out in direct cases of the non-life business is calculated on a case-by-case basis, including future settlement costs or as a separate reserve for a group of cases.
When an indemnity has to be made in the form of periodic payments, the amounts that need to be set aside are calculated based on actuarial methods.
For instances of “claims incurred but not (entirely) reported” (IBN(E)R) on the balance date, a provision is applied in which account is taken of past experience with regard to the number and amount of claims reported after the balance date. Account is also taken of exceptional occurrences and additional provisions are also made on the basis of statutory requirements, such as for occupational accidents.
Consolidated financial statements Notes to the consolidated financial statements
If the main parameters of the model are observable and if Risk Manage- ment validates the model, the day one profit or loss will be recognised immediately in the statement of income.
If the main parameters are not observable and if Risk Management does not validate the model, the day one profit or loss will be amortised linearly over the expected life of the instrument. However, if the data becomes observable subsequently, Belfius will recognise the remaining portion of day one profit or loss in the statement of income. In cases of early termination of the underlying instrument, the remaining portion of day one profit or loss will be recognised in the statement of income. In cases of partial early termination, Belfius will recognise in the statement of income the part of the day one profit or loss relating to the partial early termination.