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04 NOTES TOTHE FINANCIAL STATEMENTS04.1. Accounting policiesThese financial statements have been preparedunder the historical cost convention, as modified forinvestments at fair value through profit and loss. Thefinancial statements have also been prepared under theaccounting policies set out below, applicable legislationand in accordance with Gibraltar Accounting Standards.The legislation applied in the preparation of thesefinancial statements includes the Companies Act2014, the Financial Services (Insurance Companies)Act and the Insurance Companies (Accounts Directive)Regulations 1997.4.1.1 Premiums writtenPremiums written relate to total premiums receivablefor insurance contracts entered into during theaccounting period, together with any differencesbetween the booked premiums for prior years andthose previously accrued, and include estimates ofpremiums due but not yet receivable or notified to theCompany, except a forecast to cancel them.Decennial policies which involve a number of buildingsas part of a single construction project, often referredto as “Group Policies” are deemed to have gone onrisk when individual buildings within the constructionproject are completed.4.1.2 ReinsuranceOutward reinsurance premiums are accounted for inthe same accounting period as the related insurancebusiness.4.1.3 Unearned premiumsUnearned premiums represent the proportion ofpremiums written in the year that relate to the unexpiredterms of the policies in force at the balance sheet date,calculated on a time apportioned basis.4.1.4 Pre-paid insurance policiesDeposits on insurance policies which have not yetcome on risk are accounted for as deferred income.Reinsurance and brokerage commission paid onpre-paid policies that have not yet come on risk areaccounted for as deferred expenses.4.1.5 Acquisition costsAcquisition costs comprise brokerage and service companyacquisition costs incurred on insurance contracts writtenduring the financial year. They are spread over a periodequivalent to that over which the premiums on theunderlying business are earned.Prepaid policies that are yet to come on risk are still liableto pay brokerage commission on a percentage basis of theprepaid policy premium.Deferred acquisition costs represent the proportionof acquisition costs incurred in respect of unearnedpremiums at the balance sheet date.4.1.6 Processing costsProcessing costs are included within net operatingexpenses and comprise service company charges incurredin handling insurance contracts written during thefinancial year. This charge incorporates claims handlingcharges. They are spread over a period equivalent to thatover which the premiums on the underlying business areearned.Deferred processing costs represent the proportionof processing costs incurred in respect of unearnedpremiums at the balance sheet date.Millennium Insurance Company LimitedFinancial Statements 2020 45

4.1.7 LeviesLevies payable to the Spanish authorities for theinsurance compensation scheme and natural disasterfund are recognised within net operating expenses.4.1.8 Claims incurredClaims incurred represents claim payments adjustedfor the movement in the outstanding claims liability, netof salvage and subrogation recoveries. Reinsurancerecoveries are accounted for in the same accountingperiod as the claims for the related business beingreinsured.The outstanding claims liability is measured as thevalue of expected future payments relating to claimsincurred at the reporting date. The expected futurepayments include those in relation to claims reportedbut not yet paid or not yet paid in full and claimsincurred but not reported (“IBNR”) and the anticipateddirect and indirect claims handling costs.4.1.9 Reinsurance recoveriesReinsurance recoveries in respect of claims incurredbut not reported are assumed to be consistent withthe historical pattern of such recoveries, adjustedto reflect changes in the nature and extent of theCompany’s reinsurance programme over time. Anassessment is also made of the recoverability ofreinsurance recoveries having regard to market dataon the financial strength of each of the reinsurancecompanies.The reinsurers’ share of claims incurred in the profitand loss account reflects the amount received orreceivable from reinsurers in respect of those claimsincurred during the year. Reinsurance liabilities areprimarily premiums payable for reinsurance contractsand are recognised in the profit and loss account as“Outward reinsurance premiums” when due.Millennium Insurance Company Limited46 Financial Statements 2020

4.1.10 Salvage and subrogationrecoveriesSome insurance contracts permit the Company tosell (usually damaged) property acquired in settling aclaim (for example, salvage). The Company may alsohave the right to pursue third parties for payment ofsome or all costs (for example, subrogation). Salvageand subrogation recoveries are included in otherassets. For salvage recoveries, the amount recognisedis the amount that can be reasonably recoveredfrom the disposal of the property. For subrogationreimbursements, the amount recognised is the amountthat can reasonably be expected to be recovered fromthe action against the liable third party.4.1.11 Profit commissionUnder some reinsurance contracts entered intoby the Company, the Company is entitled to slidingscale or profit commission depending on the overallresult derived on the line of business covered bythat particular reinsurance contract. The Companymay also be required to pay a profit commission toits agents. Given that the overall result generated bythe Company is subject to significant uncertainty asall claims data may not be known until subsequentperiods, the company can find it difficult to estimatesliding scale and profit commission (see note two,critical accounting estimates).4.1.12 Taxation and deferred taxProvision is made at the applicable rate for corporationtax payable on profit for the year, as adjusted for taxpurposes.Spanish capital gains tax is payable on certain realisedgains on investments.Deferred tax is recognised in respect of all timingdifferences that have originated but not reversed at thebalance sheet date. Timing differences are differencesbetween the taxable profits and the results as statedin the financial statements that arise from the inclusionof gains and losses in tax assessments in periodsdifferent from those in which they are recognised inthe financial statements.Deferred tax is measured on a non-discounted basis,using the tax rates that are expected to apply in theperiods in which the timing difference are expected toreverse based on tax rates and laws that have beenenacted by the balance sheet date.4.1.13 Insurance premium tax andleviesInsurance premium taxes and levies are based ona percentage of Net Written Premiums, where NetWritten Premiums are the actual insurance premiumwritten in the year. Gross premiums written arerecognised net of insurance premium taxes whereaslevies are recognised as direct insurance costs withinoperating expenses.4.1.14 Trade receivablesTrade receivables are recognised initially at fairvalue and subsequently measured at amortised costusing the effective interest method, less provisionfor impairment. A provision for impairment of tradereceivables is established when there is objectiveevidence that the Company will not be able to collectall amounts due according to the original terms of thereceivables.4.1.15 Financial instrumentsThe company classifies its financial assets in the followingcategories:Loans and receivablesLoans and receivables and investments at fair valuethrough profit and loss account. The classificationdepends on the purpose for which the financialassets were acquired. Management determines theclassification of its financial assets at initial recognition.Loans and receivables are non-derivative financialassets with fixed or determinable payments that arenot quoted in an active market. The Company’s loansand receivables comprise debtors and cash at bankand in hand in the balance sheet.Millennium Insurance Company LimitedFinancial Statements 202047

Investments at fair value through profit and lossaccountInvestments at fair value through profit and lossare financial assets that are principally acquiredfor the purpose of selling in the short term and arerecorded within “other financial investments” on thebalance sheet.4.1.16 Recognition and measurementRegular purchases and sales of financial assets arerecognised on the trade-date - the date on whichthe Company commits to purchase or sell the asset.Investments are initially recognised at fair value plustransaction costs. Financial assets are derecognisedwhen the rights to receive cash flows from theinvestments have expired or have been transferredand the Company has transferred substantiallyall risks and rewards of ownership. Investmentsat fair value are carried at the bid price. Loans andreceivables are carried at amortised cost using theeffective interest method.Dividend income from financial assets is recognisedin the income statement as part of other incomewhen the Company’s right to receive payments isestablished.The market values of quoted investments are basedon current bid prices. If the market for a financialasset is not active (and for unlisted securities), theCompany establishes fair value by using valuationtechniques. These include the use of recent arm’slength transactions, reference to other instrumentsthat are substantially the same, discounted cash flowanalysis, and option pricing models.or more events that have occurred after the initialrecognition of the asset (a ‘loss event’) and that lossevent (or events) has an impact on the estimatedfuture cash flows of the financial asset that can bereliably estimated. Objective evidence that a financialasset is impaired includes observable data that comesto the attention of the Company about the followingevents:(i) significant financial difficulty of the issuer ordebtor;(ii) a breach of contract, such as a default ordelinquency in payments;(iii) it becoming probable that the issuer ordebtor will enter bankruptcy or other financialreorganisation;(iv) the disappearance of an active market for thatfinancial asset; or(v) observable data indicating a measurabledecrease in the estimated cash flow from thosefinancial assets.If there is objective evidence that an impairment losshas been incurred on trades and other receivables,the amount of the loss is measured as the differencebetween the asset’s carrying amount and the presentvalue of estimated future cash flows (excluding futurecredit losses that have been incurred) discounted atthe financial asset’s original effective interest rate.The carrying amount of the asset is reduced and theamount of the loss recognised in the profit and lossaccount.4.1.17 Impairment of assetsIf in a subsequent period, the amount of theimpairment loss decreases and the decrease canbe related objectively to an event occurring after theimpairment was recognised (such as improved creditrating), the previously recognised impairment loss isreversed and the amount of the reversal is recognisedin the profit and loss account for the period.Financial assetsThe Company assesses at each balance sheet datewhether there is objective evidence that a financialasset is impaired. A financial asset is impaired andimpairment losses are incurred only if there isobjective evidence of impairment as a result of oneNon-financial assetsAssets that have an indefinite useful life are notsubject to amortisation and are tested annually forimpairment. Assets that are subject to amortisationare reviewed for impairment whenever events orchanges in circumstances indicate that the carryingThe amount of the asset only increases with theamount that the original had had if the deteriorationhad not occured.Millennium Insurance Company Limited48 Financial Statements 2020

amount may not be recoverable. An impairment lossis recognised for the amount by which the asset’scarrying amount exceeds its recoverable amount. Therecoverable amount is the higher of an asset’s fair valueless costs to sell and value in use. For the purposesof assessing impairment, assets are grouped at thelowest levels for which there are separately identifiablecash flows (cash-generating units).Any impairment is recognised in the profit and lossaccount in the period in which the loss occurs. If anexternal event gives rise to a reversal of the impairmentloss, the reversal is recognised in the profit and lossaccount by increasing the carrying amount of the assetin the period in which it occurs. The carrying amountof the asset will only be increased to the amount thatit would have been had the original impairment notoccurred.The amount of teh asset only increases with theamount that the original has had if the deteriorationhad not occured4.1.18 Investment returnInvestment return comprises all investment income,realised investment gains and losses and movementsin unrealised gains and losses, net of investmentexpenses, charges and interest.Dividends are recorded on the date on which the sharesare quoted ex-dividend and include the imputed taxcredits. Interest and expenses are accounted for on anaccruals basis.Realised gains and losses on investments carried atmarket value are calculated as the difference betweennet sales proceeds and purchase price. Movements inunrealised gains and losses on investments representthe difference between the valuation at the balancesheet date and their purchase price or, if they havebeen previously valued, their valuation at the lastbalance sheet date, together with the reversal ofunrealised gains and losses recognised in earlieraccounting periods in respect of investment disposalsin the current period.4.1.19 Fixed assetsThe cost of fixed assets is their purchase cost, togetherwith any incidental expenses of acquisition.Depreciation is calculated so as to write off the costof tangible fixed assets, less their estimated residualvalues, on a straight-line basis over the expected usefuleconomic lives of the assets concerned. The principalannual rates used for this purpose are:Building: 47 years (over the term of the lease)Computer equipment: 4 years4.1.20 Operating leasesRentals payable under operating leases are charged tothe profit and loss account as incurred over the leaseterm.4.1.21 Foreign currency traslationAll assets and liabilities in foreign currency aretranslated into Euros at the rates of exchange ruling atthe balance sheet date. Transactions denominated inforeign currency are translated into Euros at the rateruling on the date of the transaction or the average ratefor the period, provided that there are no significantfluctuations in the exchange rate during this time. Anydifferences arising on exchange are dealt with throughthe profit and loss account.4.1.22 Cash at bank and in handCash at bank and in hand includes cash in hand andbalances available on demand held with banks.4.1.23 Other financial investmentsOther financial investments include all deposit balancesheld with banks that require notification of more than24 hours prior to any withdrawal of cash and equityinvestments.Investment return is recorded in the non-technicalaccount.Millennium Insurance Company LimitedFinancial Statements 2020 49

4.1.24 Trade payablesSalvage and subrogation recoveriesTrade payables are recognised initially at fair value andsubsequently measured at amortised cost using the effectiveinterest method.For salvage recoveries, the amount recognised is the amountthat can be reasonably recovered from the disposal of theproperty. For subrogation reimbursements, the amountrecognised is the amount that can reasonably be expectedto be recovered from the action against the liable third party.Given that these relate to uncertain future events, the directorshave based the recoverable amount on a prudent estimate ofthe total recoveries that are being pursued by the Company.04. 2. Critical accounting estimatesClaims provisions and related reinsurancerecoveriesProvision is made at the year-end for the estimated cost ofclaims incurred but not settled at the balance sheet date,including the cost of claims incurred but not yet reportedto the Company. The estimated cost of claims includesexpenses to be incurred in settling claims and is recordedgross of any expected value of salvage and other recoveries.The Company takes all reasonable steps to ensure that it hasappropriate information regarding the claims exposures.However, given the uncertainty in establishing claimsprovisions, it is likely that the final outcome will prove to bedifferent from the original liability established.The estimation of claims incurred but not reported (“IBNR”) isgenerally subject to a greater degree of uncertainty than theestimation of the cost of settling claims already notified to theCompany, where more information about the claim e

MIC Insurance Company SA was created, based in Paris, France, which at the end of 2020 obtained the license granted by the ACPR (L'Autorité . general business 11.321.332 (8.436.953) NoN-tEChNICaL aCCoUNt 2020 ( ) 2019 ( ) Balance on the general business technical account