(q) Investments The Association classifies financial assets as either 1) designated at fair value through profit and loss or 2) loans and receivables.


Financial assets at fair value through profit and loss


All of the financial investments of the Association are classified as designated at fair value through profit and loss. As a result, gains and losses are taken to the consolidated statement of operations, which reflects the management of the portfolio on a fair value basis. Fair values of investments traded in active markets are measured at bid price. Where there is no active market, fair value is measured by reference to other factors. Shareholdings in entities for which there is no recognised market are held at cost net of provision for any deemed permanent diminution in value.


The interest receivable from the investments together with the profits and losses on sales of investments, the amortised discount on zero coupon bonds, the amortised cost of options and dividend receipts are included within investment income in the consolidated statement of operations. The unrealised gains and losses on the movement in the market value of the investments compared to the cost are included in unrealised gains and losses on investments within investment income.


Loans and receivables


Loans and receivables are non derivative financial assets with fixed settlement values. Amounts due from Members and reinsurers are included in this category and are measured at cost less any provision for impairment in value.


(r) Taxation The charge for UK taxation is shown in the consolidated statement of operations. The charge is based on a percentage of the investment income and both realised and unrealised investment gains less losses. Underwriting income is not taxable.


(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. All of the Directors (except two who are Bermuda residents) are representatives or agents of Member companies and other than the insurance and membership interests of the Directors' companies, the Directors have no financial interests in the Association.


(t) Perpetual subordinated capital securities Perpetual subordinated capital securities represents instruments which incorporate features of both debt and capital. The instruments are repayable at the option of the issuer on completion of an initial non settlement period. The costs specifically associated with the issue of such instruments are deferred against monies received and charged to the income and expenditure account over the period of five years until the capital can be repaid. Interest payable is accrued on a straight line basis. The securities are stated net of issue costs.


(u) Cash and cash equivalents


Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Cash equivalents are investments with original maturity of three months or less from the date of acquisition.


(v) Future accounting standards In April 2010, the CICA confirmed the applicability of the Handbook to entities that prepare financial statements in accordance with Canadian generally accepted accounting principles. Effective for financial years commencing after 1 January 2011, including comparative figures for the prior year, publicly accountable enterprises are required to apply the International Financial Reporting Standards (IFRS) in Part I of the Handbook. The Association has developed a high level IFRS implementation plan, and an assessment of the impact of the accounting standard differences to the financial statements has been completed. This assessment has provided insight as to the most significant areas of differences applicable to the Association, including investments and insurance balances, as well as the more extensive presentation and disclosure requirements under IFRS.


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