Attributing investment yield, including income from and profits
on disposal of investment assets, is difficult. For a non-EEA
insurer Form 13 will disclose the assets the company has attributed
to its UK branch, and Form 16 will disclose the investment return
from those assets. But the question is whether there are
circumstances in which more investment return than that disclosed
in the FSA return (or which would be disclosed if the company made
such a return) falls within ICTA88/S11 (whether or not by virtue of
Article 7 of the OECD Model).
Insurance business is uniquely reliant on the confidence of
the market in the financial strength and solvency of the insurer
(see for example
London and Liverpool and Globe v
Bennett 6TC at pages 357-359). Much insurance business is
written, or the market obliges it to be written, on the basis that
the expected loss ratio will exceed 100%, meaning net claims and
expenses will exceed net premiums. ABI statistics show that in none
of the years 1990 to 2000 did general insurance carried on by its
members make an overall underwriting profit. And the longer tail
the business, the less this is a problem for the company because it
will be able to invest the premium income it receives to build up a
fund to meet the expected claims and to make a profit.
This is why the investment return of an insurer forms part
of its trading income and so falls within ICTA88/S11. Even if some
of it might be regarded as not actually trading income (perhaps
because it has already suffered deduction of tax – see
ICTA88/S393 (8)), it will fall within section 11 as income from
property or rights used by the establishment. In the case of a
non-EEA insurer the income disclosed on Form 16 would properly be
regarded as falling within section 11.
