GIM2030 - Accounting framework: Schedule 9A Companies Act 1985
The provisions of the IAD were implemented in Great Britain by
the Companies Act 1985 (Insurance Companies Accounts) Regulations
1993 (SI1993/3246). For insurance undertakings not formed and
registered under the Companies Act (CA) 1985 (for example
Industrial and Provident Societies and Lloyd’s)
implementation was by the Insurance Accounts Directive
(Miscellaneous Insurance Undertakings) Regulations 1993
(SI1993/3245).
Under these regulations the old Schedule 9A CA 1985 was
replaced by a new Schedule 9A, with effect for financial statements
for financial years commencing on or after 23 December 1994.
Schedule 9A CA 1985 is entitled “Form and content of
accounts of insurance companies and groups”. It follows the
IAD closely, and is split into two parts. Part I covers individual
accounts and Part II consolidated accounts. Points that merit
particular mention are:
- Paragraph 4 (Chapter 1 Section A) provides that assets or items of income are to be shown gross and that there is to be no netting-off of reserves or expenses.
- Paragraphs 7 to 12 (Chapter 1 Section B) lay down, in very precise terms, the required formats for the balance sheet and profit and loss account. Notes on the formats are given and these define set items appearing in the financial statements and in some cases prescribe the accounting treatment to be applied. In accordance with the concept that there should be no “netting-off” of assets and liabilities, technical provisions are to be shown gross as a liability and the reinsurer’s share of technical provisions is to be shown as an asset.
- The profit and loss account for general insurance business is to be divided between the technical account and the non-technical account. The distinction between these does not rest on any clear principle, and indeed the IAD contains a member state option (not exercised in the UK) to allow some companies to dispense with the non- technical account altogether. (Accounts drawn up before the implementation of the new Schedule 9A often included something that was recognisably similar to the technical account, referred to as the “revenue account”, and the non-technical account, referred to as the “profit and loss account”). In summary, the rules provide that the technical account for general business should disclose gross premiums, claims and changes in technical provisions, with the reinsurer’s share separately disclosed. The costs incurred in handling claims are treated as part of the cost of the claims themselves. The technical account will include as operating costs the costs of acquiring contracts, the change in deferred acquisition costs and most administrative expenses, less a deduction for any reinsurance commissions receivable. The non- technical account brings in the balance on the general business technical account (and the balance on the technical account for long-term business in the case of a composite company) and will include miscellaneous income or expenses and the charge for taxation.
Unlike the old version of Schedule 9A, insurance undertakings are now subject without modification to the provisions of sections 226(2) and 227(3) CA 1985 requiring their financial statements to show a true and fair view of the company’s assets, liabilities, financial position and profit and loss. They are also subject to section 235(2) CA 1985 requiring auditors to state whether in their opinion a true and fair view has been given. This was a change of great significance for life insurance, but it made little practical difference in relation to general insurance.
