GIM4210 - Taxation of general insurance: business in run-off

The ABI SORP (paragraphs 136 to 139) states that the provisions of FRS 3 (Reporting financial performance) should be applied where a decision has been taken to cease writing the whole or a “material category” (defined as a discrete segment) of the business. The SORP requires provision to be made for the full amount of the costs of running off the business no longer being written. Expected future investment return not already recognised in calculating technical provisions should be taken into account and disclosed. The practical effect of this is that the company begins to discount its claims reserves, which may appear to be inconsistent with Schedule 9A CA 1985. Where such a change in accounting treatment takes effect after 6 April 1999, the tax treatment is governed by FA98/S44. FA02/S65 applies to changes on or after 1 August 2001. So long as the accounts are given a “true and fair view” certificate, the treatment may be followed for tax purposes. Any “prior period adjustment” disclosed as a result of the change will be charged to tax (or relieved if negative) under the provisions of FA98/SCH6 or FA02/SCH22.