GIM6110 - Technical provisions: accounting periods beginning before 1 January 2000: salvage, subrogation and reinsurance recoveries

Paragraph 47(4) Schedule 9A Companies Act 1985 requires that in determining the provision for outstanding claims, the recoverable amount, estimated on a prudent basis, in respect of salvage and subrogation, shown as an asset on the balance sheet. Salvage receipts will arise where an asset e.g. a motor vehicle is classified as an insurance “write off” and on payment of the sum insured the asset becomes the property of the insurance company. Where the asset has some value the net cost of the claim will be the insurance payout less the sums receivable on salvage. Subrogation is the process by which an insurer who has met a claim relating to injury caused by a third party acquires the rights of the policy holder against the third party in question, including the right to sue for damages. Where appropriate, enquiries should be made to ensure that salvage and subrogation receipts are correctly accounted for.

In estimating reserves for outstanding claims for tax purposes, reinsurance recoveries should be fully taken into account and any bad debts in respect of those recoveries deducted only when they are proved under the normal rules of ICTA88/S74 (1)(j).