GIM7010 - Equalisation reserves: background
Regulatory rules
In the early 1990s there was concern that the British insurance
industry should not be at a disadvantage compared to its
competitors elsewhere in the EC, particularly in respect of the
treatment of catastrophe reserves.
The Insurance Companies (Reserves) Act 1995 inserted a
section 34A into the Insurance Companies Act 1982, and regulations
made under this provision, the Insurance Companies (Reserves)
Regulations 1996 (SI1996/646).
Following the enactment of the Financial Services and Markets
Act 2000, section 34A and the regulations were replaced by Chapter
6 of Volume 1 of the Interim Prudential Sourcebook and were renamed
the Equalisation Reserves Rules. The rules are now to be found in
Chapter 7.5 of the Integrated Prudential Sourcebook (PRU –
see
GIM3100). There was some rewriting of the
rules in PRU, which now refers to Equalisation Provisions (rather
than Equalisation Reserves) and to ‘credit’ and
‘non-credit’ business (rather than ‘other than
credit’ business). The broad arrangement of the rules remains
essentially the same.
Tax rules
The tax treatment of equalisation reserves maintained as a result of the Insurance Companies (Reserves) Act 1995 is governed by ICTA88/S444BA to ICTA88/S444BD (introduced by FA96/S166 and FA96/SCH32), and the Insurance Companies (Reserves) (Tax) Regulations 1996 SI1996/2991.
