GIM7030 - Equalisation reserves: classes of business affected

The Equalisation Reserves Rules require insurers to keep two equalisation reserves, one for credit business and one for other classes (referred to originally as “other than credit business” and now as “non-credit business”).

Credit insurance equalisation reserves

The First Non-Life Directive requires the calculation of credit insurance equalisation reserves.

See GIM7100 and PRU 7.5.38 for details of the rules for credit business. This is business falling within general insurance business class 14, other than reinsurance business.

‘Other than credit’ equalisation reserves

Non-credit equalisation reserves are a domestic UK requirement.

The classes affected include business which displays a significant degree of claims volatility and were selected after studying the historic pattern of claims experience in the UK. The groups are defined by reference to the accounting classes defined in Chapter 9 of Volume 1 IPRU(INS).

The business groups are as follows.

• Property - direct and facultative business in accounting class 6 and corresponding proportional treaty reinsurance in accounting class 10 (business category (f) ‘property’);
• Consequential loss - direct and facultative business in part of accounting class 8 (that is, risks falling within general insurance business class 16(a) ‘business interruption’), and proportional treaty reinsurance in accounting class 10 (part of business category (h) ‘miscellaneous and pecuniary loss’);
• Marine and Aviation - direct and facultative business in accounting classes 3 & 4 and treaty reinsurance in accounting classes 9, 10, and 11 (business categories (c) and (d) ‘aviation’ and ‘marine’);
• Nuclear - liability and damage of nuclear risks (that is business in connection with the construction or use of any nuclear reactor or installation or carriage of nuclear matter). Nuclear business needs to be removed from other business groups;
• Non-proportional treaty property and consequential loss - treaty reinsurance in accounting class 6 (business categories (f) ‘property’ and part of (h) ‘miscellaneous and pecuniary loss’.