LLM2210 - Syndicate accounts: format of underwriting year accounts under annual accounting from 2005
From 1 January 2005, syndicates have been required to prepare
financial statements using annual accounting under UK GAAP (
LLM2030). In addition, the Insurance
Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts)
Regulations 2004 (SI2004/3219) require the production of
underwriting year accounts. These remain the basis of the tax
computations for the declaration year (
LLM2010).
The underwriting year accounts are similar in format to the
syndicate accounts produced under three year accounting, but only
include figures for the closing year (for example, the 2004 year of
account at 31 December 2006), not for the two open years as under
three-year accounting. The accounts for a corporate member may
include a provision for unearned premiums (UPP) or for unexpired
risks (URP). These concepts are explained in the General Insurance
Manual at GIM2000+ (see
LLM10000). In most cases the entries
will be as follows:
| Syndicate allocated capacity |
| Technical account |
Earned premiums net of
reinsurance
|
| Reinsurance to close premium received net of reinsurance |
| Allocated investment return transferred from the non-technical account |
Claims incurred net of
reinsurance
|
| Reinsurance to close premium payable net of reinsurance |
| Net operating expenses |
| Balance on the technical account |
| Non technical account |
| Investment income |
| Unrealised gains on investments |
| Investment expenses and charges |
| Unrealised losses on investments |
| Allocated investment return transferred to technical account |
| Other charges |
| Operating profit or loss for the closed year of account |
There is a single balance sheet (as at 31 December 2006 for
the 2004 inception year of account). As each syndicate year of
account is a separate annual venture, comparatives do not exist and
are excluded from the accounts.
The balance sheet will contain the following:
| Assets |
| Investments |
| Debtors |
| Reinsurance recoveries anticipated on gross RITC payable |
| Tangible assets |
| Cash |
| Other |
| Liabilities |
| Amounts due from members |
| RITC payable – gross amount |
| Creditors |
| Accruals and deferred income |
Investment return arising in each calendar year is generally
allocated to years of account using the
Riesco formula. The managing agent calculates, on
a monthly currency by currency basis, the cash available for
investment. This is taken to be the premiums received less claims
and expenses paid, and the figures are then averaged for the
calendar year. The result is used to apportion and allocate the
investment return in each currency over the three open years of
account. For example, US$ investment returns arising in 2006 will
be apportioned using average US$ cash balances and some allocated
back to 2004 and 2005, and so split over 3 years. In the case of
aligned member syndicates, there may be further income originating
from ‘member FAL capital’ – see
LLM4105 – which is not so allocated
and is taxed on a different basis.
The accounts will also include a managing agent’s
statement, auditor’s opinion, and notes to the accounts
together with various analyses including a segmental analysis of
the underwriting result by direct insurance and reinsurance, an
analysis of cash calls made and unpaid and transfers to
members’ personal reserve funds. The notes will include a
brief description of the accounting policy used to allocate the
income.
There is an exemption from the requirement to produce
syndicate underwriting year accounts if all the members of the
syndicate agree that they do not need to be produced. Equivalent
information is shown in the syndicate’s annual return.
