Equalisation reserves (1996)

Document description

For a number of years, United Kingdom insurance companies have sought the introduction of equalisation reserves on which tax relief would be given. For financial years ending on or after 23 December 1996, this wish will become reality. It is therefore an opportune time to review the scheme which has been implemented by the Insurance Companies (Reserves) Regulations 1996, and to consider the likely effect on companies. This paper reviews the background, legal framework, rules, accounting and taxation aspects. The operation of the rules had they existed historically is examined, and modelling of the future operation of the rules presented. The effect of insurance cycles is considered, and the likely influence on reinsurance is reviewed. The claims event system, which has not been included in the initial scheme, but may be considered as an amendment to the regulations at a later stage, is re-visited. Finally, possible future developments are commented on and the role for the Actuarial profession is discussed.