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HMRC internal manual

General Insurance Manual

Accounting framework: Insurance Accounts Directive

Before the coming into force of the European Insurance Accounts Directive (IAD) in 1991 (91/674/EEC), the accounts of a general insurance company were similar to those of other trading companies and included a balance sheet, general business revenue account and a profit and loss account. The IAD aimed to harmonise the presentation and underlying principles of the accounts of insurance companies across the European Union, and it set out a prescribed format for both life and non-life insurance business.

The intention of the IAD was to enable members, creditors, debtors, policyholders and their advisers and the general public to compare the financial strength of insurers across the EU, thus assisting in the development of the single internal market in financial services. It prescribed rules on the valuation of assets and liabilities and on disclosure, and provided for specific situations, for example discounting of claims provisions. The IAD needed, however, to cater for alternative practices with options exercisable by the Member States reflecting past differences in accounting practice. For example, on valuing investments there was an important Member State option between the use of current market value and historical cost. Insurers based in countries that traditionally used historic cost (notably Germany) did not need to disclose full market values before 1999. In the UK, the market value (fair value) option was chosen, although fixed interest securities could also be amortised from cost to redemption value over the period to the redemption date.

Exemptions from audit requirements available to small and medium sized companies within the EU are not available to insurance companies.