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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Accounting framework: Equalisation reserves

Equalisation reserves are amounts set aside to reflect the volatility of certain classes of business and are properly reserves rather than provisions as they relate to liabilities not yet incurred. For this reason, IFRS 4 (see GIM2060) prohibits them - they are not liabilities - but they continue to be required for certain classes of business by the regulatory law, which refers to them as provisions, and this forms the basis for an allowance and recovery for tax purposes. 

As regards EU financial reporting, under EC Directive 87/343/EEC equalisation reserves were required for companies carrying on a substantial amount of credit insurance business from 1990 onwards, and other equalisation reserves were required under the accounting practices of a number of European territories. The Insurance Companies (Reserves) Act 1995 made equalisation reserves a mandatory regulatory requirement in the UK for certain categories of business, including credit insurance business, from 1996 onwards. GIM7000+ gives more details.