Regulatory framework: the accounts and statements rules (the ‘FSA return’)
It has been the case since 1870 that insurers must make detailed financial returns to the regulatory authorities. These are the Accounts and Statements Rules currently set out in Chapter 9 of the FSA’s IPRU(INS). The forms listed in the Accounts and Statements Rules comprise what is commonly known as the FSA, or regulatory, return. This requirement is similar to what was previously known as the DTI return. The content of the forms has varied over the years but there is considerable continuity between the forms used under the previous regulations and those now set out in the Accounting and Statements Rules. Appendix 9.1 and following of Volume 2 of IPRU(INS) sets out the forms and the instructions for their completion. GIM3200 summarises the forms currently in use.
The regulatory return is similar to the financial statements required under the company reporting Regulations SI2008/410 in that it comprises a balance sheet and profit and loss account, with supporting information. The main purpose of the regulatory return is to demonstrate solvency, but generally the definitions and formats broadly correspond with those in the financial statements, especially in the field of general insurance. There is a ‘simple summary’ in Form 3, which in effect reconciles financial reporting capital to regulatory capital. Sheet 3 of Form 13 reconciles regulatory assets to financial reporting assets, but the position is not always straightforward. For accounting periods falling within CT Pay and File and the current CTSA regime insurers have been obliged to submit a copy of the regulatory return with their tax return.
The basic requirement is for insurers to prepare a profit and loss account, a revenue account and a balance sheet together with notes, statements, reports and certificates. Insurers must also provide the directors’ and auditor’s report. General insurance companies, unlike life companies, are not required to produce actuarial reports. Each document must be deposited with the FSA within 3 months of the end of the accounting period (if made electronically; a shorter period otherwise applies). Any other report to shareholders or policyholders (for example under company law reporting requirements) must also be deposited with the FSA. The insurer must send a copy to any policyholder who requests it, and the FSA deposits a copy with the Registrar of Companies for public inspection.
There will usually be differences in the valuation of assets between the FSA return and the Companies Act accounts. The rules which an insurer must apply to the valuation of its assets, liabilities, equity and items in its income statement are summarised at IPRU(INS)9.10. Some assets are shown in the FSA return at less than the market value shown in the shareholder accounts. Some assets have no ‘admissible value’ at all for FSA return purposes, for instance investment gold. On the other hand technical provisions should be similar in both the shareholder accounts and FSA Return.