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HMRC internal manual

General Insurance Manual

Technical provisions: background: salvage, subrogation and reinsurance recoveries

Paragraph 53(4) of Schedule 3 to the accounting Regulations SI2008/410 requires that, in determining the provision for outstanding claims, the recoverable amount in respect of salvage or subrogation, estimated on a prudent basis, is shown as an asset on the balance sheet. Salvage receipts will arise where an asset such as a motor vehicle is classified as an insurance write off and on payment of the sum insured the asset becomes the property of the insurance company. Where the asset has some value the net cost of the claim will be the insurance payout less the sums receivable on salvage. Subrogation is the process by which an insurer who has met a claim relating to injury caused by a third party acquires the rights of the policy holder against the third party in question, including the right to sue for damages. Enquiries are sometimes appropriate to ensure that salvage and subrogation receipts are correctly accounted for.

In estimating reserves for outstanding claims for tax purposes, reinsurance recoveries should be fully taken into account and any bad debts in respect of those recoveries deducted only when they are proved under the normal rules of ICTA88/S74 (1)(j).