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HMRC internal manual

General Insurance Manual

Technical provisions: background: claims handling expenses

Any provision for expenses for settling claims outstanding will be shown at lines 14 and 18 of form 22 and line 39 of form 24 in the regulatory return, but may not be separately disclosed in the accounts.

It used to be the practice to resist the inclusion in technical provisions of any future expenses to be incurred in settling claims beyond the direct marginal costs associated with handling a particular claim, such as legal expenses and the cost of external professional advice.

This position changed following the publication of the May 1990 SORP, after which tax deductions for provisions for claims handling expenses, calculated in accordance with generally accepted accounting practice to cover future anticipated costs of negotiating and settling incurred claims, whether reported or not, were accepted.

The 2003 SORP deals with provisions for claims handling expenses at paragraphs 99 to 101. In particular cases a check may be needed that the figure included is sufficiently accurate to satisfy the second of the two tests mentioned by Lord Radcliffe in Owen v Southern Railway of Peru, 36TC602 at page 644.