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HMRC internal manual

General Insurance Manual

Technical provisions: periods of account beginning on or after 1 January 2000 and ending before 19 July 2007: General Insurance Reserves (Tax) Regulations: 'the cost of settling liabilities'

Regulation 3: Rule 3: the cost of settling liabilities

At each recalculation date, the deduction first made for these ‘original provisions’ in the earlier period of account was compared with the actual ‘cost of settling the liabilities’ since the balance sheet date of the earlier period of account - see Rule 6. The cost of settling liabilities meant

  • the cost of claims, bonuses and rebates paid since the balance sheet date
  • reinsurance premiums paid since the balance sheet date, and
  • provisions for claims outstanding carried forward and ‘taken into account’ at the recalculation date.

The terms used (claims, provisions, etc.) took their meaning from Schedule 3 to the accounting Regulations SI2008/410, and included, for example, claims handling costs. For convenience later on in the Rule 5, all these items were referred to as ‘liabilities’.

For example, in relation to the original provisions of the earlier period of account at the balance sheet date of 31 December 2000, Rule 3 required the identification of the cost of settling the liabilities to which these provisions related. This meant the claims and so forth paid in the period to 31 December 2001, and the provisions for liabilities of 2000 and earlier years made in the accounts (so far as deducted for tax purposes) at 31 December 2001.