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HMRC internal manual

General Insurance Manual

Technical provisions: appropriate amount Regulations: enquiries: risk assessment: group regulatory returns

FA07/SCH11, the primary legislation which the appropriate amount Regulations support, is drafted in terms of individual general insurance companies, and their accounts. This is in keeping with the focus of UK tax law on individual companies rather than groups.

However, groups of general insurance companies sometimes take advantage of the modification and waiver power available to the Financial Services Authority under section 148 of the Financial Services and Markets Act 2000. In such cases, the FSA makes a ‘direction’ that rewrites some of the reporting paragraphs of its sourcebook IPRU (INS), notably IPRU(INS) 9.3(1). The effect of this is to refocus the reporting requirements so that consolidated reporting regulatory accounts are required, substituting ‘the principal firm or any of the subsidiary firms’ for ‘the insurer’. This is purely for regulatory purposes, and the companies must still publish accounts under the accounting and reporting Regulations.

In practice, for general insurance companies, there will be a high degree of convergence between regulatory and financial reporting of liabilities, and the sum of the individual company provisions can be expected to reconcile with the corresponding figures in the group regulatory return.

Where a group return is prepared the group can be expected to focus its efforts on the overall soundness of the group provisions, rather than those of individual companies. Moreover, the risk assessment outlier identification described at GIM6660 will be based for UK companies on regulatory return data that feed into a commercial database.

It follows that, where a group return is prepared, the risk assessment and enquiries should focus on the group figures. Where, however, it becomes necessary to make use of the formal powers (GIM6540), it will be necessary to deconstruct the consolidated figure and apply the powers at company level. In practice, it is unlikely that this will be necessary; it will be in the interests of both the group and HMRC to resolve any enquiries at the group level.