Equalisation reserves: background
In the early 1990s there was concern that the UK insurance industry should not be at a disadvantage to its competitors elsewhere in what is now the EU, particularly in relation to the treatment of profit smoothing and catastrophe reserves.
The Insurance Companies (Reserves) Act 1995 inserted a section 34A into the Insurance Companies Act 1982, and related regulations were made, the Insurance Companies (Reserves) Regulations 1996 (SI1996/646).
Following the enactment of the Financial Services and Markets Act 2000, section 34A and the regulations were replaced by chapter 6 of Volume 1 of the Interim Prudential Sourcebook and were renamed the equalisation reserves rules.
The capital requirements under the Solvency II Directive (2009/138/EC) are deemed by the PRA to be sufficient for the purposes of capital adequacy and risk management for insurers, so equalisation reserves were no longer required following introduction of the Directive for accounting periods ending on or after 1 January 2016.