Equalisation reserves: classes of business affected
The equalisation reserves regulatory rules require insurers to keep two equalisation reserves, one for credit business and one for other classes, now referred to as ’non-credit business’.
Credit insurance equalisation reserves
Credit insurance equalisation reserves are required to be made by the EU First Non Life Directive.
See GIM7100 and INSPRU 1.4.38 for details of the rules for credit business. This is business falling within general insurance business class 14, other than reinsurance business.
These reserves are maintained at Lloyd’s, but at Society rather than syndicate level.
Non-credit equalisation reserves
Non-credit equalisation reserves are a domestic UK requirement.
The classes affected include business which displays a significant degree of claims volatility and were selected after studying the historic pattern of claims experience in the UK. The groupings are defined at INSPRU 1.4.12 as follows:
- A: Property damage - including fire and natural forces (general insurance business classes 4, 8 and 9), but excluding D and E below
- B: Consequential loss - business interruption (class 16(a)), but excluding D and E below
- C: Marine and aviation - hull and liability (classes 5, 6, 11 and 12), but excluding D below and its related reinsurance
- D: Nuclear risks
- E: Non-proportional reinsurance treaty risks in relation to property damage and consequential loss (classes 4, 8, 9 and 16(a)) but excluding D.
The general insurance business classes are those defined in the Regulated Activities Order (see GIM3050).