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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Equalisation reserves: classes other than credit business: de minimis limit

For all business covered by the equalisation reserves regulatory rules except for credit insurance business (for which the rules are described in GIM7100) there is a minimum level of business below which equalisation reserves need not be maintained. Reserves do not have to be created by companies at the end of a financial year (see GIM7210) if they do not have a reserve brought forward at the beginning of that year, and if the written premiums for the year, net of reinsurance, in all groups of business covered by the regulations (except credit insurance) are:

  • less than €1,500,000, or
  • less than 4% of net written premiums in that financial year in respect of the whole of the company’s general business, and less than €2,500,000 in total.

In the case of a non-resident company these limits apply by reference to the company’s world-wide business.

When an insurer has an existing reserve, but finds that its level of business then falls below either of these de minimis limits, the rule is broadly that the insurer will be required to reduce the reserve to zero once it is apparent that the reduction is not merely temporary.

An insurance company may maintain an equalisation reserve even though the de minimis limits apply to it. This may be a deliberate choice or, because the regulatory rules are quite complex, it may be inadvertent. Such reserves will not be maintained for the purposes of the equalisation reserves rules and will not attract tax relief.