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HMRC internal manual

International Manual

Controlled Foreign Companies carrying on general insurance business: Non-annual accounting

General insurance companies which are unable to make a reasonably certain estimate of closing reserves at the year end may choose to draw up accounts on a non-annual or ‘funded’ basis. This means that any excess of premiums over paid and unpaid liabilities is not released immediately to the profit and loss account. Instead the surplus is taken to a technical provision, referred to as the ‘fund’. The underwriting account is only closed, and a profit struck, when a reasonable estimate can be made of unsettled claims, at which time the fund is replaced with an estimate of unpaid liabilities. This is referred to as the closure of the year. While, in theory, the account could be kept open as long as claims may be made on the policies in question, United Kingdom company law requires funds to be closed after a maximum of three years following the end of the year in which the risk was written. Outside the UK, this restriction does not necessarily apply, although in practice most accounts are closed after a few years.