Syndicate accounts: format of underwriting year accounts under annual accounting from 2005
From 1 January 2005, syndicates have been required to prepare financial statements using annual accounting under UK GAAP (LLM2030). In addition, the Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2004 (SI2004/3219) require the production of underwriting year accounts. These remain the basis of the tax computations for the declaration year (LLM2010).
The underwriting year accounts are similar in format to the syndicate accounts produced under three year accounting, but only include figures for the closing year (for example, the 2004 year of account at 31 December 2006), not for the two open years as under three-year accounting. The accounts for a corporate member may include a provision for unearned premiums (UPP) or for unexpired risks (URP). These concepts are explained in the General Insurance Manual at GIM2000+ (see LLM10000). In most cases the entries will be as follows:
|Syndicate allocated capacity|
|Earned premiums net of reinsurance|
- Gross premiums written
Outward reinsurance premiums Reinsurance to close premium received net of reinsurance Allocated investment return transferred from the non-technical account Claims incurred net of reinsurance
- Gross claims paid
Reinsurers’ share Reinsurance to close premium payable net of reinsurance Net operating expenses Balance on the technical account Non technical account Investment income Unrealised gains on investments Investment expenses and charges Unrealised losses on investments Allocated investment return transferred to technical account Other charges Operating profit or loss for the closed year of account
There is a single balance sheet (as at 31 December 2006 for the 2004 inception year of account). As each syndicate year of account is a separate annual venture, comparatives do not exist and are excluded from the accounts.
The balance sheet will contain the following:
|Reinsurance recoveries anticipated on gross RITC payable|
|Amounts due from members|
|RITC payable – gross amount|
|Accruals and deferred income|
Investment return arising in each calendar year is generally allocated to years of account using the Riesco formula. The managing agent calculates, on a monthly currency by currency basis, the cash available for investment. This is taken to be the premiums received less claims and expenses paid, and the figures are then averaged for the calendar year. The result is used to apportion and allocate the investment return in each currency over the three open years of account. For example, US$ investment returns arising in 2006 will be apportioned using average US$ cash balances and some allocated back to 2004 and 2005, and so split over 3 years. In the case of aligned member syndicates, there may be further income originating from ‘member FAL capital’ – see LLM4105 – which is not so allocated and is taxed on a different basis.
The accounts will also include a managing agent’s statement, auditor’s opinion, and notes to the accounts together with various analyses including a segmental analysis of the underwriting result by direct insurance and reinsurance, an analysis of cash calls made and unpaid and transfers to members’ personal reserve funds. The notes will include a brief description of the accounting policy used to allocate the income.
There is an exemption from the requirement to produce syndicate underwriting year accounts if all the members of the syndicate agree that they do not need to be produced. Equivalent information is shown in the syndicate’s annual return.