Corporate members: accounts: introduction
Corporate members are required to prepare accounts in accordance with the provisions of regulation 6 of, and Schedule 3 to, The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI2008/410, and before that in accordance with section 255 of, and Schedule 9A to, the Companies Act 1985, as amended by the Companies Act 1985 (Insurance Companies Accounts) Regulations 1993. GIM2000+ in the General Insurance Manual (see LLM10000) has more information on Schedule 9A and its successor.
ICAEW Technical Release TECH 1/99
Further guidance was given in the ICAEW Technical Release TECH 1/99, “Accounting by Lloyd’s Corporate Capital Vehicles”. TECH 1/99 is not mandatory and accountants and auditors will use their own judgement in its application. However, the key point is that the financial statements of corporate members are prepared under Schedule 9A to the Companies Act 1985 and all the accounting rules and disclosure requirements of Schedule 9A apply.
A syndicate has no independent legal existence from the members who participate in it for an underwriting year, and is not an ‘entity’ within the definition of FRS 9. Each corporate member will therefore account for its Lloyd’s underwriting business by aggregating the income and expenses and assets and liabilities from its syndicate participations on a line by line basis.
In accordance with Schedule 9A the accounts comprise a technical account and a non-technical account.
The technical account will include the corporate member’s profit or loss from its syndicate participations, that is, its share of syndicate profits, member level reinsurance and profits arising from premium trust fund assets. The company’s share of the RITC premium (LLM2060) will be reflected in the technical account. LLM4030 describes the technical account in more detail.
The non-technical account will include investment income and gains arising on its Lloyd’s Deposit and personal reserve fund (ancillary trust fund), receipts and expenses of the underwriting business which do not arise directly from syndicate participation, and any other receipts and expenses of the company. LLM4040 describes the non-technical account in more detail.
Association of British Insurers (ABI) Statement of Recommended Practice (SORP) on Accounting for Insurance Business
The ABI provides guidance on the application of Schedule 9A in its SORP. For accounting periods beginning on or after 1 January 2004, the ABI SORP published in December 2005 requires the use of annual accounting. This is in contrast to the SORP published in November 2003, paragraph 75 of which permitted Lloyd’s corporate members to continue to use the fund basis ‘if, because of the three year fund basis of accounting adopted by Lloyd’s syndicates, information about premiums receivable or claims payable for an underwriting year is insufficient for reliable estimates to be made’. With effect from 1 January 2005 syndicates present their accounts on an annual basis, but generally produce 3 year syndicate underwriting year accounts in addition. See LLM2040.
Specific tax legislation for corporate members is set out in FA94/S219 to FA94/S230, see LLM4050 onwards. Trade profits are to be computed in accordance with generally accepted accounting practice (FA98/S42 (5)), so the underwriting results shown in the accounts will differ from the taxable profits.