All companies must be evaluated for excessive reserves
Insurers will have to make sure any reserve releases are “not excessive”, under new tax laws.
The government pushed through the changes after becoming concerned that some insurers were heavily releasing reserves, which can later be written off against tax.
Deloitte insurance partner David Clissitt said Her Majesty’s Customs & Revenue was effectively using the laws as a tax stop-loss.
Clissitt said: “HMRC were clearly of the view that they knew some examples of where reserves were excessive, but they would not share with us who those companies were.”
Clissitt said insurance companies would need an actuarial evaluation on their reserves for their year-end accounts.
Any insurance company that fails to get an evaluation runs the risk of being targeted by HMRC if tax officials believe reserves are excessive.
Clissitt believes most insurers are not using excessive reserves, but nonetheless all companies will need to have the evaluation.
Clissitt added that there is no exact definition of what “not excessive” means, but that this should not represent a problem for actuaries.