Budget 2009 - General Insurance Companies - Mazars - United Kingdom
Budget 2009 - General Insurance Companies
The following changes have been announced for general insurers and Lloyd's members.
Claims Equalisation Reserves for Lloyd's Members
As announced in the 2008 Pre-Budget Report, members of the Lloyd’s insurance market will be entitled to relief broadly equivalent to that of other general insurers who are required to maintain claims equalisation reserves. Legislation to this effect will be included in Finance Bill 2009. Lloyd’s members will have to prepare equalisation reserve calculations as if they were required to do so by statute.
What has now been made clear was that relief will be available for Lloyd’s year of account 2005 onwards affecting declaration years 2008 onwards.
There will therefore be an element of beneficial retrospection which will be relevant to the corporation tax returns of Lloyd’s members being prepared this year.
Lloyd's have confirmed that administrative support will be available to private investors in the market to assist them in completing returns reflecting these new equalisation reserve reliefs.
UK Dividend Exemption
HMRC have announced that Lloyd’s corporate members receiving UK dividends will now receive them as exempt from corporation tax. The legislation will take effect for dividends received after 30 June 2009 and will bring the Members into line with general insurance companies.
Although tax free income is always welcome, in practice Corporate Members rarely receive UK dividend income and therefore we do not expect this to have major consequences for the industry.
Solvency II
As mentioned in our Pre-Budget report of November 2008, the structure of the Solvency II requirements means that once they take effect insurers will not be required to maintain claims equalisation reserves.
The Government has indicated that it is determined to frame a regime that will support and maintain the competitiveness of the insurance industry. It will continue its engagement with the FSA and with the General Insurance industry on the implications of Solvency II.
No new proposals have been issued as part of the Budget Report, but we will be making representations to the effect that the release of equalisation reserves on the advent of Solvency II may be counterbalanced by capital requirements to cover volatility, the tax deduction of equalisation reserves should in fact be preserved in the same way as it was created for Lloyds members, as an early tax charge could place undue pressures on the type of business which is currently subject to such reserves.
Disclaiming of Technical Reserves
The Government was asked to consider a change to the transitional provision introduced in FA2007 on the repeal of rules dealing with the tax treatment of general insurers’ reserves (known as the "s107 transitional disclaimer") but decided not to take any action. The transitional disclaimer had allowed general insurers to disclaim up to 10% of their technical reserves to be added back the following year.
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