On 1 September 2009, the General Insurers' Technical Provisions (Appropriate Amount) (Tax) Regulations 2009 (the Regulation) comes into force in the UK (for a link to the Regulation please click here). The Regulation was introduced to reduce the complex calculation previously used under the Finance Act 2000 and the Regulation aims to limit the amount of a general insurer's reserves that is allowed for tax deductibility to an appropriate amount.
Her Majesty's Revenue and Customs (HMRC) have stated that the new measures will not interfere with a commercially driven estimate of future insurance liabilities and will therefore have no effect on the reserves of the majority of general insurers. However, in certain circumstances, the Regulation will allow HMRC to combat over-stated reserves.
Industry players have expressed concerns that the Regulation will increase actuarial costs for insurers due to the need for a written opinion that an insurer's reserves are not excessive. However the Regulation states that the opinion in writing may be given "by an actuary or other suitably skilled person (which may include a director or employee of the general insurer)" giving rise to the possibility of the opinion being given in-house.
The cost of complying with the Regulation for a modest-sized captive insurer has been estimated at a fifth of a captive's overall operating cost.