GIM6630 - Technical provisions: appropriate amount Regulations: rules applicable to both methods
A number of rules govern both methods, which are by and large simply a reflection of sound practice
- any calculations of an actuarial nature must be made in accordance with standards in force at the time set by the Board for Actuarial Standards, or by the equivalent standards of the company’s domicile, where it is not resident in the UK but is trading through a UK permanent establishment or is a controlled foreign company
- the different risks and volatilities relevant to different lines of business must be taken into account
- the amount of liabilities will be determined in accordance with the provisions of the accounting Regulations SI2008/410, and taking account of anticipated reinsurance recoveries, which are shown separately in the accounting format of those Regulations
- the liabilities relating to claims outstanding include claims handling expenses and those relating to claims incurred but not yet reported (or fully reported).
The Board for Actuarial Standards is part of the Financial Reporting Council. The standards may be found on its website, but any question as to their application should only be raised in conjunction with advice from the Government Actuary. This condition only applies where the calculations and opinions are of an actuarial nature. If they are of a legal or engineering nature, they should be made by a suitably skilled person. The question of whether a person is suitably skilled in this context will not be challenged unless there is an obvious reason to do so.
Lines of business for this purpose can be accepted as those chosen by the general insurer for its reporting purposes. The legislation refers to the ‘business categories’ in the Financial Services Authority’s sourcebook IPRU (INS) at Annex 11.3 to Chapter 11 of Volume I, or the groupings set out in Appendix 9.16 in Volume II.
Any assessment of provisions set in the accounts must be made on the basis of the same facts as would be available at the time they were adopted. It is not permissible to use hindsight in reviewing the decision of the directors.