We comment on HM Treasury consultation on distributable profits of long-term (life) insurers

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21 Nov, 2016

We have published our comment letter on HM Treasury's consultation seeking views on technical changes to the legal definition of life insurers’ distributable profits.

Overall we support the proposal to revise the calculation of distributable profits for long-term insurers.  Our key comments, which we expand on in the appendix to our comment letter are as follows:

  • We believe that in a number of instances the amounts determined based on a formula in section 843A may be higher than the amount determined under section 831. In such situations section 831 would provide a restriction for public companies capping the amount of reserves that can be distributed. We believe this operation of section 831, which stems from an EU legislation, to be a useful protective mechanism complementing the application of section 843A.
  • We believe there are potential unintended consequences from including as deductions both the amounts of illiquid or regulatory restricted assets and the amounts of capital items such as share capital and other undistributable reserves, as this may result in double counting. We ask for clarification that application of section 843A (6) would avoid double counting in such instances.
  • We recommend the development of an allocation criteria, or at least a general principle, to apportion the amount of the deductions under the new approach for items that cannot be fully allocated to the life insurance business (such as a surplus from investments in the qualifying undertakings or a defined benefit pension plan surplus).

Further comments and a full response to all questions raised in the invitation to comment are contained within the full comment letter.

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