A few queries I have been mulling over...

[Emma Spencer]

Hi

1) The solutions for Question 1 of the paper 2 of 402 (April 1999) refers to a 15% solvency margin rule..is this still applicable?

2) Can tax losses be used to offset gains in subsidaries?

3) Question 5 of September 402 2002 (paper 1): The solution includes one of the reasons why the NCI has bitten is that that:
'investment gains in 2001 that do not fall into taxable income if there are capital losses carried forward from 2000.'

Is this referring to BLAGAB losses which cannot be offset in the same year which they have been created?

4) The new tax laws being brought in which are planned to come in the same time as Solvency 2 are referred to in the core reading as 'Implications of Solvency 2' - why are they implications and if Solvency 2 gets further delayed then are they still planned to come into force?

Looking forward to hearing your thoughts.

Thanks

Em

 

[Mike Lewry]

Hi Emma,

1) Yes, it still applies, but knowledge of how the LTICR is calculated is no longer required, so this impact of reinsurance is beyond the current syllabus.

2) No, the subsidiary's tax bill will not be affected by losses in the parent company.

3) If the company is bringing forward capital losses in the BLAGAB fund, but is not bringing forward an NCI loss, the capital investment gains in the current year will be offset by the losses. However, they will contribute to the profit figure for the current year. So it becomes more likely that the NCI profits test will bite.

Whereas there are now just 2 reasons given in Core Reading (Ch 7, p10) for the NCI test biting, there used to be 6 reasons. The reason you ask about is one of the 4 that have been removed, but it's still worth understanding.

4) As a result of Solvency II, the FSA Returns are disappearing. As the tax calculations currently depend on FSA figures, new rules will be needed. I don't think there's a definitive answer yet about the implications of a further delay in Solvency II. Since statutory accounts are already produced, the change in tax rules could happen before Solvency II is fully implemented, but I guess we'll need to wait and see.

 

[Emma Spencer]

Thanks Mike

One more point, following on from the answer to question 2 :

In the September 2003 paper 1 question 7 (ii) it mentions that "Losses from the general incurance business cannot be offset against profits of the life insurance business except in the same year."

Does this still apply?

Thanks again

Em

 

[Mike Lewry]

Thanks Mike

One more point, following on from the answer to question 2 :

In the September 2003 paper 1 question 7 (ii) it mentions that "Losses from the general incurance business cannot be offset against profits of the life insurance business except in the same year."

Does this still apply?

Thanks again

Em

Hmmm, I'm not sure. I haven't heard of any changes to this rule, but I can't say for sure that I would have noticed any. But I do know that this is beyond the current scope of the Core Reading and so you can't be expected to know detail like this.