SA3-03 - LACDT

[Howard O'Connor]

Hi all
The Core Reading (SA3 chapter 3 end of page 10 in CMP) mentions the "loss absorbency capacity for deferred tax" - what is it and how is it calculated?
Thank you!

 

[CapitalActuary]

In the event of a very large loss (e.g. an SCR-sized one), you might be able to put a deferred tax asset (or reduce the size of a deferred tax liability) on your balance sheet, depending on what your local tax authority allows for. The introduction of this new asset would offset some of the loss, and so it acts to reduce the SCR. You calculate LACDT as the size of the deferred tax asset (or the size of the reduction in the deferred tax liability). In my experience this is basically a discussion with accountants and/or people who understand how tax is likely to work in the event of a large loss.

 

[Howard O'Connor]

Thank you!