| 3.11 | The established accounting treatment for long-term insurance business is to measure liabilities for policyholder benefits under the modified statutory solvency basis (MSSB). This FRS requires with-profits funds to use the realistic value of liabilities as the basis for the estimated value of the liabilities to be included in the financial statements. [AMD 11] |
| 3.12 | For with-profits funds: |
| (a) | liabilities to policyholders arising from with-profits business shall be stated at the amount of the realistic value of liabilities adjusted to exclude the shareholders' share of projected future bonuses; |
| (b) | reinsurance recoveries that are recognised shall be measured on a basis that is consistent with the value of the policyholder liabilities to which the reinsurance applies; |
| (c) | an amount may be recognised for the present value of future profits on non-participating business written in a with-profits fund if the determination of the realistic value of liabilities in that with-profits fund takes account, directly or indirectly, of this value; |
| (d) | where a with-profits life fund has an interest in a subsidiary or associate and the determination of the realistic value of liabilities to with-profits policyholders takes account of a value of that interest at an amount in excess of the net amounts included in the entity's consolidated accounts, an amount may be recognised representing this excess; and |
| (e) | adjustments to reflect the consequential tax effects of (a) to (d) above shall be made. |
| Adjustments from the MSSB necessary to meet the above requirements, including the recognition of an amount in accordance with paragraph 3.12(c) or 3.12(d), shall be included in profit or loss. An amount equal and opposite to the net amount of these adjustments shall be transferred to or from the fund for future appropriations (FFA) and also included in profit or loss. [AMD 12] |
| 3.13 | In the case of a mutual, an FFA or retained surplus account is maintained that represents amounts that have not yet been allocated to specific policyholders. For such entities, the adjustments required by paragraph 3.12 will be offset within profit or loss by a transfer directly to or from this FFA or retained surplus account, with the result that overall profit or loss for the year will be unchanged. |
| 3.14 | The realistic value of liabilities shall exclude the amount which represents the shareholders' share of future bonuses. Similar adjustments shall be made if other amounts due to shareholders would otherwise be included in the realistic value of liabilities. |
| 3.15 | An entity is permitted to recognise the excess of the market value of a subsidiary over the net amounts included in the consolidated financial statements as a deduction from the sub-total of the FFA and liabilities to policyholders in the same way as the value of in-force insurance business (VIF) described in paragraph IG1.3 of the Implementation Guidance. |
| AMD 11 Amendment Paragraph 3.11 amended by Amendments to FRS 103 Insurance Contracts Solvency II (issued May 2016) Effective date 01/01/2016 Previous text 3.11. The established accounting treatment for long-term insurance business is to measure liabilities for policyholder benefits under the modified statutory solvency basis (MSSB). This FRS requires those with-profits funds within the scope of the PRA realistic capital regime to use the realistic value of liabilities as the basis for the estimated value of the liabilities to be included in the financial statements. |
| AMD 12 Amendment Paragraph 3.12 amended by Amendments to FRS 103 Insurance Contracts Solvency II (issued May 2016) Effective date 01/01/2016 Previous text 3.12. For with-profits funds to which the PRA realistic capital regime is being applied, either voluntarily or compulsorily: (a) liabilities to policyholders arising from with-profits business shall be stated at the amount of the realistic value of liabilities adjusted to exclude the shareholders' share of projected future bonuses; (b) reinsurance recoveries that are recognised shall be measured on a basis that is consistent with the value of the policyholder liabilities to which the reinsurance applies; (c) an amount may be recognised for the present value of future profits on non-participating business written in a with-profits fund if: (i) the non-participating business is measured on a realistic basis for the purposes of the regulatory returns made under the PRA realistic capital regime; (ii) the value is determined in accordance with the PRA regulations; and (iii) the determination of the realistic value of liabilities in that with-profits fund takes account, directly or indirectly, of this value; (d) where a with-profits life fund has an interest in a subsidiary or associate and the determination of the realistic value of liabilities to with-profits policyholders takes account of a value of that interest at an amount in excess of the net amounts included in the entity's consolidated accounts, an amount may be recognised representing this excess; and (e) adjustments to reflect the consequential tax effects of (a) to (d) above shall be made. Adjustments from the MSSB necessary to meet the above requirements, including the recognition of an amount in accordance with paragraph 3.12(c) or 3.12(d), shall be included in profit or loss. An amount equal and opposite to the net amount of these adjustments shall be transferred to or from the fund for future appropriations (FFA) and also included in profit or loss. |
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