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Prospective
38.—(1) A provision must in principle be computed separately for each claim on the basis of the costs still expected to arise, save that statistical methods may be used if they result in an adequate provision having regard to the nature of the risks.
(2) This provision must also allow for claims incurred but not reported by the balance sheet date, the amount of the allowance being determined having regard to past experience as to the number and magnitude of claims reported after previous balance sheet dates.
(3) All claims settlement costs (whether direct or indirect) must be included in the calculation of the provision.
(4) Recoverable amounts arising out of subrogation or salvage must be estimated on a prudent basis and either deducted from the provision for claims outstanding (in which case if the amounts are material they must be shown in the notes to the accounts) or shown as assets.
(5) In sub-paragraph (4) above, “subrogation” means the acquisition of the rights of members or policy holders with respect to third parties, and “salvage” means the acquisition of the legal ownership of insured property.
(6) Where benefits resulting from a claim must be paid in the form of annuity, the amounts to be set aside for that purpose must be calculated by recognised actuarial methods, and paragraph 40 below must not apply to such calculations.
(7) Implicit discounting or deductions, whether resulting from the placing of a current value on a provision for an outstanding claim which is expected to be settled later at a higher figure or otherwise effected, is prohibited.
Commencement Information
I1Sch. 6 para. 38 in force at 1.9.1994, see reg. 1
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