- Irish companies are generally required to prepare, have audited and disclose their financial statements in accordance with Part 6 of the Companies Act 2014. However insurance undertakings, and groups comprised primarily of such undertakings, are also subject to the European Union (Insurance Undertakings: Financial Statements) Regulations 2015, which have priority over Part 6 in respect of such undertakings;
- These regulations provide that:
- such undertakings will not be allowed to avail of a number of exemptions from preparing, having audited and filing financial statements, and will be subject to additional obligations to make available their financial statements for inspection;
- the balance sheet and profit and loss account of such undertakings must be laid out in accordance with specified formats, reflecting the business they undertake; and
- the notes to the financial statements must include detailed additional disclosures of matters relating to the business of the insurance undertakings in question.
BACKGROUND AND SCOPE
Part 6 of the Companies Act 2014 (the "Act") sets out the law relating to financial statements, annual returns and audit, as it applies to companies generally. However the Act makes clear that Part 6 shall not apply to an insurance undertaking to the extent provided by regulations made to give effect to acts adopted by EU institutions on accounts of insurance undertakings.
The European Union (Insurance Undertakings: Financial Statements) Regulations 2015 (S.I. No. 262 of 2015) (the "Regulations") give effect to Council Directive 91/674/EEC, and revoke the European Communities (Insurance Undertakings: Accounts) Regulations 1996 (S.I. No. 23 of 1996). This note sets out key differences between the law applicable to insurance undertakings and that relating to companies generally as regards financial statements, annual returns and audit.
The Regulations apply to an insurance undertaking, being an undertaking which holds an authorisation pursuant to any one of a number of EU Regulations , and to a holding undertaking whose principal subsidiaries are wholly or mainly insurance undertakings, and which doesn't carry on any material business save as a holding undertaking. The references to "undertaking" include partnerships and unincorporated bodies as well as bodies corporate.
Insurance undertakings may not avail of certain exemptions.
The Regulations preclude an insurance undertaking from availing of certain exemptions:
- The exemption for small and medium sized companies from filing statutory financial statements (provided that they instead file abridged financial statements) (section 352 and related provisions);
- The exemption from filing financial statements where an EU holding undertaking guarantees the liabilities of the subsidiary, and certain other conditions are met (section 357);
- The exemption from preparing group financial statements on the basis of the group as a whole falling below certain thresholds in terms of size (sections 297-298);
- The exemption from having the financial statements audited, whether on the basis of size (sections 358- 364 and 378) or by virtue of being a dormant company (section 365).
The Regulations also impose an additional obligation on an insurance undertaking to make its financial statements available for public inspection at its head office, and to make copies available to the public on request at a price not to exceed the cost of making a copy.
Additional details to be provided in financial statements and notes.
The required formats for financial statements are set out in paragraph 13 of Part II of the Regulations, and are similar to the "Format 2" balance sheet and profit and loss account in Schedule 3 to the Act, save that they require certain additional disclosures due to the nature of the business of an insurance undertaking, including the following:
- "Investments for the benefit of life assurance policyholders who bear the investment risk", and "Reinsurers' share of technical provisions", within Assets;
- "Fund for future appropriations", "Technical provisions", "Technical provisions for life assurance policyholders where the investment risk is borne by the policyholders" and "Deposits received from reinsurers" within Liabilities;
- The profit and loss account must be laid out as three elements – "Technical account – Non-life insurance", "Technical account – Life assurance business" and "Non-technical account";
- The key headings within each of the Technical accounts are "Earned premiums", "Allocated investment return transferred from the non-technical account", "Other technical income", "Claims incurred", "Changes in other technical provisions", "Bonuses and rebates", "Net operating expenses", "Investment charges", "Other technical charges" and "Change in the equalisation provisions".
Part II of the Regulations then sets out the items to be included in notes to the financial statements, and largely replicates Schedules 3 and 4 to the Act in that respect, save that it again requires certain additional disclosures, the most significant being as follows:
- To ensure that "Technical Provisions" cover any liabilities arising out of insurance contracts, as far as can be reasonably foreseen (paragraph 54);
- To compute "Provision for unearned premiums" either separately for each contract, or using methods that may be expected to approximate to the same end (paragraph 55);
- To compute "Provision for unexpired risks" in the manner set out in paragraph 56;
- To compute "Life assurance provision" either separately for each contract, or using methods that may be expected to approximate to the same end; the computation in either case being carried out by Fellow Member of the Society of Auditors in Ireland, in accordance with specified principles (paragraph 57);
- To compute "Provisions for claims outstanding – Non-life insurance" in the manner set out in paragraphs 58-59;
- To compute "Provisions for claims outstanding – Life Assurance" in the manner set out in paragraph 60;
- To ensure that any equalisation provision under regulation 14(8) of SI 115/1976 is valued in accordance with those Regulations (paragraph 61);
- Where the accounting is carried out on a non-annual basis, to ensure that this is done in accordance with one of the two methods set out in paragraph 62;
- To provide a detailed breakdown of non-life insurance figures such as gross premiums and the reinsurance balance in the manner set out in paragraph 84;
- To provide a detailed breakdown of life assurance figures such as gross premiums and the reinsurance balance in the manner set out in paragraph 85;
- To provide a geographical breakdown of gross premiums, as per paragraph 86; and
- To disclose total commissions for direct insurance business (paragraph 87).
- Again, these disclosures reflect the unique nature of the business of insurance undertakings.
For further information on the Act please click here.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.