Plain language law

New Zealand law explained for everyone

 Plain Language Law homepage
Back to
DW 3B: Lloyd’s of London: deductions for life insurance business
or “Lloyd's of London can't claim expenses on life insurance premium income”
You could also call this:

“Insurers can claim deductions for outstanding general insurance claims”

This section explains how insurers can deduct costs related to outstanding claims for general insurance contracts. Here’s what you need to know:

  • It applies to insurers who use specific accounting standards for general insurance contracts.

  • Insurers can’t deduct costs for outstanding claims unless this section allows it.

  • Each year, insurers calculate the difference between their opening and closing outstanding claims reserve.

  • If the opening reserve is larger, they can deduct the difference.

  • When an insurer takes over a contract from another company, there’s a special way to calculate the opening reserve.

  • Insurers can deduct the amount they pay out for claims in a given year.

  • This section adds to the general permission for deductions, but other limitations still apply.

  • The capital limitation doesn’t apply to general insurance contracts that have been transferred to an insurer.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

Next up: DW 5: Aircraft operators: aircraft engines and aircraft engine overhauls

or “Rules for aircraft operators claiming deductions for engine costs and overhauls”
Next

Part D Deductions
Expenditure specific to certain industries

DW 4Deduction for general insurance outstanding claims reserve

  1. This section applies for—

  2. an insurer who—
    1. uses IFRS 4, Appendix D, or IFRS 17 for general insurance contracts:
      1. is a life insurer who has general insurance contracts; and
      2. general insurance contracts, excluding contracts having premiums to which section CR 3 (Income of non-resident general insurer) applies.

        1. This section does not apply for contracts that section DZ 10 (General insurance with risk period straddling 1 July 1993) applies to.

        2. For an insurer's general insurance contracts, the insurer is denied a deduction relating to the insurer's outstanding claims liability or for a claim's expenditure or loss, except as provided by this section.

        3. For an income year (the current year), an insurer is allowed a deduction for the amount by which zero is greater than the amount calculated using the formula—

          opening outstanding claims reserve − closing outstanding claims reserve.

          Where:

          • In the formula,—

          • opening outstanding claims reserve is—
            1. the amount of the insurer's closing outstanding claims reserve for the income year before the current year (the prior year), if none of subparagraphs (ii), (iii), and (iv) applies; or
              1. the amount of the insurer's reserve for outstanding claims liability, calculated at the end of the prior year, using the basis the insurer used for tax purposes in that prior year, if the current year is the first year that this section applies to the insurer; or
                1. the amount of the insurer’s reserve for outstanding claims liability, calculated at the end of the prior year using the basis the insurer used for tax purposes in that prior year for general insurance contracts, if the insurer is a general insurer and the current year is the first year in which the insurer adopts IFRS 17 for general insurance contracts; or
                  1. the amount of the insurer’s reserve for outstanding claims liability, calculated at the end of the prior year using the basis the insurer used for tax purposes in that prior year for general insurance contracts, if the insurer is a life insurer with general insurance contracts who does not adopt IFRS 17 in the current year and the current year is the first year in which the insurer applies the definition of present value (gross) in section EY 24(5) (Outstanding claims reserving amount: non-participation policies not annuities):
                  2. closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve, calculated at the end of the current year.

                    1. If a person (the transferor) transfers a general insurance contract (the contract) to the insurer by a transfer to which section ED 3(1B) (Part-year tax calculations for transfers: general insurance OCR) applies, the amount of the item opening outstanding claims reserve for the contract under subsection (4) for the insurer is the amount calculated using the formula—

                      unreported claim events + reported claims unpaid + risk adjustment.

                      Where:

                      • In the formula in subsection (4B),—

                      • unreported claim events is the actuarially determined estimate of the present value of claims, not reported to the transferor before the transfer, for events occurring before the transfer,—
                        1. taking into account the probability of the claims being paid and the future expenses for administering the claims; and
                          1. after subtracting the present value of relevant reinsurance claims of the insurer:
                          2. reported claims unpaid is the actuarially determined estimate of the present value of the claims reported to the transferor before the transfer and not paid before the transfer,—
                            1. taking into account the probability of the claims being paid and the future expenses for administering the claims; and
                              1. after subtracting the present value of relevant reinsurance claims of the insurer:
                              2. risk adjustment is the appropriate adjustment for claims described in paragraph (a) or (b), to the extent to which the adjustment—
                                1. is actuarially determined; and
                                  1. reflects the uncertainty of the estimates arising from the use of the relevant best estimate assumptions; and
                                    1. is not already included in the risk components of the claims.

                                    2. The insurer is allowed a deduction for the amount of expenditure or loss of a claim paid to an insured under a general insurance contract for the income year.

                                    3. This section supplements the general permission. The general limitations still apply, except that the capital limitation does not apply for general insurance contracts after they are transferred to an insurer.

                                    Notes
                                    • Section DW 4: added (with effect on 1 April 2008), on , by section 109(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                    • Section DW 4(1)(a)(i): amended (with effect on 1 January 2023), on , by section 49(1) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                    • Section DW 4(1B) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 36(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                                    • Section DW 4(1B): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 36(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                                    • Section DW 4(4)(a)(i): amended (with effect on 1 January 2023), on , by section 49(2) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                    • Section DW 4(4)(a)(ii): amended (with effect on 1 January 2023), on , by section 49(3) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                    • Section DW 4(4)(a)(iii): inserted (with effect on 1 January 2023), on , by section 49(4) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                    • Section DW 4(4)(a)(iv): inserted (with effect on 1 January 2023), on , by section 49(4) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                    • Section DW 4(4B) heading: inserted, on , by section 42(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section DW 4(4B): inserted, on , by section 42(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section DW 4(4B) formula: amended (with effect on 1 January 2023), on , by section 49(5) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                    • Section DW 4(4C) heading: inserted, on , by section 42(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section DW 4(4C): inserted, on , by section 42(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section DW 4(4C)(c): amended (with effect on 1 January 2023), on , by section 49(6)(a) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                    • Section DW 4(4C)(c): amended (with effect on 1 January 2023), on , by section 49(6)(b) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                    • Section DW 4(4C)(c): amended (with effect on 1 January 2023), on , by section 49(6)(c) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                    • Section DW 4(6): amended (with effect on 7 September 2010), on , by section 27(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                    • Section DW 4 list of defined terms actuarially determined: inserted, on , by section 42(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section DW 4 list of defined terms best estimate assumptions: inserted, on , by section 42(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section DW 4 list of defined terms capital limitation: inserted (with effect on 7 September 2010), on , by section 27(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                    • Section DW 4 list of defined terms general insurance: inserted, on , by section 42(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section DW 4 list of defined terms general insurance contract: repealed (with effect on 1 April 2008), on , by section 26(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                                    • Section DW 4 list of defined terms IFRS 17: inserted (with effect on 1 January 2023), on , by section 49(7) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                    • Section DW 4 list of defined terms New Zealand resident: inserted, on , by section 42(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section DW 4 list of defined terms non-resident: inserted, on , by section 42(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section DW 4 list of defined terms pay: inserted (with effect on 1 April 2008), on , by section 26(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                                    • Section DW 4 list of defined terms present value (gross): inserted (with effect on 1 January 2023), on , by section 49(7) (and see section 49(8) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).