The Friendly Societies (Accounts and Related Provisions) Regulations 1994

Regulations 4 and 5

SCHEDULE 2

PART IBALANCE SHEET FORMAT

ASSETS

A.    Intangible assets

1. Development costs

2. Concessions, patents, licences, trade marks and similar rights and assets (1)

3. Goodwill (2)

4. Payments on account

B.    Investments

I. Land and buildings (3)

II. Investments in associated bodies

1.Investments in subsidiaries

(a)Shares

(b)Loans

2.Investments in jointly controlled bodies

(a)Shares

(b)Loans

3.Significant investments in other associated bodies (4)

(a)Shares

(b)Loans

III. Other financial investments

1.Shares and other variable-yield securities and units in unit trusts

2.Debt securities and other fixed income securities (5)

3.Participation in investment pools (6)

4.Loans secured by mortgages (7)

5.Other loans (7)

6.Deposits with credit institutions (8)

7.Other (9)

IV. Deposits with ceding undertakings (10)

C.    Assets held to cover linked liabilities (11)

D.    Reinsurers' share of technical provisions (12)

1. Provision for unearned premiums

2. Long term business provision

3. Claims outstanding

4. Provisions for bonuses and rebates

5. Other technical provisions

6. Technical provisions for unit-linked liabilities

E.    Debtors (13)

I. Debtors arising out of direct insurance operations

1.Members or policyholders

2.Intermediaries

II. Debtors arising out of reinsurance operations

III. Other debtors

F.    Other assets

I. Tangible assets

1.Fixtures, fittings, tools and equipment

2.Payments on account (other than deposits paid on land and buildings) and assets (other than buildings) in course of construction

II. Stocks

1.Raw materials and consumables

2.Work in progress

3.Finished goods and goods for resale

4.Payments on account

III. Cash at bank and in hand

IV. Other (14)

G.    Prepayments and accrued income

I. Accrued interest and rent (15)

II. Deferred acquisition costs (16)

III. Other prepayments and accrued income

LIABILITIES

A.    Reserves

I. Revaluation reserve

II. Reserves provided for by the rules and tables

III. Other reserves

B.    Subordinated liabilities (17)

Ba.    Fund for future appropriations (18)

C.    Technical provisions

1. Provision for unearned premiums (19)

(a)gross amount

(b)reinsurance amount (12)

2. Long term business provision (19)(20)(24)

(a)gross amount

(b)reinsurance amount (12)

3. Claims outstanding (21)

(a)gross amount

(b)reinsurance amount (12)

4. Provision for bonuses and rebates (22)

(a)gross amount

(b)reinsurance amount (12)

5. Other technical provisions (23)

(a)gross amount

(b)reinsurance amount (12)

D.    Technical provisions for linked liabilities (24)

(a)gross amount

(b)reinsurance amount (12)

E.    Provisions for other risks and charges

1. Provisions for pensions and similar obligations

2. Provisions for taxation

3. Other provisions

F.    Deposits received from reinsurers (25)

G.    Creditors (26)

I. Creditors arising out of direct insurance operations

II. Creditors arising out of reinsurance operations

III. Debenture loans (27)

IV. Amounts owed to credit institutions

V. Other creditors including taxation and social security

H.    Accruals and deferred income

PART IIFORMAT OF CONSOLIDATED BALANCE SHEET

The modifications to Part I of this Schedule for the format of a consolidated balance sheet are as follows:

(1) Assets items B.II.1.(a) and (b) (Investments in subsidiaries, (a) shares and (b) loans) must be omitted.

(2) After Liabilities item A.III. (Other reserves) there must be inserted the following new item: “IV. Minority interests”.

(3) The information required by paragraph 1 of Part IV of this Schedule need not be given.

PART IIINOTES ON THE BALANCE SHEET FORMAT

(1) Concessions, patents, licences, trade marks and similar rights and assets

• (Assets item A.2)

• Amounts in respect of assets must only be included in a society’s balance sheet under this item if either:

  (a)

  the assets were acquired for valuable consideration and are not required to be shown under goodwill; or

  (b)

  the assets in question were created by the society itself.

(2) Goodwill

• (Assets item A.3)

• Amounts representing goodwill must only be included to the extent that the goodwill was acquired for valuable consideration.

(3) Land and buildings

• (Assets item B.I)

• The amount of any land and buildings occupied by the society for its own activities must be shown separately in the notes to the accounts.

(4) Significant investments in other associated bodies

• (Asset item B.II.3)

• An investment is significant if it falls within the description in paragraph 5(2) of Schedule 5 below.

(5) Debt securities and other fixed income securities

• (Assets item B.III.2)

• This item must comprise transferable debt securities and any other transferable fixed income securities issued by credit institutions, other undertakings or public bodies, in so far as they are not covered by Assets item B.II.1.(b), B.II.2.(b) or B.II.3.(b).

• Securities bearing interest rates that vary in accordance with specific factors, for example the interest rate on the inter-bank market or on the Euromarket, must also be regarded as debt securities and other fixed income securities and so be included under this item.

(6) Participation in investment pools

• (Assets item B.III.3)

• This item must comprise shares held by the society in joint investments constituted by several undertakings or pension funds, the management of which has been entrusted to one of those undertakings or to one of those pension funds.

(7) Loans secured by mortgages and other loans

• (Assets items B.III.4 and B.III.5)

• Loans to members or policy holders for which the policy is the main security must be included under “Other loans” and their amount must be disclosed in the notes to the accounts. Loans secured by mortgage must be shown as such even where they also secured by insurance policies. Where the amount of “Other loans” not secured by policies is material, an appropriate breakdown must be given in the notes to the accounts.

(8) Deposits with credit institutions

• (Assets item B.III.6)

• This item must comprise sums the withdrawal of which is subject to a time restriction. Sums deposited with no such restriction must be shown under Assets item F.III even if they bear interest.

(9) Other

• (Assets item B.III.7)

• This item must comprise those investments which are not covered by Assets items B.III.1 to 6. Where the amount of such investments is significant, they must be disclosed in the notes to the accounts.

(10) Deposits with ceding undertakings

• (Assets item B.IV)

• Where the society accepts reinsurance this item must comprise amounts, owed by the ceding undertakings and corresponding to guarantees, which are deposited with those ceding undertakings or with third parties or which are retained by those undertakings.

• These amounts may not be combined with other amounts owed by the ceding insurer to the reinsurer or set off against amounts owed by the reinsurer to the ceding insurer.

• Securities deposited with ceding undertakings or third parties which remain the property of the society must be entered in the society’s accounts as an investment, under the appropriate item.

(11) Assets held to cover linked liabilities

• (Assets item C)

• In respect of long term business, this item must comprise investments made pursuant to long term policies under which the benefits payable to the member or policy holders are wholly or partly to be determined by reference to the value of, or the income from, property of any description (whether or not specified in the contract) or by reference to fluctuations in, or in an index of, the value of property of any description (whether or not so specified).

• This item must also comprise investments which are held on behalf of the members or policy holders of a tontine and are intended for distribution among them.

(12) Reinsurance amounts

• (Assets item D: Liabilities items C.1(b), 2(b), 3(b), 4(b) and 5(b) and D(b))

• The reinsurance amounts may be shown either under Assets item D or under Liabilities items C.1(b), 2(b), 3(b), 4(b) and 5(b) and D(b).

• The reinsurance amounts must comprise the actual or estimated amounts which, under contractual reinsurance arrangements, are deducted from the gross amounts of technical provisions.

• As regards the provision for unearned premiums, the reinsurance amounts must be calculated according to the methods referred to in paragraph 35 of Schedule 6 below or in accordance with the terms of the reinsurance policy.

(13) Debtors

• (Assets item E)

• Amounts owed by jointly controlled bodies and subsidiaries must be shown separately as sub-items of Assets E.I, II and III.

(14) Other

• (Asset item F.IV)

• This item must comprise those assets which are not covered by Assets items F.I to III. Where such assets are material they must be disclosed in the notes to the accounts.

(15) Accrued interest and rent

• (Assets item G.I)

• This item must comprise those items that represent interest and rent that have been earned up to the balance-sheet date but have not yet become receivable.

(16) Deferred acquisition costs

• (Assets item G.II)

• This item must comprise the costs of acquiring insurance policies which are incurred during a financial year but relate to a subsequent financial year (“deferred acquisition costs”), except in so far as:

  (a)

  allowance has been made in the computation of the long term business provision made under paragraph 37 of Schedule 6 below and shown under Liabilities item C2 or D in the balance sheet, for:

  (i)

  the explicit recognition of such costs; or

  (ii)

  the implicit recognition of such costs by virtue of the anticipation of future income from which such costs may prudently be expected to be recovered; or

  (b)

  allowance has been made for such costs in respect of general business policies by a deduction from the provision for unearned premiums made under paragraph 35 of Schedule 6 below and shown under Liabilities item C.1 in the balance sheet.

• Deferred acquisition costs arising in general business must be distinguished from those arising in long term business.

• In the case of general business, the amount of any deferred acquisition costs must be established on a basis compatible with that used for unearned premiums.

• There must be disclosed in the notes to the accounts how the deferral of acquisition costs has been treated (unless otherwise expressly stated in the accounts), and:

  (a)

  where such costs are included as a deduction from the provisions at Liabilities item C.1, the amount of such deduction; or

  (b)

  where the actuarial method used in the calculation of the provisions at Liabilities item C.2 or D has made allowance for the explicit recognition of such costs, the amount of the costs so recognised.

(17) Subordinated liabilities

• (Liabilities item B)

• This item must comprise all liabilities in respect of which there is a contractual obligation that, in the event of winding up or of dissolution, they are to be repaid only after the claims of all other creditors have been met (whether or not they are represented by certificates).

(18) Fund for future appropriations

• (Liabilities item Ba)

• This item must comprise all funds the allocation of which to members or policy holders has not been determined by the end of the financial year.

• Transfers to and from this item must be shown in item II.12a in the income and expenditure account.

(19) Provision for unearned premiums

• (Liabilities item C.1)

• In the case of long term business the provision for unearned premiums may be included in Liabilities item C.2 rather than in this item.

• The provision for unearned premiums must comprise the amount representing that part of gross premiums written which is estimated to be earned in the following financial year or to subsequent financial years.

(20) Long term business provision

• (Liabilities item C.2)

• This item must comprise the actuarially estimated value of the society’s liabilities (excluding technical provisions included in Liabilities item D), including bonuses already declared and after deducting the actuarial value of future premiums.

• This item must also comprise claims incurred but not reported, plus the estimated costs of settling such claims.

(21) Claims outstanding

• (Liabilities item C.3)

• This item must comprise the total estimated ultimate cost to the society of settling all claims arising from events which have occurred up to the end of the financial year (including, in the case of general business, claims incurred but not reported) less amounts already paid in respect of such claims.

(22) Provision for bonuses and rebates

• (Liabilities item C.4)

• This item must comprise amounts intended for members or policy holders by way of bonuses and rebates as defined in Note (5) on the income and expenditure account format to the extent that such amounts have not been credited to members or policy holders, or included in Liabilities item Ba or in Liabilities item C.2.

(23) Other technical provisions

• (Liabilities item C.5)

• This item must comprise, inter alia, the provision for unexpired risks as defined in paragraph 8 of Schedule 9 below. Where the amount of the provision for unexpired risks is significant, it must be disclosed separately either in the balance sheet or in the notes to the accounts.

(24) Technical provisions for linked liabilities

• (Liabilities item D)

• This item must comprise technical provisions constituted to cover liabilities relating to investment in the context of long term policies under which the benefits payable to members or policy holders are wholly or partly to be determined by reference to the value of, or the income from, property of any description (whether or not specified in the contract) or by reference to fluctuations in, or in an index of, the value of property of any description (whether or not so specified).

• Any additional technical provisions constituted to cover death risks, operating expenses or other risks (such as benefits payable at the maturity date or guaranteed surrender values) must be included under Liabilities item C.2.

• This item must also comprise technical provisions representing the obligations of a tontine’s organiser in relation to its members or policy holders.

(25) Deposits received from reinsurers

• (Liabilities item F)

• Where the society cedes reinsurance, this item must comprise amounts deposited by or withheld from other insurance undertakings under reinsurance contracts. These amounts may not be merged with other amounts owed to or by those other undertakings.

• Where the society cedes reinsurance and has received as a deposit securities which have been transferred to its ownership, this item must comprise the amount owed by the society by virtue of the deposit.

(26) Creditors

• (Liabilities item G)

• Amounts owed to jointly controlled bodies and subsidiaries must be shown separately as sub-items.

(27) Debenture loans

• (Liabilities item G.III)

• The amount of any convertible loans must be shown separately.

PART IVSPECIAL RULES FOR BALANCE SHEET FORMAT

Additional items

1.  A society which carries on long term business must show separately, in the balance sheet or in the notes to the accounts, the total amount of assets representing the long term fund valued in accordance with the provisions of this Schedule.

Managed funds

2.—(1) For the purposes of this paragraph “managed funds” are funds of a group pension fund:

(a)which fall within Class VII of Head A of Schedule 2 to the Act;

(b)which the society administers in its own name but on behalf of others; and

(c)to which the society has legal title.

(2) The society must in any case where assets and liabilities arising in respect of managed funds fall to be treated as assets and liabilities of the society, adopt the following accounting treatment: assets and liabilities representing managed funds are to be included in the society’s balance sheet, with the notes to the accounts disclosing the total amount included with respect to such assets and liabilities in the balance sheet and showing the amount included under each relevant item in respect of such assets or (as the case may be) liabilities.

Deferred acquisition costs

3.  The costs of acquiring insurance policies which are incurred during a financial year but which relate to a subsequent financial year must be deferred in a manner specified in Note (16) on the balance sheet format.