Corporation Tax Act 2010 section 269ZO

Calculation of solvency loss

Section 269ZO sets out how to calculate an insurance company's solvency loss for a 12 month period, by comparing the movement in basic own funds and making adjustments to exclude policyholder-attributable amounts and to align the calculation with the company's solvency capital requirement methodology.

• A solvency loss arises when basic own funds at the start of a 12 month period (opening BOF) exceed those at the end (closing BOF), with the loss being the difference between the two.
• The calculation method must fairly represent how the company calculates its solvency capital requirement, meaning only movements relevant to that requirement are included — items such as dividends, capital issues, risk margin movements and pension liability changes are excluded.
• Basic own funds within with-profits funds that are attributable to policyholders are stripped out of both opening and closing BOF, so that only losses borne by shareholders feed into the solvency loss figure.
• Closing BOF is calculated on the assumption that the 12 month period is a solvency shock period, which means deferred tax assets arising from the shock losses are not restricted to 50%.