Example 1: Book value election
18.FSA rules permit an insurance company to recognise the total value of its LTIF assets at an amount less than their admissible value. The use of a value less than admissible value is known as ‘making a book value election’. Recognising assets at less than admissible value defers the bringing of income and gains into account for both tax and regulatory purposes. When a non-taxable addition to the fund is available to frank tax-deductible expenditure and the company chooses to defer the recognition of taxable income and gains by way of a book value election there will be a tax loss which does not reflect a commercial loss of the life insurance business.
