2 July 1991 External T.I. 9116325 F - Deductibility of Reserves of Non-life Insurance Companies

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

5-911632

Dear Sirs:

We are writing in reply to your letter dated June 5, 1991 concerning the deductibility, for Canadian income tax purposes, of certain reserves of non-life insurance companies.

The particular reserves with which you are concerned are:

i)        incurred but not reported claims reserves;

ii)       reserves against catastrophic losses; and

iii)      reserves against unexpected events or unusual volatility in claims.

The various policy reserves which are deductible in computing income from an insurance business other than a life insurance business are set out in section 1400 of the Income Tax Regulations, a photocopy of which is enclosed.  Of the three types mentioned above, only the first, i.e. the incurred but not reported claims reserve, is allowable pursuant to paragraph 1400(e) of the Regulations.  (There is some element of the third type in the reserve described in paragraph 1400(g.1) in that it refers, in part, to a reduction or elimination of a future adverse claims experience.  You will note, however, that its application is quite narrow and restricted.)

We hope this will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate