Regulatory Alerts2020-12-08
Added · Updated
Q&A and Good practices on the role of deferred taxes in Solvency II
The DNB clarifies how insurers must value deferred tax assets and liabilities on the Solvency II balance sheet and calculate their loss-absorbing capacity. Insurers are required to substantiate future taxable profits to recognize deferred tax assets, applying reduction factors to account for uncertainty in excess returns and new business projections. The guidance specifies that external recapitalization cannot be used as a future management action to substantiate loss-absorbing capacity, while internal group recapitalization is permitted under strict conditions. Insurers may set the loss-absorbing capacity of deferred taxes to zero if the calculation is deemed too burdensome.