29 Deferred tax continued
(a) Group deferred tax assets analysed by balance sheet headings
Income
statement Transfer from
2011 (charge)/credit equity 2012
At 31 December £000 £000 £000 £000
Trading losses in overseas entities 25,748 (140) – 25,608
Deferred tax assets 25,748 (140) – 25,608
(b) Net Group deferred tax liabilities analysed by balance sheet headings
Income
statement Transfer from
2011 (charge)/credit equity 2012
At 31 December £000 £000 £000 £000
Tangible assets 2,614 (955) – 1,659
Trading losses in UK entities 12,959 (12,959) – –
Trade and other payables 525 510 – 1,035
Intangible assets – Syndicate capacity 3,344 (468) – 2,876
Other items 5,174 (3,947) 4,573 5,800
Total deferred tax assets 24,616 (17,819) 4,573 11,370
Investment in associated enterprises (6) – – (6)
Financial assets (1,018) 22 – (996)
Insurance contracts – equalisation provision* (26,929) (4,103) – (31,032)
Reinsurance premiums (128,240) 14,379 – (113,861)
Retirement benefit obligations (610) 521 – (89)
(156,803) 10,819 – (145,984)
Open years of account (20,260) 16,512 – (3,748)
Total deferred tax liabilities (177,063) 27,331 – (149,732)
Net total deferred tax liabilities (152,447) (138,362)
* The solvency regulations in the UK require certain entities within the Group to establish an equalisation provision, to be utilised against abnormal levels of future losses in certain lines of business. The regulations prescribe that the provision is increased
every year by an amount that is calculated as a percentage of net premiums written for those lines of business during the financial year subject to a maximum percentage. The amount of each annual increase is a deductible expense for tax purposes,
and the equalisation provision is taxed when released. Equalisation provisions are not permitted under IFRS which therefore results in the temporary difference for tax purposes. Following a change in the legislation at the end of 2008, Lloyd’s Corporate
Members are also entitled to a tax deduction for claims equalisation losses although this is not a solvency requirement for Lloyd’s. The Group has provided for the deferred tax liability on its Corporate Members’ claims equalisation reserve during the year.
UK deferred income tax assets and liabilities are calculated at 23% for the year ended 31 December 2012 (2011: 25%). The UK Government
has indicated its intention to reduce UK tax rates to 21% by the full year commencing April 2014, however at the balance sheet date, no such
measures were substantially enacted.
Movements in deferred and current tax relating to tax deductions arise on employee share options are recognised in the statement of
change to equity to the extent that the movement exceeds the corresponding charge to the income statement. The total recognised in the
statement of changes in equity is £5,190,000, comprising £4,573,000 deferred tax and £617,000 current tax (2011: £3,927,000 deferred tax).
Deferred tax assets of £25,608,000 (2011: £25,748,000), relating to losses arising in overseas entities, which depend on the availability
of future taxable profits in excess of profits arising from the reversal of other temporary differences, are recognised above. Business
projections indicate it is probable that sufficient future taxable income will be available against which to offset these recognised deferred
tax assets within five years. £23,809,000 (2011: £23,555,000) of the tax losses to which these assets relate will expire after 15 years or later;
the balance of tax losses carried forward has no time limit. The Group has not provided for deferred tax assets totalling £13,931,000 (2011:
£8,714,000) including £13,841,000 (2011: £8,713,000) in relation to losses in overseas companies of £39,545,000 (2011: £25,408,000).
In accordance with IAS 12, all deferred tax assets and liabilities are classified as non-current.
The amount of deferred tax asset expected to be recovered after more than 12 months is £25,608,000 (2011: £25,748,000).
30 Employee retirement benefit obligations
The Company’s subsidiary, Hiscox plc, operates a defined benefit pension scheme based on final pensionable salary. The scheme closed
to future accrual with effect from 31 December 2006 and active members were offered membership of a defined contribution scheme from
1 January 2007. The funds of the defined benefit scheme are controlled by the trustee and are held separately from those of the Group.
The employer’s expense for the defined contribution scheme is taken to the income statement.
The gross amount recognised in the Group balance sheet in respect of the defined benefit scheme is determined as follows:
2012 2011
£000 £000
Present value of scheme obligations 173,420 155,685
Fair value of scheme assets (156,513) (140,517)
Deficit for funded plans 16,907 15,168
Unrecognised net actuarial losses (32,991) (27,247)
Unrecognised surplus deemed irrecoverable 16,084 12,079
Net amount recognised as a defined benefit obligation – –
Notes to the consolidated financial statements Hiscox Ltd Report and Accounts 2012 97