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The Chaucer Group (Chaucer) is a leading specialty insurance group, which mainly writes insurance and reinsurance business through the Lloyd’s market. Chaucer is ultimately owned by The Hanover Insurance Group, Inc. (THG). THG is the holding company for several property and casualty insurance companies, which together constitute one of the largest insurance businesses in the United States. THG is listed on the New York Stock Exchange.
In September 2018 Chaucer announced that THG had entered into a definitive agreement to sell Chaucer to China Reinsurance (Group) Corporation (China Re), subject to the successful completion of all legal and regulatory requirements. Chaucer will update its tax strategy once the sale has completed.
Chaucer aims to achieve full compliance with its tax obligations. This includes the maintenance of good working relationships with HMRC and other tax authorities and the safeguarding of our reputation as a responsible taxpayer.
Chaucer operates in a highly regulated industry. Risk management is an essential and embedded part of the activities undertaken to achieve the group’s strategic objectives. Chaucer has developed a comprehensive risk management framework and the Board of Directors is ultimately responsible for risk management (including tax risk management) across Chaucer.
The Directors have delegated oversight of the risk management system and systems of internal control to a Risk and Capital Committee and Operations Committee respectively. Tax risks, along with all other risks facing the business, are subject to Chaucer’s three lines of defence model, which provides multiple levels of oversight:
Due to THG’s ownership, Chaucer is also subject to the US Sarbanes-Oxley Act of 2002 i.e. assessment of internal controls over financial reporting, including the financial reporting of UK taxation.
Chaucer’s main tax risks relate to compliance and reporting, transactional risk and reputational risk with the tax authorities and other relevant stakeholders in the different countries where Chaucer operates. In order to manage these tax risks, Chaucer has appropriate internal controls and procedures in place. For example, tax calculations and payments are subject to separate internal review and Chaucer retains evidence of the review process. The group-wide internal controls ultimately provide management with the visibility of the review, risk assessment and sign-off of all material tax transactions. The internal review system supports the Senior Accounting Officer sign-off on appropriate tax accounting arrangements. Chaucer employs external advisers for specialist or complex matters.
Chaucer’s Head of Tax has regular meetings with the CFO and the Finance Leadership Team. Chaucer’s Head of Tax also raises tax issues with the Finance Committee. The CFO escalates key tax issues to the Executive Committee and the Board.
Chaucer has a low risk appetite towards tax risk, in accordance with the direction from its Board and senior management. Chaucer undertakes efficient tax planning, for example to avoid double taxation in different jurisdictions and to maintain a tax efficient legal entity structure.
Chaucer does not engage in aggressive tax planning or tax planning that lacks commercial purpose. Chaucer’s senior management team considers the tax consequence of significant transactions, with oversight from the Board. If particular tax planning or business transaction is complex, requires specialist knowledge, or there is uncertainty regarding the potential tax implications, Chaucer will obtain advice from suitably qualified external advisers.
Equally important in Chaucer’s tax planning process is the interaction with US taxation because of THG’s ownership of Chaucer. THG maintains a similar tax risk appetite and attitude towards tax planning as Chaucer. THG aims to deliver long-term economic value to shareholders and this includes tax efficiency in its own affairs, as well as those of Chaucer.
In accordance with THG’s code of conduct, Chaucer believes in having a collaborative, open and honest relationship with HMRC. We do this by making HMRC aware of key business issues and tax developments (past, current and future) through face-to-face meetings and through separate discussions where required, for example if it is unclear how the legislation would apply in a particular scenario. Chaucer discloses relevant information on key issues and transactions when submitting tax returns to HMRC.
In the event of discovering an inadvertent error or mistake in a submitted tax return, Chaucer will provide full and voluntary disclosure to HMRC as soon as practical, including the reason(s) for the error. Chaucer will then co-operate fully with any follow-up queries, ensure prompt settlement of any outstanding tax liability and put process improvements in place to mitigate the tax risk going forward. Chaucer aims to deal with queries from HMRC on a timely basis and provide full information to explain how the business operates and manages tax risks.
The Hanover Insurance International Holdings Limited regards the publication of the above Information as complying with its duty under Paragraph 19, Schedule 19 of the Finance Act 2016 for the 2018 financial year, on behalf of its subsidiary companies and the UK Branch of Chaucer Insurance Company DAC (Chaucer’s insurance company in Ireland).