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HMRC internal manual

General Insurance Manual

Taxation of general insurance: transfers of business: transfer of trading losses

Where an insurance company transfers the whole or part of its business to another company under Part 7 FSMA (GIM4220), the transferee will normally have succeeded to the trade and ICTA88/S343 may apply provided the control requirements are met.

Alternatively, a company may enter into a portfolio reinsurance agreement, arranging for the reinsurer to write new business in its stead. The insurer in this situation remains exposed to credit risk, that the reinsurer may not be able to meet the cost of claims that are outstanding at the time of the agreement. There is no true transfer of business, because the cedant company remains liable to its own policyholders. GIM4210 explains that even if the cedant stops writing any new business, its trade will continue where it remains liable for the run-off of outstanding claims. The reinsurer will in this situation have difficulty establishing entitlement to relief for the cedant’s unrelieved trading losses under ICTA88/S343, even if it takes over the latter’s staff and trading apparatus.

ICTA88/S768, which applies to limit transfer of trading losses where within a period of three years there is a major change in the nature or conduct of the trade carried on by a company, may apply in appropriate circumstances (CTM06305).