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HMRC internal manual

General Insurance Manual

Reinsurance and other forms of risk transfer: types of reinsurance: non-proportional reinsurance: loss portfolio reinsurance

Loss portfolio reinsurance is a type of financial reinsurance (see GIM8010 and GIM8230). Here, obligations that have already been incurred and are expected ultimately to be paid are ceded to a reinsurer. The net result is in broad terms to pay off liabilities early, by transferring the risk to a reinsurer, and the premium will reflect the time value of money as well as risk.

The reinsurer may agree to indemnify the insurer for all claims still outstanding in a particular type or class of business, or sometimes the totality of the insurer’s business. This form of reinsurance is used when an insurer wishes to withdraw from a particular type of business, or to cease business entirely and it is more economical to get the reinsurer to manage the claims. Although this has the characteristics of a transfer of business it is a transfer without novation and the direct insurer (cedant) remains liable to the insured. It follows that the reinsurance premium is not inadmissible by reason of the decision in CIR v Anglo Brewing Co Ltd 12TC803.

Such a reinsurance contract, even for an entire portfolio, is not the same as a transfer of business (which would require approval by the Financial Services Authority under Part 7 of the Financial Services and Markets Act 2000, or approval of policyholders under a reconstruction within Part 26 of the Companies Act 2006) where all the rights and obligations under general insurance policies are transferred.