LAM10400 - Reinsurance: FA12/S65 The taxation of BLAGAB group reinsurers

Following the coming into force of the EC Reinsurance Directive, in 2007, a company which only carries on reinsurance business may be authorised as an Insurance Special Purpose Vehicle (ISPV). ISPVs are defined in FA12/S139(1) as undertakings which assume risk from insurers or reinsurers which are fully funded by the proceeds of debt or another financing mechanism. This follows the definition adopted by the FCA at INSPRU 1.6.2.

Although this definition clearly references the use of ISPVs as securitisation vehicles the FCA has confirmed that it is not limited to that category. What distinguishes ISPVs from other reinsurers is that they are fully funded to meet their reinsurance liabilities and therefore are not exposed to the same insurance risk as ordinary reinsurers. There is no reason why a company which provides reinsurance to other group companies cannot be an ISPV if it falls within the definition. Indeed there have been instances where group reinsurers have been authorised as ISPVs.

BLAGAB group reinsurers are defined in FA12/S65(4) as persons who carry on BLAGAB or reinsure BLAGAB which is excluded business under FA12/S57(2)(e). Only ISPVs which fall within this definition are considered to be an ‘insurance company’ for the purposes of the FA 2012 provisions. That ensures that they are within the charge to tax under I-E.

Securitisation ISPVs and non-BLAGAB group reinsurers are not considered to be insurance companies for the purposes of FA12/Part 2. The taxation of securitisation companies which securitise financial assets is governed by The Taxation of Securitisation Companies Regulations 2006 (SI2006/2396). An ISPV group reinsurer which only (or substantially only) writes non-BLAGAB business is taxed on its trade profits and the insurance company rules in Part 2 of FA12 do not apply to it.