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HMRC internal manual

Lloyd's Manual

HM Revenue & Customs
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Syndicate accounts: taxation: premium income and claims

Basis of accounting for premiums

Under three-year accounting, syndicates used underwriting year or inception date accounting. All the premium income is accounted for in the underwriting year in which the policy period starts, not in the year in which the policy is processed (as had been the case before 1995). This is the case even where the insurance cover provided under the policy period straddles underwriting years. The income is not spread over the life of the policy concerned. No adjustment is required in the tax computation. This continues to be the basis used for the underwriting year accounts produced by a syndicate.


An underwriter writes a policy in November 2000 for insurance cover running for twelve months from 1 December 2000. The actual policy documents are not processed and signed until January 2001. The entire premium paid for this policy would be accounted for as received in the 2000 underwriting year. This is referred to as the ‘written’ premium.

If the policy allows for adjustment of the premium (such as reinstatement premiums or ‘swing rated’ premiums), the accounts will show an estimate of the ultimate premium receivable. Any adjustment to the estimate of written premium that occurs after the syndicate has closed is taken to the claims figure of the reinsuring syndicate. Reinsurance premiums paid are treated in the same way. A swing related premium is one that is experience-rated on a retrospective basis.

Claims paid before the underwriting year is closed

As explained at LLM2060, the accounts for an underwriting year are normally closed at the end of the second year following the end of the underwriting year; that is, their 36-month point. Where a policyholder’s claim is paid before the syndicate has closed, it is matched with the year of account in which the premium income from the policy was included.

The matching of claims with policies incepting in the year gives the correct tax result and no adjustment is required in the tax computation.

Claims paid after the underwriting year has closed

The underwriting year is closed by paying a reinsurance to close (RITC) premium, usually to the successor syndicate. This means that the successor syndicate has taken over all unpaid liabilities arising from the business underwritten by the closing syndicate. Lloyd’s rules allow an RITC premium to be received by the assuming syndicate outside its underwriting year - see LLM2060. Claims by policyholders are treated in the same way as if the syndicate that accepted the RITC premium had written the business.


The references above to ‘claims paid’ reveal an important distinction between syndicate accounting at Lloyd’s and accounting elsewhere. Elsewhere, if a claim were quantified but not paid before the business closed its books, it would be shown as a creditor in the accounts.

A Lloyd’s syndicate cannot do this. It does not exist once it has closed its books and cannot therefore have any unpaid liabilities. So even where a claim has been quantified, if it has not been paid, it forms part of the RITC premium paid (usually) to the successor syndicate that will then settle the liability.