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HMRC internal manual

Lloyd's Manual

HM Revenue & Customs
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Reinsurance to close (RITC) and technical provisions: section 107 FA2000: application to Lloyd’s members: general

The legislation at FA00/S107 aimed to compensate the Exchequer for over-reserving for future liabilities by general insurers, and to impose discounting. The rules operated by using hindsight to compare, in a later year, the original technical provisions for a period of account with the present-day cost of settlement, that is, the claims paid and the revised provision for that period. Where the original provision was excessive (that is, exceeded the cost of settlement), an amount based on interest on the difference was added to the profits of the general insurer. Where the original provision was insufficient, a deduction from profits was made.

Primary legislation: section 107 FA 2000

FA00/S107 applied to the ‘technical provisions’ of a ‘general insurer’. ‘General insurer’ includes an underwriting member of Lloyd’s - FA00/S107 (7)(d).

FA00/S107 (7) also contained definitions which are relevant to the application of the legislation to Lloyd’s members. These are ‘closing year’, ‘reinsurance to close’, ‘syndicate’, ‘underwriting year’ and ‘open syndicate’. These largely follow the definitions in FA93/S184 and FA94/S230 (see LLM1010). ‘Technical provisions’ in relation to a Lloyd’s member means the RITC premium or provision for unpaid liabilities of an open syndicate (usually referred to as the estimate of future liabilities - EFL).

FA00/S107 (8) to (10) contained special rules adapting the application of the legislation to Lloyd’s underwriters

  • FA00/S107 (8) allowed regulations to be made for Lloyd’s
  • FA00/S107 (9) and (10) ensured that the legislation applies at member level, not at syndicate level
  • FA00/S107 (11) and (12)(c) repealed the previous legislation at FA93/S177 and FA94/S224 (see LLM3210), in relation to profits declared after 1 January 2000.

The General Insurance Reserves (Tax) Regulations 2001

Regulation 7 of SI2001/1757 (‘GI reserves tax Regulations’) contains the adaptations for Lloyd’s members. The calculations required under the Regulations are made in the same way as for other general insurers. However, the membership of a syndicate, and each member’s share of the capacity of a syndicate, may change from year to year. The meaning of ‘technical provisions’ and ‘claims paid’ are adapted so that they apply correctly in circumstances where there is no continuity of membership from the syndicate paying the RITC (the ‘reinsured syndicate’) to the syndicate receiving the RITC (the ‘reinsurer syndicate’).