Reinsurance to close (RITC) and technical provisions: section 107 FA2000: adaptations for Lloyd's members: changes in a member’s share of the syndicate’s business
Syndicates in most cases pay a reinsurance to close (RITC) premium to the same numbered syndicate for the next year of account. Where the member’s share of the syndicate’s business increases or decreases, the member may receive an amount different from the amount they paid.
Member increasing their share of the syndicate’s business
Where a member increases their share of a syndicate’s business, the amount of the RITC premium received will exceed the amount of the premium paid by that member.
The excess received by a member over that paid by the same member represents new liabilities taken over. For the purposes of the calculation required by FA00/S107, those liabilities taken over are not referable to their year of origin, but to the year in which they become a liability for that member.
Members joining a syndicate
For a member that is new to a syndicate, the entire RITC premium received represents new liabilities for that member.
Member reducing their share of the syndicate’s business
For a member reducing their share of the syndicate’s business, part of the RITC premium paid will be paid to a third party. This part therefore represents not a provision, but the cost of settling liabilities. It is therefore treated as such.
Members leaving a syndicate
For a member that leaves a syndicate, the entire RITC premium paid represents the cost of settling liabilities.
Some straightforward examples of increases and decreases in a member’s share of a syndicate’s business are at LLM3060. They set out how the original provisions are determined for the purposes of the calculations.
The effect on subsequent years’ RITC and claims is explained in examples at LLM3130 onwards.