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HMRC internal manual

Lloyd's Manual

Reinsurance to close (RITC) and technical provisions: section 107 FA2000: adaptations for Lloyd's members: the declarations basis and the 'one-year later'’ rule

Outline of the declarations basis

The declarations basis is described at LLM4060 (in relation to corporate members) and LLM5290 (in relation to individual Names). In brief, a syndicate will usually close on the second anniversary of the end of its underwriting year: that is 31 December 1999 for the underwriting year ending 31 December 1997. The profit of that year is declared about six months later and is taxable in the year in which it is declared. For corporate members it would be year ending 31 December 2000. For individual members it would be 2000-01.

The RITC, claims and expenses

An RITC paid on 31 December 1999 for the 1997 underwriting year will form part of a corporate member’s accounting profit for year ending 31 December 2000. For the FA00/S107 rules, the original provisions must therefore be deemed to arise in that year.

Claims and expenses arising before the RITC is paid play no part in the calculations required by FA00/S107. They are not therefore part of the cost of settling liabilities for which the RITC - the original provision - was set. This is consistent with the main rules.

Claims paid in the year following the payment of the RITC premium - in the example above, that is in year ending 31 December 2000 - do form part of the cost of settling liabilities for which the RITC was paid. It follows that if the RITC is deemed to arise one-year later, so must the claims and expenses that will be compared to it.

Regulation 7(5) (LLM3090) therefore deemed that the RITC premium paid, and any claims and costs in relation to those liabilities shall be treated as paid one year later than they are actually paid.


Member Z receives premiums of £100M in year ending 1997. Against this there are claims paid in 1997 of £10M, in 1998 £20M and in 1999 of £30M. At 31 December 1999, Z pays an RITC premium of £30M. There are further claims of £25M in 2000.

For FA00/S107 the figures would be

  • original provision £30M deemed to be paid in y/e 31 December 2000
  • cost of settlement £25M based on claims deemed to have been paid in y/e 31 December 2001.

The claims paid in 1997, 1998 and 1999 have no part in the calculations because they arose before the RITC was paid.

This rule is further demonstrated by the examples at LLM3130 onwards.