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HMRC internal manual

Lloyd's Manual

Reinsurance to close (RITC) and technical provisions: taxation following repeal of section 107 FA 2000: appropriate amount Regulations SI2009/1926: application to members of Lloyd’s syndicates

Application to members of closed syndicates (regulation 9)

Closed syndicates are those where it has been possible to agree a reinsurance to close amount (in most case with a successor syndicate - see LLM2060). A syndicate member’s allowable RITC amount for a period of account is the lesser of

  • the amount treated as a technical provision for the member (per SI2009/1926 regulation 11, as explained below), and
  • the aggregate of the member’s share of the syndicate unearned premium, unexpired risks and unpaid claims provisions, calculated as though the syndicate were an open syndicate (see ‘open syndicates’ below).

The RITC amount for a syndicate member for a period of account to be treated as a technical provision (regulation 11) is itself the lesser of

  • the RITC share paid or given (or treated as paid or given) by the member for the underwriting year whose results are declared and being assessed, and
  • the RITC share received or treated as received by the member in respect of the same transaction.

The result of this is that the RITC is treated as a technical provision for a syndicate member subject to the Regulations only to the extent that the member features at both ends of the transaction, closing payment for year 1 and corresponding opening receipt for year 2 in respect of the liabilities transferring between the closing syndicate and its successor. To the extent the payment share cannot be matched it is an ordinary reinsurance premium paid, and to the extent the receipt share cannot be matched it is an ordinary reinsurance premium received. This principle is extended in regulation 11 (3) to include payments between connected persons, as defined in ICTA88/S839 (5) to (8).

Application to members of open syndicates (regulation 10)

The technical provisions here, as for general insurance companies, are the sum of the unearned premiums, unexpired risks and unpaid claims provisions.

An open syndicate is one that makes provisions rather than agrees reinsurance to close - see LLM2070, which refers there to ‘run-off’ rather than ‘open’ and to ‘estimate for future liabilities’ rather than ‘provisions’).

General rules and adaptations in Part 3 of SI2009/1926

Regulation 12 provides that the syndicate member’s share of unpaid claims liabilities is by reference to its proportionate entitlement to participate in the syndicate’s underwriting business. There is a list of specific adaptations to ensure that the rules in Part 2 of the Regulations which determine what is the appropriate amount of technical provisions for a general insurance company work in a similar fashion for Lloyd’s syndicate members under Part 3. For example, the reference to ‘general insurer’ is replaced by one to ‘syndicate’ or ‘managing agent’ as the context requires.

It follows that the rules in regulations 5 to 8 apply to the share of unpaid claims liabilities of a member of a Lloyd’s syndicate in the same way as they would apply to a general insurance company. Where condition A in regulation 5(2) is relevant - confirmation that liabilities for outstanding claims is not excessive, based on skilled person’s opinion - it is to be given in relation to syndicate liabilities by the managing agent rather than by syndicate members.