GIM4240 - Taxation of general insurance: transfers of business: transfer of trading losses

Where an insurance company transfers the whole or part of its business to another company under Part 7 FSMA 2000, the transferee will normally have succeeded to the trade and ICTA88/S343 may be applied provided the control requirements are met.

As an alternative to using the mechanism provided in FSMA, a company may choose to “transfer” its business to another by entering into a portfolio reinsurance agreement, and arranging for the reinsurer to write new business in its stead. The reinsurer may, or may not, be liable to meet the cost of claims that are outstanding at the time of the agreement. Either way, there is no true transfer of business, because the cedant company remains liable to its own policyholders. Moreover, even if the cedant stops writing any new business, it is likely that its trade will continue where it remains liable for the run-off of outstanding claims (see GIM4210). Consequently, it will be difficult or impossible for the reinsurer to establish entitlement to relief for the cedant’s unrelieved trading losses under ICTA88/S343, even if it takes over the latter’s staff and trading apparatus.

Nothing in the preceding paragraphs should be regarded as preventing the application of ICTA88/S768 if appropriate.