LLM3080 - Reinsurance to Close (RITC) and section 107 FA2000: how the rules are adapted for Lloyd's members (page 1 of 3): regulation 7(1) to (3)
The Regulations are at SI2001/1957, which was amended by
SI2003/2862 and SI2005/3289. All of the provisions amending the
Regulations for Lloyd's underwriters are in Regulation 7.
Regulation 7(1)
Regulation 7(1) defines “technical provisions” as
meaning the Reinsurance to Close (RITC) premium of a continuing
member who participates on both the “reinsured” (that
is, the paying) syndicate and the “reinsurer” (that is,
the receiving) syndicate.
The RITC treated as a technical provision in the calculations
is the lesser of the amount paid and the amount received. The
importance of this becomes clear when a member’s share of a
syndicate’s business increases or decreases and the amount of
the RITC paid and received differ. See the examples at
LLM3050.
The rules do not apply if the member has less than 4% of the
participation on either the reinsured or the reinsurer syndicate.
In other words, Lloyd's members will only be affected by FA00/S107
if they hold 4% or more of the capacity on any one syndicate. This
test is applied separately to each syndicate of which a Name is a
member, so that a Name might be affected by the legislation on some
syndicates, and not on others. For those where a Name holds less
than 4% on either the paying or the receiving syndicate, no
adjustment in respect of RITC will be made.
Regulation 7(2)
Regulation 7(2) defines which parts of the General Insurance Reserves (Tax) Regulations are adapted to apply to Lloyd’s. Regulations 3 to 5 are specifically adapted in relation to
- normal syndicates (those that close by RITC), in accordance with Regulations 7(3) to 7(5); and
- run-off syndicates (those that make a estimate of future liabilities – EFL), in accordance with Regulations 7(3), 7(4), 7(5)(c) and 7(7).
Regulation 7(3)
Regulation 7(3) amends the terminology of regulation 3 (3)(a) so that the provisions for claims outstanding for an earlier period of account (which must be recalculated in each later period of account), are the Lloyd’s ‘technical provisions’. These are the amount of the RITC, or the estimate for future liabilities in the case of a run-off syndicate. In Lloyd’s terminology ‘outstandings’, the ‘IBNR’ and the claims handing reserves are separately identified components of the RITC. This is different from the usage in general insurance companies, where the term ‘outstanding claims’ includes both outstandings and IBNR.
