LLM3090 - Reinsurance to Close (RITC) and section 107 FA2000: how the rules are adapted for Lloyd's members (page 2 of 3): regulation 7(4) to (5)

Regulation 7(4)

Regulation 7(4) amends the terminology of Rule 2 of regulation 3 for Lloyd’s members. Rule 2 is the rule that determines how to find the “original provisions” for the earlier period. As with Regulation 7(3), the term ‘technical provisions’ is substituted for ‘claims outstanding’, so that the original provisions are the Lloyd’s technical provisions – the RITC or EFL for the earlier period.

Rule 2.1(b) of regulation 3 is amended so that, as for other general insurers, for APs other than the 2000 AP, the provisions to be looked at are those that relate directly to new business of that year or previous year’s RITC that is new to that member.

LLM3050 gives examples of the application of this principle.

Regulation 7(5)

Regulation 7(5)(a) amends the terminology of Rule 3 of regulation 3 for Lloyd’s members. Rule 3 is the rule that determines how to find the “cost of settling liabilities to which the original provisions relate”. Claims paid including the cost of settling liabilities are the RITC paid by the member of the reinsurer syndicate. This is explained at LLM3070 and the examples referred to therein.

Regulation 7(5)(b) introduces the “one year later” rule to ensure that the calculations fit with the declarations basis. The RITC premium and claims and expenses in relation to the liabilities are deemed to arise one year later than they are actually paid (that is, in the declaration year), see examples at LLM3050.

Regulation 7(5)(c) applies in the case of run-off syndicates. In Rule 3 of Regulation 3, ‘claims outstanding’ refers to the EFL of an open syndicate.