LLM3170 - Reinsurance to close (RITC) and technical provisions: section 107 FA2000: example: member reduces their share of the syndicate’s business (page 1 of 4)

Where the member’s share of business increases (say from 20% to 25%) it seems straightforward that the original provisions were only 20% of the syndicate’s total. But where the member’s share of business reduces (say from 25% to 20%) the original provision is still only 20% of the syndicate’s business. The other 5% is payment of claims of the earlier year, and not a provision.

This brings out how the ’lesser of’ rule in regulation 7(1) described at LLM3080 operated. As outlined at LLM3050, where a member reduces their share of the syndicate’s business, part of the RITC premium paid will be paid to a third party. This part therefore represents not a provision, but the cost of settling liabilities. It was therefore treated as such for the purposes of the calculation required by FA00/S107.

Example

The RITC premium for 1997 would actually be paid at 31 December 1999 and claims against it would be paid in year ended 31 December 2000.

The figures for the FA00/S107 calculations are at LLM3180 to LLM3200.