LLM3180 - Reinsurance to Close (RITC) and section 107 FA2000: example of a calculation where a member reduces their share of the syndicate’s business (page 2 of 4)
For member Y, the RITC breaks down as follows:
RITC paid on closing of 1997 underwriting year
RITC paid for 1997 liabilities: total £20M (40% of £50M)
- 15% (£7.5M) is treated as claims paid of 1997. These will
not feature in the FA00/S107 calculations as they
were paid before the end of the year for which the RITC was paid.
- 25% (£12.5M) is the original provision for 1997.
RITC paid on closing of 1998 underwriting year
RITC paid for 1997 liabilities: total £10M (25% of £40M)
- 20% (£8M) is the new ‘closing provision’ for
Y’s 1997 liabilities.
- 5% (£2M) is treated as claims paid of 1997. These
will feature in the FA00/S107 calculations as they
were paid after the end of the year for which the RITC was paid.
RITC paid for 1998 liabilities: total £15M (25% of £60M)
- 20% (£12M) is part of the original provision for 1998.
- 5% (£3M) is treated as claims paid of 1998. These will
not feature in the FA00/S107 calculations as they
were paid before the end of the year for which the RITC was paid.
Summary of RITC paid for 1998
- Y’s original provision for 1998 will be £12M, item 5 above.
- Y’s new ‘closing provision’ for 1997 will be £8M, item 3 above.
- £2M, item 4 above, of the RITC paid for 1997 is actually part of the cost of settlement of 1997 liabilities.
RITC paid on closing of 1999 underwriting year
RITC paid for 1997 liabilities: total £6M (20% of £30M)
- The £2M is the new ‘closing provision’ for
Y’s 1997 liabilities.
RITC paid for 1998 liabilities: total £12M (20% of £60M)
- The £12M is the new ‘closing provision’ for
Y’s 1998 liabilities.
RITC paid for 1999 liabilities: total £12M (20% of £60M)
- The £12M is the original provision for 1999.
Summary of RITC paid for 1999
- Y’s original provisions for 1999 will be £12M, item 9 above.
- Y’s new ‘closing provision’ for 1998 will be £12M, item 8 above.
- Y’s new ‘closing provision’ for 1997 will be £2M, item 7 above.
