LAM10310 - Reinsurance: Definition of Excluded Business: Group companies in the UK SI2018/538/Regulation 5

The Insurance Companies (Taxation of Re-insurance Business) Regulations 2018 SI2018/538 apply to reinsurance arrangements entered into on or after 1st June 2018 and replace the 1995 regulations which continue to apply to arrangements before 1 June 2018. Reinsurance will be excluded business and taxed as BLAGAB FA12/S68 in the reinsurer if:

• the cedant and reinsurer are members of the same 90% group (Regulation 5(2)).
• the cedant is UK resident or has a UK permanent establishment within the charge to corporation tax in respect of the business being reinsured (Regulation 5(3)).
• the business being reinsured is BLAGAB (Regulation 5(4)).

Two exceptions to this definition of excluded business are

• where the reinsurance is a ‘non investment risk arrangement’ i.e. the risks reinsured do not include investment risk. For example, mortality risk which does not give rise to investment return (Regulation 5(5)).
• where condition 2 in Regulation 8(3) is met as the investment return is effectively charged to tax in the cedant under S68 (see LAM10210). In practice, for intragroup reinsurance within the UK, the reinsured business will not be BLAGAB in the reinsurer if the cedant remains within FA12/S68 on the investment return on the assets backing the reinsured business.

These regulations are subject to the application of the anti-avoidance provisions in Regulation 13(2) but only when the reinsurer is not resident in the UK or carries out the business reinsured through a UK branch.