LLM3160 - Reinsurance to close (RITC) and technical provisions: section 107 FA2000: example: member increases their share of the syndicate’s business (page 4 of 4)
Based on the information at LLM3130, the figures to use in FA00/S107 calculations are set out below.
This table also brings out the ‘one-year late’ rule described and explained at LLM3070. For example, the RITC premium paid for 1997 would be shown in the accounts at 31 December 1999 (when the 1997 underwriting year closed). It was deemed for the purposes of FA00/S107 to arise one-year later, that is, in the year in which the profits are declared (year ending 31 December 2000 for a corporate member, or year ending 5 April 2001 for an individual member).
Claims paid in the year following payment of the RITC premium were also deemed to arise one year later. For example, claims paid in the year following the year in which the RITC premium was paid for 1997 would be paid in year ending 31 December 2000. They are deemed for the purpose of FA00/S107 to arise one-year later, that is, in the year ending 31 December 2001 for a corporate member, or year ending 5 April 2002 for an individual member.
| Underwriting year | Original provision | Claims paid | Closing provision |
|---|---|---|---|
| 1997 | In 2000 | £10M | - |
| - | In 2001 | £4M | £8M |
| - | In 2002 | £2M (cumulative: £6M) | £6M |
| 1998 | In 2001 | £17M | - |
| - | In 2002 | £5.5M | £16.5M |
| 1999 | In 2002 | £37.5M | - |
The calculations are then carried out in the same way as explained in the General Insurance Manual (GIM6000+) “Technical Provisions” (see LLM10000).