LLM3180 - Reinsurance to close (RITC) and technical provisions: section 107 FA2000: example: 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)

  1. 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.
  2. 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)

  1. 20% (£8M) is the new ‘closing provision’ for Y’s 1997 liabilities.
  2. 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)

  1. 20% (£12M) is part of the original provision for 1998.
  2. 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.

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RITC paid on closing of 1999 underwriting year

RITC paid for 1997 liabilities: total £6M (20% of £30M)

  1. The £2M is the new ‘closing provision’ for Y’s 1997 liabilities.

RITC paid for 1998 liabilities: total £12M (20% of £60M)

  1. The £12M is the new ‘closing provision’ for Y’s 1998 liabilities.

RITC paid for 1999 liabilities: total £12M (20% of £60M)

  1. 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.