GIM8130 | Reinsurance and other forms of risk transfer: tax issues: transactions between connected persons: transfer pricing

Reinsurance transactions may need to be examined in the light of the transfer pricing rules under TIOPA10/PART4. See the guidance at INTM410000 onwards for further information on transfer pricing. An important source of information will be a company’s regulatory returns (see GIM8120) which will show whether reinsurers or cedants are connected.

An example of the type of arrangement that may need scrutiny is the channelling of all reinsurance for a multinational group through a UK resident company in order to obtain for the group as a whole the advantages of a treaty covering the total business in a particular category. The reinsurer/retrocessionaire may quote a better premium rate because of the wider spread of risk - the insurance equivalent of bulk buying. If the UK company simply passes on the benefit of the lower premium to non-resident affiliates, without taking some sort of turn on the deal, it is not acting in an arm’s-length fashion.

TIOPA10/PART4 does not apply to transactions between a UK proprietary company and a UK mutual insurer unless the conditions in TIOPA10/S155 are met (see INTM412020).