LLM3140 | Reinsurance to close (RITC) and technical provisions: section 107 FA2000: example: member increases 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 £10M (20% of £50M)

1. The £10M 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) relates to liabilities that Y took over in 1998. This is part of Y’s original provision for 1998.

RITC paid for 1998 liabilities: total £15M (25% of £60M)

1. The £15M is all part of the original provision for 1998.

Summary of RITC paid for 1998

• Y’s original provisions for 1998 will be £17M, items 3 and 4 above.

• Y’s new ‘closing provision’ for 1997 will be £8M, item 2 above.

Top of page

RITC paid on closing of 1999 underwriting year

RITC paid for 1997 liabilities: total £12M (40% of £30M)

1. 20% (£6M) is the new ‘closing provision’ for Y’s 1997 liabilities.

2. 5% (£1.5M) relates to liabilities that Y took over in 1998. It is part of Y’s new ‘closing provision’ for 1998.

3. 15% (£4.5M) relates to liabilities that Y took over in 1999. This is part of Y’s original provision for 1999.

RITC paid for 1998 liabilities: total £24M (40% of £60M)

1. 25% (£15M) is the new ‘closing provision’ for Y’s 1998 liabilities.

2. 15% (£9M) relates to liabilities that Y took over in 1999. This is part of Y’s original provision for 1999.

RITC paid for 1999 liabilities: total £24M (40% of £60M)

1. The £24M is all part of the original provision for 1999.

Summary of RITC paid for 1999

• Y’s original provisions for 1999 will be £37.5M, items 7, 9 and 10 above.

• Y’s new ‘closing provision’ for 1998 will be £16.5M, items 6 and 8 above.

• Y’s new ‘closing provision’ for 1997 will be £6M, item 5 above.