LAM10110 - Reinsurance: Reinsurance of BLAGAB: background to FA12/S57(2)(e) and S90
If the investment risk of BLAGAB is reinsured to a reinsurer taxed on a trade profit basis then the investment return accruing for the benefit of policyholders would be matched by the reinsurer바카라 사이트™s liabilities to the cedant. Although the business is still taxed as BLAGAB in the cedant the investment return arising on the reinsured business would be received in the form of a reinsurance claim and therefore excluded from I by FA12/S92(5)(a).
The risk is not confined to intra-group reinsurance arrangements. If a third-party reinsurer does not have to meet the cost of paying tax on policyholder returns this will be reflected in the arm바카라 사이트™s length reinsurance premium. This may make it potentially economically attractive for a reinsurer to reinsure BLAGAB business.
Broadly speaking FA12/S57(2)(e) and S90 and the associated regulations ensure that investment return is effectively brought into account either:
- in the cedant, by imputation or directly, or
- in the reinsurer by treating the reinsured business as BLAGAB, i.e. excluded business FA12/S57(3).