LLM4160 - Corporate members: quota share contracts
A 바카라 사이트˜quota share contract바카라 사이트™, in the context of the specific Lloyd바카라 사이트™s tax legislation, is one which transfers the liability for claims covered from the syndicate member to the reinsurer offering the quota share contract. It also transfers to the reinsurer the associated rights of the syndicate member, including the right to receive distributions of syndicate profit. Depending on the precise wording of the contract, it may be more akin to a transfer of business than true insurance, but the legislation ensures that payments by the member are nevertheless deductible as an expense.
Confusingly, the term 바카라 사이트˜quota share바카라 사이트™ is more often used in the insurance industry to refer to proportional treaty cover, which in the tax legislation falls within 바카라 사이트˜stop-loss바카라 사이트™ (a description the industry usually applies to non-proportional cover). In any correspondence concerning a quota share premium or contract, it is important to find out exactly what the contract does cover.
Lloyd바카라 사이트™s regards an approved quota share contract as effectively ending the member바카라 사이트™s liability for the claims covered by the contract. If a member takes out a quota share contract covering the whole of its Lloyd바카라 사이트™s participation, Lloyd바카라 사이트™s is prepared to regard the member바카라 사이트™s participation at Lloyd바카라 사이트™s as terminated and will release the member바카라 사이트™s deposit.
Amounts paid under 바카라 사이트˜quota share contracts바카라 사이트™ are only deductible if the contract is made in accordance with the rules and practice of Lloyd바카라 사이트™s, and if the contract provides for another person to take over any rights and liabilities of the corporate member under any of the syndicates of which it is a member (FA94/S255 (4)).
FA02/SCH32 contains rules on the taxation of 바카라 사이트˜quota share contracts바카라 사이트™ which apply for contracts entered into after 16 April 2002 (see LLM5210). These rules are applicable to both individual and corporate members, but in practice will mainly affect individuals.
Quota share premiums
Premiums payable for quota share reinsurance are deductible 바카라 사이트˜irrespective of the purpose for which the contract was entered into바카라 사이트™, under FA94/S225 (1)(b). This wording is to cover the uncertainty referred to above, and the possibility that these premiums might be regarded as being made to allow a company to cease trading as a Lloyd바카라 사이트™s underwriter, and so disallowable under the principles established in CIR v Anglo Brewing Co Ltd (12TC803) - BIM38310 (see LLM10000).
FA94/S225 (1)(b) does not, however, widen the actual purpose of a quota share contract, it merely makes the premiums deductible irrespective of purpose. A payment under a quota share contract, which, for instance, forms part of a series of arrangements for the reconstruction of an underwriting business, is not necessarily deductible.
Receipts under quota share contracts
Payments may be received by a corporate member under quota share contracts as well as made, but only if the quota share contract is used to reinsure part of the member바카라 사이트™s business. Payments received are not dealt with specifically under FA94/S225 and their chargeability and the timing of their assessment should be decided under normal rules.
If the quota share contract is used to leave the Lloyd바카라 사이트™s market entirely then sums after the operative date will generally be received and retained by the reinsurer.