The Lloyd’s Underwriters (Equalisation Reserves) (Tax) Regulations 2009

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations make provision about the tax treatment of amounts transferred into and out of “equivalent Lloyd’s reserves” maintained by corporate or partnership members of Lloyd’s.

General insurers are required under rules made by the Financial Services Authority (“FSA”) to maintain “equalisation reserves”, which are amounts held in reserve by the insurer to cover claims that it may be called to pay in relation to classes of business which result in intermittent but potentially large claims (such as property damage). Section 444BA of the Income and Corporation Taxes Act 1988 (“ICTA”) provides that amounts transferred into and out of a general insurer’s equalisation reserve are brought into account in computing the general insurer’s profits or loss arising in a period of account. Corporate and partnership members of Lloyd’s are not required to maintain equalisation reserves in accordance with rules made by the FSA but nevertheless can maintain similar reserves in the same manner as those of a general insurer (referred to as “equivalent Lloyd’s reserves”). These Regulations provide that where such a reserve is maintained by a corporate or partnership member of Lloyd’s section 444BA applies so that the tax treatment of amounts transferred into and out of the reserve is the same as that in relation to general insurers.

Regulation 1 provides for citation, commencement and effect. Section 47(3) of the Finance Act 2009 provides that Regulations made under section 47 may have effect in relation to periods before the date on which the Regulations are made.

Regulation 2 contains interpretative provisions.

Regulation 3 provides that section 444BA of ICTA applies with the modifications specified in regulation 4 in a case where a corporate or partnership member of Lloyd’s maintains an equivalent Lloyd’s reserve on the basis that the rules made by the FSA in relation to equalisation reserves applied to it.

Regulation 4 specifies the modifications of section 444BA referred to in regulation 3. It also provides for a modification for the purposes of a computation made under the equalisation rules which are treated as applying.

Regulation 5 deals with the computation of profits or losses arising in the first accounting period to which these Regulations apply. It provides that in computing profits or losses for this period, any amounts transferred into an equivalent Lloyd’s reserve in respect of underwriting business written in the 2005 calendar year (which is the underwriting year to which the profits or losses of the accounting period relate) are deductible. The deduction given is in relation to the first accounting period in which Lloyd’s equivalent reserves, to which the Regulations apply, are likely to be created.

A full and final Impact Assessment has not been produced for this instrument as a negligible impact on the private or voluntary sectors is foreseen.