2A

Subject to subsections (2C) and (2D) below, subsection (2B) below applies if—

a

the aggregate amount of the liabilities to policy holders and annuitants transferred to the transferee and of any relevant debts, exceeds

b

the element of the transferee's line 31 figure representing the transferor's long-term insurance fund.

2B

Where this subsection applies—

a

the excess is to be taken into account as a receipt of the transferee in computing in accordance with the provisions of this Act applicable to Case I of Schedule D the profits of its life assurance business for the period of account of the transferee in which the transfer takes place (“the relevant period of account”); and

b

the relevant proportion of the excess is to be taken into account as a receipt of the transferee in so computing the profits of each category of its life assurance business for the relevant period of account;

and, for this purpose, “the relevant proportion”, in relation to a category of the transferee's life assurance business, is the proportion that the liabilities of that category that are transferred bear to the total liabilities transferred.

2C

Subsection (2B) above does not require the excess to be taken into account as a receipt of the transferee in so computing the profits of its life assurance business for the relevant period of account if—

a

transferred liabilities of an aggregate amount equal to the excess are not taken into account in so computing those profits for that period of account, and

b

the amount of the closing liabilities of that period of account is taken into account as opening liabilities in so computing those profits for the next period of account.

2D

Subsection (2B) above does not require the relevant proportion of the excess to be taken into account as a receipt of the transferee in so computing the profits of a category of its life assurance business for the relevant period of account if—

a

transferred liabilities of an aggregate amount equal to the relevant proportion of the excess are not taken into account in so computing those profits for that period of account, and

b

the amount of the closing liabilities of that period of account is taken into account as opening liabilities in so computing those profits for the next period of account.

2E

In subsections (2C)(a) and (2D)(a) above “transferred liabilities” means—

a

liabilities to policy holders or annuitants at the end of the relevant period of account that were transferred to the transferee, and

b

payments made to discharge, during that period of account, liabilities to policy holders or annuitants that were transferred to the transferee.

4

In this section “relevant debts” means debts which become debts of the transferee's long-term insurance fund as a result of the transfer.

5

But if—

a

the fair value, as at the date of the transfer, of the assets which become assets of the transferee's long-term insurance fund as a result of the transfer, exceeds

b

the element of the transferee's line 31 figure representing the transferor's long-term insurance fund,

the amount of any relevant debts for the purposes of this section is to be reduced (but not below nil) by the excess.

6

In determining the amount of the liabilities transferred for the purposes of this section, there is to be disregarded any reduction in the transferee's liabilities resulting from reinsurance under a contract of reinsurance which is a relevant financial reinsurance contract (within the meaning of section 82C of the Finance Act 1989).

7

But where—

a

such a reduction results from reinsurance under a contract which was entered into by the transferor as cedant before the day on which the transfer takes place, and

b

the transferor's rights and obligations under the contract are transferred to the transferee under the transfer,

the amount of the reduction that would (apart from this subsection) be disregarded under subsection (6) above shall be reduced (but not below nil) by the amount given by subsection (8) below or, if less, the amount given by subsection (9) below.

8

The amount given by this subsection is the amount by which the liabilities at the end of the closing period which fell to be taken into account in computing in accordance with the provisions of this Act applicable to Case I of Schedule D the profits of the transferor's business for that period were reduced as a result of reinsurance under the contract.

9

The amount given by this subsection is the amount given by paragraph (a) below reduced (but not below nil) by the amount given by paragraph (b) below—

a

the amount given by this paragraph is the aggregate of the relevant amounts for any accounting period, and for this purpose the relevant amount for an accounting period is the amount in sub-paragraph (i) or (ii) below or, where applicable, the aggregate of those amounts—

i

the amount by which the profits of the transferor's business, computed in accordance with the provisions of this Act applicable to Case I of Schedule D, were increased for that accounting period as a result of reinsurance under the contract;

ii

the amount by which the losses of the transferor's business, so computed, were reduced for that accounting period as a result of reinsurance under the contract; and

b

the amount given by this paragraph is the aggregate of the relevant amounts for any accounting period, and for this purpose the relevant amount for an accounting period is the amount in sub-paragraph (i) or (ii) below or, where applicable, the aggregate of those amounts—

i

the amount by which the profits of the transferor's business, so computed, were reduced for that accounting period as a result of a reduction in reinsurance under the contract;

ii

the amount by which the losses of the transferor's business, so computed, were increased for that accounting period as a result of a reduction in reinsurance under the contract.

10

In subsections (8) and (9) above—

• “the closing period” means the accounting period of the transferor ending with the day on which the transfer takes place;

• “the transferor's business” means—

  1. a

     the transferor's life assurance business, and

  2. b

     any category of its life assurance business to which the liabilities relate.

11

For the purposes of this section and section 444ACA—

• “fair value” has the meaning given by section 444AB(6);

• “insurance business transfer scheme” includes a scheme which would be such a scheme but for section 105(1)(b) of the Financial Services and Markets Act 2000 (which requires the business transferred to be carried on in an EEA State).