Regulation 12(1)
SCHEDULEInvestment returns
1. The provisions of this Schedule—
(a)set out the amount of investment return treated as accruing to the cedant for the purposes of section 90(4) of the Act; and
(b)apply—
(i)for the period of the re-insurance arrangement;
(ii)to the policies or contracts subject to the arrangement which are in force in that period; and
(iii)to so much of each accounting period of the cedant (“APC”) which falls within that period.
2. Except as provided by paragraphs 3 and 4, the investment return treated as accruing to the cedant for an APC is the imputed return.
3. Except for the APC in which the re-insurance arrangement ends, the investment return treated as accruing to the cedant in respect of ceased policies or contracts may be found by applying steps 1 to 3 in relation to those policies or contracts, if the cedant is able to provide to an officer of HM Revenue and Customs evidence which satisfies the officer that the calculation of step 2 can reasonably be supported.
4. For the APC in which the re-insurance arrangement ends, the investment return treated as accruing to the cedant may be found by applying steps 1 to 3 in relation to all the policies or contracts, if the cedant is able to provide to an officer of HM Revenue and Customs evidence which satisfies the officer that the calculation of step 2 can reasonably be supported.
5. Step 1: calculate the total (“the step 1 total”) of—
(a)the investment returns for each APC before the APC in question; and
(b)the imputed return for the APC.
6. Step 2: calculate the amount of the investment return which would have been chargeable within the I – E profit for every APC as if the re-insurance had not occurred (“the step 2 total”).
7. Step 3: if—
(a)the step 2 total exceeds the step 1 total, the amount of the difference—
(i)where paragraph 3 applies, is the investment return treated as accruing to the cedant for the APC in respect of the ceased policies or contracts; or
(ii)where paragraph 4 applies, is the investment return treated as accruing to the cedant for the APC; or
(b)the step 1 total exceeds the step 2 total, the amount of the difference—
(i)where paragraph 3 applies, is to be deducted from the amount of the investment return treated as accruing under paragraph 2 in respect of other policies or contracts for the APC; or
(ii)where paragraph 4 applies, is a loss treated as accruing to the cedant for the APC to which section 91(6) of the Act applies.
8. In this Schedule—
“ceased policies or contracts” means those policies or contracts which ceased to be in force in the APC; and
“the imputed return” means the amount found by the sum—
where—
“AL” is the average amount of the liabilities(1) that arise in respect of the re-insured business in the APC;
“M” means—
the number of whole months of the APC which fall within the period of the re-insurance arrangement; or
where paragraph 3 applies, the number of whole months of the APC which fall within the period of the re-insurance arrangement in which the ceased policies or contracts are in force; and
“RR” is the average rate of return for UK 5 year gilts in the APC.
See section 139(1) of the Act.