Changes are being made to tax key rules governing life insurance companies which should make it easier to hold reinsurance contracts instead of capital and transfer management of friendly societies to another insurer.
Details of today’s Budget announcement reveal alterations are being made to the rules governing financial reinsurance contracts which should “simplify and strengthen” tax law related to the ability to use reinsurance contracts instead of holding vast sums of capital.
It should mean insurance companies will have increased ability to purchase contingency loans or reinsurance contracts which they can then hold instead of capital, and which they would not usually be able to access for normal financing purposes, as existing tax rules make it difficult to do so.
At the same time, the Treasury has confirmed it is changing the laws governing the management of friendly societies which currently prevent a firm from transferring policies and assets to a firm other than another friendly society.
This current restriction means any friendly society which runs into financial difficulty and wishes to pass its business to another company would be unable to do so as policyholders would be financially penalised.
However, changes now being introduced into the Finance Bill 2007 should mean deals, such as the Hearts of Oak transfer of business to Reliance Mutual (see previous IFAonline story), will now be able to go ahead.
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