Content Options

View Options

Status: You are viewing the version of the handbook as on 2009-03-31.

SUP 18.2 Insurance business transfers

Purpose

SUP 18.2.1GRP

Transfers enable firms to manage their affairs more effectively, both for their own benefit and for that of their customers. However they represent an interference in the contracts between a firm and its customers, unless the customers individually consent,, and may also affect the rights of third parties. An important protection is the requirement for the consent of the court. Under section 110 of the Act, the FSA is entitled to be heard by the court. In deciding whether it should appear, the FSA will consider the potential risk to its regulatory objectives of the scheme compared to not implementing the scheme.

SUP 18.2.2G

The FSA's regulatory objectives include market confidence and the protection of consumers. Either or both of these might be impaired if a transfer were approved that led to loss, or perceived loss, to consumers or other market participants. On the other hand a transfer that led to improved security or benefits for consumers would promote the FSA's regulatory objectives. When considering a transfer, the FSA needs to take into account the interests of existing consumers of the transferee and of consumers remaining with the transferor as well as of those whose contracts are being transferred. The guidance in this section is intended to protect consumers. By so doing it promotes the market confidence objective.

SUP 18.2.3G

Under section 5(2) of the Act, in considering what degree of protection may be appropriate for consumers, the FSA must have regard to their need for accurate information. Under Principle 7, a firm must pay due regard to the information needs of clients (the scope of the Principle is not precisely consumers). The extent and nature of the information provided to consumers about a proposed scheme will therefore be a factor for the FSA in determining its attitude to the scheme. For the court process to be an effective protection, consumers and others affected need to learn of the proposed transfer and receive sufficient information on the transfer and its effects in such a form as to enable them to decide if they are likely to be adversely affected, and whether they wish to be heard by the court. The information needed depends on the circumstances and cannot be precisely specified in advance but this chapter contains guidance aimed at ensuring that consumers, the FSA and the court receive adequate information.

SUP 18.2.4G

Under Principle 11, a firm must deal with the FSA in an open and cooperative way and disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice. This chapter contains guidance on the information that the FSA expects to receive from firms and members of Lloyd's in the context of insurance business transfer schemes.

SUP 18.2.5GRP

Under Principle 6, a firm must treat customers fairly (the scope of the Principle is not precisely consumers) and, under Principle 8, manage conflicts of interest fairly. A criterion for the FSA in considering a proposed scheme would be whether it appears that either Principle is not being followed. Transfers may have both positive and negative effects on individual consumers. In such circumstances it is for consumers to balance these effects and assess whether the proposed scheme as a whole is in their interests and whether to make representations to the court about the scheme. The FSA's main concern then becomes to ensure that consumers have appropriate information and not to set its judgment over theirs.

SUP 18.2.6G

A scheme may have a material effect on the transferor or the transferee. The FSA will take any scheme into account in its future regulation of the firms, where it continues to regulate them. This could include, for instance, the exercise of own-initiative powers under section 45 of the Act to vary a firm's Part IV permission, for instance, by requiring a scheme of operations (SUP 7 contains guidance on criteria for varying a firm's Part IV permission).

SUP 18.2.7G

For many transfers it is necessary to cooperate with overseas regulators. This section contains guidance on such cooperation.

SUP 18.2.8G

Section 86(8) of the Friendly Societies Act 1992 requires, where a transferee is a friendly society, that consent to accept the engagements is passed by special resolution in accordance with paragraph 7 of Schedule 12 to that Act. This section includes guidance about the information needed in these circumstances.

SUP 18.2.9G

Under section 109 of the Act, an insurance business transfer scheme must be accompanied by a scheme report in a form approved by the FSA. This section contains guidance on the form of a scheme report.

SUP 18.2.10G

Also under section 109 of the Act, the scheme report must be made by a person nominated or approved by the FSA. This section contains guidance on the procedures and general criteria that the FSA proposes to adopt for this purpose.

SUP 18.2.11G

The FSA has a duty under section 2(3) of the Act "to have regard to the need to use its resources in the most efficient and economic way". The extent to which (if at all) it examines and considers the details of a scheme and the resources it devotes to such consideration will depend on the potential risk to its regulatory objectives.

Procedure: initial steps

SUP 18.2.12GRP

When an insurance business transfer scheme is being considered, the scheme promoters (including the transferor and, except possibly if it is a new company, the transferee) should discuss the scheme with the FSA as soon as reasonably practical, to enable the FSA to consider what issues are likely to arise, and to enable a practical timetable for the scheme to be agreed. The FSA will wish to consider material issues relating to policyholder rights (such as the reasonable expectations of with-profits policyholders) or policyholder security at the earliest opportunity. In any case the FSA will need time to:

  1. (1)

    consider the application, if an application by the transferee for a Part IV permission or a variation of permission is necessary (SUP 6 provides3 guidance on this);

    33
  2. (2)

    seek information or approvals from other supervisors (where this applies);

  3. (3)

    consider what skills are needed to make a proper report on the scheme and what criteria should therefore be applied to the choice of independent expert;

  4. (4)

    consider whether the promoters' nominee for independent expert is suitable for approval or, if the FSA proposes to nominate someone, who the FSA should nominate; and

  5. (5)

    consider whether to object to the scheme in the light of the report and other circumstances.

SUP 18.2.13GRP

The initial information on the schemeprovided to the FSA under SUP 18.2.12 G should include its broad outline and its purpose.The FSA will indicate to the promoters how closely it wishes to monitor the progress of the scheme, including the extent to which it wishes to see draft documentation.

Independent expert: qualifications

SUP 18.2.14GRP

Under section 109(2) of the Act a scheme report may only be made by a person:

  1. (1)

    appearing to the FSA to have the skills necessary to enable him to make a proper report; and

  2. (2)

    nominated or approved for the purpose by the FSA.

SUP 18.2.15GRP

The general principles set out in SUP 5.4.8 G, for suitability of a skilled person, apply also to the independent expert. The FSA expects the independent expert making the scheme report to be a natural person, who:

  1. (1)

    is independent, that is any direct or indirect interest or connection he has or has had in either the transferor or transferee should not be such as to prejudice his status in the eyes of the court; and

  2. (2)

    has relevant knowledge, both practical and theoretical, and experience of the types of insurance business transacted by the transferor and transferee.

SUP 18.2.16GRP

For a transfer of long-term insurance business the independent expert should be an actuary familiar with the role and responsibilities of the actuarial function holder and (if the relevant insurance business includes with-profits insurance business) a with-profits actuary.2

2
SUP 18.2.17GRP

For a transfer of general insurance business the independent expert should normally be competent at assessing technical provisions and the uncertainties of the liabilities they represent (such as an actuary). Exceptionally, where issues other than the ability of the transferee to meet the liabilities to be transferred are much more significant in assessing the likely effects of the scheme, this criterion might not be applied. In such a case the independent expert would be expected to take advice from an appropriately qualified practitioner about the adequacy of the financial resources of the transferee.

SUP 18.2.18GRP

The independent expert would not normally be expected to be knowledgeable:

  1. (1)

    about general insurance business if the business being transferred is long-term insurance business only; nor

  2. (2)

    about long-term insurance business if the business being transferred is general insurance business only;

but, where either the transferor or transferee is a composite, he should understand the relevance of the general insurance business to the security of the long-term insurance business policyholders and vice versa and may need to seek independent specialist advice.

Independent expert: appointment

SUP 18.2.19GRP

The suitability of a person to act as an independent expert depends on the nature of the scheme and the firms concerned. On the basis of the preliminary information supplied by the scheme promoters (and any other knowledge it has of the circumstances and the firms), the FSA will consider what skills are needed to make a proper report on the scheme and what criteria should therefore be applied to the choice of independent expert. The FSA will inform the promoters of any such criteria it is minded to apply.

SUP 18.2.20GRP

Under section 107(2) of the Act, the application to the court may be made by the transferor or the transferee or both. As soon as reasonably practical, the intended applicant should choose their nominee for independent expert in the light of any criteria advised by the FSA and advise the FSA of their choice, unless the FSA wishes them to defer nomination or to make its own nomination. The notification should be accompanied by reasons why the party considers the nominee to be a suitable person to act as independent expert, together with relevant details of his experience and qualifications.

SUP 18.2.21GRP

The FSA may wish to have preliminary discussions with the nominee about the transfer to help the FSA determine whether he is suitably qualified to address issues arising from the transfer. The FSA will consider the suitability of the nominee and inform the firm that nominated him whether it approves him. Since the nature of the scheme is a factor in determining the suitability of the nominee, the FSA cannot approve a nominee before the broad outlines of the scheme have been determined. If the FSA rejects a nominee, it will normally inform him and, with the agreement of the nominee, the applicant of the reasons for the rejection.

SUP 18.2.22GRP

The FSA may itself nominate the independent expert, either where it indicates that a nomination is not required by the parties, or where it does not approve the parties' own nomination. In either case it will inform the promoters of its nominee.

SUP 18.2.23GRP

Firms should co-operate fully with the independent expert and provide him with access to all relevant information and appropriate staff.

Consultation with other regulators

SUP 18.2.24GRP

The guidance set out in SUP 18.2.25 G to SUP 18.2.30 G derives from the requirements of the Insurance Directives and the associated agreements between EEA regulators. Schedule 12 of the Act implements some of these requirements.

SUP 18.2.25GRP
  1. (1)

    If the transferee is (or will be) an EEA firm (authorised in its Home State to carry on insurance business under the Insurance Directives) or a Swiss general insurance company, then the FSA has to consult the transferee's Home State regulator, who has 3 months to respond. It will be necessary for the FSA to obtain from the transferee's Home State regulator a certificate confirming that the transferee will meet the Home State's solvency margin requirements (if any) after the transfer.

  2. (2)

    If the transferee is authorised in the United Kingdom, the FSA will need to certify that the transferee will meet its solvency margin requirements after the transfer. If the FSA has required of a UK firm a financial recovery plan of the kind mentioned in paragraph 1 of article 38 of the Life Directive(2002/83/EC) or paragraph 1 of article 20a of the First Non-Life Directive, the FSA will not issue a certificate for so long as it considers that policyholders' rights are threatened within the meaning of paragraph 1.

SUP 18.2.26GRP

The transferor will need to provide the FSA with the information that the Home State regulator requires from FSA. This information includes:

  1. (1)

    the transfer agreement or a draft, with:

    1. (a)

      the names and addresses of the transferor and transferee; and

    2. (b)

      the classes of insurance business and details of the nature of the risks or commitments to be transferred;

  2. (2)

    for the business to be transferred (both before and after reinsurance):

    1. (a)

      the amount of technical provisions;

    2. (b)

      the amount of premiums (in the most recent financial period); and

    3. (c)

      for general insurance business, the claims incurred (in the most recent financial period);

  3. (3)

    details of assets to be transferred;

  4. (4)

    details of any guarantees (including reinsurance), whether provided by the transferor or a third party, to protect the provisions for the business transferred against deterioration; and

  5. (5)

    the states of the risks or the states of the commitments being transferred.

SUP 18.2.27GRP

If the transferee is not (and will not be) authorised and will be neither an EEA firm nor a Swiss general insurance company, then the FSA will need to consult itsinsurance supervisor in the place where the business is to be transferred. The FSA will need confirmation from this supervisor that the transferee will meet his solvency margin requirements there (if any) after the transfer.

SUP 18.2.28GRP

If the transferor is an UK insurer and the business to be transferred includes business carried on from a branch in another EEA State, then the FSA has to consult the Host State regulator, who has 3 months to respond. The FSA will need to be given the information that the Host State regulator requires from it. This information should identify the parties to the transfer and include the transfer agreement or draft transfer agreement or a summary containing relevant information, and describe arrangements for settling claims if the branch is to be closed.

SUP 18.2.29GRP

If the transferor is anUK insurer and the business to be transferred includes a long-term insurance contract (other than reinsurance) for which the state of the commitment is an EEA state other than the United Kingdom, then the FSA has to consult the Host State regulator. If the transferor is anUK insurer and the business to be transferred includes a general insurance contract (other than reinsurance) for which the state of the risk is an EEA state other than the United Kingdom, then the FSA must consult the Host State regulator. The FSA will need to be given the information that the Host State regulator requires from it. This information should identify the parties to the transfer and include the transfer agreement or draft transfer agreement or a summary containing relevant information. It would be helpful (especially for long-term insurance business) if a draft of the scheme report was also available. The consent of the Host State regulator to the transfer is required, unless he does not respond within 3 months.

SUP 18.2.30GRP

Where the transferor is anUK-deposit insurer and, following the transfer, it will no longer be carrying on insurance business in the United Kingdom, the FSA will need to collaborate with regulatory bodies in the other EEA States in which it is carrying on business to ensure that effective supervision of the business carried on in the EEA continues. The transferor should cooperate with the FSA and the other regulatory bodies in this process and demonstrate that it will meet the requirements of its regulators following the transfer.

Form of scheme report

SUP 18.2.31GRP

Under section 109 of the Act, a scheme report must accompany an application to the court to approve an insurance business transfer scheme. This report must be made in a form approved by the FSA. The FSA would not expect to approve the form of a scheme report unless it complies with SUP 18.2.33 G and would expect to approve the form of a scheme report that complies. SUP 18.2.32 G and SUP 18.2.34 G to SUP 18.2.41 G provide additional guidance for the independent expert.

SUP 18.2.32GRP

There may be matters relating to the scheme or the parties to the transfer that the FSA wishes to draw to the attention of the independent expert. The FSA may also wish the report to address particular issues. The independent expert should therefore contact the FSA at an early stage to establish whether there are such matters or issues. The independent expert should form his own opinion on such issues, which may differ from the opinion of the FSA.

SUP 18.2.33GRP

The scheme report should comply with the applicable rules on expert evidence and contain the following information:

  1. (1)

    who appointed the independent expert and who is bearing the costs of that appointment;

  2. (2)

    confirmation that the independent expert has been approved or nominated by the FSA;

  3. (3)

    a statement of independent expert's professional qualifications and (where appropriate) descriptions of the experience that fits him for the role;

  4. (4)

    whether the independent expert has, or has had, direct or indirect interest in any of the parties which might be thought to influence his independence, and details of any such interest;

  5. (5)

    the scope of the report;

  6. (6)

    the purpose of the scheme;

  7. (7)

    a summary of the terms of the scheme in so far as they are relevant to the report;

  8. (8)

    what documents, reports and other material information the independent expert has considered in preparing his report and whether any information that he requested has not been provided;

  9. (9)

    the extent to which the independent expert has relied on:

    1. (a)

      information provided by others; and

    2. (b)

      the judgment of others;

  10. (10)

    the people on whom the independent expert has relied and why, in his opinion, such reliance is reasonable;

  11. (11)

    his opinion of the likely effects of the scheme on policyholders (this term is defined to include persons with certain rights and contingent rights under the policies), distinguishing between:

    1. (a)

      transferring policyholders;

    2. (b)

      policyholders of the transferor whose contracts will not be transferred; and

    3. (c)

      policyholders of the transferee;

  12. (12)

    what matters (if any) that the independent expert has not taken into account or evaluated in the report that might, in his opinion, be relevant to policyholders' consideration of the scheme; and

  13. (13)

    for each opinion that the independent expert expresses in the report, an outline of his reasons.

SUP 18.2.34GRP

The purpose of the scheme report is to inform the court and the independent expert therefore has a duty to the court. However reliance will also be placed on it by policyholders, by others affected by the scheme and by the FSA. The amount of detail that it is appropriate to include will depend on the complexity of the scheme, the materiality of the details themselves and the circumstances. For instance where it is clear that no-one will be adversely affected by the transfer, a simple explanation for this conclusion plus the details required by SUP 18.2.33 G might be an adequate report.

SUP 18.2.35GRP

The summary of the terms of the scheme should include:

  1. (1)

    a description of any reinsurance arrangements that it is proposed should pass to the transferee under the scheme; and

  2. (2)

    a description of any guarantees or additional reinsurance that will cover the transferred business or the business of the transferor that will not be transferred.

SUP 18.2.36GRP

The independent expert's opinion of the likely effects of the scheme on policyholders should:

  1. (1)

    include a comparison of the likely effects if it is or is not implemented;

  2. (2)

    state whether he considered alternative arrangements and, if so, what;

  3. (3)

    where different groups of policyholders are likely to be affected differently by the scheme, include comment on those differences he considers may be material to the policyholders; and

  4. (4)

    include his views on:

    1. (a)

      the effect of the scheme on the security of policyholders' contractual rights, including the likelihood and potential effects of the insolvency of the insurer;

    2. (b)

      the likely effects of the scheme on matters such as investment management, new business strategy, administration, expense levels and valuation bases in so far as they may affect:

      1. (i)

        the security of policyholders' contractual rights;

      2. (ii)

        levels of service provided to policyholders; or

      3. (iii)

        for long-term insurance business, the reasonable expectations of policyholders; and

    3. (c)

      the cost and tax effects of the scheme, in so far as they may affect the security of policyholders' contractual rights, or for long-term insurance business, their reasonable expectations.

SUP 18.2.37GRP

The independent expert is not expected to comment on the likely effects on new policyholders, that is, those whose contracts are entered into after the effective date of the transfer.

SUP 18.2.38GRP

For any mutual company involved in the scheme, the report should:

  1. (1)

    describe the effect of the scheme on the proprietary rights of members of the company, including the significance of any loss or dilution of the rights of those members to secure or prevent further changes which could affect their entitlements as policyholders;

  2. (2)

    state whether, and to what extent, members will receive compensation under the scheme for any diminution of proprietary rights; and

  3. (3)

    comment on the appropriateness of any compensation, paying particular attention to any differences in treatment between members with voting rights and those without.

SUP 18.2.39GRP

For a scheme involving long-term insurance business, the report should:

  1. (1)

    describe the effect of the scheme on the nature and value of any rights of policyholders to participate in profits;

  2. (2)

    if any such rights will be diluted by the scheme, how any compensation offered to policyholders as a group (such as the injection of funds, allocation of shares, or cash payments) compares with the value of that dilution, and whether the extent and method of its proposed division is equitable as between different classes and generations of policyholders;

  3. (3)

    describe the likely effect of the scheme on the approach used to determine:

    1. (a)

      the amounts of any non-guaranteed benefits such as bonuses and surrender values; and

    2. (b)

      the levels of any discretionary charges;

  4. (4)

    describe what safeguards are provided by the scheme against a subsequent change of approach to these matters that could act to the detriment of existing policyholders of either firm;

  5. (5)

    include the independent expert's overall assessment of the likely effects of the scheme on the reasonable expectations of long-term insurance businesspolicyholders;

  6. (6)

    state whether the independent expert is satisfied that for each firm the scheme is equitable to all classes and generations of its policyholders; and

  7. (7)

    state whether, in the independent expert's opinion, for each relevant firm the scheme has sufficient safeguards (such as principles of financial management or certification by a with-profits actuary or actuarial function holder2) to ensure that the scheme operates as presented.

    2
SUP 18.2.40GRP

Where the transfer forms part of a wider chain of events or corporate restructuring, it may not be appropriate to consider the transfer in isolation and the independent expert should seek sufficient explanations on corporate plans to enable him to understand the wider picture. Likewise he will need information on the operational plans of the transferee and, if only part of the business of the transferor is transferred, of the transferor. These will need to have sufficient detail to allow him to understand in broad terms how the business will be run. He would not normally be expected to assess the adequacy of systems and controls in detail.

SUP 18.2.41GRP

A transfer may provide for benefits to be reduced for some or all of the policies being transferred. This might happen if the transferor is in financial difficulties. If there is such a proposal, the independent expert should report on what reductions he considers ought to be made, unless either:

  1. (1)

    the information required is not available and will not become available in time for his report, for instance it might depend on future events; or

  2. (2)

    otherwise, he is unable to report on this aspect in the time available.

Under such circumstances, the transfer might be urgent and it might be appropriate for the reduction in benefits to take place after the event, by means of an order under section 112 of the Act. The FSA would wish to consider the fairness of any such reduction and section 113 allows the court to appoint an independent actuary to report to the FSA on any such post-transfer reduction in benefits.

Notice provisions

SUP 18.2.42GRP

Under the Financial Services and Markets Act 2000 (Control of Business Transfers)(Requirements on Applicants) Regulations 2001 (SI 2001/3625), unless the court directs otherwise, notice of the application must be sent to all policyholders of the parties. It may also be appropriate to give notice to others affected, in particular to:

  1. (1)

    reinsurers of the transferor where it is proposed that benefits or liabilities under their contracts should pass to the transferee; and

  2. (2)

    anyone with an interest in the policies being transferred who has notified the transferor of their interest.

SUP 18.2.43GRP

The regulations referred to in SUP 18.2.42 G require that notice of the application must be published in:

  1. (1)

    the London, Edinburgh and Belfast Gazettes; and

  2. (2)

    unless the court directs otherwise, in:

    1. (a)

      two national newspapers in the United Kingdom; and

    2. (b)

      in two national newspapers in any other EEA State that is the state of the risk or the state of the commitment.

Wider publication may be appropriate in some circumstances (especially if not all policyholders are sent notices).

SUP 18.2.44GRP

The regulations referred to in SUP 18.2.44 G require that the FSA approves in advance the notices sent to policyholders and published in the press.

SUP 18.2.45GRP

Where a transfer involves members of Lloyd's as transferor or transferee, any notice requirements of the Society will also apply.

SUP 18.2.46GRP

The FSA is entitled to be heard by the court on any application for a transfer. A consideration for the FSA in determining whether to oppose a transfer would be itsview on whether adequate steps had been taken to tell policyholders about the transfer and whether they had adequate information and time to consider it. The FSA would not normally consider adequate a period of less than six weeks between sending notices to policyholders and the date of the court hearing. Therefore it would be sensible, before requesting the court fora waiver of the publication requirements or the requirement to send statements direct to policyholders, to consult the FSA on its views about what waivers might be appropriate and what substitute arrangements might be made. The FSA will take into account the practicality and costs of sending notices to policyholders (especially for firms in financial difficulty), the likely benefits for policyholders of receiving notices and the efficacy of other arrangements proposed for informing policyholders (including additional advertising or, where appropriate, electronic communication). For instance, the FSA would be unlikely to object to a transfer on the grounds that policyholders had not been sent notices, if cover for the policies concerned had expired and the probability of them making a claim was so small as to make the sending disproportionately expensive (particularly if there had been additional advertising). A firm may not be able to send notices to some or all of its policyholders, because it does not have their address, or may not even know their identity. This situation is not uncommon for business written through brokers or other agents. In such a case, alternative ways of informing policyholders need to be considered.

SUP 18.2.47GRP

As the consent (or presumed consent) of the Host State is required for a transfer covering contracts for which another EEA State is the state of the risk (for general insurance business) or the state of the commitment (for long-term insurance business), it is advisable to obtain the consent of regulatory body in the Host State to any waiver of publication in that state. The approval of the court will still be required.

Statement to policyholders

SUP 18.2.48GRP

It would normally be appropriate to include with the notice referred to in SUP 18.2.42 G a statement setting out the terms of the scheme and containing a summary of the scheme report. Ideally every recipient should understand in broad terms from the summary how the scheme is likely to affect him. This objective will be most nearly achieved if the summary is clear and concise while containing sufficient detail for the purpose. A lengthy summary or one that was hard to understand would not be appropriate. Regulations require the scheme report, the notice and the statement to be made available to anyone requesting them. The internet can be used for this purpose if it is suitable for the person making the request.

SUP 18.2.49GRP

Where the transferee is a friendly society, the notice should include information about the meeting at which a special resolution in accordance with paragraph 7 of Schedule 12 to the Friendly Societies Act 1992 is to be voted on, including the date of the meeting, how notice of the meeting is to be given to members and the terms of the special resolution. After the meeting the friendly society should inform the FSA whether the special resolution has been passed. The court will also need to be informed, so an appropriateway of informing the FSA may be to include it in the affidavit to the court.

SUP 18.2.50GRP

The FSA should be given the opportunity to comment on the statement referred to in SUP 18.2.48 G before it is sent, unless the FSA has informed the promoters in writing that it does not wish to do so.

FSA assessment of scheme

SUP 18.2.51GRP

The assessment is a continuing process, starting when the scheme promoters first approach the FSA about a proposed scheme. Among the considerations that may be relevant to both the depth of consideration given to, and the FSA's opinion on, a scheme are:

  1. (1)

    the potential risk posed by the transfer to the regulatory objectives;

  2. (2)

    the purpose of the scheme;

  3. (3)

    how the security of policyholders' (who include persons with certain rights and contingent rights under the policies) contractual rights appears to be affected;

  4. (4)

    how the scheme compares with possible alternatives, particularly those that do not require approval (whether by the court or the FSA);

  5. (5)

    how policyholders' rights and reasonable expectations appear to be affected;

  6. (6)

    the compensation offered to policyholders for any loss of rights or expectations;

  7. (7)

    how for other persons (besides policyholders) who have an interest in policies, their rights and the security of those rights appear to be affected;

  8. (8)

    the opportunity given to policyholders to consider the scheme, that is whether they have been properly notified, whether they have had adequate information and whether they have had adequate time to consider that information;

  9. (9)

    the opinion of the independent expert;

  10. (10)

    for a transfer that involves members of Lloyd's as transferor or transferee, the effect on the Society;

  11. (11)

    the views of other regulatory bodies consulted in connection with the proposed transfer; and

  12. (12)

    any views expressed by policyholders.

SUP 18.2.52GRP

The scheme report will be an important factor in the view the FSA forms on a scheme. The FSA will place considerable reliance on the opinions of the independent expert and the reasons for them. However it will form its own view taking into account other information and having regard to its regulatory objectives.

SUP 18.2.53GRP

The FSA is likely to object to a scheme if it concludes that it is unfair to a class of policyholders, unless the policyholders of that class have approved the scheme on the basis of information the FSA considers clear and accurate. Policyholders are not required to vote on a scheme but would, for instance, normally vote on a demutualisation or on a scheme of arrangement under the Companies Act 1985. The FSA is also likely to object to a scheme if it concludes that it has a material adverse effect on policyholders' security. The FSA may wish to satisfy itself that questions of systems and controls are properly addressed. There may also be conduct of business issues, particularly if the market has not fully absorbed the impact of the scheme by its effective date. The FSA would seek to resolve such issues through discussion with the scheme promoters in advance of the application to the court for approval, giving them the opportunity to amend the scheme or documentation, or otherwise to allay the FSA's concerns. Scheme promoters should keep the FSA informed to allow this discussion.

SUP 18.2.54GRP

The FSA may exercise its other powers under the Act, if it considers this a more effective method of achieving its regulatory objectives.

SUP 18.2.55GRP

The FSA is not required under its regulatory objectives to object to a scheme merely because some other scheme might have been in the better interests of policyholders, if the scheme itself is not adverse to their interests. However there may be circumstances where treating customers fairly would require a firm to consider or to implement an alternative scheme.

SUP 18.2.56GRP

Where a transfer involves members of Lloyd's as transferor or transferee, the FSA will consult the Society. Where the business of a syndicate is being transferred, the transfer involves all members participating in the relevant syndicate years.

SUP 18.2.57GRP

Regulations require that copies of the application to the court, the scheme report and the statement for policyholders referred to in SUP 18.2.48 G are also given to the FSA. This enables the FSA to consider these and determine whether it wishes to be heard by the court. It might assist the FSA if these items were given to the FSA in draft, in the first instance. This would enable:

  1. (1)

    the FSA to seek clarification before the documents were finalised; and

  2. (2)

    if the promoters so choose, allow them to amend the scheme to meet any concerns of the FSA.

SUP 18.2.58G

For long-term insurance business, the affidavit evidence to the court would normally include copies of reports on the transfer by the actuarial function holder and (if the insurance business includes with-profits business) the with-profits actuary of 2both firms, which should be provided to the FSA at an early stage. SUP 4.3.17 R (4) requires a firm to request the advice of its with-profits actuary2 about the likely effect of material changes in its business plans on the 2rights and reasonable expectations of the relevant classes of its with-profits policyholders. A transfer would be material unless the liabilities transferred were not material relative to the total liabilities of the firm. The advice on a transfer would normally be in the form of a formal report by the 1with-profits actuary.2

222
SUP 18.2.59G

The scheme promoters should advise the FSA about any material representations made to them in response to the transfer scheme. Where it is proposed that reinsurance arrangements should pass to the transferee under the scheme, the FSA should also be informed about the steps being taken to consult with, or seek the consent of, the reinsurers and the reactions received.

SUP 18.2.60G

The court is likely to wish to know the FSA's opinion on the scheme and, if the FSA does not intend to be heard, the affidavit may include a summary of the views expressed by the FSA. The applicants to the court should provide the FSA with a copy of all the affidavit evidence that they intend to submit to the court.