On 21 January 2015, the PRA published a letter which explains the approach it will take to Part VII transfers of insurance business in 2015.
The letter is interesting, because it seems to confirm what market participants have long expected – that “a significant number of firms are seeking to complete transfers between now and the implementation of Solvency II“. Solvency II does therefore finally seem to be driving an increase in transactional business.
This aside, the letter is rather ambiguous and confusing.
It explains that:
“We shall continue to progress those insurance transfers notified to us where i) the fee has been paid … ; ii) the firm has indicated its intention to complete the transfer in 2015 and iii) is on track to do so.
For those transfers where a fee has not yet been paid …, we will consider, on a case by case basis, the impact of the transfer on our objectives and the likelihood of the transfer completing by the end of 2015. We will seek to agree a timetable with you, based on this assessment. This will have regard to any other constraints on our resource as a result of other transfers in progress and other existing priorities such as the implementation of Solvency II.
For all transfers, timetables should be credible and realistic in terms of what need to be submitted to us and by when … If all relevant documentation … is not in final draft form and … received at least six weeks prior to the date of the directions hearing …, we may ask you to defer the hearing … Further, we propose not to review any accompanying documentation, such as policyholder communications, requests for waivers etc. until we are in receipt of a final draft of the Independent Expert’s report…”
This seems to suggest that, unless the PRA’s fee has been paid; and/or the proposed transfer will not have a sufficient impact on the PRA’s objectives; and/or it is not sufficiently certain that the Part VII transfer will complete this year, the PRA will not be prepared to agree a transaction timetable; and/or comment on policyholder and other communications; and/or prepare and submit its reports to the Court. If that is what the letter suggests, it’s not consistent with the PRA’s intentions. In fact, at least at this stage, the PRA is still happy to have a preliminary meeting with the parties to discuss the structure and timing of (even relatively modest) proposed transactions, the identity of the proposed Independent Expert, and the timetable the firm’s would like to follow. It also still wants and expects to have these discussions before any formal Part VII process steps are taken. Perhaps what the PRA is really telling us is that unless the Parties are serious, and unless they’re prepared to stick to the agreed timetable, their transactions won’t complete this year. This may be akin to the Solvency II IMAP process, where a reasonably large number of firms started, but those who couldn’t stick to the timetable and those who didn’t produce documents of a sufficiently high quality were eased (or pushed) out over time. If that’s right: you’ve been warned!
The letter doesn’t say so, but our experience suggests that the PRA will be expecting every firm that hopes to complete a Part VII transfer this year to have a well developed contingency plan that will enable it to comply with the current PRA rules and Solvency II in the event that the transfer they want or need to complete cannot be finished in time. In some cases, the stakes could hardly be higher. If you’re thinking about a Part VII transfer for this year, you therefore may want to start now.