The PRA has published a “Statement of Policy: The PRA’s approach to insurance business transfers“.
(At least in theory), if you’re contemplating the transfer of a book of (re)insurance business from one (re)insurer to another, you’ll need to read this Statement of Policy alongside:
- Part VII of the Financial Services and Markets Act 2000 (FSMA) (as amended);
- The FSMA (Control of Business transfers) (Requirements on Applicants) Regulations 2001 (SI 2001/3625) (as amended);
- The FSMA (Control of Transfers of Business Done at Lloyd’s) Order 2001 (SI 2001/3626) (as amended, and if applicable);
- The FSMA (Meaning of “Policy” and “Policyholder”) Order 2001 (SI 2001/2361) (not yet amended – phew!);
- The PRA & FCA MoU, which explains how the regulators will carve up the work between them (the FCA is on backing vocals, most of the time);
- The PRA & FCA MoU on the transfer of with-profits business (if applicable);
- SUP 18 (Transfers of Business) in the combined PRA and FCA Handbook (while it lasts, and in the FCA’s Handbook, after that);
- The principles set out in the PRA’s Supervisory Statement SS7/14 (Reports by skilled persons), which also apply to the Independent Expert;
- The PRA’s letter about its approach to Part VII Transfers during 2015 (in particular) (our earlier blog about this letter is here);
- The PRA’s Approach to Insurance Supervision (latest version available here); and
- Some or all of the relevant case law.
This might give the impression that there’s more law in this area than there is; and that it moves more quickly than it does. There is (of course) a reasonable body of law in this area; and it is moving. But the PRA’s Statement of Policy is not much more than a summary of the current regulatory position on Part VII transfers. It doesn’t add or change very much (for now).
Here are the main points that we took away, after reading the paper:
- Aaaargh!!! The circular guidance about novations and Part VII transfers is still there. “The PRA is likely to consider a novation or a number of novations as amounting to an insurance business transfer only if their number of value were such that the novation was to be regarded as a transfer of part of the business“. It’s frustrating that the PRA doesn’t seem to have noticed, or taken the time to resolve, this circularity. So far, we’ve been able to sort the novation-wheat from the transfer-chaff with a legal analysis and experience-based judgement (long may it last!) – but the circularity is real, and (re)insurers incur cost as a result of it;
- The PRA is becoming (even) more assertive: “The PRA is not required … to object to a scheme merely because another scheme might have been in the better interest of policyholders. [However,] There may be circumstances where the PRA might require a firm to consider or to implement an alternative scheme” (this used to be an anathema – it’s not yet de rigueur, but perhaps it’s moving that way. Quite how the PRA will do this, and how lawful its efforts will be, remain to be seen); and
- It seems likely that this Statement of Policy will stand in place of the PRA’s version of SUP 18 when the combined handbook functionality is switched off this summer, and the PRA begins to rely solely on its own Rule Book, its own supervisory statements and other documents (a day I’m sure we’ll all regret when it arrives – but for now: the PRA is the Borg, and resistance is futile).