Insurance Business Transfer

Please read this text as a general guide to Insurance Business Transfers. Details of the Great Lakes / Munich Re America Insurance Business Transfer can be found by following the link on the right hand navigation bar.

What is an Insurance Business Transfer?

When Insurance companies in the European Economic Area (‘EEA’) transfer insurance business between separate companies they are governed by EEA Insurance Directives which impose certain responsibilities on the companies making the transfer. In the UK the legislation which manages these transfers is the Financial Services and Markets Act 2000 (‘FSMA’), which acts in concert with the relevant EEA Insurance Directives.

Insurance companies can transfer the whole insurance business of companies, books of business or certain blocks of policies.

The transfer of insurance business is tightly controlled, through FSMA, by the High Court of Justice in England and Wales (“High Court”) and the Financial Services Authority (‘FSA’). This tight control is imposed in part because the interests of policyholders are deemed to be paramount.

FSMA requires a number of key activities to take place before a business is approved for transfer.

Scheme

What is the Scheme?

The process of transferring the business is known as the Scheme. This is a legal process which must get approval from the High Court.

To reach its decision the High Court will follow a process which involves close consultation with the FSA and a report by an Independent Expert which states that the transfer is fair to all classes of policyholders.

Independent Expert’s Report

An actuary, experienced in insurance business, is appointed and his appointment approved by the FSA. His role is to write an independent report which will consider the implications of the Scheme and in particular its effect on the affected policyholders (transferring and non-transferring).  In order for the Scheme to be approved the Independent Expert must normally conclude that policyholders are not materially adversely affected.

Policyholder Mailing

A requirement of FSMA is that affected policyholders are sent notice of the proposed transfer and it is normal that such notification includes details of what is happening, when, and what they can do about it.  Policyholders are customarily given no less than 6 weeks notice of the intended transfer.

Policyholders are also entitled to object to the transfer if they feel they are adversely affected.

Policyholders can object in person, be represented or have their objection put before the High Court.

Outwards Reinsurers Mailing

Following recent changes to the regulations governing Insurance Business Transfers, it is now a requirement to notify (affected) outwards reinsurers.  Reinsurers will usually be written to and are requested to consent to the transfer of the relevant reinsurances and acknowledge that consent in writing.

This consent is not mandatory as the Court has the power to make the transfer without the consent of the reinsurer but more a matter of good business practice. 

Reinsurers can object to the transfer if they believe themselves to be materially adversely affected. 

Third Party (and others) Mailing

Although not a requirement of FSMA the transferor will often notify other business partners. Usually this includes brokers, intermediaries, introducers, third party administrators, claims handlers and ‘outsourced’ suppliers.

The transferor usually requests that anyone contacted in this way passes on the details of the intended transfer to any relevant parties.

When will policies transfer? What is the Effective date?

If the High Court approves the Scheme the transfer of business will happen on a date agreed by the parties to the Scheme. This is known as the Effective Date.