SUP 18.1 Application

1This chapter provides guidance in relation to business transfers.

1. (1)

   SUP 18.2 applies to any firm or to anymember of Lloyd's proposing to transfer the whole or part of its business by an insurance business transfer scheme or to accept such a transfer. SUP 18.2.31 G to SUP 18.2.41 G also applyto the independent expert making the scheme report.

2. (2)

   SUP 18.3 applies to any firm proposing to accept certain transfers of insurance business taking place outside the United Kingdom.

3. (3)

   SUP 18.4 applies to any friendly societies proposing to amalgamate under section 85 of the Friendly Societies Act 1992, to any friendly society proposing to transfer engagements under section 86 of that Act to another body and to any body (whether or not it is a friendly society) proposing to accept such a transfer. SUP 18.4 also provides guidance to those wishing to make representations to the FSA about an application for confirmation of an amalgamation or transfer.

Guidance on building society transfers and mergers is given in the Building Societies Regulatory Guide2.

Insurance business transfers are subject to Part VII of the Act and must be approved by the court under section 111. The Financial Services and Markets Act 2000 (Control of Business Transfers)(Requirements on Applicants) Regulations 2001 (SI 2001/3625) also apply. These regulations set out minimum requirements for publicising schemes, notifying certain interested parties directly (subject to the discretion of the court), and giving information to anyone who requests it.

An insurance business transfer scheme is defined in section 105 of the Act and the definition has been extended to transfers from members3 of Lloyd's to reflect the effect of the Financial Services and Markets Act 2000 (Control of Transfers of Business Done at Lloyd's) Order 2001(SI 2001/3626). With certain exclusions (relating to some schemes approved under foreign legislation, some novations of reinsurance or some captive insurers), it includes, in broad terms, any scheme to transfer insurance business from one firm (other than a friendly society) or members of Lloyd's to another body (which may be a friendly society), if:

1. (1)
   1. (a)

      the transferor is an "UK authorised person" and the business is being carried on in one or more EEA States; or

   2. (b)

      the business is reinsurance carried on in the United Kingdom; or

   3. (c)

      the business is carried on in the United Kingdom and the transferor is not an EEA firm; and

2. (2)

   in each case, the transferred business will be carried on from an establishment in the EEA.

The business transferred may include liabilities and potential liabilities on expired policies, liabilities on current policies and liabilities on contracts to be written in the period until the transfer takes effect. The parties to schemes approved under foreign legislation or involving novations of reinsurance or a captive insurer can apply to the court for an order sanctioning the scheme.

In the opinion of the FSA, a novation or a number of novations would constitutean insurance business transfer only if their number or value were such that the novation was to be regarded as a transfer of part of the business. A novation is an agreement between the policyholder and two insurers whereby a contract with one insurer is replaced by a contract with the other. In the opinion of the FSA, where an insurer agrees to meet the liabilities (this may include undertaking the administration of the policies) of another insurer by means of a reinsurance contract, including Lloyd's reinsurance to close, this would not constitute an insurance business transfer because the contractual liability remains with the original insurer; nor would an arrangement whereby an insurer offers to renew the policies of another insurer on their expiry date.

Under section 112 of the Act, the court has wide discretion to transfer property and liabilities to the transferee and to make orders in relation to incidental, consequential and supplementary matters. In the opinion of the FSA, the court has the power in such cases and on such terms as may be appropriate, to transfer the benefit of reinsurance contracts protecting the transferred business and to make such amendments to the terms of those contracts as may be necessary to give effect to that transfer of benefit.

Amalgamations of friendly societies and transfers of engagements from friendly societies to other bodies (whether or not friendly societies) are governed by part VIII of the Friendly Societies Act 1992 and Schedule 15 to that Act applies.