A series of “targeted” amendments to the existing insolvency arrangements for insurers is being proposed by the UK government in hopes of enabling authorities to better manage insurer distress.
“These amendments include clarifications and enhancements to the court’s existing power, under section 377 of the Financial Services and Markets Act 2000 (FSMA), to order a reduction of the value of an insurer’s contracts (write-down),” said HM Treasury in a release when its 66-page consultation document was published.
“They would also introduce new provisions to help mitigate business disruption and losses for insurers in distress, and a change to the protection provided by the Financial Services Compensation Scheme in the event of a write-down under section 377 FSMA.”
The proposals apply to all insurers currently in scope of the abovementioned section. They do not apply, however, to Lloyd’s since separate legislation provides for the specific restructuring and winding-up procedures available to that association of underwriters.
Meanwhile HM Treasury added: “These amendments would promote continuity of cover for policyholders by allowing earlier intervention by the regulatory authorities when an insurer was suffering financial distress, reduce costs to industry, and help maintain public confidence in the UK’s insurance sector.”
The consultation will close at 11:45pm on August 13.