APPENDIX 3: EXPLANATORY INFORMATION
Reinsurance Directive Regulations 2007 (SI 2007/3253)
Financial Services and Markets Act 2000 (Reinsurance
Directive) Order 2007 (SI 2007/3254)
Financial Services and Markets Act 2000 (Reinsurance
Directive) Regulations 2007 (SI 2007/3255)
Advice on consultation
1. The Treasury consulted publicly on its proposals
to complete implementation of the Reinsurance Directive between
25 July and 17 October 2007. The consultation document was drafted,
and the consultation process conducted, in accordance with the
principles set out in the Cabinet Office Code of Practice on Consultation
and the Better Regulation Executive consultation guidance. The
consultation document (including the draft Statutory Instruments)
was published on the Treasury's website in the 'consultation &
legislation' section. Direct e-mail notification of the publication
of the consultation document was sent to key stakeholders. Hardcopies
of the document were made available on request.
2. The key stakeholders consulted included: pure
reinsurance companies (who are most affected by the proposals);
general insurers (both as possible providers of reinsurance and
as the clients of reinsurers); law firms (including representative
bodies such as the City of London Law Society); International
Underwriting Association and other trade bodies; Lloyd's of London;
and the Financial Services Authority (FSA) which, itself, was
responsible for implementing parts of the Reinsurance Directive.
Nine responses (including one 'no comment') were received.
3. In general, the proposals were welcomed. Comments
were mostly directed at the drafting of the SIs. In terms of the
main questions posed in the consultation document, all respondents
who expressed an opinion agreed with the proposals for implementing
the passport rights for pure reinsurance companies. There was
broad support for the proposed widening of one of the existing
exclusions from the court approval process for insurance business
transfers. Though one respondent felt the exclusions could apply
more widely, while another took the opposite view, suggesting
that the existence of exclusions could distort the market and
failed to recognise the full range of issues that should be considered
in transfers. Further discussion clarified that the proposed amendments
represent only a narrow extension of the existing exclusions,
which only apply to tightly prescribed circumstances where transfers
are low risk. The Treasury is implementing the proposal, but is
not making any additional exclusions in the regulations.
4. Proposals for giving the court discretion
to apply existing publication requirements for transfers to all
transfers involving reinsurance were supported, as was the proposal
to extend passporting rights to Gibraltar-based firms wishing
to establish branches in or provide services in the UK. Respondents
also raised several other issues. The Reinsurance Directive permits
the provision of rules to allow for Insurance Special Purpose
Vehicles [ISPVs]. ISPVs are special purpose reinsurance vehicles
which must be fully funded, typically by issuing debt. The introduction
of an ISPV regime allows insurers to manage their capital more
efficiently. Changes to the FSA's rulebook have been already made
to establish an appropriate regime. However, one respondent identified
a consequential amendment to the definition of 'authorised insurance
company' in section 268 of the Companies Act 1985 (and its analogue
in section 843 of the Companies Act 2006) that is necessary to
ensure the regime operates correctly. The amendment has been included
in the regulations.
5. Another respondent suggested that section
116 of the Financial Services and Markets Act 2000 should be amended
to provide for recognition in the UK of transfers of reinsurance
by direct insurers in other member states. This would mean that
reinsurance policyholders in the UK of mixed insurers given appropriate
ex post facto notice under section 116 would be bound by the transfer.
Although it would reflect the position for transfers by pure reinsurers,
as established by the Reinsurance Directive Regulations, the Treasury
does not intend to take forward this point. This is because protections
under the Reinsurance Directive that would apply to transfers
by pure reinsurers (i.e. a solvency certificate about the transferee)
would not apply in the case of transfers of reinsurance by mixed
insurers.
HM Treasury
December 2007
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