Policyholders Protection Act 1997 (repealed)

General scope of the Board’s functions

Insurance companies to which the 1975 Act applies

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• (1) For section 3 of the 1975 Act there shall be substituted—

(3) (1) The functions of the Board under this Act shall be exercisable in relation to policyholders and others who have been or may be prejudiced in consequence of the inability of insurance companies to meet their liabilities under policies issued or securities given by them only in cases where the insurance companies in question are insurance companies to which this Act applies. (2) An insurance company is one to which this Act applies if it is— (a) authorised under section 3 or 4 of the Insurance Companies Act 1982 to carry on insurance business of any class in the United Kingdom, (b) an EC company which is lawfully carrying on insurance business of any class in the United Kingdom, or (c) an EC company not falling within paragraph (b) above which provides general insurance or long term insurance in the United Kingdom.

• (2) Schedule 1 to this Act (consequential amendments) shall have effect.

Eligibility of policyholders for protection

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• (1) For section 4 of the 1975 Act there shall be substituted—

(4) (1) A policyholder is eligible for the assistance or protection of the Board in accordance with any provision of sections 6 to 16 below only in respect of the insurance under a qualifying policy of a protected risk or commitment. (2) The following are qualifying policies for the purposes of this Act— (a) a policy of insurance issued by an insurance company authorised under section 3 or 4 of the Insurance Companies Act 1982 through an establishment in— (i) the United Kingdom, (ii) another EEA State, or (iii) the Channel Islands or the Isle of Man, and (b) a policy of insurance issued by an EC company through an establishment in an EEA State. (3) A risk or commitment is a protected risk or commitment for the purposes of this Act— (a) in the case of a policy falling within subsection (2)(a)(i) above, if it is situated in an EEA State, the Channel Islands or the Isle of Man; (b) in the case of a policy falling within subsection (2)(a)(ii) or (2)(b) above, if it is situated in the United Kingdom; (c) in the case of a policy falling within subsection (2)(a)(iii) above, if it is situated in the United Kingdom, the Channel Islands or the Isle of Man.

• (2) Schedule 2 to this Act (consequential amendments) shall have effect.

• (3) This section shall not have effect in relation to a policy, or security, where the contract which the policy evidences, or which governs the security, was entered into before the day on which this section comes into force.

• (4) For the purposes of subsection (3) above, where a contract for a term of more than one year—

• (a) was entered into before the day on which this section comes into force, and

• (b) continues in force beyond an anniversary of its inception which falls on or after the day on which this section comes into force,

the contract shall be treated as having been entered into on that anniversary, unless the effecting of the contract constituted the carrying on of long term business (within the meaning of the Insurance Companies Act 1982).

Companies in financial difficulties

Persons qualifying for protection

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• (1) Section 16 of the 1975 Act (which enables the Board to take measures to protect policyholders of companies in financial difficulties) shall be amended as follows.

• (2) In subsection (2) (under which the Board’s powers are exercisable for the purpose of safeguarding policyholders of a company in financial difficulties who are eligible for protection under the section)—

• (a) for “policyholders of a company in financial difficulties who are eligible for protection under this section” there shall be substituted “those who are qualifying persons in relation to a company in financial difficulties”, and

• (b) for “such policyholders” there shall be substituted “such persons”.

• (3) In subsection (3) (power to secure or facilitate transfer of business of company in financial difficulties on terms including reducing liabilities or benefits under any policies), for the words from “the liabilities” to “policies)” there shall be substituted “any of the things to which any of those who are qualifying persons in relation to the company in financial difficulties are entitled in their capacity as such)”.

• (4) In subsection (5) (power to assist company in financial difficulties conditionally on reduction of liabilities or benefits under any of its policies), for the words from “any liabilities” to “the company” there shall be substituted “of the things to which any of those who are qualifying persons in relation to the company are entitled in their capacity as such”.

• (5) In subsection (8) (restriction on exercise of powers)—

• (a) for “any policyholders of” there shall be substituted “any of those who are qualifying persons in relation to”, and

• (b) for “the policyholders” there shall be substituted “the persons”.

• (6) After subsection (8B) there shall be inserted—

(8C) For the purposes of this section, a person is a qualifying person in relation to a company in financial difficulties if— (a) he is a policyholder of the company who is eligible for protection under this section, (b) he is a security holder in respect of a security given by the company who is eligible for protection under this section, or (c) he is a person to whom the company is liable to pay any sum in respect of his entitlement to the benefit of a judgment under the provisions mentioned in paragraphs (a) and (b) of section 7 above.

• (7) After subsection (9) there shall be inserted—

(9A) A security holder in respect of a security given by a company in financial difficulties is eligible for protection under this section if— (a) it is a security to which section 6 above applies, and (b) it would have been a United Kingdom policy at the relevant time if it had been an insurance policy and the contract governing the security had been a contract of insurance.

Deferment of payment

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• (1) Section 16 of the 1975 Act shall be amended as follows.

• (2) In subsection (1) (definition of company in financial difficulties), in paragraph (c) (application made for sanctioning compromise or arrangement providing for reducing liabilities or benefits under company’s policies), after “reducing” there shall be inserted “, or deferring payment of,”.

• (3) In subsection (3) (power to secure or facilitate transfer of business of company in financial difficulties on terms including reducing entitlements of qualifying persons), after “reducing” there shall be inserted “, or deferring payment of,”.

• (4) In subsection (5) (power to assist company in financial difficulties conditionally on reduction of entitlements of qualifying persons), after “reduction of” there shall be inserted “, or the deferment of the payment of,”.

Operation of the “cost test”

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In section 16 of the 1975 Act, after subsection (8) (which prevents the Board taking measures under subsection (3) or (4) if it appears to them that it would cost them less if the company went into liquidation) there shall be inserted—

(8A) In making any calculation for the purposes of subsection (8) above, the Board shall— (a) discount future costs to a present value using such rates of interest as appear to them to be appropriate, and (b) in evaluating contingent costs, make such assumptions, and use such statistical and other methods, as appear to them to be reasonable. (8B) If in pursuance of subsection (3) or (4) above the Board have entered into an obligation to do anything, subsection (8) above shall not apply in relation to anything done in pursuance of the obligation.

Schemes of arrangement, etc.: power of Secretary of State to intervene

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• (1) In the 1975 Act, after section 17 there shall be inserted—

(17A) (1) This section applies where a company is a company in financial difficulties for the purposes of section 16 above by virtue of subsection (1)(c) of that section. (2) The Secretary of State may, after consultation with the Board, exercise any power conferred on him by subsection (3) or (4) below for the purpose of safeguarding those who are qualifying persons in relation to the company, or any class or description of such persons, to any extent appearing to the Secretary of State to be appropriate, against relevant loss arising from the financial difficulties of the company. (3) The Secretary of State may by notice in writing direct the Board to take any measures appearing to him to be necessary for securing or facilitating the transfer of all or any part of the insurance business carried on by the company to another insurance company to which this Act applies or an authorised friendly society, on terms (including terms reducing, or deferring payment of, any of the things to which any of those who are qualifying persons in relation to the company in financial difficulties are entitled in their capacity as such) appearing to him to be appropriate. (4) In any case where it appears to the Secretary of State that it would be practicable to secure the purpose mentioned in subsection (2) above by the Board giving assistance to the company to enable it to continue to carry on insurance business, the Secretary of State may by notice in writing direct the Board to take such measures as appear to the Secretary of State to be necessary for giving such assistance. (5) Without prejudice to the generality of subsection (4) above, a direction under that subsection may require the Board to make the giving of any assistance to the company conditional on the reduction of, or the deferment of the payment of, any of the things to which any of those who are qualifying persons in relation to the company are entitled in their capacity as such to any extent appearing to the Secretary of State to be appropriate. (6) The Secretary of State shall send a copy of any notice under subsection (3) or (4) above to the company. (7) A direction under subsection (3) or (4) above shall not have effect to require the Board to take any measures which, by virtue of section 16(6) or (8) or 17(1) above, they would be prevented from taking under section 16(3) or (4) above. (8) Where it appears to the Board that a direction under subsection (3) or (4) above is affected by subsection (7) above, they shall— (a) notify the Secretary of State in writing of that fact and of the reasons for their opinion, and (b) send a copy of the notice to the company. (9) In subsection (2) above, “relevant loss” means loss in connection with a matter by virtue of which a person is a qualifying person in relation to the company. (10) Subsection (8C) of section 16 above shall apply for the purposes of this section as it applies for the purposes of that.

• (2) Schedule 3 to this Act (consequential amendments of the 1975 Act) shall have effect.

Levies on insurance companies

Extension of levies

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• (1) Section 21 of the 1975 Act (power to impose levies) shall be amended as set out in subsections (2) to (9) below.

• (2) In subsection (1) (general business levy), for the words from “authorised” to “United Kingdom” there shall be substituted

insurance companies to which this Act applies which are— (a) carrying on general business in the United Kingdom, or (b) providing general insurance in United Kingdom,

.

• (3) In subsection (2) (long term business levy), for the words from “authorised” to “United Kingdom” there shall be substituted

insurance companies to which this Act applies which are— (a) carrying on long term business in the United Kingdom, or (b) providing long term insurance in United Kingdom,

.

• (4) In subsection (3) (income by reference to which general business levy calculated)—

• (a) for “net premium income” there shall be substituted “relevant net premium income”, and

• (b) the words from “in respect of” to “relevant time” shall be omitted.

• (5) After that subsection there shall be inserted—

(3A) In the case of a company falling within subsection (1)(a) above which is authorised under section 3 or 4 of the Insurance Companies Act 1982, the reference in subsection (3) above to relevant net premium income is to the net premium income of the company in respect of— (a) general policies which were United Kingdom policies at the relevant time, (b) the insurance through an establishment in the Channel Islands or the Isle of Man, under general policies, of risks situated in the United Kingdom, the Channel Islands or the Isle of Man, and (c) the insurance through an establishment in an EEA State other than the United Kingdom, under general policies, of risks situated in the United Kingdom. (3B) In the case of a company falling within subsection (1)(a) above which is not authorised under section 3 or 4 of the Insurance Companies Act 1982, the reference in subsection (3) above to relevant net premium income is to the net premium income of the company in respect of— (a) general policies which were United Kingdom policies at the relevant time, and (b) the insurance through an establishment in an EEA State other than the United Kingdom, under general policies, of risks situated in the United Kingdom. (3C) In the case of a company falling within subsection (1)(b) above, other than a company to which subsection (3A) or (3B) above applies, the reference in subsection (3) above to relevant net premium income is to the net premium income of the company in respect of the insurance through an establishment in an EEA State other than the United Kingdom, under general policies, of risks situated in the United Kingdom.

• (6) In subsection (4) (income by reference to which long term business levy calculated)—

• (a) for “net premium income” there shall be substituted “relevant net premium income”, and

• (b) the words from “in respect of” to “relevant time” shall be omitted.

• (7) After that subsection there shall be inserted—

(4A) In the case of a company falling within subsection (2)(a) above which is authorised under section 3 or 4 of the Insurance Companies Act 1982, the reference in subsection (4) above to relevant net premium income is to the net premium income of the company in respect of— (a) long term policies effected after 31st December 1974 which were United Kingdom policies at the relevant time, (b) the insurance through an establishment in the Channel Islands or the Isle of Man, under long term policies effected on or after the relevant day, of commitments situated in the United Kingdom, the Channel Islands or the Isle of Man, and (c) the insurance through an establishment in an EEA State other than the United Kingdom, under long term policies effected on or after the relevant day, of commitments situated in the United Kingdom. (4B) In the case of a company falling within subsection (2)(a) above which is not authorised under section 3 or 4 of the Insurance Companies Act 1982, the reference in subsection (4) above to relevant net premium income is to the net premium income of the company in respect of— (a) long term policies effected after 31st December 1974 which were United Kingdom policies at the relevant time, and (b) the insurance through an establishment in an EEA State other than the United Kingdom, under long term policies effected on or after the relevant day, of commitments situated in the United Kingdom. (4C) In the case of a company falling within subsection (2)(b) above, other than a company to which subsection (4A) or (4B) above applies, the reference in subsection (4) above to relevant net premium income is to the net premium income of the company in respect of the insurance through an establishment in an EEA State other than United Kingdom, under long term policies effected on or after the relevant day, of commitments situated in the United Kingdom.

• (8) After subsection (7) there shall be inserted—

(7A) In this section, references to the net premium income of a company for any year in respect of insurance of any description means the gross amounts recorded in the company’s accounts during that year as paid or due to the company by way of premiums in respect of insurance of that description, less any amounts deductible for that year in respect of insurance of that description in accordance with subsection (7B) below. (7B) In calculating a company’s net premium income for any year in respect of insurance of any description, any rebates or refunds recorded in the company’s accounts during that year as allowed or given in respect of any amounts so recorded during that or any previous year as paid or due to the company by way of premiums in respect of insurance of that description shall be deductible.

• (9) After subsection (9) there shall be inserted—

(9A) For the purposes of this section, a policy of insurance is a United Kingdom policy at any time when the performance by the insurer of any of his obligations under the contract evidenced by the policy would constitute the carrying on by the insurer of insurance business of any class in the United Kingdom. (9B) In this section, “relevant day” means the day on which section 7 of the Policyholders Protection Act 1997 came into force.

• (10) In section 25(1) of the 1975 Act (application of surplus funds by the Board), for “authorised insurance companies carrying on business in the United Kingdom” there shall be substituted “insurance companies to which this Act applies”.

• (11) In Schedule 3 to that Act (additional provisions with respect to levies), in paragraph 4, for “authorised insurance company”, in each place, there shall be substituted “insurance company to which this Act applies”.

• (12) In that Schedule, at the end there shall be inserted—