The Flood Reinsurance (Scheme Funding and Administration) Regulations 2015

Made: 10th November 2015

Coming into force in accordance with regulation 1(b)

A draft of these Regulations has been laid before and approved by a resolution of each House of Parliament pursuant to section 84(6) of the Act.

PART 1 — Introduction

Citation and commencement

1

These Regulations—

• (a) may be cited as the Flood Reinsurance (Scheme Funding and Administration) Regulations 2015; and

• (b) come into force on the day after the day on which they were made.

Interpretation

2

In these Regulations—

• “the Act” means the Water Act 2014;

• “buildings policy” means a contract of insurance covering the structure of household premises, which may include fixtures and fittings, swimming pools, permanently fixed hot tubs, tennis courts, patios, terraces, service tanks, drains, septic tanks, pipes and cables, central heating fuel storage tanks, driveways, footpaths, garden walls, hedges, gates and fences;

• “combined policy” means a contract of insurance which comprises a buildings policy and a contents policy;

• “contents”, in relation to a dwelling, means household goods and personal possessions, which may include valuables (except fine art), clothes, sports equipment and bicycles, camping equipment, money, satellite dishes, aerials and other articles, which belong to persons who live in the dwelling or for which they are responsible, or which belong to guests in the dwelling (except paying guests);

• “contents policy” means a contract of insurance covering the contents of household premises which consist of a dwelling;

• “contribution” means a sum payable by way of capital contribution by a relevant insurer to the FR Scheme administrator pursuant to a contractual obligation under or by virtue of the FR Scheme;

• “dwelling” means any building, or part of a building, or mobile home in the United Kingdom that is held for private, residential use as a single residential unit, and includes any garage, shed or other building which forms part of, and is enjoyed with, the residential unit;

• “financial year” means a period of 12 months ending on the 31st March;

• “the FR Scheme administrator” means the body designated by the Flood Reinsurance (Scheme and Scheme Administrator Designation) Regulations 2015[^f00002];

• “the FR Scheme” means the scheme described in the Scheme Document dated 22nd June 2015 and designated as the Flood Reinsurance Scheme by the Flood Reinsurance (Scheme and Scheme Administrator Designation) Regulations 2015[^f00003];

• “home insurance” means a contract of insurance which—includes cover for any risk of damage to, or loss or destruction of, either or both—a dwelling;the contents of a dwelling; andmeets the criteria relating to “home insurance” set out in section 4.4 of the FR Scheme;

• “mobile home” means a caravan within the meaning of Part 1 of the Caravan Sites and Control of Development Act 1960[^f00004] (disregarding the effect of section 13(2) of the Caravan Sites Act 1968[^f00005]) which is occupied by the occupier as their only or main residence;

• “preceding calendar year”, in relation to a financial year, means the year ending on 31st December immediately preceding the financial year.

PART 2 — Definitions for the purposes of the Act

Definition of “relevant insurer”

3

• (1) For the purposes of Part 4 of the Act, an insurer[^f00006] is a relevant insurer in a financial year if the insurer—

• (a)

• (i) effected any home insurance in the period of 12 months immediately preceding the first day of the financial year, and

• (ii) has permission under the Financial Services and Markets Act 2000[^f00007] which allows the insurer to effect and carry out home insurance on the first day of the financial year; or

• (b) is a member of the Society (within the meaning of the Lloyd’s Act 1982[^f00008]) and, as such a member—

• (i) effected any home insurance during the period of 12 months immediately preceding the first day of the financial year; and

• (ii) on the first day of the financial year, intends to effect further home insurance during the financial year.

• (2) For the purposes of paragraph (1)(b), an insurer who falls within paragraph (1)(b)(i) shall be taken to fall within paragraph (1)(b)(ii), unless the contrary is shown by the insurer to the reasonable satisfaction of the FR Scheme administrator.

Definition of “flood”

4

• (1) For the purposes of sections 64 to 69 of the Act, “flood” means water, from any source external to a building, which enters a building—

• (a) and

• (i) at or below ground level; or

• (ii) above ground level, provided that part of the body of such water is at ground level;

• (b) does so with a volume, weight or force which is substantial and abnormal.

• (2) For the purposes of paragraph (1), the following do not constitute a flood—

• (a) the gradual seepage or percolation of water into a building (such as rising damp);

• (b) water escaping from a water main, drain, sewer, pipe or other thing inside a building, unless such escape was solely the consequence of a flood falling within paragraph (1).

Definition of “household premises”

5

For the purposes of sections 64 to 69 of the Act, “household premises” means—

• (a) a dwelling which meets the criteria relating to “household premises” set out in sections 4.7 to 4.9 of the FR Scheme; or

• (b) a building in the United Kingdom which:

• (i) is held for private residential use and comprises two or three residential units, and includes any garage, shed or other building which forms part of, and is enjoyed with, the building; and

• (ii) meets the criteria relating to “household premises” set out in sections 4.7 to 4.9 of the FR Scheme.

PART 3 — FR Scheme Funding

Gross written premium

6

• (1) For the purposes of this Part, a relevant insurer’s “gross written premium” means the aggregate sterling amount paid or payable by, or on behalf of, holders of home insurance for the relevant risk element of home insurance, before the deduction of any amount (including commission), but after the deduction of insurance premium tax[^f00009].

• (2) A relevant insurer’s gross written premium must be increased by the amount of any gross written premium paid or payable for the relevant preceding calendar year for transferred home insurance.

• (3) For the purposes of paragraph (2), “transferred home insurance” means the rights and liabilities arising out of, or in connection with, home insurance, where the home insurance—

• (a) formed the whole, or part, of an insurance business carried on by a person (“A”),

• (b) the insurance business, or that part, has been transferred to, or has otherwise vested in, the relevant insurer in the preceding calendar year, and

• (c) A is not a relevant insurer on the date on which the levy is due under regulation 9.

• (4) When calculating a relevant insurer’s gross written premium under paragraphs (1) and (2), home insurance shall be taken to cover only the relevant risk element unless the contrary is shown by the relevant insurer to the reasonable satisfaction of the FR Scheme administrator.

• (5) For the purposes of this regulation, “the relevant risk element”, in relation to home insurance, is any risk of damage to, or loss or destruction of, either or both of the following—

• (a) a dwelling;

• (b) the contents of a dwelling.

Provision of information by relevant insurers

7

Within 30 days of receipt of a written request, a relevant insurer must provide to the FR Scheme administrator such information as the FR Scheme administrator may request relating to the gross written premium for that relevant insurer for the preceding calendar year.

Calculation of the levy

8

• (1) A relevant insurer must pay to the FR Scheme administrator a levy for each financial year from (and including) the financial year commencing 1st April 2016, calculated in accordance with the following formula—

$TL×XY.$

• (2) For the purposes of the formula in paragraph (1)—

• (a) “TL” means the total levy of £160 million;

• (b) “X” means the relevant insurer’s gross written premium for the preceding calendar year unless paragraph (3) applies, in which case, “X” is determined in accordance with that paragraph; and

• (c) “Y” means the sum of all relevant insurers’ “X” for the preceding calendar year.

• (3) If a relevant insurer fails to provide the information requested under regulation 7 within the period required by that regulation, “X” is the amount considered by the FR Scheme administrator to be a reasonable estimate of the gross written premium of the relevant insurer for the preceding calendar year, on the basis of information reasonably available.

• (4) The FR Scheme administrator must calculate the levy payable under paragraph (1) by a relevant insurer on the basis of the information reasonably available at the time a request for an instalment is made under regulation 9(1) or (2).

Payment of the levy by instalments and adjustments to instalments

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• (1) For each financial year, the levy under regulation 8 is due on 1st April and is payable by each relevant insurer by such instalments and at such times as the FR Scheme administrator thinks fit and no later than 30 days following a request in writing by the FR Scheme administrator.

• (2) The FR Scheme administrator must make such adjustments to subsequent instalments requested as may be necessary in the light of any further information which becomes available.

• (3) No adjustments to instalments may be made more than 2 years after the date on which the levy becomes due under paragraphs (1) or (2).

Payment of additional levy or contributions

10

• (1) A relevant insurer must pay by levy any additional amount requested in writing from time to time by the FR Scheme administrator in accordance with the FR Scheme and regulation 11.

• (2) The obligation in paragraph (1) does not apply if the relevant insurer has received a request from the FR Scheme administrator to pay the additional amount by way of contribution, and such contribution has been paid by the relevant insurer in accordance with the requirements of the FR Scheme administrator.

Requirements for request of additional levy or contributions

11

• (1) When making a request for payment of the levy under regulation 10(1), or when making a request for the contribution referred to in regulation 10(2), the FR Scheme administrator must ensure that—

• (a) the total additional amount requested from all relevant insurers at any one time is no more than the amount that the FR Scheme administrator considers—

• (i) necessary to comply with any obligation which the FR Scheme administrator is subject to under or by virtue of the Financial Services and Markets Act 2000, or any obligation arising from assimilated direct legislation; or

• (ii) appropriate for the prudent management of the FR Scheme;

• (b) the amount requested from a relevant insurer shall be calculated in accordance with the following formula—

$TAA×XY.$

• (2) For the purposes of the formula in paragraph (1)—

• “TAA” means the total additional amount requested by way of levy under regulation 10(1) or contribution referred to in regulation 10(2) at any one time; and

• “X” and “Y” have the same meaning as in regulation 8.

• (3) Within 30 days of each request, the FR Scheme administrator must notify the Secretary of State of the amount requested and the reasons for the request.

Adjustments to payments of additional amounts

12

• (1) The FR Scheme administrator must—

• (a) calculate the levy payable under regulation 10(1) or the contribution referred to in regulation 10(2) on the basis of the information reasonably available at the time the request is made;

• (b) make such adjustments to the amounts requested (whether by way of a balancing refund or a request in writing for a balancing payment) as may be necessary in the light of any further information which becomes available.

• (2) No adjustments to the amounts requested may be made more than 2 years after the date on which the request for the levy or contribution was made.

Application of levy or contributions collected

13

• (1) The FR Scheme administrator must only use the levy collected under regulation 8 or 10(1), or any contribution referred to in regulation 10(2), for—

• (a) the purposes of the FR Scheme, including any purposes incidental to the FR Scheme;

• (b) the administration of the FR Scheme.

• (2) These Regulations do not prevent or require the repayment by the FR Scheme administrator of contributions.

• (3) Paragraph (2) does not affect the requirement in regulation 12(1)(b) to make an adjustment.

Recovery of amounts due as a civil debt

14

• (1) This regulation applies where a sum payable by a relevant insurer under regulation 8 or 10(1) remains unpaid 30 days after the date of the request in writing referred to in regulation 9(1) or (2), 10(1) or 12(1)(b).

• (2) The sum referred to in paragraph (1) is recoverable summarily (or, in Scotland, is recoverable) as a civil debt by the FR Scheme administrator.

PART 4 — Reinsurance Premium Thresholds

FR Scheme reinsurance premium thresholds: England and Scotland

15

• (1) This regulation applies where—

• (a) the FR Scheme administrator charges a relevant insurer for reinsurance premiums in respect of household premises in England or Scotland, and

• (b) those premiums are in respect of the flood risk element of a combined policy, a buildings policy or a contents policy.

• (2) During the financial year commencing on 1st April 2016, the amount charged by the FR Scheme administrator must not exceed the amount set out in Table 1 in the Schedule corresponding to the relevant valuation band for the household premises and the relevant type of policy.

• (3) During the financial year commencing on 1st April 2017, and during each subsequent financial year, the amount charged by the FR Scheme administrator must not exceed the amount set out in Table 1 in the Schedule, as substituted in accordance with regulation 19, corresponding to the relevant valuation band for the household premises and the relevant type of policy.

• (4) For the purposes of paragraphs (2) and (3)—

• (a) the relevant valuation band for household premises in England shall be the same as set out in section 5(2) of the Local Government Finance Act 1992[^f00010];

• (b) the relevant valuation band for household premises in Scotland shall be the same as set out in section 74(2) of the Local Government Finance Act 1992.

FR Scheme reinsurance premium thresholds: Wales

16

• (1) This regulation applies where—

• (a) the FR Scheme administrator charges a relevant insurer for reinsurance premiums in respect of household premises in Wales, and

• (b) those premiums are in respect of the flood risk element of a combined policy, a buildings policy or a contents policy.

• (2) During the financial year commencing on 1st April 2016, the amount charged by the FR Scheme administrator must not exceed the amount set out in Table 2 in the Schedule corresponding to the relevant valuation band for the household premises and the relevant type of policy.

• (3) During the financial year commencing on 1st April 2017, and during each subsequent financial year, the amount charged by the FR Scheme administrator must not exceed the amount set out in Table 2 in the Schedule, as substituted in accordance with regulation 19, corresponding to the relevant valuation band for the household premises and the relevant type of policy.

• (4) For the purposes of paragraphs (2) and (3), the relevant valuation band for household premises in Wales shall be the same as set out in section 5(3) of the Local Government Finance Act 1992[^f00011].

FR Scheme reinsurance premium thresholds: Northern Ireland

17

• (1) This regulation applies where—

• (a) the FR Scheme administrator charges a relevant insurer for reinsurance premiums in respect of household premises in Northern Ireland, and

• (b) those premiums are in respect of the flood risk element of a combined policy, a buildings policy or a contents policy.

• (2) During the financial year commencing on 1st April 2016, the amount charged by the FR Scheme administrator must not exceed the amount set out in Table 3 in the Schedule corresponding with the relevant Flood Re category for the household premises and the relevant type of policy.

• (3) During the financial year commencing on 1st April 2017, and during each subsequent financial year, the amount charged by the FR Scheme administrator must not exceed the amount set out in Table 3 in the Schedule, as substituted in accordance with regulation 19, corresponding to the relevant Flood Re category for the household premises and the relevant type of policy.

• (4) For the purposes of paragraphs (2) and (3), the Flood Re categories are set out in the table below—

Values of Properties at 1st January 2005	Flood Re category
Values not exceeding £72,500	1
Values exceeding £72,500 but not exceeding £92,500	2
Values exceeding £92,500 but not exceeding £125,000	3
Values exceeding £125,000 but not exceeding £160,000	4
Values exceeding £160,000 but not exceeding £205,000	5
Values exceeding £205,000 but not exceeding £260,000	6
Values exceeding £260,000 but not exceeding £450,000	7
Values exceeding £450,000	8

Relevant valuation band or Flood Re category for household premises

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For the purposes of regulations 15(4), 16(4) and 17(4) the relevant valuation band or Flood Re category for relevant household premises is—

• (a) in a case within paragraph (a) of the definition of “household premises”, the valuation band or Flood Re category applicable to the dwelling; and