An Act to amend the Policyholders Protection Act 1975 and for connected purposes.
[19th March 1997]
Be it enacted by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—
General scope of the Board's functions
General scope of the Board's functions
S-1 Insurance companies to which the 1975 Act applies.
1 Insurance companies to which the 1975 Act applies.
(1) For section 3 of the 1975 Act there shall be substituted—
S-3 ‘Insurance companies to which this Act applies.
3 ‘Insurance companies to which this Act applies.
(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 compa nies 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.
2 Eligibility of policyholders for protection.
(1) For section 4 of the 1975 Act there shall be substituted—
S-4 ‘Protection confined to insurance under qualifying policies of protected risks or commitments.
4 ‘Protection confined to insurance under qualifying policies of protected risks or commitments.
(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 poli cy 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 Is le of Man.’
Section cited in: one Law or Regulation
(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
S-3 Persons qualifying for protection.
3 Persons qualifying for protection.
(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 diffi culties 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 giv en 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.’
4 Deferment of payment.
(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 includi ng 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 he payment of,’.
Section cited in: one Law or Regulation S-5 Operation of the ‘cost test’.
5. 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 s uch 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.’
6 Schemes of arrangement, etc.: power of Secretary of State to intervene.
(1) In the 1975 Act, after section 17 there shall be inserted—
S-17A17A ‘Schemes of arrangement, etc.: power of Secretary of State to intervene.
(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 .