The Reinsurance Directive Regulations 2007

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations implement in part the provisions of Directive 2005/68/EC of the European Parliament and of the Council of 16 November 2005 on reinsurance (OJ L323 9.12.2005 p.1) (“the Reinsurance Directive”). The rest of the implementation is achieved through existing provisions of the Financial Services and Markets Act 2000 (c.8) (“the Act”) and its accompanying secondary legislation and the amendments made in Financial Services and Markets Act 2000 (Reinsurance Directive) Regulations 2007 (S.I. 2007/3255), the Financial Services and Markets Act 2000 (Reinsurance Directive) Order 2007 (S.I. 2007/3254) and through rules made by the Financial Services Authority under powers available to them under the Act.

The Reinsurance Directive applies only to reinsurers which carry out reinsurance to the exclusion of direct insurance business and therefore does not apply to mixed insurers (other than by virtue of amendments made to the directives referred to in its title).

Schedule 1 to these Regulations amends the Act.

Paragraph 2 of that Schedule amends Part 7 of, and Schedule 12 to, the Act. These provisions provide for the transfer of insurance business by insurers and the relevant solvency and other certificates required. It has always been possible under Part 7 to transfer reinsurance portfolios, therefore the amendments required are to make the provisions work in the context of the Reinsurance Directive. Article 18 of the Reinsurance Directive requires Member States to authorise reinsurance transfers (under conditions laid down in national law) by a reinsurance undertaking, including of business carried out under the freedom of establishment or to provide services in other Member States. Such a transfer is subject to the home State regulator of the transferee providing a certificate of the necessary solvency margin (taking the transfer into account). The amendments provide a new procedure for certain reinsurance transfers (those where there is consent of all policyholders) which does not require an application to court, but does require obtaining a solvency certificate.

The amendments to Schedule 12 to the Act also include provision (related to the third non-life insurance directive (92/49/EEC) and the consolidated life assurance directive (2002/83/EC)) to clarify the application of the certificates required under Schedule 12 to transfers by non-EEA insurers with a branch in the United Kingdom.

Paragraph 6 of that Schedule amends Schedule 3 to the Act. Schedule 3 to the Act sets out the rules to permit UK firms to establish in and to provide services into other EEA States on the basis of their UK authorisation, and for EEA-based firms to do the same in or into the UK. The present provisions require a process to be gone through by firms seeking to establish or to provide services which are subject to time limits. The Reinsurance Directive provides for an EU reinsurer to provide services or to establish on the basis of their home Member State’s authorisation without any further requirements. The amendments here make the necessary changes to Schedule 3 in relation to reinsurers falling within the Reinsurance Directive.

Other amendments made by Schedule 1 are either consequential on the Reinsurance Directive or by virtue of small changes in wording of the Directive when compared to the direct insurance directives, provisions of which are already implemented by the Act. Such is the case for the amendments to section 199 of the Act.

Schedule 2 to these Regulations makes amendments to the Financial Services and Markets Act 2000 (EEA Passport Rights) Regulations 2001 (S.I. 2001/2511). The main amendment provides that where a reinsurer provides a service which is not a regulated activity under the Act, provided that activity may lawfully be provided in an EEA State as a matter of UK law, it is deemed for the purposes of its EEA right to be authorised to carry out that activity.

Schedule 3 makes consequential amendments to the Friendly Societies Act 1992 (c.40). It also makes consequential provision in relation to the implementation of Article 46 of the Reinsurance Directive concerning the accounting treatment of insurance special purpose vehicles (doing long term insurance business) by amending section 843 (c.46) of the Companies Act 2006 and modifying section 268 of the Companies Act 1985 (c.6) until the former provision comes into force. Section 843 of the 2006 Act is the analogous provision to section 268 of the 1985 Act.

Schedule 4 makes amendments to secondary legislation made under the Competition Act 1998 inserting references to reinsurers (within the meaning of the Reinsurance Directive) in relation to the exception from penalties under section 36 of the Competition Act 1998 for small agreements and agreements of minor significance and to the method of determining competition fines.

A transposition note has been prepared which sets out how the main elements of the Directive will be transposed into UK law. A Regulatory Impact Assessment of the effect of this instrument on the costs of business has been prepared. Both may be obtained from the Financial Stability and Risk Team, HM Treasury, 1 Horse Guards Road, London SW1A 2HQ. They are also available on HM Treasury’s website (www.hm-treasury.gov.uk). Copies of both documents have been placed in the libraries of both Houses of Parliament.