Lloyd’s of London Part VII insurance business transfer scheme approved by the High Court
Following a 2-day hearing before Mr Justice Snowden on 18 and 19 November 2020, the High Court has approved the sanction of the Lloyd’s of London “Brexit” Part VII insurance business transfer scheme, which will take effect on 30 December 2020, the day before the end of the UK transitional period.
Tom Weitzman QC acted on behalf of the Prudential Regulation Authority and Charlotte Eborall acted on behalf of the Financial Conduct Authority.
The Scheme involves the transfer of the Lloyd’s market’s existing policies or parts of policies insuring EEA risks which, without such scheme, Lloyds members would not be able lawfully to perform (and, in particular would not able lawfully to pay claims) as a result of the loss of passporting rights after the end of the Brexit transitional period at 11 pm on 31 December 2020. Lloyd’s estimated that the gross ultimate premium of the transferring policies will be of the order of £34.8 billion and the gross liabilities will be of the order of £4.1 billion at the date that the Scheme becomes effective. This business will be transferred to, Lloyd’s Insurance Company S.A., a wholly owned subsidiary of Lloyd’s, incorporated in Belgium.
The case is noteworthy not only for its size and commercial significance to the insurance industry, but also for the legal points that were considered. In particular, Mr Justice Snowden addressed (among other matters): the scope of the Court’s powers under s.112(1)(d) of the Financial Services and Markets Act 2000 and the ability to use that power to convert outwards reinsurance contracts into retrocessions (in some cases of different cedants) (see paragraphs 48 to 67); the effect of the scheme on outwards reinsurers, including issues as to the recognition in foreign jurisdictions of the Court’s order sanctioning of the scheme (see paragraphs 140 to 159); and the technique of “policy splitting” to deal with policies containing both EEA and non-EEA risks (see paragraphs 39 to 40).
The judgment is available here.