UK Law and Practice Contributed by: Clare Swirski, E. Drew Dutton, Hugo Laing and Rosamund Wood, Debevoise & Plimpton LLP
insurance companies. Reserves, or technical provi- sions, must be calculated in a prudent, reliable and objective manner, with the value of the technical pro- visions corresponding to the amount the (re)insurer would have to pay if its (re)insurance obligations were immediately transferred to another Solvency II firm. Technical provisions must represent a best estimate, and must include an additional risk margin, calculated in the prescribed manner. Excess of Loss There is no different regulation specifically for writing excess of loss (XOL) layers in the UK, and authorisa- tion requirements apply equally to insurers and rein- surers. A contract of insurance includes a contract of reinsurance, although a company may be licensed as a “pure reinsurer” and therefore not permitted to write direct business. Fewer of the conduct rules apply to pure reinsurers, as the insureds are regulated insur- ers rather than individuals. Therefore, XOL reinsurance may be subject to lighter regulation (eg, not being subject to all the consumer conduct rules). Since the introduction of the IA 2015, which applies to busi- ness insurance and reinsurance contracts and con- tains the duty of fair representation of the risk, as well as specific remedies the (re)insurer has for a breach, reinsurers are favoured less under the common law on The IA 2015 followed on from other changes to amend the common law on insurance contracts in favour of consumers, including the Third Parties (Rights Against Insurers) Act 2010, which made it easier for third par- ties to claim directly against insurers (on liability insur- ance) where the insured was insolvent, and CIDRA 2012, which curtailed an insurer’s rights to avoid the contract at common law. 2.3 Taxation of Premium insurance contracts. Consumers’ Rights Insurance premium tax (IPT) historically derives from European Community law (but has not changed since Brexit) and is governed in the UK by the Finance Act 1994 and the Insurance Premium Tax Regulations 1994. IPT is a tax on premiums paid under all contracts of insurance, wherever written or wherever the insurer or
insured is located, except those specifically exempted from IPT (including those where the contract relates only to reinsurance, life assurance or non-UK risks). IPT is generally payable to His Majesty’s Revenue and Customs (HMRC) by the insurer (or in some cases by a taxable intermediary). In practice, groups of insur- ers that are UK corporates may account for IPT under a single registration, whilst other special registration arrangements apply to Lloyd’s syndicate members, non-UK insurers and partners in a partnership. IPT is chargeable at 12% (standard rate) or 20% (high- er rate) of the IPT exclusive amount of the premium paid to the insurer (or taxable intermediary) by the insured, depending on the type of insurance contract and who arranges it. 3. Overseas Firms Doing Business in the Jurisdiction 3.1 Overseas-Based Insurers or Reinsurers The starting point for firms deemed to be carrying on (re)insurance business in the UK (even if they do not have a permanent establishment in the UK, for exam- ple, by acting through agents) is that authorisation under the FSMA is required. Business Not Carried On in the UK As noted in 2. Regulation of Insurance and Rein- surance , a risk in the UK can be insured without UK authorisation if the regulated activity is not being car- ried on in the UK. It may be possible for overseas (re)insurers to arrange to carry out their business in a way that they are not deemed to be doing so in the UK itself, thereby avoiding the need for approval under the FSMA. However, this may not be an entirely straightforward approach. The regulatory position is not entirely certain; a significant amount of guidance exists from the regulators and case law around what activities constitute “effecting” or “carrying out” a contract of insurance and whether business is there- fore being carried on “in the UK”. Additionally, under the FSMA, permission may still be required for other activities connected to the main regulated insurance activities. For example, making arrangements in the UK in connection with the “effecting” of a contract
511 CHAMBERS.COM
Powered by FlippingBook