IPTM7790 | Personal portfolio bonds (PPB): selection rules: example

Facts

The terms of a number of policies issued by an insurer give policyholders the ability to select units in unit trusts based outside the UK to determine the policy benefits, provided that the unit trusts have a particular offshore investment manager.

The insurer publishes marketing material advertising the fact that unit trusts managed by this particular manager are now available to be selected. The manager sets up a new unit trust based in the Isle of Man. It publishes a brochure advertising the opportunity to invest in the unit trust. The brochure explains that the minimum investment in the unit trust is £100,000 and that the units may be held directly or via an insurance policy. The unit trust proves popular, raising about £25 million.

The insurer publishes a brochure and issues circulars to its policyholders in relation to this specific unit trust, but only one of the insurer’s policyholders decides to select the units to determine the policy benefits.

Interpretation

The opportunity to invest in unit trusts managed by the particular fund manager is clearly identified in marketing or other promotional literature published by the insurer. The opportunity is available generally to its customers and potential customers who have or may take out a policy under whose terms they may select units in offshore unit trusts that have this company as an investment manager to determine the policy benefits.

This is the type of policy customers of the insurer commonly choose to take out. The policyholder has no say in who else takes up the opportunity. The limitation to investments over £100,000 is objective and would not itself be contrary to the rule that the opportunity to select is offered to a class of policyholders.

The lengthy menu of investments that insurers offer could mean that there is only one holder of a policy issued by a particular insurer who selects particular property to determine the benefits under that policy. This would not itself make the policy a PPB because the test is the extent to which the ability to select particular property is available to potential policyholders of that insurer not the number of policyholders who actually make the selection.