LAM13010 | Transfers of long-term business: Introduction

What are Part VII transfers of business?

Where an entire life insurance business, or part of a business, is bought or sold there is often a need to transfer the policies from one insurance entity to another. Financial Services and Markets Act 2000/Part VII provides a statutory mechanism allowing insurers (and reinsurers) to transfer portfolios of insurance business from one insurer to another, at a fixed time and date, after obtaining court approval.

There are broadly three circumstances in which a Part VII transfer is used:

• to combine the businesses of two or more subsidiaries.

• to transfer businesses between third parties.

• to separate out books of business by transferring them to separate companies.

The alternative to employing Part VII is to novate individual policies. Novation is an agreement between the policyholder and each insurer whereby the insurance contract with the transferring insurer is replaced by a fresh contract with the successor. However most portfolios comprise far too many policies for novation to be practical. Instead, under Part VII, the transfer is effected by way of court order and policyholder rights are protected by the court process. The court has wide discretion to transfer property and liabilities to the transferee. But unlike reinsurance, where the contracted liability remains with the original insurer, the contractual relationship passes to the transferee following a Part VII scheme.

Part VII transfers can occur between third party regulated insurance companies or they can take place between regulated insurance companies within the same group. Transfers may also be cross border; there are EEA equivalent mechanisms for cross border transfers.