UK: Pinsent Masons Insurance Briefing - UK Insurance Linked Securities Regime On Course For September As Regulations Published

Last Updated: 26 July 2017
Article by Alexis Roberts, Colin Read and Nicholas Bradley

Welcome to Insurance Briefing - a fortnightly round-up of insurance legal and business developments published on Out-Law - with analysis and commentary from the insurance team at Pinsent Masons.

The seven topics of focus this fortnight include:

UK insurance linked securities regime on course for September as regulations published

A new regulatory and tax regime for insurance linked securities (ILS) in the UK will come into force in the autumn, the government has announced, as it published the regulations that will govern the new regime.The regulations will be laid before parliament after its summer recess. They set out how to establish the new insurance special purpose vehicles (ISPVs) which will be used to issue ILS; the legal framework for ILS and the associated tax treatment; as well as providing for a "tailored and proportionate" approach to authorisation and supervision. Read more...

FCA accepts first undertaking for unfair contract term since Consumer Rights Act came into force

London General Insurance Company (LGI) has undertaken to amend a contract term in its Extended Warranty Protection Policy after the FCA found it to be unfair to customers and capable of two different meanings. LGI intended the relevant term to provide an exhaustive list of items that were covered by the policy. But the wording was confusing and led customers to interpret the list as examples of items only and as non-exhaustive. LGI agreed with the FCA's interpretation and has introduced an amended term and paid £47,000 in redress to 300 customers affected because their claims were denied due to the 'unfair term'. In its notice of undertaking, the FCA said that firms should remain alert to these undertakings as part of their risk management processes as they will show "the likely attitude of the courts, the FCA, the CMA or other qualifying bodies to similar terms or terms with a similar effect." Read more...

Lloyd's targets orderly insurance market response to catastrophic events

The Lloyd's of London insurance market has set out the principles that will guide its actions in the event of a "market-turning" catastrophic event. The six principles, set out in a new report, will encourage "stronger, smarter oversight" of the market following any future market-turning events (MTEs), according to Lloyd's. "We want to make it easier for syndicates to do business by focusing our oversight efforts on the important things," said Jon Hancock, Lloyd's director of performance management. "One important area where we can help is to make sure the Lloyd's market is in a position to act swiftly and decisively to any future market-turning events." Read more...

Principal firm had no real prospect of successfully defending a claim against acts of its appointed representative, court rules

An investment firm has failed to overturn a default judgment entered against it in favour of investors who had lost their money, on the grounds that the principal firm had no real prospect of successfully defending the actions of its appointed representative (AR).There are few cases that come to court concerning the liability of a principal firm for the loss caused by the acts of its AR, making the judgment a particularly interesting one, according to wealth management expert Bruno Geiringer of Pinsent Masons."The case is a clear reminder to principal firms to ensure that they have adequate controls over their ARs to enable them to monitor and enforce compliance with the relevant regulatory requirements for which they are responsible and undertake checks that their ARs have appropriate professional knowledge to be able to carry out the services they provide to investors," he said. Read more...

EU/US insurance agreement will be signed in weeks

It will be easier for EU insurers and reinsurers to conduct reinsurance business in the US and for US businesses to do business in the EU when a bilateral agreement is signed in the coming weeks. Local presence and collateral requirements will be fully eliminated after five years and US states will begin to reduce their collateral requirements for EU reinsurers immediately by 20% per year for five years. Group supervision requirements will be limited to only those of the 'home' jurisdiction rather than the added burden of having to comply with 'host' jurisdiction requirements. Detailed qualifying criteria and conditions apply for relevant re/insurers however including high solvency ratio requirements and own funds/capital requirements of €226million or US$250million. Read more...   

FCA lays out scope of investment platforms study

The FCA has laid out the scope of its investment platforms market study, announcing it will cover a wide range of groups and topics in a bid to assess the competitiveness of the market.The detail follows the announcement of the study earlier this year. It is designed to explore whether platforms enable retail investors to access products which provide value for money. Wealth management expert Tobin Ashby of Pinsent Masons said the study was primarily focused on platforms and equivalent online distributors, although it would consider what the FCA refer to as the "wider distribution market" relating to platforms. "The FCA seems to be focusing on platforms because they are so integral to the retail investment infrastructure. Just because platforms are at the centre of so much retail investment activity doesn't mean that they are in a position to control pricing and distribution in the way that the FCA seems to be suggesting, and platform providers will be hoping that the market study serves to confirm this," he said.  Read more...

Cost of 'extreme' cyber attack could hit $121 billion, says Lloyd's

A major global cyber-attack could trigger up to $121 billion of economic losses, according to insurance market Lloyd's of London. In an analysis of the potential economic impact of a hypothetical malicious hack on a cloud service provider, and attacks on vulnerable computer systems run by businesses around the world, Lloyd's estimated the losses could be $53bn and $28.7bn respectively on an average basis. Cybersecurity and insurance expert Ian Birdsey of Pinsent Masons said insurers were faced with significant challenges in modelling losses from cyber attacks due to lack of data. "Unlike traditional catastrophe losses due to natural causes, insurers do not have any meaningful claims data to draw on to model catastrophe cyber losses and price products. Recent events have shown how cyber attacks can proliferate quickly on a worldwide scale. The speed with which endemic cyber risk can spread across the globe means that such a cyber loss is a very worst-case scenario for insurers and can quickly become catastrophic loss," he said. Read more...

Find the briefing online here. For regular comments, news and views from the insurance team at Pinsent Masons, see our insurance content on Out-law here.

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