Prudential Regulation Authority Rulebook

5A.1

1. (1) The FSCS must pay an insurer under write-down in accordance with 5A.3 if the conditions in 5A.2(1) are satisfied.
2. (2) The FSCS may also take such measures as it considers appropriate in respect of an insurer under write-down in accordance with:
1. (a) Chapter 4 (in respect of contracts of long-term insurance), as if the insurer under write-down were within the scope of 4.1; and/or
2. (b) Chapter 5, as if the insurer under write-down were in financial difficulties within the meaning of 5.4.

5A.2

1. (1) The conditions referred to in 5A.1(1) are:
1. (a) the FSCS has been notified in accordance with section 377F of FSMA and 2.1(7) of the Insurers in financial difficulties: Notification of Affected Persons Part that a write-down order has been made in respect of the insurer under write-down;
2. (b) a write-down manager has been appointed in respect of the insurer under write-down;
3. (c) an account has been opened in the name of the insurer under write-down for the purpose of receiving payments from the FSCS which will then fund top-up amounts (the ‘trust account’); and
4. (d) a trust has been entered into in respect of any funds from time-to-time held in the trust account which satisfies the minimum criteria in (2).
2. (2) The minimum criteria of the trust are that:
1. (a) it is established and documented under a trust deed entered into by the insurer under write-down;
2. (b) it has the insurer under write-down as the trustee;
3. (c) it is over any funds from time-to-time held in the trust account (including any interest that accrues on the account);
4. (d) the only funds to be held in the trust account will be those received from the FSCS under this Chapter and any accrued interest;
5. (e) it is a discretionary trust with the following beneficiaries:
1. (i) first, any policyholder of the insurer under write-down, insofar as the policyholder is an eligible claimant with a written-down claim by virtue of the write-down order (to be described in the trust deed by class of contract of insurance); and
2. (ii) second, the FSCS, in respect of any residual amounts held in the trust account (including residual amounts existing upon the write-down order ceasing to have any further effect in accordance with section 377H of FSMA); and
6. (f) in accordance with section 217ZA(5)(a) of FSMA, amounts paid into the trust account by the FSCS under 5A.1(1) shall not be used by the insurer under write-down (whether or not by the write-down manager acting on its behalf) for any other purpose.

5A.3

1. (1) Payments to be made by the FSCS in accordance with 5A.1(1) must be paid into the trust account in such amounts and at such times as the FSCS determines sufficient for the insurer under write-down to be able to pay top-up amounts to eligible claimants.
2. (2) Such payments must include an amount sufficient for such top-up amounts to be paid by the insurer under write-down in respect of any due and payable written-down claim (or such a claim that would be due and payable but for the effect of the write-down order) including an amount in respect of any such interest as the FSCS may consider appropriate.
3. (3) In determining payments under (1) and (2), the FSCS must have regard in each case to any representations or other relevant information provided by the insurer under write-down.

5A.4

1. (1) The insurer under write-down must pay a top-up amoun to a policyholder that is an eligible claimant with a due and payable written-down claim (or that would be due and payable but for the write-down order), but only if:
1. (a) there are sufficient funds in the trust account to do so; and
2. (b) the written-down claim is less than the amount that the FSCS would pay if, rather than the claim being subject to the write-down order, the circumstances were such that the claim gave rise to an entitlement to compensation under Chapter 3.
2. (2) The top-up amount in respect of an eligible claimant in respect of a claim is: A x B% - C where:
1. ’A’ is the claim (as if the write-down order were not in effect);
2. ’B’, expressed as a percentage, is the level of cover that would apply under Chapter 17 in respect of the claim if, rather than the claim being subject to the write-down order, the circumstances were such that the claim gave rise to an entitlement to compensation under Chapter 3; and
3. ’C’ is the written-down claim.
3. (3) The insurer under write-down must add interest to the top-up amount, if the FSCS has provided funding for it to do so.

5A.5

1. (1) Where a write-down order ceases to have any further effect in accordance with section 377H of FSMA, the FSCS shall have a right of recovery from the insurer to which that write-down order applied, in respect of any amounts paid to it by the FSCS under this Chapter.
2. (2) The FSCS must pursue all and only such recoveries under (1) as it considers are likely to be both reasonably possible and cost effective to pursue.
3. (3) The FSCS may not seek any form of recovery under (1) from current or former policyholders of the insurer to which that write-down order applied (whether or not the policyholder received payment of a top-up amount).
4. (4) Chapters 12, 13 and 14 do not apply in respect of amounts paid under this Chapter by the FSCS to an insurer under write-down and their recovery by the FSCS.

5A.6

For the purposes of this Chapter, where a write-down order is varied (but not terminated):

1. (1) this Chapter applies as if references to the write-down order were to the order as varied; and
2. (2) the insurer under write-down and the FSCS shall take such steps as may be necessary to amend the trust deed so as to ensure that the arrangements of the trust established under the trust deed reflects the write-down order as varied.