First published by Elborne Mitchell LLP, www.elbornes.com, 27 November 2020
On 25th November 2020, the High Court granted the Order for the Part VII transfer of certain policies from the Members of Lloyd’s to Lloyd’s Insurance Company S.A. (“Lloyd’s Brussels”), the wholly owned Belgium subsidiary of Lloyd’s. The Transfer of non-life business will be effective from 00:01 on 30 December 2020 and all transferring policies will become policies of Lloyd’s Insurance Company S.A. (Lloyd’s Brussels) from that date.
Since the Directions Hearing, there have been a number of changes to the Part VII Scheme document since it was first published. These are contained in the Amended Scheme and Amended Scheme Summary, as well as a Summary of Changes to the Scheme.
Lloyd’s position is that “Unless specifically excluded, the policies (or parts of policies) to be transferred under the proposed transfer are those where all or part of the risk underwritten at Lloyd’s is located in an EEA state or where the policyholder is resident in the EEA, such that the policy (or part of the policy) could not be managed post-Brexit from the UK without breaching legal or regulatory requirements (“EEA Policies”). The proposed transfer is intended to ensure that transferring EEA Policies can be compliantly managed after Brexit, including in relation to the payment of claims.”
However, there are Excluded Policies including a small number of policies which are subject to restrictions imposed by sanctions regimes (as defined in the Scheme). As well as those, there are Excluded Assets and Excluded Liabilities that will not transfer under the Scheme.
Lloyd’s states: “There will be a reinsurance arrangement (quota share) under which the economic liability of each syndicate’s transferring EEA Policies will, from the effective date of the proposed transfer, be fully reinsured back to the Lloyd’s Members of that syndicate (the “Lloyd’s Brussels Reinsurance Contract”).”
As a result, Lloyd’s view is that the economic liability for the transferring EEA Policies will continue to rest with those Lloyd’s Members who underwrite those policies or inherited those policies through the Reinsurance to Close process.
Importantly, the Summary of the Scheme states that where a Policy has a non-EEA policyholder and covers both EEA and non-EEA risks, that part of the policy relating to EEA risks will transfer to LIC SA, the transferee, and that part of the policy relating to non-EEA risks will not transfer and will continue to be a policy of the relevant Lloyd’s Member. As such it is intended “the interest, title, rights and obligations of the Members in or under any part of a Transferring Policy, shall vest in the Transferee and for a non Transferring Policy shall continue to vest in the relevant Members.” The allocation of premiums, losses and related expenses in respect of a split Policy, asset or liability shall be determined by the Lloyd’s Members and LIC SA.
Lloyd’s has stated also that with regard to existing outwards reinsurance policies currently in place in relation to the transferring EEA Policies, those outwards reinsurance policies “will not transfer under the proposed transfer. Instead, as part of the proposed transfer, such reinsurance policies will be converted to retrocession cover attaching on top of the Lloyd’s Brussels Reinsurance Contract. The benefit of each existing outwards reinsurance shall transfer from the original Member in whose name the policy was issued (as reinsured) to the new Member who has reinsured the original Member’s policy under the Lloyd’s Brussels Reinsurance Contract.”
The Amended Scheme addresses liabilities to which defined Existing Outwards Reinsurance Contract will respond and also it limits the rights of a retrocessionaire to vary or terminate all or any part of a defined Retrocession Agreement.
Interested parties should refer to the Scheme documents at:
And to Lloyd’s summaries at:
Please contact Timothy Goodger Partner of Elborne Mitchell LLP if you would like to know more.