The UK P&I Club has announced that it is reorganising its structure to establish UK Europe as the sole provider of direct insurance to UK Club members. By reducing the number of separately regulated insurers from two to one, the UK Club aims to streamline governance, reduce compliance costs and manage more efficiently the Club’s solvency capital requirements whilst meeting the impending Solvency 2 regulations for insurers in the European Union.
Under the new structure, the Bermuda-based UK Club will cease to write direct insurance business. Its existing direct business will transfer to UK Europe. UK Bermuda will become the reinsurer of UK Europe. It will continue to be the holding company controlled by the Club’s Members, ie those shipowners whose vessels are insured by the Club. The reorganisation will not affect UK Club Members’ terms of entry, cover or premium. They will continue to be Members of UK Bermuda but will be insured by UK Europe. The new structure will take effect from February 2013 and so does not impact Members in the 2012 policy year. The valued relationships between Members, the Club and its Managers will continue unchanged as will the scope of services provided.
Meeting the requirements of Solvency 2
At the present time, many Members are insured directly by UK Bermuda through its respective branches in the UK, Hong Kong, Singapore, and Japan. However, a substantial number of Members are insured by the wholly owned subsidiary, UK Europe. Both UK Bermuda and UK Europe are reinsured by the UK Club’s wholly owned subsidiary International P&I Reinsurance Company (IPIR). Under the new structure UK Bermuda will cease to write direct insurance business. Its existing direct business will be transferred to UK Europe. UK Bermuda will continue to be the holding company, controlled by its Members, and will also become the reinsurer of UK Europe. IPIR will cease underwriting while UK Europe will establish new branches in Hong Kong, Japan and Singapore.
The transfer of liabilities from UK Bermuda to the head office UK Europe will be carried out by a legal process known as a Part VII transfer under the terms of the Financial Services and Markets Act 2000 in the UK. Under the terms of the Act, the transfer process is supervised by the English High Court together with the UK Financial Services Authority and an appointed ‘independent expert’. The Bermuda Supreme Court has a supervisory role in the transfer of interests. In addition, the transfer of liabilities of the other branches will be supervised by their local Asian regulatory authorities.
The restructure aims to take effect in February 2013 and so does not impact Members in the 2012 policy year. However, the preparations have a timeline running through 2012 and early 2013 which incorporates various aspects of consultation, review, documentation and legal oversight. In broad terms, this process features six steps. The Club has commenced the first phase which consists of detailed planning, discussions with regulators and the appointment of an independent expert. The independent expert’s role is to assess the effects of the proposed transfer and identify whether any parties are likely to be disadvantaged by it.
Preparation of legal documents, completion of the independent expert’s report and the more detailed involvement of regulators will constitute the second phase. A preliminary court hearing and a consultation period will be the third and fourth steps and after about eight weeks, there will be the final court hearing. The final stage will be the transfer, to become effective 20 February 2013.
Hugo Wynn-Williams, Chairman of UK Club managers, Thomas Miller, has assured Club Members that the Club will be ready for Solvency 2 when it achieves its planned implementation date of January 2014. He states: “The Club continues to make significant and substantial progress in preparations for the implementation of Solvency 2. In that process the Club identified that a reduction in the number of regulated entities delivers a number of benefits including streamlined governance, reduced compliance costs and efficient management of the Club’s solvency capital requirements.”
“Our aim is to have completed this restructure by 20 February 2013, the anniversary date for all P&I Members’ insurance arrangements. This is comfortably ahead of the earliest anticipated implementation date for Solvency 2 of January 2014.”
Notes: What is Solvency II?
Solvency II is an EU Insurance Directive which will replace Solvency I, the current Insurance Directive which has been in place since 2002. It governs the amount of regulatory capital an insurance undertaking is obliged to hold against unforeseen events, otherwise known as the solvency margin. EU solvency margin requirements have been in place since the 1970s and it was acknowledged in the third generation Insurance Directives adopted in the 1990s that the EU solvency rules should be reviewed. The Directives required the Commission to conduct a review of the solvency requirements and following this review, a limited reform was agreed by the European Parliament and the Council in 2002.
This reform is known as Solvency I. The European Commission explains that it became clear during the Solvency I process that a more fundamental and wider ranging review of the overall financial position of an insurance undertaking was required, looking at the overall financial position of an insurance undertaking and taking into account current developments in insurance, risk management, finance techniques, international financial reporting and prudential standards, etc. This project became known as Solvency II. During 2004 and 2005, the Commission issued three waves of Calls for Advice to the Committee of European Insurance & Occupational Pensions Supervisors (CEIOPS) regarding different aspects of the new solvency system.
Referred to as the level 3 committee for the insurance and occupational pensions sectors. CEIOPS is composed of representatives from the insurance and occupational pensions supervisory authorities of the European Union Member States. The authorities of the Member States of the European Economic Area also participate in CEIOPS. CEIOPS has the role of advising the Commission on matters in insurance regulation (including implementing measures for the Solvency II Directive), contributing to the implementation of directives and facilitating co-operation between supervisors.
The Commission set out some policy guidelines and principles to guide CEIOPS in its consultation task in a document called the “Framework for Consultation”, which was published in July 2004. Following extensive internal discussions, interaction with many key stakeholders and subsequent public consultations, CEIOPS sent its final answers to the three waves for Calls for Advice on 30 June 2005, 1 November 2005 and 3 May 2006 respectively. Following completion of the consultation process, the Commission adopted the Solvency II Proposal in July 2007. This was subsequently amended in February 2008.
Continued uncertainty about the date for implementation of Solvency II
Speaking at an industry briefing on 27 February 2012, Julian Adams, Director of Insurance at the UK’s Financial Services Authority (FSA), referred to “a backdrop of ongoing uncertainty about Solvency II, both in the substance of the policy and the timescales for its implementation”. He continued by saying: “The industry’s frustration with the on-going lack of clarity is fully understandable. We appreciate that the lack of resolution of important issues – both in relation to what the new regime is going to look like, and in particular about when it is likely to commence and what the effect of transitionals will be – is disruptive to the implementation plans that the industry has spent a lot of time and effort putting into place. “Nevertheless, it remains our assumption that the new regime will apply to firms from January 2014, and we have developed a plan which reflects this. Clearly, it is possible that this will change in the future, but for the time being we remain of the view that we must plan for a 2014 implementation.”
UK P&I Club
The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited is generally known as the UK P&I Club. As a mutual association, the UK Club has no outside shareholders and no financial links with other organisations. Since its establishment in 1869, the Club has existed solely for the benefit of its members. Its structure as a mutual insurance association enables it to respond to the changing needs of its assureds and allows it to provide superior service, attention and coverage. The UK P&I Club is directed by the members. Overall control lies with the directors, elected by the members from amongst themselves. The directors normally meet four times a year to formulate policy on calls, the scope of cover, finance, underwriting and claims matters, reinsurance and issues affecting the P&I world. They resolve specific claims which may not fall clearly within the cover. Thomas Miller, the Club’s managers, is organised to respond promptly to requests for assistance and to provide informed advice and help with members’ claims. Individual support goes far beyond that normally provided by a commercial insurer. The UK Club’s size and the scale of the managers’ operations has enabled the latter to develop specialist skills and expertise seldom seen in marine P&I. In 350 ports around the world, on-the-spot help and local expertise is always available to members and the masters of their ships from the Club’s 460 correspondents and claims handling services and advice from the network of offices and branches in London, Piraeus, New Jersey, San Francisco, Hong Kong, Singapore, Tokyo, Beijing and Shanghai.
The Thomas Miller Group manages a number of world-leading mutual insurance organisations or “clubs, ” providing insurance for shipping, transport and professional indemnity risks; and captive insurance companies in the Isle of Man and Bermuda. Thomas Miller provides risk management consultancy services and, through its regulated specialist subsidiaries, delivers a full investment management service to mutual clubs, captives and other clients. The firm incorporated in 1999 and is owned and controlled by its 550 employees worldwide.