Debt cap: financial services groups: insurance activities
The definition of insurance activities as a qualifying activity
The second qualifying activity is insurance activities and insurance related activities. The term ‘insurance activities’ is defined by TIOPA10/S269 as:
- The effecting or carrying out of contracts of insurance by a regulated insurer (section 269 (1) (a)).
- Investment business that arises directly from activities falling within paragraph (a) (section 269 (1) (b)).
- The distinction between ‘effecting’ and ‘carrying out’ recognises, in particular, that insurers may go into ‘run off’ when they accept no new business but continue to receive premiums and discharge liabilities under existing contracts. The insurance trade continues in these circumstances.
The term ‘contract of insurance’ in section 260 (1) (a) takes its meaning from that given by Chapter I of Part 12 ICTA 1988, which in turn takes it meaning from the Financial Services and Marketing Act 2000. The insurance business will in some cases be carried out by companies subject to regulation by an overseas authority. Provided the contracts of insurance are such that would be expected to fall within the FSMA 2000 criteria if they applied, they are treated as meeting the definition of qualifying activity. The entity carrying on the insurance business must be a regulated insurer, which means it must be authorised to undertake insurance in a territory under the laws prescribed by that territory. In practice, it would be very unlikely for a worldwide group to undertake unregulated insurance business.
Section 269 (1) (b) refers to the business of investing the premiums from the contracts of insurance effected or carried out by regulated members of the worldwide group. This does not mean that the investment activity has to be undertaken by the regulated insurer but it must be undertaken on behalf of the regulated insurer. This forms part of the trading activity.