FSMA 2023 includes a court procedure for failing insurers to temporarily write-down liabilities, with implications for counterparties.
The recently passed Financial Services and Markets Act 2023 (FSMA 2023) provides for a new write-down procedure under which failing insurers can apply to court to have their insurance liabilities written down. Write-downs are intended to be temporary (though no period is specified), followed by a subsequent write-up, which is a transfer of the business or application of insolvency procedures.
While reinsurers and certain other creditors are prevented from terminating contracts during a moratorium period of at least six months, derivative counterparties remain able to terminate (and apply close-out netting) regardless. The protection afforded to financial collateral arrangements and certain other security arrangements underscores the importance of appropriate security to support inwards and outwards reinsurance for UK firms.
Read more in Latham’s Client Alert.