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 writedown 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.
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