ICP 6 Changes of Control and Portfolio Transfers

The supervisor assesses and decides on proposals:

  • to acquire significant ownership of, or an interest in, an insurer that results in a person (legal or natural), directly or indirectly, alone or with an associate, exercising control over the insurer; and
  • for portfolio transfers.


Change of Control


6.1
Legislation addresses change of control of insurers, including:
  • having a definition of control; and
  • oversight and enforcement of requirements related to change of control.

6.1.1    
The definition of "control" should address, at least:
  • holding of a defined number or percentage of issued shares or financial instruments above a designated threshold in an insurer or its intermediate or ultimate beneficial owner or the head of the insurance group or head of the financial conglomerate as may be the case; and/or
  • having a defined percentage of voting rights attached to shares or financial instruments.

6.1.2    
Financial instruments other than shares that should be of interest to the supervisor are those that have the potential to impact the levels of control over an insurer, including those that may convert in the future into an interest that leads to a change of control through that conversion.

6.1.3    
The definition of a threshold for control is not necessarily the same as the definition that may apply for accounting consolidation or other purposes.

6.2

The supervisor requires the insurer to provide notification of a proposed change of control of the insurer. The supervisor assesses and decides on proposals for change of control.


(De)Mutualisation


6.3

A change of a mutual company to a stock company, or vice versa, is subject to the supervisor’s approval.

 


6.3.1    

In jurisdictions where mutual ownership of insurers is possible, legislation should provide a process for mutual insurers to demutualise at their own discretion or if directed to do so by the supervisor.

6.3.2    
The process for (de)mutualisation may vary by jurisdiction. For example, the ultimate approval may be provided by authorities other than the supervisor, such as courts or votes of member policyholders. Regardless, the supervisor should be consulted and should have the right to object to a (de)mutualisation.

6.3.3    
In assessing a (de)mutualisation, the supervisor should consider the impact on the financial condition of the insurer and the ongoing expectations of policyholders, including those that will continue as participating policyholders. The supervisor should also assess whether the new governing organisational document of the company adequately protects current and future policyholders.


Portfolio Transfer


6.4

The supervisor assesses and decides on the transfer of all or a part of an insurer’s business portfolio taking into account at least the financial condition of the transferee and the transferor and whether the interests of the policyholders of both the transferee and transferor will be protected.

 


6.4.1    

Insurance policies are legal contracts between an insurer and its policyholders. As such, an insurer should not be able unilaterally to alter the terms of a contract by merging with another insurer, (de)mutualising, or transferring some of its business to another insurer.

6.4.2    
In order to protect the interests of policyholders and to safeguard the financial condition of the insurers involved, legislation should address the conditions for a portfolio transfer. Policyholders’ benefit expectations and existing policy values should not normally be lessened as a result of a portfolio transfer.

6.4.3    
The process for a portfolio transfer may vary by jurisdiction. For example, the ultimate approval may be provided by authorities other than the supervisor, such as courts. Regardless, the supervisor should be consulted and should have the right to object to a portfolio transfer.

6.4.4    
When assessing a transfer, the supervisor should consider the impact on the transferring policyholders, as well as on those that are not transferring, and those that are current policyholders of the company to which the policyholders are being transferred. This should apply whether the portfolio transfer is considered a part of normal business, a merger or part of a resolution where the insurer is no longer viable (see ICP 12 Exit from the Market and Resolution).