Schedule 12: Write-down orders Part 3 – Further provision about write-down orders Part 3 of new Schedule 19B: Treatment of written-down liabilities for certain purposes
Paragraph 8 sets out that Part 3 of Schedule 19B applies to liabilities of an insurer when the value of a liability has been reduced by or under a write-down order.
	Paragraph 9 sets out that written-down liabilities (and the potential for a future reversal of the write-down) will be disregarded for the purposes of section 123 Insolvency Act 1986 or Article 103 of the Insolvency (Northern Ireland) Order 1989 (to ensure that an insurer cannot be deemed ‘unable to pay its debts’ on the basis of liabilities which have been written-down); the PRA’s prudential rules governing insurers; and Solvency II. This is to ensure that written-down liabilities are treated as extinguished for these purposes, for so long as the write-down is in force. Without this, an insurer could still meet the statutory test for insolvency following its liabilities being written-down or have the potential for a future reversal of the write-down reflected on its balance sheet as a contingent liability, contrary to the intended effect of the write-down which is to restore an insurer’s balance sheet. Paragraph 9(3) gives HM Treasury a power to amend the purposes for which written-down liabilities are disregarded through statutory instrument under the draft affirmative procedure.
	Paragraph 10 concerns pay-as-paid clauses. These clauses stipulate that a reinsurer must only pay out the amount the original insurer (cedant) actually pays to underlying policyholders. Paragraph 10 overrides "pay-as-paid" clauses held between an insurer under write-down and its reinsurers, meaning reinsurers will remain liable for the full amount due, even if the court has reduced the value of the liability owed by the cedant insurer to the underlying policyholder. This prevents the value of outwards reinsurance contracts held by an insurer under write-down from decreasing and providing undue financial benefits to a reinsurer.