433.The special features of long-term (or “life”) business are noted above.  But even general insurance business (for example car or product liability insurance) can result in claims arising from events which may have happened several years earlier.  This long tail of claims means that it can be difficult to crystalise the liabilities of an insurer in liquidation.  The administration of insurance claims is costly and the delays for policyholders can be substantial while a liquidator seeks to work out the level of payments that can be made to creditors.
434.Accordingly, this section allows the Authority to make provision for the scheme manager to give assistance to an authorised person with permission to effect and carry out contracts of insurance in financial difficulties, either by transferring the that person’s business, so far as it relates to contracts of insurance, to another insurer, or by enabling the continuance of that business by another insurer.  Before using this power, which is potentially of substantial benefit to policyholders, the scheme manager must be satisfied that payments to the firm should not materially benefit other persons such as shareholders or company directors.  It must also be satisfied that these measures would not cost more than the costs of compensation if the firm were allowed to go into default.
Commentary on Sections Part Xv: the Financial Services Compensation Scheme Section 217: Insurers in financial difficulties