Insurers in financial difficulties
A company is insolvent when it can no longer meet its financial obligations to those parties to whom it owes money (known as its ‘creditors’). 11 When a company is insolvent, or in danger of becoming insolvent, the law sets out the procedures available for managing the company’s affairs with a view to rescuing the company or, if the company ceases to trade, establishing how the company’s assets will be realised and divided between its creditors. These procedures, and the rules surrounding their use, can broadly be referred to as a jurisdiction’s insolvency arrangements.
	The UK’s insolvency arrangements for insurers are a modified version of the UK’s standard corporate insolvency arrangements, augmented in some places with bespoke provisions. This framework is primarily contained in the Insolvency Act 1986, FSMA 2000, and associated secondary legislation.
	Insurer insolvency is rare, with only 11 UK insurers having become insolvent since the year 2000. 12 When it does occur, it can be detrimental both for individual policyholders (who may rely on life insurance policies for a primary source of income), and for businesses left unable to operate without insurance cover. As such, robust insolvency arrangements that promote good outcomes for policyholders and other creditors are essential. While the current arrangements have generally been effective, some elements have become outdated as related international standards have developed. This creates shortcomings that could increase the risk of adverse outcomes for policyholders and other creditors when an insurer becomes insolvent.
	The Act makes a series of targeted amendments to the existing arrangements, in order to clarify certain elements, and to expand the protections available to an insurer and its policyholders where an insurer is undergoing insolvency or write-down procedures. The government consulted on these amendments in 2021, and published a response in April 2022. These amendments cover three broad areas.