Insurance business

Schemes of arrangement

As for deposits, FSCS will automatically subrogate to depositors’ rights on the payment of compensation. For insurance, direct policyholders (including FSCS) have a priority status within the class of unsecured creditors.

Historically, although insolvent, insurance companies often still retain significant assets and accordingly significant recoveries are received in the insurance sub-scheme.

It is common practice to avoid a liquidation or administration, and use the scheme of arrangement mechanism under Part 26 of the Companies Act 2006 to facilitate a distribution of assets to policyholder creditors. Usually, schemes of arrangement are put in place several years after the date of insolvency. FSCS's detailed participation in the scheme of arrangement is often required if, as well as providing for the payment of distributions by way of recoveries, the scheme deals with the process of compensating protected policyholders.  FSCS will agree to be bound by the terms of schemes for these purposes.

For most insurance estates (and all with any significant number of protected policyholders), FSCS's representatives are members of the creditor committees. This enables FSCS to monitor and contribute to the management of the estate, and ensure that recoveries are maximised.

FSCS will identify and consider the pursuit of claims against third parties – although these may also be made by the estate against third parties who caused the firm to fail.  For example, where FSCS has met a policyholder’s claim there may be a recovery from a third party who contributed to the claimant’s injury or loss.