With-profits

Part

COBS Conduct of Business Sourcebook

Chapter

With-profits

Printed on: 06/11/2024

Rulebook at: 03/08/2015

COBS 20

With-profits

COBS 20.1

Application

01/11/2007

COBS 20.1.1

This chapter applies to a firm carrying on with-profits business, except to the extent modified in the following rules.

01/04/2013

COBS 20.1.2

(1) The section on the process for reattribution (COBS 20.2.42 R to COBS 20.2.52 G):

(a) applies to a firm that is proposing to make a reattribution of its inherited estate;
(b) but not if, and to the extent that, it would require the firm to breach, or would prevent the firm from complying with, an order made by a court of competent jurisdiction.

(2) If a firm proposes to seek an order from a court of competent jurisdiction that would allow or require it to act in a way that is contrary to the rules on reattribution (COBS 20.2.42 R to COBS 20.2.52 G) (through, or because of, the exception in (1)(b)), the firm must:

(a) tell the appropriate regulator that that is what it proposes to do;
(b) seek the order at the earliest opportunity; and
(c) if it wishes to take a step that would be contrary to those rules in anticipation of such an order, secure a waiver before it does so.

01/04/2013

COBS 20.1.3A

For an EEA insurer the rules and guidance on treating with-profits policyholders fairly (COBS 20.2.33 G to COBS 20.2.35 G and COBS 20.2.53 R to COBS 20.2.54 R) apply only in so far as responsibility for the matter in question has not been reserved to the firm's Home State regulator by an EU instrument.

01/04/2013

COBS 20.1.5

This chapter does not apply to with-profits business that consists of effecting or carrying out Holloway sickness policies.

01/04/2013

COBS 20.2

Treating with-profits policyholders fairly

01/11/2007

COBS 20.2.17C

A firm must not make a distribution from a with-profits fund, unless the whole of the cost of that distribution can be met without eliminating the regulatory surplus in that with-profits fund.

01/04/2013

COBS 20.2.18

A realistic basis life firm must not make a distribution from a with-profits fund to any person who is not a with-profits policyholder, unless the whole of the cost of that distribution (including the cost of any obligations that will or may arise from the decision to make a distribution) can be met from the excess of the realistic value of assets over the realistic value of liabilities in that with-profits fund.

01/04/2013

COBS 20.2.19

A distribution to a person who is not a with-profits policyholder includes a transfer of assets out of a with-profits fund that is not made to satisfy a liability of that fund.

01/04/2013

Contingent loans and other forms of support for the with-profits fund

COBS 20.2.33

(1) If a firm, or a connected person, provides support to a with-profits fund (for example, by a contingent loan), no reliance should be placed on that support when the firm assesses the with-profits fund's financial position unless there are clear and unambiguous criteria governing any repayment obligations to the support provider.
(2) The degree of reliance placed on that support should depend on the subordination of the support to the fair treatment of with-profits policyholders and clarification of what fair treatment means in various circumstances. For a realistic basis life firm this would normally be evidenced by the liability for such support being capable, under stress, of a progressively lower valuation in the future policy-related liabilities.

01/04/2013

COBS 20.2.34

Where assets from outside a with-profits fund are made available to support that fund (and there is no ambiguity in the criteria governing any repayment obligations to the support provider), a firm should manage the fund disregarding the liability to repay those assets, at least in so far as that is necessary for its policyholders to be treated fairly.

01/04/2013

Other rules and guidance on the conduct of with-profits business

COBS 20.2.35A

When a firm determines its investment strategy, and the acceptable level of risk within that strategy, it should take into account:

(1) the extent of the guarantee in its with-profits policies; and
(2) the amount of capital support available.

01/04/2013

Process for reattribution of inherited estates: Policyholder advocate: appointment and role

COBS 20.2.42A

A firm that is seeking to make a reattribution of its inherited estate must first discuss with the PRA:

(1) its projections for capital required to support existing business, which must include an assessment of:

(a) the firm's future risk appetite for the with-profits fund and other relevant business; and
(b) how much of the margin for prudence can be identified as excessive and removed from the projected capital requirements; and

(2) its projections for capital required to support future new business, which must include an assessment of:

(a) new business volumes
(b) product terms; and
(c) pricing margins.

01/04/2013

Process for reattribution of inherited estates: Reattribution expert

COBS 20.2.47

Where a firm is not otherwise required to appoint an independent expert, it must:

(1) appoint a reattribution expert to undertake an objective assessment of its reattribution proposals, who must be:

(a) nominated or approved by the appropriate regulator before he is appointed; and
(b) free from any conflicts of interest that may, or may appear to, undermine his independence or the quality of his report;

(2) ensure that the reattribution expert's terms of appointment allow him to communicate freely and in confidence with the appropriate regulator; and
(3) require the reattribution expert to prepare a report which must be available to the appropriate regulator, the policyholder advocate and the court (if it is relevant to any court proceedings).

01/04/2013

COBS 20.2.48A

A reattribution expert's report should comply with the applicable rules on expert evidence. The scope and content of the report should be substantially similar to that expected of the report of an independent expert as set out in the PRA's Statement of Policy: The Prudential Regulation Authority's approach to insurance business transfers, as if (where appropriate) a reference to:

(1) the 'scheme report' was a reference to the 'reattribution expert's report';
(2) the 'independent expert' was a reference to the 'reattribution expert'; and
(3) the 'scheme' was a reference to the proposal for a 'reattribution'.

02/04/2015

Ceasing to effect new contracts of insurance in a with-profits fund

COBS 20.2.53

A firm must:

(1) inform the appropriate regulator and its with-profits policyholders within 28 days; and
(2) submit a run-off plan to the appropriate regulator as soon as reasonably practicable and, in any event, within three months;

of first ceasing to effect new contracts of insurance in a with-profits fund.

01/04/2013

COBS 20.2.54

A firm will be taken to have ceased to effect new contracts of insurance in a with-profits fund:

(1) when any decision by the governing body to cease to effect new contracts of insurance takes effect; or
(2) where no such decision is made, when the firm is no longer:

(a) actively seeking to effect new contracts of insurance in that fund; or
(b) effecting new contracts of insurance in that fund, except by increment; or

(3) if the firm:

(i) is no longer effecting a material volume of with-profits policies (other than by reinsurance), into the with-profits fund; or
(ii) is ceding by way of reinsurance most or all of the new with-profits policies which it continues to effect; and

(b) cannot demonstrate that it will treat with-profits policyholders fairly if it does not cease to effect new contracts of insurance.

01/04/2013