§ Special provision with respect to long-term business of a company in financial difficulties.
§ '(1) Without prejudice to subsection (8) of section 16 of this Act, the Board shall not take any measures in pursuance of subsection (3) or (4) of that section for the purpose of safeguarding any policyholders of a company in financial difficulties in respect of long term policies of the company, other than measures allowed by subsection (2) below, in any case where it appears to the Board that to take those other measures would cost them more than to take measures allowed by subsection (2) below.
§ (2) The measures allowed by this subsection are any measures open to the Board under subsection (3) or (4) of section 16 of this Act for the purpose of safeguarding policyholders of a company in financial difficulties which involve the imposition by the Board, as a pre requisite of their incurring any expenditure or liabilities for that purpose, of conditions requiring—
- (a) the reduction of all liabilities of the company under relevant long term policies and of all benefits provided for under any such policies which have not fallen due to be paid by the company before the time when the reduction is to take effect, to ninety per cent. of the amount which would otherwise have been payable in accordance with the terms of the policies; and
- (b) the reduction of all premiums under any such policies which have not fallen due before that time to ninety per cent. of the amount which would otherwise have been so payable.
§ A long term policy is a relevant long term policy for the purposes of this subsection if it is included in any transfer secured or facilitated by the Board under subsection (3) of section 16 or in any business continued by virtue of any assistance given by the Board under subsection (4) of that section.
§ (3) Without prejudice to the power of the Board to impose conditions in relation to taking any measures under subsection (3) or (4) of section 16 of this Act with respect to matters other than those covered by the conditions mentioned in subsection (2) above, the benefits mentioned in paragraph (a) of subsection (2) shall not include any bonus provided for under a policy unless it was declared before the time when any such reduction of liabilities 1788 and benefits under that policy as is mentioned in that paragraph is to take effect.
§ (4) If it appears to the Board, in the case of any long term policy of a company in financial difficulties which was a United Kingdom policy at the relevant time as defined by section 16(6) of this Act, that the benefits provided for there under are or may be excessive in any respect, having regard to the premiums paid or payable and to any other terms of the policy, the Board shall refer the policy to an independent actuary.
§ (5) Where an actuary to whom a policy of a company in financial difficulties is referred under subsection (4) above makes to the Board a report in writing—
- (a) stating, with respect to any of the benefits provided for under the policy, that in his view the benefit or benefits in question are excessive; and
- (b) recommending, accordingly, that for the purposes of any measures to be taken by the Board in pursuance of subsection (3) or (4) of section 16 of this Act for safeguarding the policyholder in question against loss ariesing from the financial difficulties of the company any such benefit should be treated as reduced or (as the case may be) disregarded;
§ (6) Where in a case falling within subsection (5) above the Board determine that the benefit in question shall be disregarded for the purposes there mentioned, the conditions mentioned in subsection (2) above shall include conditions requiring the cancellation of that benefit or (as the case may be) of any liability representing that benefit.
§ (7) Where in a case falling within subsection (5) above the Board determine that the benefit in question shall be treated as reduced for the purposes there mentioned, subsection (2)(a) above shall apply in relation to the policy as if the amount of that benefit or (as the case may be) of any liability representing that benefit, as reduced in accordance with the Board's determination, were the amount which would otherwise have been payable in accordance with the terms of the policy.
§ (8) In this section "company in financial difficulties" has the same meaning as in section 16 of this Act. '—[Mr. Clinton Davis.]
§ Brought up, and read the First time.
§ 4.5 p.m.
§ The Under-Secretary of State for Trade (Mr. Clinton Davis)
I beg to move, That the clause be read a Second time.
§ Mr. Davis
The new clause, with Amendment No. 22, constitutes a redrafting of Clause 16(8) as it emerged from 1789 Committee. There is no change of substance save to make the rôle of the independent actuary consistent with the rôle which is proposed under Clause 12, and Amendments Nos. 19 to 21 are paving amendments for the new clause.
Clause 16 permits the Board, in defined circumstances, to expend money in facilitating the rescue of the insurance business of a failing company in advance of a liquidation. In Committee it was common ground that a further provision should be added to Clause 16 to make crystal clear that the Board in exercising this power in respect of long-term business should ensure that policyholders' benefits were written down to 90 per cent., or more in cases of over-generous benefits, unless to do otherwise would cost less, or, at any rate, no more.
The Government put down a short amendment in Committee which they thought would achieve this goal, but certain members of the Committee, including some of my hon. Friends, thought that the Government's wording was unsatisfactory in that it was insufficiently specific. They therefore pressed an alternative, much longer, amendment and their view prevailed. That amendment now appears in the Bill as subsection (8).
The Government accept the wish of the Committee for a fuller and more specific provision, but Clause 16(8) was not prepared by parliamentary draftsmen. It is unduly long and contains certain defects of wording and illogicalities. It also, as in the present text of Clause 12, leaves the final decision on over-generous benefits with the independent actuary. In Committee I undertook to move amendments on Report—which I hope to do shortly—which transfer the burden of that decision from the actuary to the Board. There is, therefore, an important defect in the provision as set out in the clause.
For those reasons we thought it right, in consultation with the Life Offices Association, to redraft the whole subsection. Amendment No. 22 drastically shortens subsection (8) and deals only with the point now covered in paragraph (c)(i), the only part of the subsection that applies to general as well as long-term business. This restores the effect of subsection (8) to exactly what it was in the Bill which the House considered on Second Reading. All the rest of the 1790 subsection has been hived off into the new clause.
To summarise, the new clause, together with the associated amendments, reproduces the effect of subsection (8) without any change of substance, apart from the one I have touched on concerning the rôle of the independent actuary. It has been discussed and agreed with the Life Offices Association. For those reasons, I commend the clause to the House.
§ Mr. Terence Higgins (Worthing)
There can have been few measures ever to pass through this House which have been more amended than this one. To some extent we are retracing our steps and reversing earlier amendments. I hope that the effect will be to refine the Bill. That is probably true, although it has not greatly reduced the complexity of the measure. Some of the lengthy amendments carried in Committee are being curtailed. Obviously, excessive length is to be avoided if possible. However, we are worried that the changes made in this tidying-up process may be obscure. We must ensure that the tidying-up process does not eliminate desirable changes.
Where in the Bill is the new clause expected to appear? I understood that these provisions would appear in Clause 16. There are references in the clause to Clause 16. If the clause is to be part of Clause 16, the references seem unnecessary.
We are concerned about the effect of the new clause in the light of discussions in Committee. The new clause and the amendments associated with it will be relevant whether there is a rescue or a liquidation. The point is whether in either circumstance the over-generous benefits will be reduced. Is it the Government's intention that over-generous benefits should be reduced in either case? It was the general view on both sides of the Committee that that was desirable.
The Minister said that the Board would favour liquidation rather than rescue if the cost was less or no greater. That was the general view in Committee. Will the Minister say whether in either circumstance—liquidation or rescue—there will be a levy? That will be relevant to subsequent discussion this afternoon. For example, what will be the 1791 position on the vexed question of Nation Life if the liquidation has begun and made considerable progress?
What is the opinion of the Minister about the reduction in excessive benefits? The clause implies that in certain circumstances excessive benefits under policies issued by companies which may be rescued or which are in liquidation may be reduced or disregarded.
§ Mr. Higgins
The argument is that, whether there is a liquidation or rescue, excessive benefits may be reduced or disregarded. I am not clear what it meant technically by the expression "disregarded". Does it mean that the person concerned would receive nothing? Alternatively, will he receive benefit but only to the extent that the benefit is not excessive? The expression "disregarded" seems odd. I am not clear why the draftsmen think that that expression needs to be included.
We are grateful to the Government for gracefully accepting the suggestions that were made, although in view of the balance of voting in Committee and in the House they do not appear to have had any option. At least they have accepted gracefully the intention of the Committee. I hope that the later amendments will continue to tidy up the drafting which was put through in Committee.
§ 4.15 p.m.
§ Mr. John Roper (Farnworth)
I am grateful that the Government have accepted the principle of the new clause, which was put down in the names of my hon. Friend the Member for Edmonton (Mr. Graham) and myself in Committee, and that it has been put in a form which, although longer, is more acceptable to parliamentary draftsmen. Such probing as I have been able to carry out suggests that the new wording covers the points that were included in the amendment passed in Committee.
Although I am tempted to answer some of the points raised by the hon. Member for Worthing (Mr. Higgins), perhaps I should leave the Minister to do so. We are pleased that he has accepted our amendment.
§ Mr. Clinton Davis
The hon. Member for Worthing (Mr. Higgins) was unfair in 1792 what he said initially about the Government's new Clause and its draftsmanship, although he tempered his sentiments later. The Committee thought it appropriate—I do not grumble about that—to accept an amendment which needed a good deal of tidying up. We have attempted to do that.
I am grateful for the remarks of my hon. Friend the Member for Farnworth (Mr. Roper).
The hon. Member for Worthing wanted to know where the new Clause would appear. It will not appear in Clause 16. I expect that it will appear immediately after Clause 16. The provision is relevant only to rescues or action by the Board before a liquidation. The liquidation situation is relevant only for the purposes of comparison of cost.
§ Mr. Higgins
For the sake of comprehensiveness and comparison, will the Minister say what is the position of excessive benefits if there is a liquidation?
§ Mr. Davis
Excessive benefits on liquidation will be taken into account by the Board. I was asked what would happen about excessive benefits if the liquidation had already begun. The answer to that point is encompassed by my previous remarks.
I was also asked about the word "disregarded". Some benefits under a policy may be disregarded. I refer, for example, to a guaranteed surrender value. That follows the wording of Clause 12. The amendment is complicated and I do not pretend that it is easy to follow. However, it embraces the purpose of the amendment which was passed in Committee.
§ Mr. Higgins
Can the Minister expand a little on that point? He gave as an example guaranteed surrender value. Are there other possible excessive benefits that might be completely disregarded?
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.