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Protecting your client’s money - peeling back the layers of policyholder protection

Old Mutual International writes unit linked business from the Isle of Man and the Republic of Ireland and this article explains how the different layers of investor protection provide security for your client’s investments.

There are two main risks facing policyholders who invest in offshore bonds – the risk that the available assets of the life company are inadequate to meet its liabilities and the investment risk of the underlying assets. This article is concerned with the regulation and financial solvency of the insurance company.

The layers of protection can be summarised as follows:

Layer 1 – invest with a financially secure provider subject to strong regulation and supervision

In the Isle of Man, Old Mutual International is regulated by the Isle of Man Financial Services Authority and authorised in accordance with the Insurance Act 2008.

In the Republic of Ireland, Old Mutual International is subject to prudential supervision by the Central Bank of Ireland through the Insurance Supervision Directorate and EU legislation in the form of the Solvency II Directive.

The regulatory regimes of each jurisdiction require a company to submit annual audited accounts for rigorous inspection.

Layer 2 – policyholder assets are ring fenced and segregated from other business activities

Policyholder assets are ring fenced in the long term business funds (LTBF) and can only be used to meet the claims of policyholders. The assets of each LTBF are not available to Old Mutual International for any other business purpose and ring fencing prevents a liquidator from using policyholder assets to meet other creditor liabilities.  

Layer 3 – capital requirements and solvency margins

As an Isle of Man insurer, Old Mutual International must hold surplus assets as a margin of solvency over and above what is owed to policyholders. The Company has set its own target solvency position of 165% - 180% of the minimum regulatory requirement but has exceeded this over the past couple of years; maintaining 250%.

Old Mutual International Ireland complies with the Solvency II requirement that a minimum capital solvency margin of EUR3.7m is held over and above policyholder liabilities. The Company sets a target range for its solvency margin of between 180% - 200% of what is required and has comfortably exceeded it over the past two years; having not dropped below 240% in 2016 and 2017 so far.   

Layer 4 – The availability of a compensation scheme in the event of insolvency

Republic of Ireland

Whilst there is no actual compensation scheme in the EU, policyholders are to be given preferential treatment in winding-up proceedings should an insurance company become insolvent.

Old Mutual International Ireland policyholders who were habitually resident in the UK at the time of applying for their policy may be covered by the UK Financial Services Compensation Scheme provided the policy commenced on or after 1 December 2001.

Isle of Man

Policyholders with Old Mutual International in the Isle of Man would benefit from the Life Assurance (Compensation of Policyholders) Regulations 1991 in the unlikely event of the Company becoming insolvent.

The scheme protects investors no matter where they live in the world, provided their policies started after 31 January 1991, and offers compensation up to 90% of the policy surrender value with no upper monetary limit.

The compensation scheme only protects policyholders in the event the life company cannot meet its liabilities; it does not cover any loss incurred when the value of an underlying investment falls or the provider of an investment itself becomes insolvent, for example a deposit taking institution fails or a fund goes into liquidation.

The Isle of Man compensation scheme does not provide protection in the event a third party investment manager or deposit taker becomes insolvent and therefore clients and advisers should give due consideration to the financial strength, management ability, and regulatory supervision of the chosen third party.
Date Created: 11/08/2017

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth's interpretation of the relevant law and is correct at the date shown on the title page. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual Wealth cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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