Repackaging the Life Office

Abstract

Traditionally the interest of actuaries and many other life assurance specialists in the ‘corporate structure’ of life offices has largely been limited to questions surrounding the distinctions between mutual and proprietary companies. More recently, attention has also been paid to composite insurance companies—principally to protect the interests of the long term business policyholders.Developments over the past ten years or so have led many life offices to reappraise their corporate structure. A number of companies have decided to set up a (non-insurance) group holding company, the principal subsidiary of which would be the established life assurance company. This paper will consider some of the pressures which have resulted in these reorganizations, in particular:(a) the impact of Section 16 of the Insurance Companies Act 1982 which restricts insurance companies to only conducting activities in connection with insurance;(b) the various provisions in the Insurance Companies Regulations 1981 which limit the admissibility of particular assets and specify minimum accounting standards which must be adopted when writing down certain fixed assets;(c) the additional flexibility with regard to marketing and the financing of marketing costs which a revised structure will allow;(d) the purchase of companies for sums substantially in excess of their net asset value which may give rise to difficulties in accounting for the ‘goodwill element’ in the purchase price;(e) the potential tax advantages (and, in some cases, disadvantages) which may result from the creation of a non-insurance holding company.