keep The Financial Services and Markets Act 2000 (Treatment of Assets of Insurers on Winding Up) Regulations 2001
These regulations govern how assets are treated when an insurer enters winding up, mandating that assets representing long-term insurance policy reserves can only be used to meet liabilities to those policyholders, while other assets can only be used for other liabilities. They also require separate creditor meetings for each asset class and allow excess assets in either class to be released.
Deleting this regulation would harm long-term insurance policyholders who have paid premiums over years based on contractual expectations. Without ring-fencing, short-term creditors could seize assets needed to pay policyholder claims, creating a chaotic race in insolvency. The excess assets provision already allows efficiency gains when one class is overfunded. While imperfect, this mandatory priority structure protects vulnerable policyholders in a way private contracting cannot adequately replicate given information asymmetries and collective action problems in insolvency scenarios.