Insurance Update. UK Office of Fair Trading refers private healthcare insurance market investigation to the Competition Commission. May 2012.

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1 May 2012 Insurance Update. UK Office of Fair Trading refers private healthcare insurance market investigation to the Competition Commission On 4 April 2012 the UK Office of Fair Trading (OFT) referred the market for the provision of private healthcare insurance (PH) to the Competition Commission (CC) for an in-depth market investigation following an initial market study. The OFT s decision to refer the market to the CC is available here. The OFT considers this market is likely to be an area of growing importance to the UK economy, particularly due to the forecast growth in demand for healthcare services in line with an expanding and ageing population, as well as the increasing relevance of the PH market to the provision of NHS services in the UK following the passing of the UK Health and Social Care Act. The OFT is of the view that there are features of the PH market, which either individually or in combination, may prevent, restrict or distort competition in the UK market. In particular, the OFT identified a number of issues for further investigation by the CC, including: > Information asymmetries the OFT found that the shortage of accessible, standardised and comparable information appears to weaken the ability of patients and GPs to drive efficiencies and stimulate enhanced competition between rival PH facilities and between consultants, and may give rise to a dampening of competition in the market overall. Contents UK Office of Fair Trading refers private healthcare insurance market investigation to the Competition Commission.. 1 Landmark UK FSA enforcement decision against senior executive overturned by the Upper Tribunal... 2 China formally opens its mandatory auto liability insurance market to foreign insurers... 3 Solvency II Update... 3 UK Data Protection and Longevity Risk Solutions.. 3 Recent Deals... 6 > Concentration the OFT noted that the PH provider market appears to be concentrated at the national level and that at the local level there appear to be areas of high concentration (e.g. where there is no alternative PH facility within a 30-minute drive time of another PH facility). > Barriers to entry the OFT considered that a combination of factors give rise to significant barriers to entry. For example, it appeared that some larger PH providers can impose price increases or set other conditions should a PMI provider recognise a new entrant on its Insurance Update. 1

2 network. There also appear to be direct and indirect incentives given by PH providers to consultants. The OFT concluded that these factors appear to result in a reduction of choice for patients, as well as restricting competition between PH providers and consultants, which may cause consumer harm in the form of higher prices and / or lower quality. The statutory deadline by which the CC must conclude its investigation is 3 April The CC has wide ranging powers to gather information and ultimately, if it identifies adverse effects on competition, to accept or impose remedies to address any concerns. Information on the progress of the investigation will be published on the CC s website. For further information please contact Eamonn Doran (+44) Landmark UK FSA enforcement decision against senior executive overturned by the Upper Tribunal The UK Financial Services Authority (the FSA) has recently lost a landmark test case in which it had attempted to hold a senior banking executive liable for failing to remedy systemic failings within his business area. Former UBS wealth management CEO John Pottage had been fined 100,000 by the FSA for breaching APER Statement of Principle 7 by allegedly failing to take reasonable steps to ensure that the business of his firm complied with the requirements and standards of the regulatory system. The FSA s decision outlined a number of actions that it considered should have been taken both when Mr Pottage first took on the role and as significant compliance failings within the business area subsequently emerged. Mr Pottage referred the FSA s decision to the Upper Tribunal which cleared him of any wrongdoing, concluding that the FSA s evidence did not support its case. The Tribunal indicated that an approved person will only be in breach of a Statement of Principle where he is personally culpable, and not simply because a regulatory failure has occurred in an area of business for which he is responsible. The FSA has made no secret of its desire to hold senior executives to account for the failings of their firms, or business areas. It has spoken publically of its frustration at its inability to bring to account those executives responsible for the failure of RBS. The case against Mr Pottage illustrates the FSA s tendency to judge compliance with the benefit of hindsight, an approach which the Tribunal chose not to follow. It seems clear that the FSA is likely to face significant difficulty in challenging highly subjective management decisions. The Tribunal s ruling establishes that enforcement action against senior managers is only likely to be successful where there is evidence of actual wrongdoing by the executive concerned. John Pottage v The FSA. For further information please contact Sara Cody (+44) and Christa Band (+44) Insurance Update. 2

3 China formally opens its mandatory auto liability insurance market to foreign insurers China has recently amended its regulations on 1 May 2012 to implement the commitment in the previous Sino-US Strategic and Economic Dialogue, concluded in May 2011, to allow foreign insurance companies to sell mandatory auto liability insurance. Click here for our earlier news alert on recent market liberalisation in this sector. For further information please contact Eric Liu (+86) Solvency II Update Key recent developments in relation to the Solvency II Directive are: > the plenary vote on Omnibus II Directive in the European Parliament has been rescheduled for September The European Parliament has indicated the dates are provisional and could move either forward or back depending on the results of the trialogue negotiations which are currently taking place; and > the European Commission is to propose postponing the transposition of Solvency II to 30 June 2013 and the application by companies to 1 January The European Commission stated that this is to ensure legal certainty in face of the most likely scenario where Omnibus II is not published before 31 October For further information please contact Jacinta Lim (+44) UK Data Protection and Longevity Risk Solutions Introduction Data protection is a key issue to consider when structuring transactions concerning annuities such as longevity risk transfer solutions. Any hedge (direct or indirect) is likely to require information on individuals to assess its exposure both at the outset and during the lifetime of the hedge. Data protection therefore needs to be considered and addressed in risk transfer solutions both from the pension trustee s and a hedge/risk solution provider s perspective. When does data protection law apply? Compliance with the UK Data Protection Act 1998 (the Act ) is required in instances where three material elements are present: (i) personal data; (ii) is being processed; (iii) by or on behalf of a data controller. Each of these elements is summarised in the table below: Personal Data Any information that: identifies a living individual; is held on a computer or hard-copy filing system of similar sophistication; Personal data Includes name, date of birth, sex, marital status, full postcode and Insurance Update. 3

4 Processing Data Controller and affects the individual s privacy, rather than merely mentioning them by name. Sensitive personal data is a subset of personal data to which stricter rules apply. Examples of the two types of data are set out in the next column. financial information. Sensitive personal data Includes information relating to race or ethnic origins, political opinions, religious or philosophical beliefs, criminal convictions, trade union membership, sexual life, and physical or mental health Encompasses almost any conceivable operation in respect of personal data, including obtaining, recording, holding.. retrieval, consultation, use, disclosure... combination, erasure or destruction. An entity will act as a data controller if it determines the purpose for which and the manner in which it processes the personal data. To be distinguished from a data processor who is a person who processes information on behalf of a data controller. It is key, in understanding the impact of the Act on longevity transactions to recognise that a person s name is not the only way to make information personal data. The data required in order to assess a pension s liabilities is likely to include the pension members date of birth, full postcode and sex. This information taken together would enable an individual to be identified, even without that individual s name, and the Act will therefore apply. Do I need to comply with the Act? Compliance with the Act depends on whether a given entity is acting as a data controller or a data processor. Data controllers must comply with the Act whilst data processors are not directly subject to data protection laws. In the context of its management of a scheme, a pension trustee is generally a data controller and will therefore need to comply with the Act. Whether a hedge provider is a data controller or a data processor will depend on a number of factors and, in particular, how the data flows are structured. This is a key issue to consider when entering into a longevity risk transfer solution. How can I process personal data in compliance with the Act? UK data protection legislation uses a principles based approach to data processing and these need to be followed in order to meet the Act s requirements. There are 8 principles in total, set out in Schedule 1 to the Act. The most important of these principles is principle 1. This requires that: > personal data is processed by data controllers fairly and lawfully; Insurance Update. 4

5 > in most cases, data subjects are given notice of what will happen to their personal data using a document typically called a fair processing notice or FPN ; and > one of a number of pre-conditions, set out in Schedule 2 of the Act, is fulfilled in order to ensure that personal data is processed fairly. Although the most certain pre-condition to use is to obtain the consent of the affected individuals, this is not generally practicable in the context of pension schemes where membership can be in the tens of thousands. In the context of risk transfer transactions, the most helpful pre-condition therefore is likely to be the legitimate interest pre-condition. To satisfy this, the need to process the information must be in the legitimate interest of the data controller and this legitimate interest must be weighed up against the individual s interests and not cause him/her undue prejudice. A more detailed analysis of the Act s principles and pre-conditions is beyond the scope of this article and, in practice, their application will generally be on a case by case basis. Can I avoid data protection legislation altogether? To avoid having to comply with the Act, the data used in the transaction could be anonymised in such a way that it no longer qualifies as personal data. This however is not a simple matter of deleting names and retaining all the other information as the remaining data is likely to be sufficient to identify the individuals and therefore will still be personal data. In other contexts, the UK regulator, for example, considers that postcodes alone can be personal data (Dundas v ICO & City of Bradford MDC (5 March 2007)). Whether a proposed anonymisation is sufficient to make data fall outside the scope of the Act therefore needs to be considered with care. How can Linklaters help? We have experience of acting for both pension trustees and hedge providers in the context of longevity risk transfer solutions and can assist you with data protection advice at all stages of such transactions including: > initial investigatory stages, e.g. appropriate non-disclosure agreements dealing with the sharing and analysing of personal data in order to ascertain the scheme s liabilities; > structuring the data flows and the categorisation of the parties to the transaction as data controllers and/or data processors; > documentation governing the ongoing processing of data flows and reporting, including the involvement of third party existence checking service providers and the onward disclosure to reinsurers; and > general advice on the data protection principles and anonymisation of data. For further information please contact Richard Cumbley (+44) and Catherine Adam (+44) Insurance Update. 5

6 Recent Deals Our recent deal experience in the sector (details of which we are able to disclose) include: advising Deutsche Bank on a EUR12bn longevity swap transaction with AEGON Derivatives N.V.; acting on behalf of the Managers in Aviva plc s issue of U.S.$650,000, per cent. fixed rate tier 1 notes, the first issue by Aviva plc of tier 1 securities since 2004; advising Ageas with respect to the merger of its two top holding companies, Ageas SA/NV and Ageas N.V. The transaction is subject to shareholders' approval and will be effective as of 7 August 2012 subject to certain conditions; acting on behalf of the Joint Lead Managers in relation to a public bond offering of EUR500,000,000 Subordinated Fixed to Floating Rate Notes due 2042 issued by Talanx Finanz (Luxemburg) S.A. and guaranteed on a subordinated basis by Talanx Aktiengesellschaft; and acting on behalf of the Joint Lead Managers on Direct Line Insurance Group plc s issue of 500,000,000 Fixed/Floating Rate Guaranteed Subordinated Notes due 2042 (guaranteed by UK Insurance Limited). Contacts For further information please contact: Duncan Barber (+44) duncan.barber@linklaters.com Wolfgang Krauel (+49) wolfgang.krauel@linklaters.com Teresa Ma (+85) teresa.ma@linklaters.com Stan Renas (+1) stan.renas@linklaters.com Victoria Sander (+44) Author: Madhu Jain/Jacinta Lim This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or contact the editors. Linklaters LLP. All Rights reserved 2012 Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC It is a law firm authorised and regulated by the Solicitors Regulation Authority. The term partner in relation to Linklaters LLP is used to refer to a member of Linklaters LLP or an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP together with a list of those non-members who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ or on and such persons are either solicitors, registered foreign lawyers or European lawyers. Please refer to for important information on our regulatory position. We currently hold your contact details, which we use to send you newsletters such as this and for other marketing and business communications. We use your contact details for our own internal purposes only. This information is available to our offices worldwide and to those of our associated firms. If any of your details are incorrect or have recently changed, or if you no longer wish to receive this newsletter or other marketing communications, please let us know by ing us at marketing.database@linklaters.com. victoria.sander@linklaters.com Scott Sonnenblick (+1) scott.sonnenblick@linklaters.com One Silk Street London EC2Y 8HQ Telephone (+44) Facsimile (+44) Linklaters.com Insurance Update. 6 //