[Federal Register Volume 60, Number 241 (Friday, December 15, 1995)]
[Notices]
[Pages 64458-64459]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30527]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-21588; 812-9632]


Wellington Underwriting plc; Notice of Application

December 8, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (``Act'').

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APPLICANT: Wellington Underwriting plc.

RELEVANT ACT SECTION: Exemption requested under Section 6(c).

SUMMARY OF APPLICATION: Applicant, a United Kingdom company engaged in 
the business of insurance, seeks an order granting it a conditional 
exemption from all provisions of the Act. Because of its listing on the 
London Stock Exchange as an ``investment company,'' Applicant seeks to 
clarify its status prior to a proposed offer and sale of its American 
Depositary Shares in the United States to assure that it will not be 
required to register as an investment company under the Act.

FILING DATES: The application was filed on June 16, 1995, and amended 
on October 17, 1995. Counsel for Applicant has agreed to file a further 
amendment during the notice period, the substance of which is 
incorporated herein.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
Applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on January 2, 1996, 
and should be accompanied by proof of service on the Applicant, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549. 
Applicant, 2 Minster Court, Mincing Lane, London, EC3R 7FB, England.

FOR FURTHER INFORMATION CONTACT:
H.R. Hallock, Jr., Special Counsel, at (202) 942-0564 or C. David 
Messman, Branch Chief, at (202) 942-0564 (Division of Investment 
Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicant's Representations

    1. Applicant, a public holding company incorporated under the laws 
of England and Wales, was formed for the purpose of allowing investors 
to participate with limited liability in underwriting insurance risks 
at Lloyd's of London (``Lloyd's''). Applicant underwrites at Lloyd's 
through five wholly-owned subsidiaries (the ``Subsidiaries''). The 
Subsidiaries have received approval from Lloyd's as ``Corporate 
Members,'' i.e., corporations acting as insurance underwriters through 
syndicates at Lloyd's. The only securities which the Applicant will own 
are those of the Subsidiaries.
    2. On November 23, 1994, Applicant completed a placement of 
17,250,000 Ordinary Shares. This included a private placement in the 
United States of 127,094 American Depository Shares (representing 
1,270,940 Ordinary Shares) to eleven ``accredited investors'' within 
the meaning of Regulation D under the Securities Act of 1933 (the 
``1933 Act''). The balance of Applicant's Ordinary Shares were placed 
with 76 holders outside the United States.
    3. Applicant's shares are traded on the London Stock Exchange 
(``LSE''), where Applicant is listed as an ``investment company.'' To 
be listed on the LSE, an issuer must have three years of audited 
financial statements unless it lists as an ``investment company.'' \1\ 
Applicant sought to be listed under this category in order to 
facilitate an immediate listing on the LSE which otherwise would not 
have been possible for a new issuer. Applicant is not otherwise treated 
as an investment company in the United Kingdom.

    \1\ To qualify as an ``investment company'' under LSE rules, no 
more than 20% of the Applicant's assets on a consolidated basis may 
be invested in the securities of any one company--including its own 
subsidiaries, and the Applicant must be a passive investor and not 
control the companies in which it invests, other than companies 
through which it invests (i.e., the Subsidiaries).
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    4. The Subsidiaries commenced operations on January 1, 1995, 
engaging exclusively in the insurance business of acting as Corporate 
Members of syndicates underwriting insurance at Lloyd's. The 
Subsidiaries underwrite insurance at Lloyd's through syndicates managed 
by Wellington Underwriting Agencies Limited, a wholly-owned subsidiary 
of Wellington Underwriting Holdings Limited. Pursuant to the LSE 
Listing Rules and the rules of the Council of Lloyd's (the 
``Council''), the central body that regulates the affairs of the 
Lloyd's market, the Subsidiaries will not transact any other business.
    5. The Subsidiaries are regulated in the U.K. as insurance 
companies, not investment companies. Because they are Corporate Members 
of Lloyd's, the Subsidiaries must comply with various provisions of the 
U.K. Insurance Companies Act 1982 and are subject to oversight by the 
Secretary of State for Trade and Industry. Most notably, U.K. 
regulation focuses on solvency, the fundamental principle of insurance 
regulation, by requiring audited statements and actuarial certificates 
for Members' accounts, trust funds for premiums, and margins of 
solvency. The British Department of Trade and Industry also has 
significant powers to regulate the market and affairs of Members in the 
event that either Lloyd's underwriters taken as a whole or any Member 
fails to satisfy regulatory requirements. These powers include, among 
others, the ability to regulate the investment and custody of assets at 
Lloyd's, to limit (or terminate) the writing of insurance, and to 
direct the actions of the Council or other persons at Lloyd's. 

[[Page 64459]]

    6. At the present time, the Applicant's shares are beneficially 
owned by fewer than one hundred persons in the United States, and the 
Applicant is not making, and does not presently propose to make, a 
public offering of its securities in the United States. The Applicant 
intends, however, to raise additional capital, which may include 
another offering of American Depository Shares to additional United 
States investors through a further private placement.

Applicant's Legal Analysis

    1. Section 3(a)(1) defines ``investment company'' to mean, as here 
relevant, any issuer that holds itself out as being engaged primarily 
in the business of investing or trading in securities. Because the 
Applicant is listed on the LSE as an ``investment company,'' it 
arguably has held itself out as an investment company within the 
meaning of section 3(a)(1).\2\

    \2\ The Applicant's assets consist entirely of securities of the 
wholly-owned Subsidiaries, which in turn hold assets in the form of 
a Lloyd's deposit that is invested in securities. Thus, the 
Subsidiaries, and consequently the Applicant itself, would be deemed 
investment companies under section 3(a)(3), except for, as discussed 
below, the Subsidiaries' status as foreign insurance companies under 
rule 3a-6.
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    2. Applicant requests an exemption from all provisions of the Act 
pursuant to section 6(c). Section 6(c) provides, as here relevant, that 
the SEC, by order upon application, may exempt any person from any 
provisions of the Act or of any rule thereunder, if and to the extent 
that such exemption is appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act.
    3. Applicant submits that the requested relief meets the exemptive 
standards established by section 6(c). It asserts primarily that it is 
engaged through the Subsidiaries in the business of an insurance 
company, and does not operate as an investment company for purposes of 
the Act. In this regard, even though the Applicant's memorandum of 
association gives it the power to carry on the business of both an 
investment company and an insurance business, it is not treated as an 
investment company under the U.K. Companies Act or as an investment 
trust for tax purposes. Similarly, the Applicant is not treated as a 
collective investment scheme or an authorized unit trust scheme under 
the U.K. Financial Services Act or as an undertaking for collective 
investment in transferable securities (``UCITS'') under directives of 
the European Union. In addition, the daily trading price of the 
Applicant's shares on the LSE is quoted in the Financial Times under 
the caption ``Insurance'' and not ``Investment Trusts.'' While the 1994 
prospectus for the Applicant's shares introduced it as an investment 
company, the stated purpose of the offering was to enable investors to 
underwrite insurance with limited liability through Lloyd's syndicates 
managed by Wellington Underwriting Agencies Limited. Based on the 
foregoing, Applicant argues that the Act's purpose would not be served 
by applying it to the Applicant merely because it is listed, for 
reasons of convenience, as an investment company on the LSE.
    4. Applicant also submits that exemptive relief would be consistent 
with the purposes intended by specific policies and provisions of the 
Act. Section 3(c)(3) of the Act excludes from the definition of 
``investment company'' domestic insurance companies. Rule 3a-6 provides 
that foreign insurance companies are also not subject to the provisions 
of the Act. Applicant represents that its Subsidiaries fall within the 
requirements of rule 3a-6.\3\ Applicant notes that United States 
holding companies for insurance companies are excepted from the 
definition of investment company by section 3(c)(6). Because of its 
status as a holding company whose only operations are the ownership of 
the Subsidiaries, the Applicant is a foreign insurance company holding 
company. The SEC, upon adopting rule 3a-6, made it clear that foreign 
insurance company holding companies should be treated under the Act on 
the same basis as United States insurance company holding companies.\4\

    \3\ Rule 3a-6 defines ``foreign insurance company'' as an 
insurance company organized under the laws of another country that 
is regulated as such by that country's government, that is engaged 
predominantly in writing or reinsuring insurance agreements of the 
type specified in section 3(a)(8) of the 1933 Act, and that is not 
operated for purposes of evading the provisions of the Act. 
Applicant intends to rely on an opinion of counsel to the effect 
that its Subsidiaries are exempt from registration under the Act 
because they are foreign insurance companies within the meaning of 
the rule. Applicant does not request SEC review or approval of 
counsel's opinion, and acknowledges that the SEC takes no position 
as to its availability.
    \4\ See Investment Company Act Release No. 18381 (Oct. 29, 
1991).
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Applicant's Conditions

    Applicant agrees that any order of the SEC granting the exemptive 
relief requested by the application may be made subject to the 
following conditions:
    1. No Subsidiary will be an ``investment company'' as defined by 
the Act.
    2. Applicant will continue to operate, either directly or 
indirectly, only in the business of insurance.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-30527 Filed 12-14-95; 8:45 am]
BILLING CODE 8010-01-M