Jersey Unreported Judgments

Insurance - application to transfer insurance business carried on within Jersey from the first representor to the second representor.

[2012]JRC055

Royal Court

(Samedi)

15 March 2012

Before     :

W. J. Bailhache, Q.C., Deputy Bailiff, and Jurats Kerley and Olsen.

 

IN THE MATTER OF THE REPRESENTATION OF SLFC ASSURANCE (UK) LIMITED

AND IN THE MATTER OF AN APPLICATION PURSUANT TO ARTICLE 27 OF AND SCHEDULE 2 TO THE INSURANCE BUSINESS (JERSEY) LAW 1996

Advocate S. M. Gould for the Representors.

judgment

the deputy bailiff:

1.        The Court sat to receive an application by the representors seeking the Court's sanction to a scheme to transfer to the second representor the whole of the long term insurance business carried on, in or from within Jersey by the first representor in accordance with Article 27 of and Schedule 2 to the Insurance Business (Jersey) Law 1996 (the "Insurance Law").  Each of the representors is authorised to effect and carry out contracts of insurance in, inter alia, the United Kingdom and Jersey.  The representors have carried on long term insurance business within Jersey and are holders of Category A permits pursuant to the Insurance Law.  Both representors are part of the Sun Life Financial Group. 

2.        A separate scheme has been proposed in the United Kingdom in respect of the transfer of long term insurance business carried on there, and this was approved in the High Court on 14^th December before Warren J.  In the course of that application, the UK scheme had been submitted to the Financial Services Authority in the United Kingdom which, subject to certain amendments which were made to the scheme as a result of that referral, had approved the scheme.  The transfer of the Jersey business forms a small part of the entirety of the business being transferred from the first representor to the second representor. 

3.        Neither representor has a place of business or employees in Jersey.  The place of business of the representors will not change as a result of the Jersey scheme and there will be no change to the proper law of the policies which are to be transferred under the Jersey scheme. 

4.        The representation was presented to the Royal Court on 29^th September when the Court directed that service of a statement, in accordance with paragraph 4(b) of Schedule 2 to the Insurance Law, upon each of the policy holders and on each member of each representor should be dispensed with, the representors having undertaken to make all reasonable endeavours to circulate the notification to those policy holders having an interest in policies issued as part of the business carried on, in or from within Jersey by each of the representors.  The Court then adjourned the hearing of the representation to 19^th December at 10.00 a.m. 

5.        On this date, the matter came before the Court again.  No policyholders were present.  We were informed by Advocate Gould that there had been no notification received of any objections to the proposed scheme.  Advocate Gould presented us with a copy of the order of the High Court made on 14^th December, and an additional affidavit from Ms Elizabeth Simkin which corrected minor misunderstandings from earlier affidavits, but in particular emphasised that notices pursuant to the undertaking were sent to policyholders of both the transferor and the transferee. 

6.        The Court had before it a copy of a report by an independent actuary, Mr Nick Dumbreck.  Mr Dumbreck is a Fellow of the Institute and Faculty of Actuaries which was established in 2010 by the merger of the Institute of Actuaries and the Faculty of Actuaries.  He has been a Fellow of the Institute of Actuaries since 1982 and is a principal of a leading firm of actuaries, based in London, with 30 years' experience of the UK life insurance industry.  His report of 27^th September, 2011, indicated in his opinion, in summary, that the security of the benefits of the holders of policies in the transferee company, and of the transferred policies would not be materially affected by the implementation of the scheme.  Similarly he considered that the reasonable benefit expectations of the holders of policies issued by the transferee and the transferring policies would not materially affected by the implementation of the scheme, and that the scheme would not materially affect the service standards to be experienced by those policyholders.  Generally, he was of the view that the security of the general insurance policies remaining in the transferor would not be materially affected by the implementation of the scheme and that the fair treatment of the holders of the transferee policies and of policies issued by the transferee would not be materially affected by the implementation of the scheme.  All these conclusions took into account the effect of the Jersey and Guernsey schemes and applied equally to Jersey policyholders. 

7.        One of the recommendations of the Financial Services Authority in the United Kingdom appears to have been to seek a top up capital contribution of £25 million in cash or cash equivalence to be transferred from the transferor (the first representor) to the transferee (the second representor).  This payment appears to have been duly made.  The fact of that payment and other updated information was provided to the independent actuary and the Court has been shown a copy of his supplemental report of 7^th December, 2011, in which the conclusions remain unaltered. 

8.        In connection with the additional transfer of funds, Mr Dumbreck indicates that the transfer has the effect of increasing the capital resource requirement in the transferee post transfer from 146% to 153% as at 30^th September, 2011, providing additional security to policyholders in the transferee.  The change does not affect the capital resource requirement cover for the transferor because that company owns 100% of the transferee as an investment, and the fall in value of assets in the transferor is exactly offset by the increase in the value of the transferee. 

9.        We heard from Mr David Hart of the Jersey Financial Services Commission that the Financial Services Authority normally set a capital resource requirement of 100%.  Accordingly cover of 146% was itself substantially above the FSA minimum.  The second report of Mr Dumbreck indicates that the UK Financial Times Stock Exchange 100 Index fell by around 14% between 30^th June, 2011, and 30^th September, 2011, and market volatility also increased significantly over the period and credit spreads widened.  Because there was ongoing uncertainty in the euro zone and a fear of continuing volatility in financial markets generally, he reported that the transferee intended to strengthen the capital target to 175% of the capital resource required related to the fund rather than a current level of 150%.  Mr Dumbreck concluded that despite the significant change in conditions, both companies were well capitalised at 30^th September, 2011, and in addition both companies have minimal exposure to sovereign and corporate debt issued in the European economies which have recently experienced significant increases in bond yields.  All that material is preliminary to his restating his opinion that the implementation of the scheme on the effective date will not adversely affect either the transferor or the transferee or policyholders in either company before the effective date. 

10.      Mr Hart, on behalf of the Jersey Financial Services Commission, confirmed that the Commission had no objections or specific comments to make concerning the provisions of the scheme as presented. 

11.      We remind ourselves that the Court's approach to the transfer of insurance business of this kind is well settled.  In the Norwich Union Life Insurance Society-v-Norwich Union Annuity Limited and Others [Jersey Unreported 25^th April 1997] the Court cited with approval the dicta of Hoffman J in Re London Life Association Limited (21^st February 1989), an unreported judgment of the High Court of England and Wales where the learned judge set out these principles:-

"Although the statutory discretion is unfetted, it must be exercised according to principles which give due recognition to the commercial judgment entrusted by the company's constitution to its Board.  The Court in my judgment is concerned in the first place with whether a policyholder, employee or other person would be "adversely affected" by the scheme in the sense that it appears likely to leave him worse off than if there had been no scheme.  It does not however follow that any scheme which leaves someone adversely affected must be rejected.  For example, as we shall see, one scheme which might have been adopted in this case would have adversely affected many of London Life's employees because they would have become redundant.  But such a scheme might nevertheless have been confirmed by the Court.  In the end the question is whether the scheme as a whole is fair as between the interests of the different classes of persons affected". 

12.      This is an intra-group transfer.  The Court is satisfied with the evidence provided by the independent actuary.  The procedural formalities required by Article 27 and Schedule 2 of the Insurance Law have been complied with.  No policyholders, employees or others have appeared before us to object to the implementation of the scheme, and the Jersey Financial Services Commission has raised no objections either. 

13.      In the circumstances, the Court gives its sanction to the Jersey scheme as set out in the Schedule to the Order so that the transferring Jersey business, the transferring Jersey assets, the transferring Jersey liabilities and the transferring Jersey contracts, all as defined in the Jersey scheme, are transferred to the second representor. 

14.      The representors should within 10 days or such longer period as the Jersey Financial Services Commission may allow, deposit two office copies of the Order with the Commission. 

Authorities

Insurance Business (Jersey) Law 1996.

Norwich Union Life Insurance Society-v-Norwich Union Annuity Limited and Others (Jersey Unreported 25th April 1997).

Re London Life Association Limited (21st February 1989) unreported judgment of the High Court of England and Wales.