Jersey Unreported Judgments

Application for sanction of a scheme to transfer insurance business under the Insurance Business (Jersey) Law 1996.

[2014]JRC178A

Royal Court

(Samedi)

23 September 2014

Before     :

J. A. Clyde-Smith, Esq., Commissioner and Jurats Milner and Olsen.

IN THE MATTER OF THE REPRESENTATION OF PRUDENTIAL ANNUITIES LIMITED AND THE PRUDENTIAL ASSURANCE COMPANY 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. Huelin for the Representors.

judgment

the COMMISSIONER:

1.        This is an application by the Representors seeking the sanction of the Court to a scheme (the "Jersey Scheme") to transfer the whole of the long term insurance business carried on in or from within Jersey by Prudential Annuities Limited (the "Transferor") to The Prudential Assurance Company Limited (the "Transferee") under Article 27 of and Schedule 2 to the Insurance Business (Jersey) Law 1996 (the "Insurance Law"). 

2.        Each of the Representors is an authorised person with permission to effect and carry out contracts of insurance as authorised by the Financial Conduct Authority in the United Kingdom.  Each of the Representors also holds a Category A permit to carry on long term insurance business under the Insurance Law. 

3.        There is a separate scheme in the United Kingdom (the "UK Scheme") in respect of the transfer of the whole of the long term insurance business from the Transferor to the Transferee which was sanctioned by the High Court of Justice of England and Wales on 16^th September, 2014. 

4.        The Representors are part of the same corporate group.  The Transferor is the wholly-owned subsidiary of the Transferee and the Jersey scheme is part of a proposed reorganisation of the long term insurance business of certain Prudential Plc group companies. 

5.        The purpose of the scheme as described by the senior management of the Transferor and the Transferee is:-

(i)        to give the Transferee flexibility regarding the utilisation of surplus capital currently held in the Transferor;

(ii)       to simplify the corporate structure and to generate operating efficiencies and cost savings; and

(iii)      to bring permanence to the benefits achieved through the re-insurance arrangement. 

6.        It is intended that the proposed transfer pursuant to the Jersey Scheme should become effective simultaneously with the UK Scheme becoming effective, which is currently set for 00.01 am on 1^st October, 2014. 

Procedural requirements

7.        In accordance with paragraph 3 of Schedule 2 of the Insurance Law, the Representation and the Jersey Scheme document are accompanied by a report of an independent actuary, Oliver Gillespie ("the Independent Actuary"), a fellow of the Institute and Faculty of Actuaries, dated 23^rd June, 2014, ("the Independent Actuary's Report") on the terms of, inter alia, the Jersey scheme. 

8.        Paragraph 4 of Schedule 2 to the Insurance Law sets out certain procedural requirements in relation to an insurance transfer scheme which we are satisfied have been met in the following manner:-

(i)        In accordance with paragraph 4(a), a notice stating that this application was to be made and giving the address at which the documents specified in sub-paragraph 4(d) of Schedule 2 could be inspected appeared in the Jersey Gazette on 22^nd July, 2014;

(ii)       On the 7^th July, 2014, the Court ordered that rather than sending policy holders a complete copy of the Jersey and UK Schemes, which are highly technical and detailed, they should be set out in a more user friendly Policyholder Pack consisting of a) a covering letter explaining the Representors' intention to transfer business from the Transferor to the Transferee and b) an information booklet containing firstly, a question and answer section; secondly, a summary of the key elements of the UK Scheme and a confirmation that such summary applies equally to the terms of the Jersey Scheme; thirdly, a covering legal notice relating to the UK Scheme and fourthly, a summary of the Independent Actuary's Report. 

The Court ordered that this should be sent to the policyholders of the Transferor whose address was known.  It was not proposed to send the pack to the policyholders of the Transferee as the scheme would have no material effect on those policyholders.  Nor was it proposed to notify the members of the Transferor or the Transferee, bearing in mind that they form part of the same group.  The policy holders of the Transferor had been notified in the manner sanctioned by the court. 

(iii)      In accordance with paragraph 4(c) of Schedule 2 of the Insurance Law, a copy of the representation dated 2^nd July, 2013, pursuant to which the Representors sought the sanction of the Court in respect of the Jersey Scheme, the Independent Actuary's Report and the Policyholder Pack were served on the Jersey Financial Services Commission ("the Commission") on 14^th August, 2014; and

(iv)      In accordance with paragraph 4(d), copies of the Representation together with the Jersey Scheme (including the UK Scheme) attached thereto and the Independent Actuary's Report (together "the Documents") have been open to inspection in the Island of Jersey at the office of Mourant Ozannes, 22 Grenville Street, St Helier, JE4 8PX for a period of not less than twenty-one days beginning with the date of publication of the notice in the Jersey Gazette on 22^nd July, 2014.  There have been no requests made to view the Documents. 

9.        In accordance with paragraph 5 of Schedule 2 to the Insurance Law, copies of the Documents have been available by making a request for the same at the offices of Mourant Ozannes in Jersey. 

10.      In accordance with Article 27 and paragraph 1 of Schedule 2 to the Insurance Law, the transfer is duly authorised by the Commission to carry on long term insurance business of the class being transferred under the Jersey Scheme.  For the purposes of paragraph 7 of Schedule 2 to the Insurance Law the Transferee is also authorised by the Commission to carry on long term insurance business. 

Merits of the Jersey Scheme

11.      Under the Jersey Scheme the Transferor wishes to transfer the whole of its long term insurances business carried on in or from within Jersey to the Transferree.  The provisions of the Jersey Scheme will become effective once the sanction of the Royal Court of Jersey has been obtained and the UK Scheme has become effective. 

12.      The Court would wish to consider the views of anyone who objects to the Jersey Scheme but no complaints were received from policyholders and no-one has appeared today. 

13.      In the Independent Actuary's Report, the Independent Actuary makes his conclusions at page 30 and states that:-

"I am satisfied that the implementation of this Scheme will not have a material effect on:

the security of benefits of the policyholders of [the Transferor] and [the Transferee];

the benefit expectations of the policyholders of [the Transferor] and [the Transferee]; or

the service standards and governance applicable to [the Transferor] and [the Transferee] policies.

I am satisfied that the Scheme is equitable to all classes and generations of [the Transferor] and [the Transferee] policyholders."

14.      The Commission has confirmed that it does not have any objections or specific comments to make concerning the provisions of the Jersey Scheme. 

Supplementary Report to the Independent Actuary's Report

15.      The Independent Actuary prepared a supplementary report to the Independent Actuary's Report ("the Supplementary Report") in connections with the UK Scheme and the Jersey Scheme for the Representors with the intent that it also be made available to the regulators and the court in each relevant jurisdiction, but not sent to the policyholders or members of the Representors. 

16.      At page 189 in the bundle (page 7 in the supplemental report) the Independent Actuary confirms that he has considered the updated information provided to him since the date of the Independent Actuary's Report and he is satisfied that the conclusions set out in that report have not changed. 

Tax Implications

17.      Correspondence between Mourant Ozannes and the Jersey Comptroller of Income Tax confirms that no implications arise for Jersey policyholders in relation to Jersey tax as a result of the Jersey Scheme. 

18.      Paragraph 4.14 of the Independent Actuary's Report exhibited to the Second Affidavit of Andrew David Taylor confirms that the UK tax treatment of the Transferor policies will not change as a result of the transfer of the policy from the Transferor to the Transferee. 

Discretion of the court to sanction the Jersey Scheme

19.      In determining whether there are any particular matters which the Court ought to have in mind in deciding whether or not to sanction the scheme it is helpful to refer to the judgment of Hoffman J in Re London Life Association Limited (unreported), in relation to a scheme under Section 49 of the Insurance Companies Act 1982 which was in similar terms to Schedule 2 of the Insurance Law.  At pages 6-7 of the transcript, Hoffman J states:-

"Although the statutory discretion is unfettered, 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 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.  But the court does not have to be satisfied that no better scheme could have been devised.  A board might have a choice of several possible schemes, none of which, taken as a whole, could be regarded as unfair.  Some policyholders might prefer one such scheme and some might think they would be better off with another.  But the choice is in my judgment a matter for the board.  Of course one could imagine an extreme case in which the choice made by the board was so irrational that a court could only conclude that it had been actuated by some improper motive and had therefore abused its fiduciary powers.  In such a case a member would be entitled to restrain the board from proceeding.  But that would be an exercise of the court's ordinary jurisdiction to restrain breaches of fiduciary duty; not an exercise of the statutory jurisdiction under section 49 of the Insurance Companies Act 1982.

What is true of choices as between different schemes is also true of the details within a scheme.  There are no doubt few schemes would could not in some respect be improved.  But the terms of a scheme are a matter of negotiation between transferor and transferee companies and will to a greater or lesser extent depending upon their respective bargaining strengths, involve concessions on both sides.  Under the 1982 Act the court cannot, any more than under the Act of 1870, sanction the scheme subject to the making of amendments.  It must be either confirmed or rejected, although no doubt the court in rejecting a scheme could indicate that it thought the vice lay in some particular term and that a fresh scheme without that term was likely to be acceptable.  I am therefore not concerned with whether, by further negotiation, the scheme might be improved, but with whether, taken as a whole, the scheme before the court is unfair to any person or class of persons affected.

In providing the court with material upon which to decide this question, the Act assigns important roles to the independent actuary and the Secretary of State.  A report from the former is expressly required and the latter is given a right to be heard on the petition.  The question of whether policyholders would be adversely affected by the scheme is largely actuarial and involves a comparison of their security and reasonable expectations without the scheme with what it would be if the scheme were implemented.  I do not say that these are the only considerations but they are obviously very important.  The Secretary of State, by virtue of his regulatory powers, can also be expected to have the necessary material to express an informed opinion on whether policyholders are likely to be adversely affected."

The Court applied the judgment in Re London Life Assurance Limited in deciding to grant an application for sanction of a transfer scheme pursuant to Schedule 2 to the Insurance Law in Re Norwich Union Life Insurance Society v Norwich Union Annuity Limited and Ors [1997] Jersey Unreported 81/97 (25^th April, 1997). 

20.      In conclusion, as made clear in Re London Life Assurance Limited, this Court must, and does, give due recognition to the commercial judgment of the senior managers of the group.  Our concern is to whether any policyholder, employee or other person would be adversely affected by the Jersey Scheme and the evidence is that no-one is adversely affected by what is a group restructuring that will bring the benefits referred to above and we therefore sanction the scheme. 

Authorities

Insurance Business (Jersey) Law 1996.

Re London Life Association Limited (unreported).

Insurance Companies Act 1982.

Re Norwich Union Life Insurance Society v Norwich Union Annuity Limited and Ors [1997] Jersey Unreported 81/97.

Re Norwich Union Life Insurance Society [1997] JLR N-12c.