Re Allied Dunbar Assurance plc

The court considered an application under Part VII of the Financial Services and Markets Act 2000, in particular sections 105 and 111, for sanction of a scheme transferring the insurance businesses of Allied Dunbar Assurance PLC, Zurich Assurance PLC, City of London Insurance Company Limited and Pilot Assurance Company Limited into Eagle Star Life Assurance Company Limited. The judge found that the procedural and substantive requirements of Part VII had been satisfied, that the Financial Services Authority had given the required certificates and that the independent expert's report (and supplementary material) supported the conclusion that no group of policyholders would suffer a material reduction in security or reasonable benefit expectations.

The judge applied the established fairness and discretion principles (as explained in the authority of Re London Life and Re AXA) and paid close attention to the role of the independent expert and the FSA. Objections from policyholders (relating to independence and scope of the expert, reductions in RMM cover, potential mis-selling liabilities, use of assets to support Eagle Star with-profits funds, absence of an opt-out and costs) were considered and rejected as not undermining the requisite overall fairness. For these reasons the court made an order sanctioning the scheme.

This was a first instance application for the court's sanction under Part VII of the Financial Services and Markets Act 2000 of a scheme to consolidate the UK life insurance business of five Zurich-group companies into Eagle Star Life Assurance Company Limited. The applicants sought an order under section 111 sanctioning the insurance business transfer scheme. The application followed the preparation and circulation to policyholders of scheme documentation, an independent expert's report (dated 21 September 2004), a supplemental report (15 December 2004) and a clarifying letter (16 December 2004), and the issue of the certificates required from the Financial Services Authority.

The court framed key issues as: whether the statutory and procedural requirements of Part VII had been met; whether the independent expert was sufficiently independent and had relied on appropriate material; whether any group of policyholders would suffer a material reduction in security or reasonable benefit expectations (including through reductions in Required Minimum Margin cover); whether potential mis-selling liabilities or other contingent claims created undue risk for policyholders; and whether absence of an opt-out or the proposed support arrangements rendered the scheme unfair.

The judge applied the established approach to Part VII sanction hearings, noting the court's broad discretion under section 111 but emphasising that that discretion is exercised by giving due weight to directors' commercial judgment and to expert actuarial assessment and regulatory views. The independent expert's conclusions that no group of policyholders would suffer a material deterioration in security or benefit expectations were treated as central; the FSA had provided the required certificates and did not attend to object. The judge addressed each class of objection (independence and scope of the independent expert; reduction in RMM cover; mis-selling and latent liabilities; subsidy/support to with-profits funds; opt-out and costs) and concluded that none demonstrated unfairness of the scheme as a whole. The court therefore sanctioned the scheme. The judgment also records that the court adopted reasoning from recent unreported authority (Norwich Union) and reported authority (Re AXA) in reaching its conclusion.

The court made an order sanctioning the Part VII insurance business transfer scheme. The judge held that the statutory and procedural requirements of Part VII and sections 105 and 111 had been satisfied; the independent expert's reports and the FSA certificates supported the conclusion that no group of policyholders would suffer a material reduction in security or reasonable benefit expectations; and the objections raised by policyholders did not render the scheme unfair.