Eagle Star Insurance Company Ltd & Anor, Re

When sanctioning an insurance business transfer scheme, the court may place substantial reliance on an independent expert’s report, particularly where the expert is FSA-approved, has addressed identified concerns and no compelling error is demonstrated. A challenge to the expert’s detailed workings requires strong grounds for supposing that the expert misunderstood the function or made an error. The court retains power to reject actuarial calculations based on manifestly unreasonable forecasts. The statutory discretion is directed to whether the scheme as a whole is fair between the affected interests; it is not necessary to show that no better scheme could have been devised. The possibility of a later scheme of arrangement is not, without bad faith or an improper motive, an objection to sanction.

The court considered applications by members of the Zurich Insurance Group for sanction of an insurance business transfer scheme under the Financial Services and Markets Act 2000. Policies and liabilities were to be transferred among Eagle Star Insurance Company Limited, Midland Assurance Limited, Preferred Assurance Company Limited, Whiteley Partnership Insurance Company Limited and Zurich Insurance Company’s United Kingdom branch.

The principal objection concerned whether Eagle Star would retain sufficient capital after the transfers. General Reinsurance Corporation, North Star Reinsurance Corporation and Mr and Mrs Birch also raised concerns about testing the independent expert’s report and the possible effect on asbestos-related claimants. The central issue was the weight to be given to the independent expert’s assessment and whether the scheme was fair to the affected policyholders.

1. Outcome. The court sanctioned the insurance business transfer scheme. The proposed retention of £500 million by Eagle Star was appropriate, and the scheme was fair between the affected policyholders.
2. Independent expert. Under sections 107 and 109 of the Financial Services and Markets Act 2000, the scheme was supported by a report from an FSA-approved independent expert. The report was not merely an expert report prepared for inter partes litigation. Its purpose was to provide an objective assessment of the scheme by an expert whose independence and objectivity were protected by the statutory and regulatory framework.
3. Where the independent expert has identified possible problems, rejected them on apparently satisfactory grounds and addressed specific concerns in a supplemental report, strong grounds are required before the court permits disclosure of detailed workings or the instruction of another expert. The court may reject actuarial calculations based on manifestly unreasonable forecasts, but no such case was shown here. The objections were late and insufficiently prepared, and no substantial challenge to the supplemental report had been made.
4. The reduction in Eagle Star’s capital technically disadvantaged its retained policyholders because the ratio of capital resources to capital requirements decreased. The relevant question, however, was whether the retained capital was sufficient in absolute terms to avoid a material adverse impact. The independent expert had considered the potential asbestos exposure, including the position of contingent claimants. Her conclusions therefore supported the fairness of the scheme.
5. The court’s statutory discretion required consideration of whether the scheme as a whole was fair between the interests of the affected classes. It did not require proof that no better scheme could have been devised. In the absence of bad faith or an improper motive, the possibility that a later scheme of arrangement might bar unnotified claims was not an objection to sanction. The remaining Malta life policyholders were not materially adversely affected.