Pearl Assurance (Unit Linked Pensions) Ltd, Re

When sanctioning an insurance business transfer scheme, the court exercises a real discretion and does not act as a rubber stamp. The central question is whether the scheme is fair between affected classes, having regard to the independent expert’s report and the evidence before the court.

Part VII permits a scheme to alter policyholders’ contractual rights beyond merely substituting the transferee as obligor. Where a proposed power would significantly override existing contractual restrictions, its substance must be clearly brought home to policyholders and the regulator. The court may sanction the transfer while withholding or conditioning that power until proper disclosure, regulatory consideration and, where necessary, a further application are made.

The applicants sought sanction under Financial Services and Markets Act 2000 Part VII for the transfer of the long-term insurance businesses of three companies to NPI Limited. The scheme would consolidate four closed businesses and confer powers to close, amalgamate or restructure linked funds and alter investment objectives.

All jurisdictional conditions and almost all procedural requirements were satisfied. The issue was whether the scheme’s effect on policyholders’ contractual rights had been sufficiently disclosed, particularly because some policies did not already permit the proposed changes.

1. The Scheme was sanctioned subject to a proviso. The court sanctioned the business transfer but ordered that the power in paragraph 16.4 of the Scheme Document must not be exercised insofar as it would conflict with affected policyholders’ existing policy terms, unless the specified further safeguards were satisfied.
2. The jurisdictional and procedural conditions under Part VII were substantially met. The late notification of approximately 25 policyholders did not justify refusing sanction. A limited waiver was directed under paragraph 4(2) of the relevant Regulations.
3. The court’s discretion to sanction remained one of real importance and was not a rubber-stamping exercise. The relevant question was whether the scheme was fair between affected classes. The independent expert’s report was among the most important material required to be before the court. The court relied on the principles stated in Re: The London Life Association Limited, Re: AXA Equity and Law Life Assurance Society plc and Re: Hill Samuel Life Assurance Limited.
4. Part VII permitted the court to sanction provisions varying policyholders’ contractual rights beyond the substitution of the transferee as obligor. The authorities, including Re: Consolidated Life Assurance Co. and Re: Norwich Union Linked Life Assurance Ltd, supported that jurisdiction. Whether the power should be exercised remained a matter of discretion.
5. The scheme documents and expert’s report conveyed an impression that the new powers would remain within existing policy terms. In fact, paragraph 16.4 would permit unilateral variation for some policyholders. Before exercising such a power on a significant scale, the court required the proposal and its intended scope to be brought clearly to the attention of policyholders and the FSA.
6. The transfer itself could proceed because the merger had compelling business advantages, no immediate exercise of the disputed power was intended, and the necessary further disclosure could be completed before the power became necessary. A further application had to be supported by evidence from the independent expert, communication to and approval by the FSA, and evidence that affected policyholders had been sufficiently informed.

First-instance decision. No appellate history was stated in the judgment.