Alba Life Ltd. & Ors, Re

The Chancellor considered a Part 8 application under the Financial Services and Markets Act 2000 to sanction transfers of long term insurance business under s.111 and related ancillary orders under s.112. The court applied the statutory test in s.111(3) that the scheme be "in all the circumstances" appropriate to sanction and gave weight to the independent expert's report required by s.109 and to the regulatory framework, including the Principles and Practices of Financial Management and the Conduct of Business rules (COB).

The independent expert (approved by the Financial Services Authority) concluded that the scheme would not materially adversely affect the security, reasonable expectations or equitable treatment of any group of policyholders. The Phoenix Capital Policy (PCP) was held to provide stronger capital backing than the transferors' existing capital policies and to mitigate so-called "contagion" risks arising from pooling funds into Phoenix.

The court considered the objections of several policyholders, found two procedural or drafting lacunae capable of remedy (reallocation of scheme costs from the non-profit fund to the shareholders' fund and an undertaking to implement/verify the PCP), accepted amendments and undertakings (including an intention to establish a with-profits committee), and noted concern that the FSA chose not to appear. On that basis the court sanctioned the scheme subject to the amendments and undertakings.

The applicants (Alba Life Limited, Britannic Assurance Plc, Britannic Retirement Solutions Ltd, Britannic Unit Linked Assurance Ltd, Century Life Plc and Phoenix Life & Pensions Ltd) sought a Part 8 order under the Financial Services and Markets Act 2000 to transfer long-term insurance business to Phoenix Life Limited and ancillary orders under s.112, with consequential capital reduction petitions to follow for five transferors. The transfers covered about 3.87 million policies affecting some 2.5 million policyholders and were to simplify group structure and create sub-funds within Phoenix.

The issues framed by the court included: (i) statutory compliance with Part 7 and the requirements of s.109 (independent expert report) and s.111 (court satisfaction); (ii) whether the scheme was fair to the various classes of policyholders and would materially affect their security or reasonable expectations; (iii) the significance of regulatory provisions, notably the PPFM and COB rules governing changes to with-profits funds; and (iv) mitigation of "contagion" risk after consolidation into Phoenix, principally by reference to the Phoenix Capital Policy and Pillar I/II capital concepts.

The evidence included actuarial function holder reports, an independent expert's detailed report (with supplements) prepared by an FSA-approved expert, and witness statements from Phoenix actuarial management. The independent expert analysed Pillar I and Pillar II capital regimes, explained the PCP (including tests that required funds to hold capital broadly at 140% of ICA for with-profits funds and 110% for non-profit funds), and concluded there would be no material adverse effect on policyholders' security, benefit expectations or equitable treatment. The court reviewed objections from several policyholders, addressed two admitted defects (a drafting error in an actuarial report's description of a transferor's capital policy and the charging of scheme costs to the non-profit fund), accepted amendments (changing clause 16 to charge costs to the shareholders' fund) and securing undertakings that the PCP would be implemented and verified by affidavit or witness statement and that a with-profits committee would be established.

The Chancellor concluded that, on the evidence and with the agreed amendments and undertakings, the statutory test in s.111(3) was satisfied. He sanctioned the transfer scheme and indicated he would proceed to hear the consequential petitions for confirmation of capital reductions. The court expressed concern that the Financial Services Authority did not appear and invited it to reconsider its practice of non-appearance on such applications.

The Part 8 claim is allowed: the court sanctioned the insurance business transfer scheme under s.111 of the Financial Services and Markets Act 2000 and granted the ancillary relief sought, subject to amendments and undertakings (including amendment of clause 16 to charge scheme costs to the shareholders' fund, a verified undertaking to implement the Phoenix Capital Policy and the establishment of the proposed with-profits committee). The rationale was that the independent expert (approved under s.109) concluded the scheme would not materially adversely affect policyholders, the Phoenix Capital Policy provides stronger capital support than prior policies and statutory requirements (including PPFM/COB provisions) were satisfied.