Re Windsor Life

The court considered a Part 8 application under section 111(1) of the Financial Services and Markets Act 2000 for sanctioning an insurance business transfer scheme transferring the entire long-term business of NM Pensions Limited and NM Life Limited to Windsor Life Assurance Company Limited, with ancillary relief under section 112. The court held that prior consents and procedural requirements in the NM scheme (notably clauses 48.5(b) and 59.2) had to be and were complied with, including independent advice to the supervisory board and an independent actuary's opinion. The court gave close weight to the independent expert's report required by section 109, and to the Financial Services Authority's report under section 110: both concluded the scheme lay within the range of fair and reasonable outcomes and that no group of policyholders would suffer a material reduction in security or benefit expectations. The objections of individual policyholders were considered and rejected as insufficient to outweigh the expert and regulatory conclusions. A procedural challenge based on a supplemental expert report and the 21-day service requirement was rejected. The court concluded it was appropriate to sanction the scheme, subject to resolution of one outstanding regulatory issue in Spain.

This is a first instance Part 8 application by NM Pensions Limited, NM Life Limited and Windsor Life Assurance Company Limited for the court's sanction under section 111(1) of the Financial Services and Markets Act 2000 to transfer the whole long-term business of the first two companies to Windsor Life, together with associated assets and liabilities, and for ancillary orders under section 112.

Background and parties:

• NMP (NM Pensions) and NML (NM Life) carry closed and non-profit long-term business respectively; Windsor Life carries several closed books and operates with-profits and non-profit funds. All three companies are subsidiaries of Swiss Re GB Plc following acquisition in 2006.
• The NM scheme (sanctioned by Ferris J, pursuant to schedule 2C of the Insurance Companies Act 1982) established a supervisory board with powers under clauses 48.5(b) and 59.2 affecting disposal or amendment of the NM fund; issues arose whether those provisions applied and had been complied with.

Nature of relief sought: sanction of an insurance business transfer scheme (an insurance business transfer as defined by section 104) transferring long-term business and winding up the transferors, with several specific provisions to preserve protections for former National Mutual policyholders (including creation of a ring-fenced Windsor Life NM with-profits fund and compensatory payments).

Issues framed:

• Whether clauses 48.5(b) and 59.2 of the NM scheme applied and, if so, whether their requirements (including independent advice and an independent actuary's opinion) were satisfied.
• Whether the statutory and regulatory preconditions to court sanction under Part 7 of FSMA and the associated transfer regulations had been complied with.
• Whether the scheme was, in all the circumstances, appropriate to sanction having regard to policyholder security, reasonable benefit expectations, governance arrangements (supervisory board v fairness committee), and regulatory capital (Pillar 1 and Pillar 2) considerations.
• A procedural point whether a supplemental independent expert report (served after the main report) prevented the court determining the application because of the 21-day service rule in the transfer regulations.

Court's reasoning and conclusions:

• The court found that the proposed transfer amounted to a disposal for the purposes of clause 48.5(b) and that the supervisory board had approved the scheme on 18 September 2007. It held clause 59.2 applied because the scheme made extensive amendments to the NM scheme; the supervisory board had obtained independent legal advice (Clifford Chance) and an actuary independent of NMP and Swiss Re had given the required opinion, as required by clause 59.2.
• The court accepted that the application satisfied the statutory prerequisites in sections 104, 109, 110 and 111 and the transfer regulations. It gave substantial weight to the independent expert's report (prepared under section 109) and to the Financial Services Authority's report (the regulator did not object). The independent expert concluded there would be some reduction in security for certain NMP policyholders but that the continuing level of security was satisfactory and that no group would suffer a material reduction in benefit expectations or levels of service.
• Individual policyholder objections (concern about reduced security, governance changes, absence of one-year solvency projections, removal of a dividend block, and independence of experts) were considered in turn and found not to outweigh the expert and regulatory conclusions. The absence of a one-year projected solvency run was not considered a major impediment to the expert's opinion.
• The court rejected a jurisdictional objection that the supplemental expert report required restarting the 21-day service period, holding that the report required by the regulations is the main scheme report and that a later supplemental document dealing with minor matters did not restart the process.

Disposition: the court concluded it was appropriate to sanction the scheme and indicated it would make the order sought subject to satisfactory resolution of a regulatory issue in Spain; further submissions were to be heard on certain ancillary relief.

The court sanctioned the transfer scheme. It held that clauses 48.5(b) and 59.2 of the earlier NM scheme applied to the proposed transfer but had been complied with because the supervisory board obtained independent legal advice and an independent actuary's opinion. The court gave decisive weight to the independent expert's report required by section 109 and to the Financial Services Authority's report, found that no class of policyholders would suffer a material reduction in security or benefit expectations, rejected the policyholders' objections and the procedural jurisdiction point about the supplemental report, and concluded it was appropriate to sanction the scheme subject to resolution of one remaining regulatory matter in Spain.