Commercial Union Life Assurance Company Ltd, Re

The Court sanctioned an insurance business transfer under Part VII of the Financial Services and Markets Act 2000 after finding that the proposed Main Scheme was in all the circumstances "appropriate". The decision turned on the statutory requirements in FSMA s.111 and Schedule 12, and on whether the scheme as a whole was promoted for a proper purpose and operated fairly as between affected classes. The judge gave substantial weight to the independent expert's reports (FSMA s.109), and to the Financial Services Authority's statutory role and its view that the Main Scheme fell within the range of reasonable and fair options.

The Court rejected objections that would have required it to conduct a merits review of past conduct, to re-write contractual terms, or to compel a distribution rather than a consensual re-attribution. Important subsidiary findings were that (a) the re-attributed estate did not, on the balance of probabilities, derive from the current generation of policyholders, (b) the expert and the Policyholder Advocate had acted properly and independently, (c) governance protections including a With Profits Committee and a special reserve would protect policyholder interests, and (d) the Portuguese regulator point did not defeat jurisdiction because the statutory three month period had elapsed without refusal.

This was a first instance sanction hearing under Part VII of the Financial Services and Markets Act 2000 concerning proposals by Aviva to transfer long-term insurance business written by CGNU, CULAC and Norwich Union Life (RBS) Limited into Aviva's NULAP entity. Two schemes were before the Court: the Main Scheme, which included a re-attribution of part of the combined inherited estates together with an offer of policyholder incentive payments, and an Alternative Scheme which differed in form. The applicants sought the Court's sanction under FSMA s.111.

Key parties and advisers included the applicants (Aviva entities), the Financial Services Authority (appearing and providing regulatory reports), the independent expert (Mr Dumbreck FIA) appointed under FSMA s.109, and a Policyholder Advocate appointed under COBS 20.2.42 to negotiate on behalf of affected with-profits policyholders. Several policyholders and representative groups objected on various grounds.

• (i) Nature of the application: an application for the Court to sanction an insurance business transfer scheme (the Main Scheme or, alternatively, the Alternative Scheme) under FSMA s.111 and Schedule 12.
• (ii) Issues framed by the Court: whether the proposals constituted an "insurance business transfer scheme" within FSMA, whether Schedule 12 jurisdictional criteria were satisfied, and whether, "in all the circumstances of the case it is appropriate to sanction the scheme", meaning that it was promoted for a proper purpose and operated fairly between affected classes.
• (iii) Court's reasoning in brief: the judge accepted that the first two statutory prerequisites were met and focused on appropriateness. The Court gave significant weight to the independent expert's technical actuarial conclusions that no group of policyholders would suffer a material reduction in security or reasonable benefit expectations, and to the FSA's assessment that the Main Scheme was within the range of reasonable and fair deals. The Court examined and rejected objections that would have required the Court to re-open commercial or regulatory policy questions, held that the re-attribution was a consensual contractual variation rather than a prohibited distribution, and emphasised the protective features of the Main Scheme (identical treatment of equivalent policies, a With Profits Committee with independent majority, a special reserve to protect guaranteed benefits and a clawback mechanism). The Court also addressed a narrow jurisdictional point concerning notification of Portuguese policyholders and concluded that the statutory three month period had elapsed without refusal, so the Court had jurisdiction to sanction the scheme.

The Court therefore sanctioned the Main Scheme as appropriate, subject to the formalities required by FSMA.

The Court sanctioned the insurance business transfer (the Main Scheme). The judge held that the statutory prerequisites in FSMA (including s.111 and the Schedule 12 jurisdictional requirements) were satisfied and, on the evidence (notably the independent expert's reports and the FSA's assessment), the Main Scheme was appropriate because it was promoted for a proper purpose and operated fairly between affected classes. The Court refused to substitute its own commercial or regulatory judgment for that of the board, and found the governance and protective arrangements (including the With Profits Committee, special reserve, and contractual protections) sufficient to protect policyholder interests.