Commercial Union Life Assurance Company Ltd, Re

Under section 111 of the Financial Services and Markets Act 2000, the court must decide whether an insurance business transfer scheme is, in all the circumstances, appropriate to sanction. The question is whether the scheme is promoted for a proper purpose and operates fairly between those whose rights are affected. The court makes a binary decision on the scheme as a whole. It need not find that the scheme is the best available arrangement or renegotiate its terms. A re-attribution of inherited estate is distinct from a distribution of surplus. Policyholders have no proprietary interest in the inherited estate and only a contractual right to participate in profits declared available for distribution, together with a regulated expectation of fair treatment. The court may rely on an independent expert’s technical evidence unless there is specialist evidence of significant error, manifestly unreasonable assumptions or a substantial lack of factual basis.

The court was asked to sanction the transfer of the whole of the long-term insurance business of CGNU Life Assurance Limited, Commercial Union Life Assurance Company Limited and Norwich Union Life (RBS) Limited to Aviva Life & Pensions UK Limited under Part VII of the Financial Services and Markets Act 2000. The Main Scheme also provided for re-attribution of inherited estates and policyholder incentive payments. An alternative transfer scheme and consequential amendments to an earlier scheme were also before the court.

The Financial Services Authority, an independent expert, a policyholder advocate and individual policyholders participated. The principal dispute concerned whether the Main Scheme was appropriate, particularly whether it fairly dealt with policyholders’ expectations, security, the inherited estate, the re-attribution process and the proposed payment. The court also considered whether the statutory certificate concerning Portuguese policyholders had been obtained.

1. Disposition. The court sanctioned the Main Scheme. It was an insurance business transfer scheme, the jurisdictional requirements had been met, and the scheme was appropriate in all the circumstances.
2. Applicable approach. The relevant inquiry was whether the scheme was promoted for a proper purpose and operated fairly between the classes of person whose rights were affected. The court was not required to determine whether a better scheme could be devised, improve the bargain, investigate historic bonus declarations or substitute its commercial judgment for that of the company’s board. The decision was binary. Only a manifestly unsatisfactory provision of fundamental importance might justify inviting amendment before sanction.
3. Independent expert. The court had to reach its own view, but could properly depend on highly technical actuarial evidence. It should not reject an independent expert’s judgment on fairness, reasonableness or appropriateness unless unpersuaded by the reasoning, satisfied that an assumption was manifestly unreasonable, or faced with strong grounds for concluding that the opinion lacked a factual basis. The expert’s evidence supported the conclusion that policyholders would not suffer a material reduction in security or reasonable benefit expectations.
4. Inherited estate and re-attribution. The inherited estate was part of the company’s working capital and not a separate pool of policyholder property. Policyholders had no proprietary interest in it. Their contractual right was to participate in profits identified and made available for distribution; any future distribution from the inherited estate was only a hope. A distribution was a unilateral allocation of surplus, whereas re-attribution was a consensual bargain under which policyholders gave up future expectations in return for a payment and the company obtained more flexible access to working capital.
5. The proposed re-attribution was voluntary, did not vary a policyholder’s contract without consent, and could not be characterised as an unlawful distribution or breach of the articles. The court accepted that intergenerational support for new business was an intrinsic feature of the with-profits model and that the relevant assumptions and safeguards had been fairly assessed by the independent expert, the policyholder advocate and the FSA.
6. The statutory conditions for the Portuguese certificate were satisfied because three months had elapsed after notification and the Portuguese regulator had not refused consent. The court therefore had jurisdiction to sanction the scheme, and the balance of advantage favoured exercising that jurisdiction without further delay.