Aviva International Insurance Limited

This is an application under Part VII of the Financial Services and Markets Act 2000 for the transfer of insurance business. The principal issue on this hearing was whether the court should waive the Regulation 3(2)(b) requirement in the Financial Services and Markets Act 2000 (Control of Business Transfers)(Requirements on Applicants) Regulations 2001 that a notice must be sent to every policyholder.

The judge applied the discretionary power in Regulation 4(2) and the multi-factorial approach endorsed in earlier decisions of Floyd J (Re Direct Line Insurance). Relevant factors included the impossibility or impracticality of contacting some policyholders, the utility and proportionality of contacting them, availability of alternative information channels, the object and likely impact of the transfer, and collateral commercial considerations. The court found that Aviva had put in place extensive alternative notification measures (direct mail where addresses exist, broker and corporate partner cooperation, advertising, website and helpline), that there was no material prejudice to policyholders, and that strict compliance was not practicable given the age and incompleteness of records and the fact much data is held by intermediaries. The court also treated the London Market run-off business separately and approved a proportionate approach to notified claimants given concentration of reserves in a small number of claimants.

Accordingly the court sanctioned the waiver of Regulation 3(2)(b) in the form sought and ordered that the scheme proceed with the intended timetable for sanction and effective date.

Background and nature of the application: This was a Part VII FSMA 2000 scheme to reorganise Aviva group legal structures so that a number of general insurance lines would be transferred to a single operating company, Aviva Insurance Limited, and a tranche of London Market business would be transferred to Ocean Marine Insurance Company. The sanction hearing was timetabled for 5 October with an intended effective date of 14 November.

Parties and features: The companies are part of a single Aviva plc group, operated as an economic whole with a mutual deed of guarantee. The transferred business comprised current general insurance (distributed direct, via brokers of various types, and via corporate partners) and London Market run-off business (reinsured with National Indemnity Company and managed in run-off).

Relief sought: Approval of the transfer under Part VII and, for present purposes, a waiver under Regulation 4(2) of the 2001 Regulations of the requirement in Regulation 3(2)(b) to send notice to every policyholder.

Issues framed: (i) Whether strict compliance with Regulation 3(2)(b) was practicable; (ii) whether the underlying purpose of that requirement could be met by alternative notification measures; (iii) whether any class of policyholder or claimant would suffer material prejudice if strict compliance were waived; and (iv) whether a proportionate approach was appropriate in respect of London Market run-off claimants.

Evidence and notification plan: Aviva proposed a mix of direct notification where address details exist, broker cooperation (some brokers supplying data, others undertaking to mail their own clients), corporate partner mailings or opt-in to Aviva mailings, formal and informal advertising, a website and a telephone helpline. The judge was taken through the mechanics: about six million notifications in total and detailed broker response statistics (for non-scheme broker business about 68% had responded: 52.3% asked Aviva to mail, 14.2% wished to mail themselves; for scheme brokers 95% responded: 59% asked Aviva to mail, 41% would mail themselves). For London Market run-off there were about 7,600 claimants, 47% of whom represented 99% of outstanding reserves.

Court’s reasoning: The court accepted the list of relevant factors derived from Floyd J's decisions and added the object of the transfer itself. The court concluded that strict compliance was not practicable because of the age and incompleteness of records and the fact that much data is held by intermediaries; that Aviva’s notification programme, together with advertisements and an independent expert’s report indicating no material adverse effect on policyholders, achieved the regulatory purpose; and that it would be disproportionate to attempt to contact every small-value London Market claimant when the bulk of reserves were concentrated in a small number of claimants and the business is covered by an indemnity.

Disposition: The court sanctioned the waiver of Regulation 3(2)(b) and indicated it would make the order in the form sought.

The court approved the waiver of Regulation 3(2)(b) of the 2001 Regulations and ordered the transfer process to proceed in the form sought. The judge concluded that strict compliance was impracticable and unnecessary to achieve the underlying statutory purpose, given the comprehensive alternative notification measures, lack of material prejudice to policyholders, the age and incompleteness of records and the concentration of London Market reserves among a small number of claimants.