Prudential Annuities Ltd & Ors, Re

This was an application for the court's sanction of an insurance business transfer scheme under the Financial Services and Markets Act 2000, whereby the entire long-term insurance business of Prudential Annuities Limited (PAL) would transfer to The Prudential Assurance Company Limited (PAC). The court assessed compliance with the statutory requirements under FSMA (notably sections 104, 105 and 111 and Schedule 12) and with the Regulations setting out notification and publication requirements. The court gave close weight to the independent expert's report (appointed under section 109 FSMA) and to the PRA and FCA reports.

All formalities under the Regulations and the Schedule 12 certificates from the PRA had been obtained. The independent expert and the regulators concluded there would be no material adverse effect on policyholders, including on security of benefits on a Pillar I and Pillar II basis and having regard to Solvency II. A small number of written objections from policyholders were considered and addressed. Exercising its discretion under section 111(3), the court concluded the scheme was fair as a whole and sanctioned it.

Background and nature of the application. The companies applied for sanction of an insurance business transfer scheme under the Financial Services and Markets Act 2000 to transfer PAL's entire long-term insurance business (mainly non-profit pension annuities) to PAC and to obtain ancillary orders under s112 FSMA. The stated purpose was to simplify group structure and improve capital management flexibility, including in preparation for Solvency II.

Procedural posture. The matter proceeded as a Part 8 claim, with directions given on 3 July 2014 for publication and notification to policyholders. The final hearing took place on 16 September 2014; no policyholder attended to object at the hearing.

Issues framed by the court. The court framed the issues as: (i) compliance with the Regulations and the notification requirements; (ii) whether the necessary certificates under Schedule 12 had been obtained and whether the transferee would have the required authorisation (s111(2)); and (iii) the exercise of the court's discretion under s111(3) to determine whether the scheme was appropriate and fair as a whole.

Evidence and consultees. Extensive actuarial and factual evidence was filed, including reports by the independent expert appointed under s109 (Oliver Gillespie FIA) and reports from other actuaries and from the PRA and FCA. The PRA attended the hearing and had issued the required certificates. The FCA filed reports and indicated no objection.

Court's reasoning. The court found that the Regulations had been complied with and that the PRA had issued the certificates required by Schedule 12. The independent expert's detailed analysis concluded there would be no material adverse effect on security of benefits or reasonable expectations of policyholders, considered on Pillar I and Pillar II bases and with regard to Solvency II. The PRA and FCA had considered and did not object to the scheme and had scrutinised communications, costs and other matters. The court addressed the small number of written objections and found they did not raise issues that would make the scheme unfair. Applying established authorities on the court's discretion in transfer cases, the judge concluded that, on the evidence, there would be no material change to the position of PAL or PAC policyholders and therefore sanctioned the scheme.

The scheme is sanctioned. The court was satisfied that the procedural requirements in the Regulations were met, that the PRA had issued the necessary Schedule 12 certificates and that PAC would have the authorisation required. Giving significant weight to the independent expert's report and the regulators' views, and after considering the (few) policyholder objections, the court exercised its discretion under section 111(3) FSMA and concluded the scheme was fair as a whole and would not materially affect policyholders' security or reasonable expectations.