Prudential Annuities Ltd & Ors, Re

On an application to sanction an insurance business transfer scheme, the court must independently decide whether sanction is appropriate. It must first be satisfied that the statutory notification and formal requirements have been met. It must then assess whether the scheme is fair as a whole between the interests of the affected classes.

The court compares policyholders’ contractual rights, reasonable expectations and security before and after the transfer. Individual adverse effects do not necessarily require refusal. The court is not required to devise the best possible scheme or improve its terms. Detailed reports from the independent expert and regulators are important, but the court must exercise its own judgment and must not act as a rubber stamp.

Prudential Annuities Limited applied under the Financial Services and Markets Act 2000 for sanction of a scheme transferring its entire long-term insurance business to The Prudential Assurance Company Limited. The business comprised approximately 134,000 non-profit pension policies affecting about 90,000 policyholders.

The application required consideration of compliance with the statutory notification and formal requirements, the certificates under Schedule 12, the views of the Prudential Regulation Authority and the Financial Conduct Authority, the independent expert’s reports, and objections or concerns raised by policyholders. The central issue was whether the court should exercise its discretion under section 111(3) to sanction the scheme.

1. Statutory requirements. The court was satisfied that the notification requirements and the relevant Regulations had been complied with. The certificates and authorisation required by section 111(2), including the relevant Schedule 12 certificates, had been obtained.
2. Applicable discretion. Under section 111(3), the court had an independent discretion whether to sanction the scheme. The approach in Re Allied Dunbar Assurance plc [2005] EWHC 28 (Ch), applying the principles in Re London Life Association Ltd and Re Axa Equity & Law Life Assurance Society plc and Axa Sun Life plc [2001] 1 All ER (Comm) 1010, was applicable.
3. The central question was whether the scheme as a whole was fair between the different classes of persons affected. The court had to compare policyholders’ contractual rights, reasonable expectations and security before the scheme with their likely position after it. The court was not required to select the best possible scheme or amend provisions which could be improved, provided the scheme as a whole was fair.
4. The independent expert’s report was important evidence, but the court had to reach its own judgment. The court’s role was not a rubber stamp, consistent with Re Pearl Assurance (Unit Linked Pensions) Ltd [2006] EWHC 2291 (Ch) and Re Hill Samuel Life Assurance Ltd [1998] 3 All ER 176.
5. The evidence showed no material change to the security, contractual benefits, reasonable expectations, administration or governance affecting either PAL or PAC policyholders. The objections did not establish a reason to refuse sanction. Exercising its independent judgment, the court sanctioned the scheme.

First-instance decision. No prior appellate decision is stated in the judgment.