HSBC Life (UK) Ltd, Re

When sanctioning an insurance business transfer scheme, the court must decide whether the scheme is fair as a whole between the interests of all affected classes. It compares policyholders’ contractual rights, reasonable expectations and benefit security before and after the transfer.

The court gives close attention to the independent expert’s actuarial assessment and the regulators’ views, but retains a real discretion and must not act as a rubber stamp. Individual changes or disadvantages do not require refusal if they are not materially adverse and the scheme overall is fair. The court is not required to identify the best possible scheme or improve its details. It addresses real, rather than theoretical or fanciful, risks to policyholders.

HSBC Life (UK) Limited and ReAssure Limited applied under Financial Services and Markets Act 2000 for orders sanctioning an insurance business transfer scheme. The scheme would transfer HSBC Life’s pensions business, comprising more than 415,000 policies and substantial assets under management, to ReAssure.

The proposed transfer involved changes to fund management, fund pricing, lifestyle switching, online services, communication arrangements and branding. Policyholders, the Financial Conduct Authority and the Prudential Regulation Authority made observations or submissions. The central issue was whether, in all the circumstances, the statutory conditions were met and the scheme was fair, having regard to policyholders’ benefit security and reasonable expectations.

The court sanctioned the scheme and made the ancillary orders sought.

1. The procedural conditions in section 111 of the Financial Services and Markets Act 2000 were satisfied. The necessary certificates, authorisations, notices and regulatory steps had been obtained or completed. Orders governing possible extensions of the effective date were permissible under section 112(1).
2. Under section 112(3), the question was whether the scheme as a whole was fair as between the interests of the different classes affected. The court had to compare the contractual rights, reasonable expectations and benefit security of policyholders before the scheme with the likely position after it. The independent expert’s report and the regulators’ views deserved close attention, but the court’s discretion remained real and was not to be exercised by way of rubber stamp.
3. The court was not required to determine whether a better scheme could have been devised or to amend details that could be improved. Subject to overall fairness, the choice between fair schemes remained a matter for the companies’ directors.
4. The concerns regarding solvency, including the uncertainty surrounding ReAssure’s proposed Solvency II permissions, did not establish a material adverse effect. The relevant risks were real rather than theoretical or fanciful, and the independent expert’s assessment could be accepted in the light of ReAssure’s regulatory capital position and the available support arrangements.
5. The changes to unit-linked funds, pricing, valuation timing, lifestyle switching, online functionality, branch access and branding did not materially prejudice policyholders’ reasonable expectations. The changes were assessed individually and in context, with weight given to the independent expert’s conclusions, the FCA’s position and the additional Fairness Committee safeguard.
6. Although individual policyholders could be adversely affected in particular respects, the scheme remained fair overall. The court therefore sanctioned it.