Aviva Life And Pensions UK Ld & Ors, Re

When sanctioning an insurance business transfer scheme under Financial Services and Markets Act 2000, the court must assess whether the scheme as a whole is fair between the affected classes of policyholders. It may consider the effect on both transferring and non-transferring policyholders, including risks arising from external circumstances such as Brexit. A scheme need not be rejected because some policyholders suffer an adverse or unavoidable effect, provided the overall balance is fair and appropriate mitigation is available. The court must consider contractual rights and reasonable expectations before and after the scheme. It is not required to devise the best possible scheme, but it must ensure that material protective mechanisms are enforceable by affected policyholders.

Aviva applied under Part VII of the Financial Services and Markets Act 2000 for sanction of a scheme transferring certain EEA long-term insurance business to its Irish subsidiary, Friends First Life Assurance Company DAC, to be renamed Aviva Life & Pensions Ireland DAC. The scheme was intended to preserve service continuity if Brexit removed Aviva’s EEA passporting rights.

The scheme included reinsurance, security arrangements and undertakings concerning policyholders excluded from the transfer, particularly in Iceland and Sweden. Objections concerned security, loss of Financial Services Compensation Scheme protection, regulatory change, policy performance and the exclusion of certain policies. The central issue was whether, in all the circumstances, the scheme was appropriate to sanction.

1. Sanction. The statutory requirements were satisfied and the scheme was sanctioned under Part VII of the Financial Services and Markets Act 2000.
2. The court applied the established fairness approach summarised in Re AXA Equity & Law Life Assurance Society plc and AXA Sun Life plc [2001] 1 All ER (Comm) 1010. The court must compare policyholders’ contractual rights and reasonable expectations before and after the scheme and determine whether the scheme as a whole is fair between the affected classes. Individual adverse effects do not necessarily require refusal of sanction, and the court need not select the best available scheme.
3. The court may consider the position of both transferring and non-transferring policyholders. Although rarely, leaving some policyholders exposed to a risk addressed for others may be unfair. The court should assess practical external circumstances affecting the parties’ ability to perform the relevant contracts, rather than impose a separate test of whether the insurer’s selection was capricious.
4. Brexit created a genuine risk that Aviva would be unable lawfully to service certain EEA policies. The scheme provided a reasonable means of securing continuity. The loss of FSCS protection for some policyholders was outweighed by the greater and more immediate risk that the policies could not be serviced after a no-deal Brexit.
5. The exclusion of certain Icelandic and Swedish policyholders did not make the scheme unfair. Aviva had taken reasonable mitigation steps, including an undertaking to continue meeting contractual obligations or to seek arrangements producing an equivalent economic effect. The in-scope Icelandic policies could properly remain within the scheme because the regulatory position was uncertain and the scheme offered greater certainty.
6. The court accepted the independent expert’s conclusions on security, benefit expectations, governance and service standards. The independent expert’s reports were sufficiently independent despite a resolved fee dispute.
7. The Brexit Reinsurance termination mechanism required additional protection. Since policyholders otherwise lacked a practical opportunity to challenge the process in court, Aviva gave an undertaking allowing policyholders to apply to enforce the relevant mechanisms. The undertaking was approved by the court and regulators.

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