Rothesay Life Plc, Re

When exercising its unfettered discretion under Part VII of the Financial Services and Markets Act 2000, the court must assess whether the proposed transfer materially adversely affects policyholders’ contractual rights, reasonable expectations, service standards or security of benefits. It must then decide whether the scheme as a whole is fair to each affected class and between the classes.

The court need not reject a scheme because some policyholders suffer prejudice in a particular respect. Nor must it identify or require a better scheme. Where the scheme responds to an external risk, such as loss of lawful cross-border servicing rights, the court may approve limited prejudice where the scheme produces a better overall result or avoids greater risks.

Rothesay Life plc sought approval under Part VII of the Financial Services and Markets Act 2000 for the transfer of approximately 400 Irish annuity policies to Monument Life Insurance DAC, an Irish insurer. The transfer was promoted to secure continuity of servicing and payment after the anticipated loss of UK insurers’ EU passporting rights following Brexit.

Policyholders raised concerns about security of benefits, regulatory differences, possible loss of Financial Services Compensation Scheme protection, the choice of transferee and the effects of COVID-19. The court also considered the evidence of the independent expert and the views of the PRA, FCA and Central Bank of Ireland.

1. The court sanctioned the scheme. Its discretion under Part VII of the Financial Services and Markets Act 2000 is unfettered, but established principles guide its exercise.

2. The first inquiry is whether transferring or non-transferring policyholders will be adversely affected. This requires comparison of their contractual rights and reasonable expectations before the scheme with the likely position after implementation. The court should pay close attention to, but is not bound by, the independent expert’s opinion and the regulators’ views. It must not act as a rubber stamp.

3. The fundamental question is whether the scheme as a whole is fair to each affected class and between the classes. Individual adverse effects do not require refusal, and the court need not insist on a different or supposedly better scheme. Where a scheme is a necessary response to an external circumstance, limited prejudice may be accepted to achieve a better overall result or avoid greater risks.

4. The evidence showed no material adverse effect on security of benefits, reasonable expectations or service standards. The relevant comparison concerned the proportionate capital strength, capital-management policies, available management actions and regulatory requirements of the two insurers, rather than their absolute size or absolute excess capital.

5. The possible loss of FSCS protection did not justify refusal. It was remote, mitigation remained possible through Monument Life’s proposed UK branch and transitional regimes, and the certain benefit of lawful and continuous servicing in Ireland outweighed that risk. The court also found that COVID-19 was not likely to affect the two insurers asymmetrically in a way materially adverse to transferring policyholders.

6. The technical requirements under sections 108(1) and 111(2), and Schedule 12, had been satisfied. The court therefore exercised its discretion to sanction the scheme.