In the Matter of Phoenix Life Limited

The court granted an application under section 107 of the Financial Services and Markets Act 2000 to sanction an insurance business transfer scheme transferring specified portfolios from Phoenix Life Limited and ReAssure Life Limited to Phoenix Life Assurance Europe DAC. The court found that the statutory preconditions in section 111 (including the required certificates under Schedule 12 and transferee authorisation) had been satisfied and, applying the approach in Re Prudential Assurance Co Ltd [2020] EWCA Civ 1626, concluded it was appropriate to sanction the Scheme.

Key legal foundations for the decision were the independent expert's reports (required by section 109) and the non-objection positions of the Prudential Regulation Authority and the Financial Conduct Authority. The judge carefully analysed material issues identified by the expert: PLAE's proposed capitalisation to a 150% solvency coverage ratio, the reinsurance and security package designed to preserve economic ranking for with-profits and unit-linked policyholders, the loss of UK Financial Services Compensation Scheme protection for some transferring policyholders, access to an independent complaints scheme post-transfer, and international recognition of the sanction. None of these matters were found to give rise to a material adverse effect that could not sensibly be ignored, so sanction was appropriate.

This was a first-instance application under section 107 FSMA for court sanction of a Part VII insurance business transfer scheme effected because Brexit removed UK passporting rights. The applicants were Phoenix Life Limited (PLL) and ReAssure Life Limited (RLL) as transferors and Phoenix Life Assurance Europe DAC (PLAE) as transferee. The Scheme transfers certain long-term policies written in EEA states (principally Ireland, Sweden, Germany, Norway and Iceland) to an Irish-authorised transferee. Some transferring policies are also the subject of an Irish transfer under section 13 of the Assurance Companies Act 1909; the English and Irish schemes are inter-conditional.

Nature of the application: sanction of an insurance business transfer scheme under section 107 FSMA.

Issues framed by the court:

• whether the statutory requirements in section 111 FSMA were satisfied, including receipt of appropriate certificates under Schedule 12 and authorisation of the transferee;
• whether, in all the circumstances, it was appropriate to sanction the Scheme (section 111(3)), applying the Court of Appeal's test in Re Prudential (material adverse effect test, weighing independent expert and regulators' views);
• specific factual and legal questions concerning PLAE's capitalisation, reinsurance arrangements and security package, loss of FSCS protection, access to alternative dispute resolution, potential market turbulence, and international recognition of the sanction.

Court's reasoning and conclusions: the judge accepted the PRA-approved independent expert's detailed reports and the PRA's and FCA's non-objection. The court concluded the required certificates were in place, PLAE had or would have the necessary authorisation and would be capitalised to meet the defined Capitalisation Requirement (a forward-looking solvency coverage ratio of 150%); an undertaking backed by the parent group supported that capitalisation. Reinsurance and security arrangements were structured to avoid the economic disadvantages of fund disaggregation and to preserve the economic ranking of transferred with-profits and unit-linked policyholders. Although some transferring policyholders would lose FSCS protection, the independent expert concluded and the court agreed that the likelihood of PLAE insolvency was remote and the loss of FSCS protection did not produce a material adverse effect when weighed against the benefits of continuity and certainty produced by the transfer. The court was satisfied that the Scheme would be effective in the relevant foreign jurisdictions and that sanctions or fund suspensions associated with the Ukraine conflict did not cause a material adverse effect. Applying the Prudential approach, the judge concluded it was appropriate to sanction the Scheme and made the sanction order, together with consequential orders under section 112(1)(d) FSMA.

Procedural notes: the court had previously given prospective guidance in Re Phoenix Life Limited [2022] EWHC 1796 (Ch) regarding the Scheme's status as a transitional EU-exit scheme and an earlier order by Deputy ICC Judge Schaffer (11 July 2022) dispensed with certain publication requirements in favour of direct communication packs; the Irish petition was listed before the Irish High Court (MacDonald J) on 1 November 2022.

The court made an order sanctioning the insurance business transfer scheme under section 107 FSMA. The judge held that the statutory conditions in section 111 were satisfied (appropriate Schedule 12 certificates obtained and transferee authorised) and, applying the Court of Appeal's approach in Re Prudential, concluded it was appropriate to sanction the Scheme because the independent expert and regulators raised no material defects and the identified consequences (capitalisation, reinsurance/security arrangements, loss of FSCS protection, complaints access and international recognition) did not create a material adverse effect on policyholders.

First-instance sanction hearing in the High Court, Chancery Division. The court had earlier given prospective guidance in Re Phoenix Life Limited [2022] EWHC 1796 (Ch) (15 June 2022) on the Scheme's status as a transitional insurance business transfer scheme. An order of Deputy ICC Judge Schaffer dated 11 July 2022 dispensed with certain publication obligations in favour of PRA-approved communication packs. A related Irish transfer petition under section 13 of the Assurance Companies Act 1909 was scheduled for hearing in the Irish High Court on 1 November 2022.