In the Matter of Phoenix Life Limited

On an application to sanction an insurance business transfer scheme, the court must determine whether sanction is appropriate in all the circumstances. It must identify the nature and purpose of the scheme, scrutinise the independent expert’s and regulators’ reports, and consider any material adverse effect on policyholders or other stakeholders.

A material adverse effect requires a possibility that cannot sensibly be ignored, must be a consequence of the scheme, and must involve a real or significant risk. The court must compare the positions with and without the scheme, including security of benefits and standards of service and governance. It should give full weight to expert and regulatory conclusions and should depart from them only for significant and appropriate reasons. Schemes prompted by external events may justify a degree of latitude where no perfect solution exists.

Phoenix Life Ltd and ReAssure Life Ltd applied under section 107 of the Financial Services and Markets Act 2000 for sanction of a Part VII insurance business transfer scheme transferring certain policies and related assets and liabilities to Phoenix Life Assurance Europe DAC, an Irish authorised insurer.

The scheme was designed principally to address the loss of UK insurers’ EEA passporting rights following Brexit. Issues included the effect of reinsurance arrangements, reduced access to the UK Financial Services Compensation Scheme, changes in regulatory supervision and complaints handling, service standards, and the effectiveness of the transfer in other jurisdictions. The court also considered objections from a small number of policyholders and whether the statutory and technical requirements for sanction had been met.

1. Sanction granted. The court sanctioned the scheme under section 107 of the Financial Services and Markets Act 2000, having been satisfied that the requirements in section 111 were met and that sanction was appropriate in all the circumstances.
2. The court adopted the approach in Re Prudential Assurance Company Limited [2020] EWCA Civ 1626. It identified the nature of the business and the external circumstances giving rise to the scheme. It carefully scrutinised the independent expert’s reports, the regulators’ reports and the policyholder objections. In the absence of error, omission or defective reasoning, it gave full weight to the expert’s and regulators’ conclusions and did not substitute its own expertise.
3. The relevant inquiry was whether the scheme caused any material adverse effect. Such an effect required a possibility that could not sensibly be ignored, a consequence of the scheme, and a real or significant rather than fanciful or insignificant risk. The court also compared the positions with and without the scheme concerning security of benefits, contractual rights, reasonable expectations, service standards and governance.
4. The reduction in the transferee’s solvency coverage ratio, the reinsurance structure, the loss of UK Financial Services Compensation Scheme protection, the change from UK to Irish regulation, the altered complaints arrangements, service changes and fund suspensions did not create a material adverse effect. The court accepted the independent expert’s conclusions, including that the likelihood of insolvency was remote and that the benefits of certainty, consistency and continuity following Brexit outweighed the loss of FSCS protection.
5. The court treated the scheme as one prompted by an external event. Consistently with Royal London [2019] EWHC 185 (Ch) and Aviva [2019] EWHC 312 (Ch), the absence of a perfect solution and the lack of free commercial choice could justify a degree of latitude. The scheme’s international effectiveness was also sufficient, applying the practical-utility approach in Sompo Japan Insurance Inc [2007] EWHC 146 (Ch).
6. The court also exercised its powers under section 112(1)(d) of the Financial Services and Markets Act 2000 to make incidental, consequential and supplementary orders necessary to secure the scheme’s effective implementation.

First instance decision. No appeal history is stated in the judgment.