Phoenix Life Assurance Limited & Ors, Re

The court considered an application under Part 7 of the Financial Services and Markets Act 2000 to sanction an insurance business transfer scheme under s111(1) FSMA and ancillary orders under s112. The court first ensured statutory preconditions were satisfied (including the requirements of s105, s107, s108, s109 and the Regulations) and then applied the s111(3) discretion, guided by the Court of Appeal in Re Prudential Assurance Co Ltd [2020] EWCA Civ 1626. The Independent Expert, and the Prudential Regulation Authority and Financial Conduct Authority, reported that the Scheme would not have a material adverse effect on policyholders’ reasonable benefit expectations, the security of benefits, or standards of service. The court analysed technical objections (notably concerning the Matching Adjustment, diversification benefits, exposure to unrated debt and property value sensitivities), concluded these did not reveal errors or material risks of the sort that should defeat sanction, and gave full weight to regulatory and expert assessments. The court sanctioned the Scheme and approved related amendments to prior Part 7 schemes.

Background and relief sought

The application, brought by PLAL, SLAL, SLPF and Phoenix by Part 8 Claim Form dated 27 April 2023, sought an order under s111(1) FSMA sanctioning a transfer of the entire insurance businesses of PLAL, SLAL and SLPF to Phoenix, and ancillary orders under s112 to vary or supersede provisions of prior Part 7 schemes.

Parties and key facts

• The transferors (PLAL, SLAL, SLPF) and transferee (Phoenix) are all members of the Phoenix Group. The transfer is largely intra-group and is intended to rationalise regulated entities in the group and realise operational and capital efficiencies.
• PLAL and SLAL carry large long-term life portfolios (with-profits and non-profit funds); SLPF is smaller and largely reinsured into SLAL; Phoenix already carries significant long-term business and has accepted prior Part 7 transfers.

Procedural posture and issues

• This is a first instance sanction hearing under Part 7 FSMA. The court reviewed threshold jurisdictional requirements (including compliance with the Control of Business Transfers Regulations, scheme reporting under s109 and certificates under Schedule 12 to FSMA) and then addressed the central discretionary question under s111(3): whether it was appropriate in all the circumstances to sanction the Scheme.
• The court framed the issues as: (i) jurisdiction and regulatory preconditions, (ii) whether the Scheme would have a material adverse effect on policyholders, employees or other stakeholders, (iii) whether the Independent Expert’s and regulators’ assessments could be relied upon, and (iv) ancillary matters including the effect on prior Part 7 schemes and specific drafting/timing/communication concerns.

Court’s reasoning

• The court confirmed all statutory preconditions were satisfied (including PRA certificates and authorisation). It applied the approach in Re Prudential: the court has wide discretion under s111(3) but must give full weight to the Independent Expert and the regulators, scrutinise their reasoning for errors, and determine whether any adverse effects are material (a possibility that cannot sensibly be ignored, caused by the Scheme, and prospectively real or significant).
• The Independent Expert concluded in comprehensive reports and addenda that the Scheme would not materially adversely affect reasonable benefit expectations, the security of benefits or service/ governance standards. The PRA and FCA raised no objection to sanction.
• The court examined objectors' technical criticisms (Matching Adjustment, diversification benefits, exposure to unrated debt, property value sensitivities and an identified modelling error at SLAL). It concluded these objections did not demonstrate flaws in the Independent Expert’s reasoning or regulatory review and were either matters for regulatory policy or were addressed by sensitivity analysis and PRA oversight. The SLAL modelling error was corrected and considered immaterial by the Independent Expert.
• The court also dealt with stakeholder-specific issues (e.g. floating charge hardening period affecting SL International DAC and Property Linked Beneficiaries), communications shortcomings and proposed amendments to prior schemes. It held that the Independent Expert’s certificates complied with amendment provisions of earlier schemes.

Result

The court sanctioned the Scheme (to take effect at 23:59 BST on 27 October 2023 with certain inter-party effective-date arrangements) and approved the consequential amendments to prior Part 7 schemes.

Application granted: the court sanctioned the insurance business transfer scheme and approved associated amendments to prior Part 7 schemes. The court concluded that statutory preconditions (including requirements under the Regulations, s109 reporting and PRA certificates) were satisfied and, applying s111(3), that the Scheme would not have a material adverse effect on policyholders or other stakeholders. The court gave full weight to the Independent Expert and the PRA and FCA, addressed objections (including technical actuarial and regulatory criticisms) and found them insufficient to refuse sanction.