The Court of Appeal has, for the first time, considered the approach courts should adopt to dealing with applications to sanction transfers of long term insurance business. In August 2019, a court had refused Prudential and Rothesay’s application for a transfer of in-payment annuity policies from Prudential to Rothesay, giving, as its main reasons, that Rothesay did not have the same capital management policies as Prudential nor the backing of a large, well-reputed group, and that it would have been reasonable for Prudential’s policyholders to have chosen their provider on the assumption that their policies would not be transferred.
1,000 policyholders objected to the scheme, saying that the solvency metrics PRA had submitted to prove Rothesay was a suitable transferee made no attempt to predict the future, and explained their reasons for choosing Prudential in the first place.
PRA and FCA had not objected to the scheme, and the independent expert produced a number of reports concluding the transfer would not have a material adverse effect on the security of benefits or reasonable expectations of policyholders of either company.
On appeal the court considered:
- whether the judge had been wrong to conclude there was a material disparity between the levels of external support potentially available to each entity;
- whether the judge had not given adequate weight to the conclusions of the independent expert that the prospect that either entity would need external support in the future was remote;
- whether the judge had properly considered the impact of the PRA and FCA’s lack of objection to the scheme and the continuing regulation of Rothesay; and
- whether too much weight was given to the policyholders saying they chose Prudential because of its age and reputation, and reasonably assumed it would provide the product to term
The Court of Appeal concluded judge had been wrong. It said the independent expert and PRA were right to look at the solvency metrics at a specific date, and that this could help judge future scenarios. It also said it had been wrong to say non-contractual support was materially different – and, anyway, the likelihood of it being needed as not relevant – and parents of regulated insurers could sell them at any time. The judge had not properly considered the weight of the statement that neither entity was likely to need support in the future, nor to the failure of the regulators to object. Finally, the Court of Appeal said the reasons given by the policyholders for choosing Prudential were not valid reasons to reject the transfer. The question the court was supposed to address was whether the transfer would have a material adverse effect on the policyholders.
The Court allowed the appeal, and the renewed application for sanction of it now passes to another judge in the Insolvency and Companies List of the Business and Property Courts.