February 8, 2019

Royal London Mutual Insurance Society Ltd, Re

Court sanctions Part VII transfer of insurance business and considers certificate requirement

Pinsent Masons for insurer

The applicant English insurance company sought approval of the court under Part VII of the Financial Services and Markets Act 2000 ("Part VII") for its proposed transfer of insurance business to a newly-formed Irish subsidiary. The board of the insurance company has taken the view that even if an agreement is now reached between the UK and the EU which would permit it to continue to administer the policies from the UK after Brexit, it is now committed to the transfer.

Snowden J referred to his earlier decision in AIG Europe Ltd & Anor, Re  and repeated his support for the view that "the uncertainty over the Brexit negotiations means that if [the English insurance company] delayed further and did nothing, there is a real risk that substantial numbers of policyholders would be materially prejudiced in event of a "hard" Brexit by the loss of [the applicant]'s EU passporting rights, and a resultant inability of [the applicant] to continue to service policies through its overseas branches or even pay policyholders' claims in other EU jurisdictions. The concerns expressed by [the applicant] seem genuine and reasonable…" He also highlighted that this was not a scheme chosen by the insurance company for its own commercial purpose – it had instead been forced to implement the scheme by the continued uncertainties over Brexit.

One particular issue in the case related to the "appropriate certificates" required by Schedule 12 of FSMA, and in particular the requirement for certificates as to consultation (Paragraph 3 of Schedule 12) and certificates as to consent. The judge noted that this requirement goes further than Solvency II, by not only requiring the PRA to certify that the foreign regulator of a branch which is transferring policies has been consulted, but also requiring it to certify whether or not a response has been given within 3 months. The judge also read Paragraph 3A as only requiring a PRA certificate to deal with the giving of consent, or absence of a response, from Member States in which transferring contracts have been concluded by the transferor. Furthermore, "I also consider that the PRA would be entitled to treat a response which implicitly consented to a scheme as falling within paragraph 3A(a). As far as the provision deeming the absence of any response to be tacit consent is concerned, I consider that this should be read purposively to mean that tacit consent can be inferred where there has been no response addressing the question of consent. Specifically, a mere acknowledgment of receipt of the notification (whether by email or letter) would not, of itself, amount to a response within the meaning of paragraph 3A."

The judge went on to conclude that replies from 6 EU regulators here did not engage paragraph 3A in the first place because there was no evidence to suggest that any of the policies being transferred under the scheme were concluded in any of those six countries. In any event, even if paragraph 3A did apply, he considered that it would have been satisfied on the facts. No substantive response, or a request to be notified when the scheme was sanctioned, amounted to tacit consent.

A further issue raised was whether the scheme should have allowed policyholders to opt-out (so that those policyholders' policies would not be transferred and they would take the risk of those policies not being administered in the event of a "no-deal" Brexit). The judge rejected that suggestion and held that it would be highly impracticable for the insurance company to design a scheme if there was uncertainty as to what proportion of EEA policyholders would be opting out.