UK & Europe
Court sanctions Part VII transfer after considering recent Brexit developments
The applicant sought the sanction of the court for its Part VII insurance business transfer scheme. The scheme provides for the transfer, from the UK company to a newly formed Luxembourg subsidiary, of all of the insurance business written by the UK company (with a reinsurance back to the UK of the unitised with-profits business). Some of the transferring policyholders raised objections, including the following:
(1) They questioned the need for the transfer. This was an objection raised in the recent decision in Aviva Life and Pensions UK Ltd & Ors, Re but there have been further developments since then, including the issue of draft legislation in Germany and Italy (where some of the policyholders reside) which would allow UK (re)insurers a transitional period until December 2020 to continue to service existing business in the event of a no-deal Brexit. However, Snowden J said that these developments did not alter the "simple fact that there is still no clarity as to what will happen in the Brexit process" and "the bottom line is that the Scheme guarantees that [the UK company] can provide certainty to its EEA policyholders that their policies will continue to be able to be serviced, irrespective of the outcome of the political process". In conclusion: "The highly unusual circumstances of Brexit require the Court to consider the risk of harm to policyholders if nothing is done and there is a no-deal Brexit, balanced against the solution proposed under the scheme. As I have indicated in other cases, the very nature of Brexit and the current uncertainties over its terms means that there may be no perfect solution for everyone. I also reiterate that it is not the Court's function to reject any scheme that does not conform to its own idea of the best possible scheme, and the possibility that some individual policyholders or groups of policyholders may be adversely affected in particular respects does not mean that the scheme necessarily has to be rejected by the Court".
(2) Nor did it matter that the Luxembourg company will be a smaller company than the UK company (which has no legal obligation to support its subsidiary in the event of financial difficulties). Both the Independent Expert and the PRA agreed that the Luxembourg company will be a well-capitalised entity and the scheme would not cause any material adverse effect to any policyholders in terms of the security of their benefits.
(3) A large proportion of the objections related to the loss of FSCS protection. Although the FCA does not generally regard strong solvency as sufficient protection for consumers losing FSCS rights in a purely commercial transfer, this was not a purely commercially motivated transfer. Accordingly, the FCA's view is that avoiding uncertainty about servicing policies in the EEA post-Brexit is a sufficiently positive benefit (coupled with the strong solvency position of the Luxembourg company) to conclude that there will be no material adverse effect to policyholders in this regard.
The scheme was therefore sanctioned.