Re The Copenhagen Reinsurance Company (UK) Ltd and another

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr. Justice Snowden
Judgment Date29 April 2016
Neutral Citation[2016] EWHC 944 (Ch)
Docket NumberCase No: 6545 of 2015
Date29 April 2016

[2016] EWHC 944 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

Royal Courts of Justice

Rolls Building, Fetter Lane,

London, EC4A 1NL

Before:

Mr Justice Snowden

Case No: 6545 of 2015

In the Matter of:

The Copenhagen Reinsurance Company (U.K.) Limited
Applicant
and
Marlon Insurance Company Limited
And in the Matter of the Financial Services and Markets Act 2000

Mr. Martin Moore QC (instructed by Hogan Lovells International LLP) for the Applicant

Hearing date: 4 December 2015

Approved Judgment

Mr. Justice Snowden
1

On 4 December 2015 I made an order pursuant to Part VII of the Financial Services and Markets Act 2000 (" FSMA") sanctioning an insurance business transfer scheme ("the Scheme") transferring the entire insurance business of the applicant company, The Copenhagen Reinsurance Company (U.K.) Limited ("CopRe") to Marlon Insurance Company Limited ("Marlon"). I also made a number of ancillary orders including an order for the dissolution of CopRe without winding up.

2

Due to the lateness of the hour at the end of the hearing on 4 December 2015, I indicated that I would give my reasons later in writing, which I now do. Although the Scheme has since taken effect pursuant to my order, I shall give my reasons in the present tense, as if ruling upon the matter on 4 December 2015.

Background

3

CopRe is a direct wholly-owned subsidiary of Marlon and both are members of the same group, the ultimate holding company of which is a Bermudan company, Enstar Group Limited, which is listed on NASDAQ. Enstar's business model is to acquire and manage insurance and reinsurance businesses in run-off.

4

CopRe is in run-off having ceased to write new business from December 2000. Prior to that it wrote both direct and assumed reinsurance business between 1969 and 2000. The direct business was mainly short tail property and marine hull/cargo insurance. The assumed reinsurance comprised various lines of business, with the bulk of the remaining exposures relating to a worldwide book of business written between 1979 and 1994. This business includes some London market marine business (with some asbestos, pollution and health hazard exposures), motor and general liability, and various property and catastrophe risks. The business is all non-life insurance and reinsurance.

5

As at 31 December 2014 CopRe had approximately 435 contracts in respect of which a claim is outstanding. It had gross loss reserves (including IBNR) as at that date of £3.7 million. As at 31 December 2014 it had assets of £30.1 million and total liabilities of £11.3 million. CopRe's business is entirely administered by another company in the Enstar group ("EEUL"), and CopRe has no employees.

6

CopRe is a surplus and excess lines insurer in the United States and as such maintains a "surplus lines and excess lines trust fund" with a trustee company in New York to support its obligations to certain US policyholders under policies written on a surplus or excess lines basis ("the CopRe Trust"). The CopRe Trust is governed by New York law and the assets held in it comprise about 0.1% of CopRe's assets.

7

Marlon is a much larger operation than CopRe. As at 31 December 2014 Marlon had assets of £174.4 million and total liabilities of £118 million. Marlon is also in run-off. Its business comprises various books written by a number of EEA entities, each of which were acquired by Marlon pursuant to various portfolio transfers and one cross-border merger. Marlon has gross technical provisions of £70.9 million and reinsurance cover of £21.9 million (of which £20.4 million is provided by a segregated Bermudan company within the Enstar group. Marlon's business is also administered by EEUL, and like CopRe, Marlon also maintains a surplus and excess lines trust in New York to support its obligations to certain US policyholders ("the Marlon Trust"). About 1.5% of Marlon's assets are held in that trust.

8

The commercial purpose of the transfer of CopRe's business to Marlon is to simplify the structure of the Enstar group and to achieve administrative, management and regulatory synergies. To that end it is proposed that CopRe should be dissolved following the business transfer becoming effective.

The Scheme

9

The Scheme itself is a relatively simple document. It provides for the transfer on the effective date of the assets and liabilities of CopRe's entire business to Marlon. The terms of the policies written by CopRe which are to be transferred to Marlon are not otherwise to be changed. The Scheme also contains conventional provisions for the continuity of legal proceedings in the name of Marlon after the transfer, for premiums on policies to be payable to Marlon and for mandates given by CopRe to take effect as if given by Marlon.

10

In the conventional way, Marlon will give an undertaking by counsel to this court to be bound by the Scheme and to do all such acts and things as may be necessary or expedient to be done for the purposes of giving effect to it. In addition, two clauses have been inserted in the Scheme at the request of the Financial Conduct Authority ("the FCA"), to the effect that Marlon shall,

i) accept the transferred liabilities under each transferred policy, whether that transferred policy is governed by English law or the law of another jurisdiction, and

ii) accept that any order award or other determination made against CopRe in any judicial, quasi-judicial, arbitral, ombudsman or other proceedings concerning the transferred business shall be enforceable against Marlon without the need for any further order and shall be dealt with by it.

11

The inclusion of these provisions is designed to address the issue that might otherwise arise as to whether the Scheme would be recognised and hence be effective in other jurisdictions in relation to the transfer of CopRe's obligations under policies not governed by English law. Such an issue arose in Sompo Japan Insurance Inc [2007] EWHC 146 (Ch), and I shall return to that case in another context below. However, it seems to me that the combined effect of the provisions in the Scheme and Marlon's undertaking is sufficient as a practical matter to ensure, should the need arise, that any policyholders affected will have the means to take steps to force compliance by Marlon with the terms of the Scheme or seek other relief from this court in the event that an issue were to arise as to its effectiveness in any other relevant jurisdiction.

The technical requirements of Part VII

12

Insurance business transfer schemes are defined in section 105 FSMA. The present Scheme falls within that definition because the business to be transferred is in an EEA member state by CopRe as a UK authorised person, the transferred business will be carried on from an establishment of Marlon in an EEA member state, and the Scheme is not an excluded scheme.

13

Section 111 FSMA provides in relevant part as follows:

"Sanction of the court for business transfer schemes.

(1) This section sets out the conditions which must be satisfied before the court may make an order under this section sanctioning an insurance business transfer scheme…

(2) The court must be satisfied that—

(a) In the case of an insurance business transfer scheme … the appropriate certificates have been obtained (as to which see Parts I and II of Schedule 12);

(b) The transferee has the authorisation required (if any) to enable the business, or part, which is to be transferred to be carried on in the place to which it is to be transferred (or will have it before the scheme takes effect).

(3) The court must consider that, in all the circumstances of the case, it is appropriate to sanction the scheme."

14

The background to the requirements of section 111 and the practice and procedure of the court was outlined by David Richards J. in Re Royal & Sun Alliance Insurance plc. & Ors [2008] EWHC 3436 (Ch) at paras. 3 and 4:

"The statutory regime for the transfer of long term and general insurance business and banking business is contained in Part VII of the Financial Services and Markets Act 2000 which replaced provisions dealing with the transfer of long term insurance business dating back to the 19th century. Part VII also gives effect to current EU directives. There are a substantial number of conditions, both in the Act and in regulations made under it, relating to such matters as the authorisation of the transferee company, the giving of notice to regulators and policyholders and so on, all of which have been satisfied in this case. There are further provisions, in addition to the giving of notice to affected policyholders, which are designed to provide protection to the policyholders whose policies are to be transferred, to the remaining policyholders, if any, of the transferor and to the existing policyholders, if any, of the transferee…

These statutory provisions involve: first, the appointment of a suitably qualified, independent expert to report on the scheme. His appointment, and the form of his report, must be approved by the Financial Services Authority (FSA). In this case, as in all insurance business transfers of which I am aware, the expert is an actuary with suitable experience. Secondly the FSA, as regulator, is consulted on proposed transfers and actively considers proposals as they develop. It is also entitled to appear on the application to the court for sanction principally to raise matters of concern. It has, in the last year or so, become the practice of the FSA to provide to the court a report dealing with any areas of concern and how they have been addressed. Where there are remaining concerns, or the circumstances otherwise make it appropriate, the FSA appears at the hearing and does so on a regular basis … As many of the issues which arise on these transfer schemes are technical in nature, the assistance of the independent...

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6 cases
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