Rothesay Life Plc v Monument Life Insurance Dac
| Jurisdiction | England & Wales |
| Judge | Mr Justice Snowden |
| Judgment Date | 07 August 2020 |
| Neutral Citation | [2020] EWHC 2185 (Ch) |
| Court | Chancery Division |
| Date | 07 August 2020 |
| Docket Number | Case No: CR-2019-006061 |
[2020] EWHC 2185 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (ChD)
Royal Courts of Justice
Rolls Building
Fetter lane,
London, EC4A 1NL
Mr Justice Snowden
Case No: CR-2019-006061
In the Matters of:
Martin Moore QC (instructed by Allen & Overy LLP and Hogan Lovells International LLP) for the Applicants
Hearing dates: 22 and 31 July 2020
Approved Judgment
Background
On Friday 31 July 2020 I made an order approving the transfer pursuant to Part VII of the Financial Services and Markets Act 2000 (“ FSMA”) of approximately 400 in-force life insurance policies (the “Transferring Policies”) with a best estimate liabilities (“BEL”) of £114 million as at 31 December 2019 from Rothesay Life plc (“Rothesay”) to Monument Life Insurance DAC (“Monument Life”). I indicated that I would give my reasons for doing so in writing, which I now do.
The Transferring Policies are individual annuities issued as a consequence of so-called “Buy Out” policies which were issued directly to beneficiaries of five Irish defined benefit pension schemes by MetLife Assurance Limited (“MetLife”). MetLife was an English subsidiary of a US group which had written the business in the Republic of Ireland on a freedom of services basis. After Rothesay had acquired MetLife in 2014, the Transferring Policies were transferred to Rothesay pursuant to a Part VII transfer scheme which was approved by Henderson J on 30 November 2015: see re Rothesay Assurance Limited [2016] EWHC 44 (Ch).
The vast majority of the Transferring Policies are annuities now in payment: the remainder are deferred annuity policies. Some of the policies could therefore continue in existence for 30 years or more. The policies are currently administered by Mercer on behalf of Rothesay.
Rothesay is an English insurer. All but three of the policyholders whose policies are to be transferred are resident in Ireland: two are resident in the UK and one in Australia. The rationale for the transfer is the desire to ensure continuity of service to the Transferring Policyholders once the freedoms of service and establishment (“passporting rights”) under the recast EU Directive 2009/138/EC (“Solvency II”) cease to be available to UK insurers such as Rothesay after the end of the “Implementation Period” on 31 December 2020 which follows the departure of the UK from the EU on 31 January 2020.
In anticipation of the UK leaving the EU, the European Insurance and Occupational Pensions Authority (“EIOPA”) published a number of opinions and recommendations between 2017 and 2019. EIOPA's earlier opinions called upon national authorities in the EU to ensure that contingency plans were in place to ensure service continuity for policyholders after the UK's withdrawal. EIOPA envisaged that the methods used to ensure service continuity might include the transfer of portfolios of cross-border insurance to an insurance undertaking established in the remaining EU member States (the “EU27”) or the establishment of third-country branches in the EU27.
Following EIOPA's guidance, commencing in late 2018, Rothesay conducted discussions with PRA, the FCA and the Central Bank of Ireland (“CBI”) to address the risk that, in the event of a no-deal Brexit or an arrangement being reached between the UK and the EU which did not include passporting rights, Rothesay would be unable to service or make payments to the Transferring Policyholders in Ireland. As the size of the business comprising the Transferring Policies was a very small proportion of Rothesay's business, and Rothesay is focused on the UK and had no authorized subsidiaries or third country branches in any other EEA state, establishing a new branch in Ireland was considered by the board of Rothesay to be disproportionate in terms of cost and logistics. Accordingly, the directors chose to seek to transfer the relevant policies to another EEA insurer with the appropriate authorization to carry on the business after Brexit. Further, given that the Transferring Policies were originally written in Ireland, the residence of the overwhelming majority of the holders of the policies is in Ireland, and most of the policies are governed by Irish law, the directors of Rothesay determined to seek to transfer the relevant policies to an Irish regulated insurer.
After seeking expressions of interest from third parties, Rothesay identified Monument Life as its preferred counterparty for the portfolio transfer. Monument Life is an Irish insurer which was formerly known as Laguna Life DAC and is a subsidiary of Monument Re Limited, a Bermudan reinsurance company (“Monument Re”). Monument Life writes a range of insurance business comprising term assurance, guaranteed and unit-linked savings contracts, annuities and protection business. It has the authorization to conduct the annuity business to be transferred to it and is regulated by the CBI.
Rothesay selected Monument Life on the basis, among other things, that it was keen to take on the Irish annuity business as part of its growth strategy. One of Rothesay's other reasons for selecting Monument Life as its preferred transferee was because the group of which it is a member was able to execute a commercial deal (consisting of a reinsurance agreement to transfer the economic risk and an agreement to promote the Scheme) expeditiously so that the process for the portfolio transfer could be initiated prior to the end of March 2019 which was the date upon which the UK was due to leave the EU.
In February 2019, and at a time when it was still uncertain whether there would be either an extension for the departure of the UK from the EU or any transitional arrangements, EIOPA issued a number of Recommendations which suggested that after the UK left the EU, national authorities in the EU27 should facilitate the orderly run-off of unauthorised business or require any UK insurer conducting such business to take steps to become authorised under EU law. As an alternative, the Recommendations suggested that the competent authorities in the EU27 should allow finalisation of portfolio transfers from UK insurers to EU27 insurers, provided that the process for such transfer had been initiated before the withdrawal date.
In anticipation of the possibility that the United Kingdom might exit from the EU at the end of March 2019 without an agreement setting out the arrangements for such withdrawal, and in accordance with the EIOPA Recommendations, the process for approval of the portfolio transfer to Monument Life was initiated by Rothesay paying the regulatory transaction fee to the PRA on 14 March 2019 and receiving the PRA's approval to the appointment of an independent expert on 29 March 2019.
On 17 March 2019 the Republic of Ireland enacted an Act dealing with the consequences for Ireland of the withdrawal of the UK from the EU (the “Irish Act”), the relevant sections of which could be commenced if the UK left the EU without a long-term trading arrangement. One of the provisions of the Irish Act would allow for a temporary run-off regime for up to three years for UK insurers during which existing insurance contracts could be serviced in Ireland with a view to running off liabilities or transferring the insurance contracts to an appropriate insurer. Such temporary run-off regime was not, however, brought into force due to the agreement for the Implementation Period and would not in any event cover the much longer period for which the Transferring Policies are expected to remain in existence.
Taking these various factors into account, the board of Rothesay decided to proceed with the transfer of the Transferring Policies, and on 26 March 2019 Rothesay entered into a business transfer agreement with Monument Life and Monument Re. In effect, the business transfer agreement provided that the Transferring Policies and their associated records would (subject to the decision of this court) be transferred from Rothesay to Monument Life pursuant to a Part VII transfer scheme which they would propose.
On the same day Rothesay and Monument Re also entered into a reinsurance agreement (the “Reinsurance Agreement”) under which Monument Re agreed (subject to some limitations) to reinsure 100% of Rothesay's liabilities in respect of the Transferring Policies with effect from 1 January 2019, and also entered into various related security arrangements. The intended effect of the Reinsurance Agreement was to transfer the majority of the economic risk of the Transferring Policies from Rothesay to the Monument group with effect from 1 January 2019 in order to achieve certainty of price and commercial terms for the portfolio transfer.
The Scheme
The Scheme itself is relatively straightforward. The Scheme does not make any change to the terms of the Transferring Policies. It simply transfers the legal obligations of Rothesay to pay the annuities and other liabilities in connection with the Transferring Polices to Monument Life. There is, however, an exception for liabilities for mis-selling or breaches of contract and related complaints and disciplinary action arising prior to the transfer date, which will not be transferred to Monument Life but will continue to be enforceable against Rothesay.
The transfer date upon which the policies are to be transferred under the Scheme is intended to be 7 September 2020. On transfer, and following the necessary migration activities,...
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