Transfer of insurance business - Applicant companies entering agreement for transfer of insurance business

Re Combined Insurance Company of America and other companies: Chancery Division, Companies Court (Mr Justice Morgan): 16 March 2012

Section 108 of the Financial Services Act 2000, so far as material, provides: '(1)The Treasury may by regulations impose requirements on applicants under section 107. (2) The court may not determine an application under that section if the applicant has failed to comply with a prescribed requirement. (3) The regulations may, in particular, include provision - (a) as to the persons to whom, and periods within which, notice of an application must be given; (b) enabling the court to waive a requirement of the regulations in prescribed circumstances.'

Regulation 3 of the Financial Services and Markets Act 2000 (Control of Business Transfers) (Requirements on Applicants) Regulations 2001, SI 2001/3625, so far as material, provides: '(1) An applicant under section 107 of the act for an order sanctioning an insurance business transfer scheme (the scheme) must comply with the following requirements. (2) A notice stating that the application has been made must be (a) published (i) in the London, Edinburgh and Belfast Gazettes; (ii) in two national newspapers in the UK; (iii) where, as regards any policy [(other than a policy which evidences a contract of reinsurance)] included in the proposed transfer, an European Economic Area (EAA) state other than the UK is the state of the commitment or the state in which the risk is situated, in two national newspapers in that EEA state; and (iv) where, as regards any policy included in the proposed transfer which evidences a contract of reinsurance, an EEA state other than the UK is the state in which the establishment of the policyholder to which the policy relates is situated at the date when the contract was entered into, in one business newspaper which is published or circulated in that EEA state; (b) sent to every policyholder of the parties... .'

A company, CICCA, agreed to transfer the whole of the general insurance business of it's UK branch, CICA UK, to another company, AEGL, and to transfer the whole of the long term insurance business of CICA UK to another company, AELL. The Financial Services Authority (FSA) alleged against CICA UK, breaches of principles for business, which were high-level regulatory rules to which all FSA authorised firms were subject. The FSA contended that as a result of those breaches, CICA UK's customers might have suffered financial detriment. The applicants (CICCA, CICA UK, AEGL and AELL) jointly applied, pursuant to the Financial Services and Markets Act 2000, to the High Court for directions in respect of the proposed transfer scheme. The FSA sought a direction from the court that the applicants give notice of the application to current and former policy holders of CICA UK. The applicants opposed such a direction.

The issue for consideration was whether a direction ought to be given that notice of the application should be given to former policyholders. The applicants submitted that there was nothing in section 108 of the act or regulation 3 of the Financial Services and Markets Act 2000 (Control of Business Transfers) (Requirements on Applicants) Regulations 2001, SI 2001/3625 (the Regulations) that required the giving of notice of the application to former policyholders.

The court ruled: Neither the 2000 act nor the Regulations required applicants, applying for directions in respect of a proposed transfer scheme, to give notice to former policyholders. On the other hand, the court could impose such a direction with a view to giving information to former policyholders who, it was agreed, were potentially entitled to be heard at the later hearing when the court was asked to sanction the scheme (see [43] of the judgment).

In the instant case, having regard to all considerations, it was not appropriate to impose on the applicants the direction which was sought by the FSA. The court had to assess the real benefit of the suggested direction and compare that benefit with any disadvantage from making it. The benefit of individual notification to former policyholders and the resulting benefit to the FSA and the court was likely to be insubstantial. Conversely, individual notification to former policy holders at the instant stage could possible cause a measure of confusion and might generate inappropriate false hope. 

Further, the cost of individual notification to the former policyholders would be a disadvantage to the applicants (see [59], [55]-59] of the judgment). There would be no direction as to individual notification to former policyholder as requested by the FSA (see [60] of the judgment).

Andrew Thornton (instructed by Norton Rose LLP) for the applicants; Robert Purves (instructed by Financial Services Authority) for the Financial Services Authority.