In a recent case, Re AXA (Hong Kong) Life Insurance Co Ltd.1, the Court of First Instance followed the principles that first emerged from the leading authority of Re London Life Association Ltd2 and reiterated the approach that the Court would take when considering a proposed scheme of transfer of long term business from one insurer to another under section 24 of the Insurance Companies Ordinance (Cap. 41) (the ICO).
This case concerned a petition presented jointly by AXA (Hong Kong) Life Insurance Company Limited (AXA (HK)) and AXA China Region Insurance Company (Bermuda) Limited (AXA China Region) under section 24 of the ICO for sanction of a scheme to transfer the whole of the long term business of AXA (HK) from AXA (HK) to AXA China Region (the Scheme).
AXA (HK) and AXA China Region are both wholly owned subsidiaries of AXA China Region Limited and authorised by the Hong Kong Insurance Authority (the IA) under section 8 of the ICO to carry on certain classes of long-term business in or from Hong Kong. The purpose of the transfer was essentially to improve the capital and administrative efficiency of AXA China Region group's life insurance business in Hong Kong.
Under the Scheme, upon its becoming effective, AXA China Region would become the insurer under the transferred policies in place of AXA (HK). The terms and conditions of, and the rights of policyholders under, such transferred policies would remain entirely unchanged, and the only difference would be that such rights would, in future, be enforceable against AXA China Region in place of AXA (HK). In this regard, the Court noted that in common with other similar schemes which had been considered in earlier cases, the Scheme did not provide for current policy holders of AXA (HK) to be entitled to opt out of the transfer, or to seek a return of premium or other compensation.
The petition was supported by a report prepared by an independent actuary (the Report). The Report examined the terms and impact of the Scheme in detail and concluded that the proposed transfer would have no adverse impact on the terms of the policies, or the reasonable benefit expectations or the financial security of the transferring policy holders of AXA (HK) or the existing policy holders of AXA China Region.
AXA (HK) and AXA China Region received over three thousands enquiries and responses from the policy holders regarding the Scheme and of these, 21 were complaints. Subsequently, three of the policy holders attended the hearing of the Petition to object to the proposed transfer and make submissions in opposition to it. The objections ranged from concern over the jurisdiction of incorporation of AXA China Region, the fairness of the mechanism under sections 24 and 25 of the ICO and the rationale and soundness of the Scheme.
The Court held that the various objections raised by the policy holders were not well founded or were not such that would render the Scheme an unfair one, which should not be sanctioned by the Court.
The Court accepted the opinion of the independent actuary as set out in the Report and concluded that the rights, reasonable benefit expectations and financial security of all policy holders, both of AXA (HK) and AXA China Region appeared to be well protected and to remain substantially unchanged after the transfer. The Court also noted that the IA, having been kept fully informed throughout the process by which the Scheme was devised and also throughout the proceedings, had no objections to the Scheme and maintained this position after hearing all of the objections and enquiries raised by the policy holders. The Court considered that the views of the independent actuary and the IA had provided solid support for the approval of the Scheme.
In this case, the Court of First Instance followed the judgment of Re Winterthur Life & Anor3 and applied the principles first set out in Re London Life Association Ltd.
In particular, in deciding whether or not to sanction a scheme, the court will not assume a role to devise the best possible scheme that could be devised. The court will determine whether the scheme as a whole is fair as between the interests of the different classes of person affected. In this regard, the court would pay close attention to the views expressed by the independent actuary, the IA and any persons who allege that they would be adversely affected by the scheme.
The relevant principals are summarised as follows:
- While section 24 of the ICO confers an absolute discretion on the court whether or not to sanction a scheme, this discretion must be exercised by giving due recognition to the commercial judgment of the directors of the companies concerned.
- The court is concerned whether a policy holder, employee or other interested person or any group of them will be adversely affected by the scheme.
- The court will pay close attention to the report of the independent actuary which should contain a comparison of the security and reasonable expectations of the policy holders without the scheme with what would be the result if the scheme were implemented.
- The court will also pay close attention to the views of the IA on whether policy holders are likely to be adversely affected by the scheme.
- Even if individual policy holders or groups of policy holders may be adversely affected by the scheme, it does not mean that the scheme has to be rejected by the court. The fundamental question is whether the scheme as a whole is fair as between the interests of different classes of persons affected.
- At the end of the day, it is not the function of the court to produce what, in its view, is the best possible scheme.
- The details of the scheme are not a matter for the court provided that the scheme as a whole is found to be fair. Therefore, the court will not amend the scheme because it thinks that individual provisions could be improved upon.
- In arriving at its decision to sanction the scheme, the court should first determine what the contractual rights and reasonable expectations of the policy holders were prior to the promulgation of the scheme and then compare those with the likely result on the rights and expectations of the policy holders if the scheme is to be sanctioned.