Judge sanctions Brexit Part VII transfer scheme after considering various objections
The applicant life insurance company sought the sanction of the court under Part VII of FSMA for an insurance business transfer scheme. Under the scheme, the applicant will transfer certain of its long-term business written in the EEA to its wholly-owned subsidiary in Ireland (thereafter renaming the transferee company). The scheme is intended to address the concerns arising from a loss of passporting rights following Brexit. Snowden J considered the main concerns and objections of the policyholders:
1) Pre-empting the outcome of Brexit: Some policyholders questioned why the applicant was not awaiting the outcome of the Brexit negotiations, but the judge agreed with the independent expert that the applicant was acting reasonably in seeking to achieve certainty, whatever the outcome of Brexit.
2) Loss of the protection of the UK's Financial Services Compensation Scheme ("FSCS"): The judge said that this was most unlikely to lead to any material prejudice to policyholders in practice.
3) Exclusion of certain policies held by residents in Sweden and Iceland: The judge noted that the scheme is not designed to achieve a commercial advantage for the applicant. He concluded that "It would make no sense to refuse to allow [the applicant] to mitigate the potentially adverse effects of Brexit on the majority of EEA policyholders in a reasonable and efficient way, because of a difficulty in dealing with a relatively small minority of other EEA policyholders".
4) Termination of the Brexit Reinsurance: The process to determine how to split the assets of a with-profits fund is complex and may take more than 18 months to compete. To address that problem, the scheme provides that overseas life assurance business policies are to be transferred immediately and then 100% reinsured back into the funds of the applicant from which they were transferred (the Brexit Reinsurance) (thus allowing the policyholders of these policies to continue to enjoy the same benefits). There are limited circumstances, though, in which the Brexit Reinsurance can be terminated, at which point, an apportionment will have to be carried out. That process would not require notification to the policyholders. In order to allow policyholders to enforce the relevant mechanism, the judge held that it would be appropriate "either to include a provision in the Scheme or in an undertaking to the Court, simply giving policyholders a right to apply to the Court to enforce the relevant mechanisms in the Scheme and the Brexit Reinsurance".