Royal London Mutual Insurance Society Limited v In the Matter of Royal London Insurance D.A.C. [2019] EWHC 185 (Ch)

This case concerned an application made by The Royal London Mutual Insurance Society Limited (“Royal London") under Part VII of the Financial Services and Markets Act 2000 (“FMSA") to transfer its EEA insurance business to a newly formed Irish subsidiary, Royal London Insurance D.A.C. (“RLI"). The proposed transfer was intended to ensure that Royal London would be in a position to continue to service its EEA policyholders in the event of a “no-deal" Brexit.

The proposed transfer scheme (“the Scheme") involved three blocks of Royal London’s business: (i) approximately 446,000 policies written in Ireland by Royal Liver, Irish Life, Caledonian Insurance Company and GRE Life Ireland (all admitted subsidiaries of Royal London); (ii) approximately 55,000 policies sold through Royal London’s Irish branch; and (iii) approximately 1,300 bonds sold in Germany under the Scottish Life International brand.

Section 104 of FSMA provides that no insurance business transfer scheme is to have effect unless an order sanctioning it has been made by the court. Section 111 of FSMA sets out the conditions which must be satisfied before the court may make an order sanctioning such a scheme. The conditions are that all of the appropriate certificates and authorisations to conduct the transferring business shall have been obtained from the relevant regulators (section 111(2)) and that the court considers that, in all the circumstances of the case, it is appropriate to sanction the scheme (section 111(3)).

It is well established1 that section 111(3) confers upon the court an absolute discretion as to whether or not to sanction a scheme, but that this discretion must be exercised by giving due recognition to the commercial judgment entrusted by the company to its directors. One of the factors which the court must take into account in this regard is whether a policyholder, employee or other interested person or any group of them will be adversely affected by the scheme. However, the possibility that individual policyholders or groups of policyholders may be adversely affected does not in itself mean that the scheme has to be rejected by the court.

In the current case, the Royal London Scheme raised the possibility that approximately 22% of the transferring policyholders would lose the protection of the UK’s Financial Services Compensation Scheme (“FSCS") in the event of the insolvency of Royal London. Ireland does not have an equivalent compensation scheme.

Referring back to one of his previous decisions on these issues2, Mr Justice Snowden noted that the current uncertainty over Brexit means that there may be no perfect solution for the holders of the policies being transferred. The fundamental question is whether the proposed Scheme, as a whole, is fair as between the interests of the different classes of persons affected.

On the evidence, RLI was duly authorised, and had the benefit of reinsurance and security from Royal London to enable it to carry on the business to be transferred to it in Ireland. There were a detailed and comprehensive series of reports from the Independent Expert that the Scheme would cause no material prejudice to transferring or non-transferring Royal London policyholders, or to the existing policyholders of RLI. In particular, Mr Justice Snowden regarded the potential loss of FSCS protection for some transferring policyholders as being largely theoretical, as against the very real prejudice that all EEA policyholders would face in the event of a “no-deal" Brexit if the Scheme were not implemented.

Mr Justice Snowden accordingly concluded that the statutory requirements had been met, and having regard to all the circumstances, was satisfied that Scheme should be sanctioned.