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21 January 2016
The transfer of any long-term insurance business in Guernsey is governed by Sections 44 to 48 of the Insurance Business (Bailiwick of Guernsey) Law 2002 as amended, which states that any such transfer must be sanctioned by an order of the Royal Court.
There is no reported case law in Guernsey relating to the transfer of long-term business (notwithstanding that various such applications come before the court fairly regularly). However, there are a number of Jersey authorities which are relevant (given the similarities in the legislative frameworks between the jurisdictions), including the recent judgment In the matter of National Provident Life Assurance Limited  JRC 108.
Bearing in mind this recent Royal Court of Jersey decision, as well as the amendments to Section 46 of the law by the Insurance Business (Bailiwick of Guernsey) (Amendment) Ordinance 2014,(1) this update seeks to revisit the matters to be taken into account by an insurer contemplating an application to the Royal Court of Guernsey.
Schedule 1 of the law sets out what constitutes 'long-term business':
Schedule 1 gives a relatively succinct description of each category of long-term business, which will be familiar to industry bodies contemplating a transfer of business.
Section 44 of the law states that a scheme under which all or any of the long-term business of a transferor is transferred to a transferee must be sanctioned by the Royal Court:
Section 45 sets out the various procedural requirements that an applicant seeking the sanction of a scheme must satisfy, which section expressly states that an application may be made by either a transferor or transferee.
Any such application must be accompanied by a report on the terms of the scheme by an independent actuary and a notice must be published in La Gazette Officielle at least twice, stating (among other things) the date and time when the application is to be made.
Pursuant to Section 101 of the law, the requirement to publish in La Gazette Officielle also means that a copy of the document or information must be published in the Alderney Official Gazette and must be sent or delivered to the Seneschal of Sark to be inserted in the Sark notice box. An applicant must be careful to liaise with the necessary persons at each gazette and the Seneschal's office in good time, bearing in mind their differing requirements.
Other than where the Guernsey Financial Services Commission has given consent, a statement setting out the terms of the scheme and a summary of the actuary's report must be sent to each long-term policyholder of the transferor and transferee (as well as to every member, if either or both is a company).
Section 45 also sets out notification requirements regarding the commission and the requirement for making available copies of the application and the full report of the actuary for inspection by policyholders, including related necessary time periods.
The Royal Court shall not make an order sanctioning a scheme unless it is satisfied that the transferee is (or will be) licensed either under the law or in the country outside the Bailiwick of Guernsey where the transferee is to undertake its obligations under the policies transferred to it.
Pursuant to Section 46, the court will also (other than when all policies to be transferred are contracts of reinsurance) require to see that the commission has certified that either a Guernsey-licensed transferee possesses the necessary capital resources or that the relevant authority supervising any foreign transferee has been notified of the scheme and has consented to it (or has at least not refused consent within three months of being notified). In the case of a Guernsey transferee, the commission has now (as contemplated in the 2014 ordinance) issued the Insurance Business (Solvency) Rules 2015, which will need to be considered.
The court must also consider whether the scheme would adversely affect any policyholder, and in that regard will pay close attention to the report of the independent actuary, whether or not any policyholder has objected to the scheme, and whether the scheme has already been approved in any other jurisdiction.
In terms of the wider approach that the Royal Court might adopt when considering whether to sanction a scheme, it will likely give close consideration to the decision of the Royal Court of Jersey in Norwich Union Life Insurance Society v Norwich Union Annuity Limited 1997/81 [Jersey Unreported April 25 1997] (reaffirmed in the recent decision in In the matter of National Provident Life Assurance Limited), in which the court cited with approval the dicta of Judge Hoffman in Re London Life Association Limited (Chancery Division) (February 21 1989), whereby he set out the following principles:
"Although the statutory discretion is unfettered, it must be exercised according to principles which give due recognition to the commercial judgment entrusted by the company's constitution to its board. The court in my judgment is concerned in the first place with whether a policyholder, employee or other person would be 'adversely affected' by the scheme in the sense that it appears likely to leave him worse off than if there had been no scheme. It does not however follow that any scheme which leaves someone adversely affected must be rejected. For example, as we shall see, one scheme which might have been adopted in this case would have adversely affected many of London Life's employees because they would have become redundant. But such a scheme might nevertheless have been confirmed by the court. In the end the question is whether the scheme as a whole is fair as between the interests of the different classes of persons affected."
If the Royal Court is satisfied of the fairness of the scheme and that all requirements have been fulfilled, it can order the sanction of the scheme. Pursuant to Section 47 of the law, it will then direct that notice to be published in La Gazette Officielle (and in any other relevant jurisdiction). The notice must refer to the making of the order and specify the period during which any policyholder may exercise any right to cancel a policy.
It is often (if not invariably) the case that an application made in Guernsey for the transfer of long-term business is made in conjunction with similar applications made simultaneously in other jurisdictions, as was the case in National Provident Life Assurance Limited, in which the Royal Court of Jersey was mindful of the fact that the scheme in that case had already been approved by both the High Court in England and the Royal Court of Guernsey.
The content of the report of the independent actuary is key to the success of any such application, being that it will be considered by the court, the commission and policyholders alike when contemplating the effects of the scheme. Beyond that, the success of any application is reliant primarily on careful coordination of the various notices that must be given and approvals that must be sought, often in conjunction with similar actions being taken simultaneously in other jurisdictions.
For further information on this topic please contact Mathew Newman, Frances Watson or Sam Dingle at Ogier by telephone (+44 1481 721 672) or email (email@example.com, firstname.lastname@example.org or email@example.com). The Ogier website can be accessed at www.ogier.com.
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