Upheld, Policyholders' contention against transfer of Life Annuity
On the one hand, the Scheme was, however, strenuously opposed by a number of annuitants at the hearing and they contended that they selected PAC as their annuity provider based upon its long history as a leading UK insurance company, its established reputation for prudence, its size, and the fact that it was an integral member of the larger Prudential group which could be relied upon to support PAC if the need ever arose. They also thought that in the same way as they would be unable to transfer or encash their policies, that PAC would likewise be committed to make payments to them for the remainder of their lives, and they told the court that they trusted PAC to honour that commitment. On the other hand, Rothesay, in contrast to PAC, was a relatively recent entrant to the annuity market, was smaller in size and with a less diverse business and there was nothing to suggest an established reputation nor did they form part of a larger group of companies and could not be relied upon. Rothesay contended for the EU Directive on the taking up and pursuit of the business of insurance and reinsurance (2009/138/EC) (“Solvency II”), where the Scheme provided for the same administrator to be employed from one to two years before Rothesay had opportunity to consider whether to continue to use or engage another service provider. In judgment and having examined in detail the report of the independent expert and the other evidence and arguments, the learned judge inter alia held that there appeared to be no material adverse effect or having regard for service standards and governance either, however, such views were not determinative of the issue and there existed factors that inveighed heavily against the exercise of the court discretion. Considered significant was the investment of some or all of the pension pots; the insurer upon which they were dependent for life; the choice of PAC as provider for their annuities based upon age, established reputation and financial support. Rothesay did not have the same capital management policies and so for reliance to be placed upon an uncertain capital raising exercise was a material disadvantage. Policyholders were correct to assume that PAC would not seek to transfer their policies to another provider and there was no reason why Rothesay should not be able to acquire portfolios of annuities from other insurers with different characteristics or on different terms. The court discretion was denied.
Prudential Assurance Company Limited (“PAC”) and Rothesay Life Plc (“Rothesay”) sought the court’s sanction pursuant to Part VII of the Financial Services and Markets Act 2000 (“Part VII” and “FSMA”) for a scheme (the “Scheme”) providing for the transfer to Rothesay of about 370,000 annuity policies written by PAC which meant that the policyholders would no longer be entitled to look to PAC to pay or service their annuities, but would have sole recourse in that respect against Rothesay. The Scheme had been motivated by PAC’s desire to reduce its regulatory capital requirements in connection with a planned demerger of the group headed by Prudential plc (“the Prudential group”) and the Scheme made no changes to the terms of the policies to be transferred and offered no benefits. Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“FCA”) did not object to the Scheme.
Vide In Re Prudential Assurance Company Limited  EWHC 2245 (Ch).