Outside view of RPC's transparent glass building.

Part VII transfers: Court protects policyholder interests by modifying guarantees

29 July 2016. Published by Jonathan Charwat, Partner and Matthew Griffith, Partner

High Court uses its powers to ensure third party guarantees continue to apply in the same way following Part VII transfer

In a recent Part VII transfer (Copenhagen Re), the High Court used its extensive powers under section 112 of FSMA to modify third party guarantees provided for the benefit of the transferor's policy holders, so that the rights under those guarantees continued to apply in the same way after the Part VII transfer.  Interestingly, the Court took this step despite there being no indication from the PRA, the FCA or the independent expert that they would object to the scheme in the event that the guarantees were discontinued.


The Part VII transfer involved Copenhagen Re transferring its entire insurance business to Marlon Insurance Company; both entities are held by the ultimate parent company, Enstar.

Copenhagen Re had previously been a member of the Danish Alm. Brand Group.  Two entities within this group had provided guarantees in favour of the Institute of London Underwriters for the benefit of Copenhagen Re's policyholders. The guarantees provided that the guarantors would make payment to Copenhagen Re policyholders if Copenhagen Re were unable to do so.

The guarantees

To ensure that the policies written by Copenhagen Re continued with the benefit of the guarantees after the transfer became effective, Copenhagen Re and Marlon requested the guarantors to execute a deed of variation. This request was rejected by the guarantors, who said that Enstar should take their place. As a result, Copenhagen Re and Marlon sought that the Court include a specific provision in the order sanctioning the Part VII providing that references in the guarantees to "Copenhagen Re" should be read as references to "Marlon", such that the guarantees would continue to have effect.

The Court's approach

Section 112(1) (d) of FSMA gives the Court the power to make orders "with respect to such incidental, consequential and supplementary matters as are, in its opinion, necessary to secure that the [insurance business transfer] scheme is fully and effectively carried out". The guarantors argued that this power did not include modifying the guarantees, as the discontinuation of the guarantees would not materially prejudice the transferring policyholders. This was rejected by Snowden J on the basis that the continued existence of the guarantees was within the legitimate expectations of the policyholders, and an integral part of their commercial benefits.  Interestingly, the Judge also commented that "the power to secure that a scheme is "fully" carried out indicates that the court has the jurisdiction to go beyond the bare minimum without which the independent expert would withdraw his support for the scheme. Whether it should do so is, of course, a matter of discretion."

Key takeaways

Snowden J's approach, particularly in modifying the guarantees, shows the extensive powers of the Court to ensure that the schemes are effectively transferred without jeopardising the expectations, rights or benefits of policyholders. This case also underlines the level of protection the Court will afford to the interests of policyholders as, in this case, there was (as noted above) no indication from the FCA, PRA or independent expert that they would object to the scheme in the event that the guarantees were discontinued.