Equitable Life – High Court approves Part VII transfer, and distinguishes Prudential/Rothesay
The High Court has approved a large Part VII transfer by Equitable Life of life assurance and pensions policies, and has easily distinguished the decision in Prudential/Rothesay.In Prudential/Rothesay, in August 2019, Snowden J. rejected a transfer of annuities from Prudential to Rothesay Life even though it had been blessed by the regulators and the independent expert and even though Rothesay Life's SCR ratio was at least as good as Prudential's, if not better. Snowden J. provided detailed reasoning – but, broadly speaking, he was influenced by Rothesay Life not having the same longstanding reputation as Prudential and not having the same likelihood of parental or group financial support. Many saw this interventionist decision as making it significantly harder to obtain approval to a Part VII transfer, particularly one involving a transfer of annuities or other long-term life assurance or pensions policies.
However, in a recent decision handed down by Zacaroli J., the High Court has distinguished Prudential/Rothesay and approved a Part VII transfer by Equitable Life to Utmost Life and Pensions Limited, notwithstanding that (i) it was a transfer of long-term life assurance and pensions business, and (ii) the transferee, like Rothesay Life, is a relatively new entrant to the market and does not have the same long-standing history as Equitable Life.
Zacaroli J. cited the following five grounds for distinguishing Prudential/Rothesay:
(i) transferring policyholders would be free to switch to an alternative provider following the transfer;
(ii) there had been no prior transfer of economic risk and reward pursuant to a reinsurance agreement;
(iii) the transfer (which had been combined in the same court application and hearing with a scheme of arrangement which would convert with-profits policies to unit link policies and remove investment guarantees) would benefit the transferring policyholders as a whole;
(iv) Utmost is part of a corporate group with additional capital resources available to it; and
(v) the combined Part VII transfer and scheme of arrangement had received the "overwhelming support" of policyholders who voted on the scheme of arrangement proposal.
Equitable Life follows on from a decision of the High Court in October 2019 in which it also distinguished Prudential/Rothesay and approved a transfer of annuities from Canada Life to Scottish Friendly. Prudential/Rothesay has not, to date, resulted in the rejection of any Part VII transfer application. The decision in Prudential/Rothesay is currently being appealed.
In Equitable Life, Zacaroli J. does not pass comment on the merits of the decision in Prudential/Rothesay. However, any endorsement of the principles that judgement sought to establish is conspicuous by its absence. It is striking how quickly and easily Zacaroli J. was willing to distinguish Prudential/Rothesay. While the Prudential/Rothesay principles will still need to be considered in any Part VII transfer, it appears that they will not present the fundamental obstacle to the approval of Part VII transfers that many had first anticipated.
A final point to note is the high degree of complexity and innovation involved in the combined Part VII transfer and scheme of arrangement in Equitable Life, which most would agree has delivered a very favourable outcome for policyholders. No small amount of credit is due to Equitable Life, Utmost Life and Pensions Limited and their respective advisers.