Transfers of long term insurance business in Guernsey
07 February 2013
The Insurance Business (Bailiwick of Guensey) Law, 2002, as amended (the "Law") provides that certain transfers of long term insurance business require the sanction of the Royal Court in Guernsey (the "Royal Court") and sets out the procedure governing such transfers.
"Long term business" is defined in Schedule 1 to the Law as contracts for human life (provided such contracts are for a term of more than 18 months) and annuity payments, permanent health insurance for 5 years or more or until retirement, capital redemption contracts, pension fund management (i.e. contracts to manage investments of pension funds) and credit life assurance contracts for not less than 10 years. All other business is "general business" for the purposes of the Law. Matters related and subsidiary to long term business shall be treated as long term business.
Transfers of long term business will require court sanction in any of the following cases:
- if either or both of the transferor and/or transferee is a licensed insurer for the purposes of the Law;
- where any policy comprised in the long term business being transferred is written under Guernsey law; or
- where any policy comprised in the business being transferred is issued to a person resident in the Bailiwick of Guernsey.
In any of the scenarios set out above, the following process must be followed in order to obtain Royal Court sanction:
- the application to the Royal Court must be accompanied by a report on the terms of the scheme by an independent actuary. Often, the application in Guernsey is run in tandem with a similar application in the UK, in which case the actuarial report prepared for use in the UK can also be utilised in the Guernsey application (either without amendment or with use of a "wrapper" to satisfy Guernsey requirements);
- a notice must be published in the La Gazette Officielle in Guernsey ("La Gazette") on at least two occasions, stating the date and time of the proposed application to the Royal Court, that copies of the application and of the independent actuary's report will be available at all reasonable times at an address in Guernsey and that any person alleging that he would be adversely affected by the scheme is entitled to oppose the application at that time. The Law provides that a period of not less than 42 days must have elapsed between the date the notice was last published in La Gazette and the application to the Royal Court. The Guernsey Financial Services Commission (the "GFSC") may reduce this period to a minimum of 21 days, provided that it is in the interests of the relevant policyholders to do so; and
- under section 45(3)(b) of the Law, a statement setting out the terms of the proposed scheme, containing a summary of the independent actuary's report and stating that copies of the report are available for purchase at an address in Guernsey, must be sent to each of the long term policyholders of the bodies concerned (i.e. both transferor and transferee) and (where any of the bodies concerned is a company), to every member of those companies. Section 45 (3)(b) of the Law does, however, allow the GFSC to consent to waive such requirement.
Waivers of the requirements of this section are usually requested to avoid the need to send copies of the required documentation to policyholders who are not impacted by the proposed scheme of transfer. Normally these are policyholders resident in the UK whose policies are being transferred pursuant to a separate UK scheme, or existing policyholders of a substantial transferee company who would not be materially impacted by a relatively small number of policies being transferred to that company.
Waivers of the requirements are also requested in respect of policyholders where the company may not have an up-to-date contact address.
In order to consider a request to waive some or all of the requirements of section 45(3)(b) of the Law, the GFSC will usually require, as a minimum, the following information:
- background information giving details of the reasons for the proposed transfer;
- a copy of the draft scheme or schemes of transfer;
- details of the waiver being requested;
- details of the number of policyholders that are impacted by the Guernsey scheme of transfer and an estimate of the number of policyholders for whom a waiver of the requirements is requested; and
- details of the notification, including a summary of the independent actuary's report, that will be issued to policyholders in respect of the transfer of business.
- Copies of the application, the report and any statement circulated to policyholders and members must be served on the GFSC at least 42 days prior to the application to the Royal Court. Again, this period can be reduced to a minimum of 21 days by the GFSC.
- The GFSC and any person who alleges that he would be adversely affected by the carrying out of the scheme is entitled under section 45(4) of the Law to be heard at the hearing in the Royal Court. In practice, in relation to the GFSC's right to be heard, the GFSC will usually have been provided with drafts of the application and other documents required to be submitted to it, would have already raised any concerns with the applicant(s) at the draft stage and will provide a letter to the applicants confirming it has no objection to the proposed scheme and will not be present at the court hearing.
- In determining whether or not to sanction a scheme, the Royal Court must be satisfied that:
- the transferee is, or will be immediately after the making of the order, licensed under the Law in respect of long term insurance business of the class or classes to be transferred under the scheme, or the transferee is appropriately licensed to carry on insurance business of the descriptions concerned in the country outside Guernsey where the transferee is to undertake its obligations under the policies to be transferred to it; and
- except where all of the policies to be transferred are contracts of re-insurance, the GFSC has certified that (for a transferee licensed under the Law) the transferee possesses the necessary margin of solvency under the Law after taking into account the proposed transfer, or (for a transferee carrying on business outside Guernsey) that the relevant supervisory authority in that country has been notified of the scheme and has either consented or has not refused consent within 3 months of being so notified.
- Where the Royal Court makes an order under section 44 of the Law sanctioning a scheme, the Royal Court will direct that notice of the making of the order and or any other order giving effect to the transfer and the execution of any instrument giving effect to the transfer shall be published by the transferor and the transferee in the La Gazette (and other relevant publications).
The notice shall specify the period during which any policyholder may exercise any right to cancel the policy. The instrument or order shall not bind the policyholder if either such a notice is not published or the policyholder exercises any such right of cancellation during the period specified in the notice.
- Section 48 of the Law specifies that where the Royal Court has made an order under section 44 of the Law sanctioning a scheme, the Royal Court may also make provision for any of the following matters:
- the transfer to the transferee of the whole or any part of the undertaking and of the property and liabilities of the transferor;
- the allotting or appropriation by the transferee of any shares, debentures, policies or other like interests in the transferee which under the scheme are to be allotted or appropriated by the transferee to or for any person;
- the continuation by or against the transferee of any legal proceedings pending by or against the transferor;
- the dissolution, without winding up, of the transferor; and
- such incidental, consequential and supplementary matters as are necessary to secure that the scheme shall be fully and effectively carried out.
In effect therefore, section 48 gives the Royal Court wide powers to deal with other business of the transferor which falls outside the scope of the definition of "long term business".
Section 48 of the Law also states that where an order under section 44 of the Law sanctioning a scheme provides for the transfer to the transferee of property or liabilities, that property shall, by virtue of the order, be transferred to and vest in, and those liabilities shall, by virtue of the order, be transferred to and become the liabilities of the transferee, i.e. by operation of law, without the need for further action. In the case of property, if the order so directs, such property shall be freed from any charge which is by virtue of the scheme to cease to have effect. Where the liabilities transferred are liabilities under policies covered by the scheme, it is immaterial for the purposes of the Law that the law applicable to any of those policies may be the law of a jurisdiction other than Guernsey.
- Where a scheme has been sanctioned by the Royal Court under section 44 of the Law, the transferee shall deposit a copy of the order with the GFSC within a period of 10 days from the date on which the order is made (or such longer period as the GFSC may allow).