Factual and Procedural Background
The case concerns a proposed insurance business transfer scheme under Part VII of the Financial Services and Markets Act 2000 (FSMA) relating to non-life insurance business written through Lloyd's members for the years of account 1993 to 2018 inclusive. Lloyd's is a statutory corporation that admits members who conduct insurance business on their own accounts. The non-life liabilities for years up to 1992 had already been transferred to another entity, so the present proceedings focus on the subsequent 25 years of policy writing, which encompass a wide range of insurance lines and involve a complex market structure with thousands of members, syndicates, managing agents, brokers, and coverholders.
Some of the relevant business was conducted in the European Economic Area (EEA) relying on passporting rights under the Prudential Regulation Authority's (PRA) authorisation in the UK. With the UK’s impending departure from the EU, these passporting rights will cease, necessitating the establishment of an authorised insurance company within the EEA to continue writing and servicing relevant business. Lloyd's established such a company, referred to as Lloyd's Insurance Company SA (LIC), based in Belgium, intending to transfer all current relevant EEA business to LIC with reinsurance back to Lloyd's members.
The procedural history includes the Council of Lloyd's authorising Lloyd's itself to act as transferor for members in connection with the Part VII transfer, and Lloyd's issuing a direction requiring members and former members to participate and appoint Lloyd's to act on their behalf. The claim form before the court seeks an order sanctioning the transfer scheme, although the scheme itself remains in draft form and no independent expert report has yet been produced.
Legal Issues Presented
- Whether the court has jurisdiction to consider and make a preliminary order that the draft transfer scheme is fit for consideration and that certain proposed steps are appropriate, despite the absence of a settled scheme and independent expert report at this stage.
- Whether Lloyd's can validly appoint itself as transferor on behalf of its members and former members for the purposes of the Part VII transfer.
- Whether the transfer of business relating to EEA situs risks or EEA resident policyholders will be carried on by LIC at an EEA establishment, notwithstanding servicing activities conducted in London.
- Whether the proposed definition of transferring policies, which identifies policies at the point of claim rather than in advance, provides sufficient certainty of object to be workable under the scheme.
- Whether the scheme’s approach to splitting policies—transferring some risks under a policy to LIC while retaining others with Lloyd's members—is permissible under the court’s ancillary jurisdiction.
- Whether the proposed reinsurance arrangements backing the transferred risks are appropriate and lawful.
- Whether the method proposed for establishing that the transfer order would achieve a substantial purpose is appropriate.
- Whether the proposed notification and communication strategy to policyholders, including potential dispensation from notifying holders of non-transferring policies, is appropriate.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Re Speyford [2008] EWHC 2960 (Ch) |
Clarification that the application process under FSMA section 109 is ongoing and not confined to the initial claim form document. |
The court followed Floyd J’s approach allowing consideration of the claim form despite the absence of an independent expert report at the time of filing. |
| Seals v Williams [2015] EWHC 1829 |
Inherent jurisdiction of the court to express non-binding provisional views to assist case management and early neutral evaluation. |
The court relied on this principle to justify providing preliminary indications about the scheme’s fitness for consideration without binding future decisions. |
| Re Barclays Bank plc and Barclays Bank Ireland Plc [2018] EWHC 2868 |
Preliminary rulings on ancillary transfers under FSMA section 112 and the court’s ability to provide provisional guidance without final determination. |
The court noted this case as an example supporting provisional views on complex transfer issues at an early stage. |
| Re Prudential Assurance Company Limited [2013] EWHC 3877 |
Principled approach to determining where insurance business is actually carried on for regulatory purposes. |
The court applied these principles to affirm the prospect that LIC’s EEA establishment would be considered the location for carrying on transferred business despite servicing from London. |
| Re AIG Europe Limited [2018] EWHC 2818 |
Court’s ancillary jurisdiction under FSMA section 112(1)(d) to allow splitting of policy risks in transfer schemes. |
The court found no obvious flaw in the proposed splitting of policies and reinsurance arrangements, subject to detailed mechanics and regulatory concerns. |
| Re Copenhagen Reinsurance Co (UK) Ltd [2016] EWHC 944 |
Use of retrocession cover and reinsurance mechanisms in transfer schemes under FSMA section 112(1)(d). |
The court saw no obvious problem with the proposed reinsurance structure backing the transfer to LIC. |
| Sompo Japan Insurance Inc v Transfercom Ltd [2007] EWHC 146 |
Requirement that a Part VII transfer order must achieve a substantial purpose, including effectiveness in relevant jurisdictions. |
The court accepted the proposed evidential approach to demonstrate that the transfer would achieve a substantial purpose. |
| Aviva International Insurance Ltd [2011] EWHC 1901 |
Factors relevant to the court’s discretion to dispense with notification requirements to policyholders. |
The court acknowledged the likelihood of granting dispensation from full notification to non-EEA policyholders based on proportionality and practicality. |
Court's Reasoning and Analysis
The court first addressed the jurisdictional question of considering a claim form lacking a settled scheme and independent expert report, concluding that the application process is ongoing and the absence of the report at this stage does not preclude consideration. The court emphasized its inherent jurisdiction to provide non-binding, provisional guidance to assist case preparation, but cautioned against expressing views that might unduly influence the outcome.
The court then examined whether the draft scheme was obviously incapable of meeting statutory or authority-established criteria. It found no such roadblocks. The court considered the validity of Lloyd's appointing itself as transferor and found a real prospect of affirming this. It also found the transfer of EEA-related business to LIC’s EEA establishment plausible, referencing prior authority on the location of business activity.
Regarding the definition of transferring policies, the court recognized the difficulty of identifying policies in advance due to volume and age but accepted the proposed approach of defining transfers at the point of claim as potentially workable with appropriate refinements. The court drew parallels with certainty of object principles from trust law to support this.
The court found no inherent flaw in the proposed splitting of policies and associated reinsurance arrangements, noting the court’s ancillary jurisdiction under FSMA section 112(1)(d) and prior case law allowing such mechanisms, subject to regulatory concerns and detailed mechanics.
On the substantial purpose requirement, the court saw no obvious problem with the proposed evidential method to demonstrate effectiveness in England and other relevant jurisdictions.
Finally, the court addressed notification to policyholders, acknowledging the complexity and likely necessity of dispensing with full notification to holders of non-transferring policies. It recognized that notification serves to enable affected policyholders to participate in the transfer process and that the communication strategy would be iterative and developed in consultation with regulators. The court found the outline communication approach not obviously inappropriate but emphasized it remained subject to regulatory views.
Holding and Implications
The court granted a provisional order recording that, on the material before it, there is no feature of the proposed scheme that renders it obviously incapable of satisfying statutory or authority criteria necessary for sanction. The court emphasized that this order is not binding on the court at any subsequent hearing, the regulators, or the independent expert, all of whom retain full discretion to consider and object to aspects of the scheme as it develops.
The holding is that the draft scheme is fit for consideration and the proposed steps are, at this stage, appropriate subject to further examination and refinement.
The direct effect is to allow the scheme process to proceed to subsequent stages, including the production of the independent expert report and further regulatory engagement. No new legal precedent was established, and the court’s order is explicitly provisional and non-binding on future determinations.