Aviva Protection Limited & Anor, Re

MR JUSTICE TROWER :

1. This is an application by Aviva Protection UK Limited, which I shall call APUK or the transferor, and Aviva Life and Pensions UK Limited, which I shall call UKLAP or the transferee, seeking an order under section 111 of the Financial Services and Markets Act 2000 (“FSMA”) sanctioning an insurance business transfer scheme. The scheme effects a transfer of the whole of the business of APUK to UKLAP, both of which are authorised by the Prudential Regulation Authority (“PRA”) and regulated by the Financial Conduct Authority (“FCA”) with Part 4A permission to carry on long-term business in the United Kingdom.

2. The business to be transferred consists of a portfolio of individual and group life, critical illness, death in service, pension and income protection policies acquired or sold directly by APUK through third parties and independent financial advisers. Apart from substituting the transferor with the transferee, there will be no change to the terms and conditions of the policies, and they will continue to be administered by the same service provider following the transfer.

3. Both APUK and UKLAP are members of the Aviva group of companies. APUK was formerly called AIG Life Limited. It was acquired by UKLAP on 8 April 2024, from Corebridge Financial Inc, a US entity in the American International Group (“AIG”), since when it has been operating as a wholly owned member of the Aviva Group.

4. As at 31 December 2024, the transferring business comprised approximately 1.3 million individual protection policies and some 15,000 group protection policies covering approximately 1.2 million members. It follows that there are in the region of 2.5 million individuals whose interests in policies are to be transferred.

5. The purpose behind the proposed scheme is to facilitate the integration of APUK into the Aviva Group. The boards of directors of both companies consider that this will have operational and capital optimisation benefits and will create a more efficient platform to serve both existing and new customers. There is no reason to doubt that this is a proper conclusion for them to have reached.

6. The transferring business was carried on in the UK, but there are a number of policyholders with addresses in the Channel Islands, the Isle of Man and Gibraltar. Parallel transfer schemes are being progressed in Jersey with a sanction hearing fixed for 2 December and in Guernsey with a sanction hearing fixed for 5 December. However, the evidence is that such a process is not required in respect of those of the transferring policies where the policyholder address is located in the Isle of Man or Gibraltar.

7. The court’s jurisdiction to sanction an insurance business transfer scheme arises under section 111 of FSMA. It requires the court to be satisfied of three essential matters. The first one is that the appropriate certificates have been obtained. The second is that the transferee has the authorisation required, if any, to enable the business (or part) which is to be transferred to be carried on in the place to which it is to be transferred. The third is that the court must consider that in all the circumstances of the case it is appropriate to sanction the scheme.

8. The first two of these three requirements are important matters of technical significance and they are satisfied in the present case. I need say no more about them.

9. The third requirement is expressed in very general terms, but the approach the court is required to take has been explained in detail by the Court of Appeal in Prudential Insurance Company Limited [2020] EWCA Civ 1626 (“ Prudential ”) at paragraphs 75 to 86. It is not necessary to set out the whole of that passage in this judgment, but I can summarise the approach in a case such as the present one as follows.

10. First, the court is required to identify the nature of the business being transferred and the underlying circumstances giving rise to the scheme.

11. Secondly, the court must have regard to the interests of those most affected by the scheme, the identity of which will depend on the nature of the business.

12. Thirdly, the discretion the court is called on to exercise must take into account and give proper weight to matters that ought to be considered and ignore matters that ought not properly to be taken into account.

13. Fourthly, the paramount concern of the court will be to assess whether the transfer will have any material adverse effect on the receipt by the policyholders of their benefits and on whether the transfer may have any effect on payments that are or may become due to the other policyholders and creditors of the transferor and transferee.

14. Fifthly, the court is concerned to assess whether there may be any material adverse effect on the service standards provided to the transferring policyholders.

15. Sixthly, the court’s first duty is to scrutinise the report of the independent expert and the regulators with care. It must understand the opinions presented and is entitled to ask questions with a view to identifying any errors, omissions or instances of inadequate or defective reasoning. However, full weight must be given to the opinions of the independent expert and the regulators. The court recognises that it is not itself an expert and should not substitute its own expertise such as it is for that of the entities required or entitled by statute to proffer those opinions. This approach is also a requirement of the court when comparing the security of policyholder benefits and the standards of service in corporate governance between the positions that would exist with and without the proposed scheme.

16. Seventhly, the adverse effect will only be material to the court’s consideration if it is a possibility that cannot sensibly be ignored having regard to (a) the nature and gravity of the feared harm in the particular case; (b) a consequence of the scheme and (c) material in the sense that there is the prospect of real or significant as opposed to fanciful or insignificant risk to the position of the stakeholders concerned.

17. Lastly, the court cannot require the applicants to vary the scheme, the terms of which are for the directors of the transferor and the transferee concerned, having regard of course to their duty to promote the success of the companies. The court’s ultimate role is to decide whether or not to sanction the proposed scheme on the basis that in all the circumstances of the case it is appropriate to do so.

18. The Court of Appeal also decided that two factors were irrelevant to the exercise of the court’s discretion. The first was the availability and possibility of non-contractual support from other companies, usually a parent, in the group of which either the transferee or transferor forms part. The second is the fact that policyholders might have chosen the transferor for reasons of age, venerability and reputation and might have assumed that their policies would not be transferred to another provider. Such subjective factors, however sympathetic the court may feel towards them, are not to be taken into account.

19. In support of the present application, APUK has adduced evidence from its chief executive officer and UKLAP has adduced evidence from its chief financial officer. Each company has also produced a report and a supplementary report from its chief actuary: Michael Aitcheson, in the case of APUK (he is primarily concerned with the position of the transferring policyholders) and Andrew Carr, in the case of UKLAP (he is primarily concerned with the position post-scheme of UKLAP’s existing policyholders.

20. The conclusions of these four reports are that the scheme does not result in any changes to policyholder benefit expectations. The circumstances under which policyholder benefits would be adversely affected are not materially changed by the scheme. In particular, the security of benefits for policyholders is not materially adversely affected by the scheme because the surplus capital in UKLAP remains in excess of its solvency risk appetite after the proposed transfer.

21. The actuaries also say that, whilst the level of risks to which policyholders are exposed are changed by the scheme, the changes in exposure to any individual risk are not inappropriate or excessive while the policyholders remain supported by an adequate level of capital. They also confirm that the administration and management of policies and treatment of policyholders, together with the governance structures within both transferor and transferee as they affect the position of policyholders, are not materially adversely affected by the scheme.

22. By section 109 of FSMA, the applicants are required to appoint an independent expert to report on the terms of the scheme. He must be approved by the regulators, and his report must also be in an approved form. The independent expert, approved by the PRA, is Mr Oliver Gillespie, a partner in Millman LLP. He is a fellow of the Institute and Faculty of Actuaries. He has produced two reports. The first is dated 1 July 2025. The second is dated 7 November 2025 and has been available on the scheme website since 11 November.

23. I have read both reports, which are conspicuous in their clarity. Each of them is in a form approved by the PRA. I have also read a summary of Mr Gillespie’s report enclosed in the transfer pack sent to policyholders. Mr Gillespie’s conclusion is set out in section 11 of his first report it which he expressed the view that the implementation of the scheme would not have a material adverse effect on: a. the security of benefits to which policyholders of the transferor are entitled under the terms and conditions of their policies, an assessment he made primarily by reference to the financial strength of each company; b. the reasonable expectations of the transferring policyholders in respect of their benefits, an assessment he made by reference to the financial security of policyholder benefits, the policy terms and conditions and management’s approach to any discretionary elements such as claims handling; or c. the standards of administration, servicing, management and governance that would apply to the transferring policies.

24. Mr Gillespie confirmed this opinion in his second report with the benefit of the applicable figures for the position as at 30 June 2025, which he described as broadly similar to the position as at 30 December 2024.

25. It is not appropriate for me in this judgment to delve into the detail of the figures which are addressed and presented by Mr Gillespie in his report. However, I should give a short summary description of those figures, while at the same time recognising that their impact on the question of whether the policyholders will suffer any material adverse change from the scheme is, in accordance with the principles laid down by the Court of Appeal, a matter on which the view of the independent expert and the regulators carry full weight.

26. Looking first at the current financial strength of APUK, as at 30 June 2025 it had technical provisions of £583 million. It had best estimate liabilities, gross of re-insurance of approximately £546 million and net of re-insurance a negative figure of approximately £300 million. I should say that this negative figure on the net re-insurance basis means that the cash flows received from the business, including premiums and future re-insurance recoverables, more than offset the cash flows paid out in the form of expenses and policyholder claims.

27. As at the same date, APUK had an excess of own funds over its solvency capital requirement of £154 million, giving rise to a solvency coverage ratio of 174% (up by 4% on the ratio as at 31 December 2024). APUK defines its target capital as the level of capital required in normal times to cover solvency requirements over a medium-term horizon. The target capital is expressed as the percentage of its solvency capital requirement and is calibrated to ensure that APUK can meet its solvency coverage ratio in a one in 10 year stress.

28. APUK also has a liquidity risk appetite that is set to maintain defined target liquid asset levels under both normal and stressed conditions, such that it maintains sufficient operational liquidity to meet payments such as policyholder claims and operational costs as they become due. As at 30 June 2025, APUK’s solvency ratio of 174% remained below its target capital ratio, although still within its liquidity risk appetite.

29. In large part, this low solvency ratio was driven by the termination of certain re-insurance agreements. However, I should add that capital injections have been provided to APUK to address the fall in solvency ratio with the consequence that significant measures have not been required to restore its solvency ratio to the target capital level.

30. Turning now to the current financial strength of UKLAP, the transferee, as at 30 June 2025, it had approximately 17.4 million policies in force across a wide range of product types with 3.7 million individual protection policies and 2.8 million group policies. Its technical provisions as at 30 June 2025 amounted to £268 billion and its BPL was also approximately £268 billion gross of re-insurance. As at the same date, based on its Solvency II balance sheet, UKLAP had an excess of own funds over its solvency capital of around £3.3 billion giving rise to a solvency coverage ratio of 162%.

31. UKLAP sets a solvency risk appetite as a threshold for its solvency ratio, the purpose of which is to manage the risk of breaching its regulatory capital requirements while pursuing strategic business objectives. The solvency risk appetite is expressed as a percentage of its solvency capital requirement and is calibrated to ensure that UKLAP can meet that requirement after a one in 10 year stress event. As at 30 June 2025, the UKLAP solvency ratio was above its solvency capital requirement. UKLAP also has a liquidity risk appetite to ensure that there is sufficient operational liquidity to continue to meet payments such as policyholder claims and operational costs under stressed conditions. UKLAP was also in compliance with that liquidity risk appetite.

32. Turning then to the impact of the scheme on the transferring policyholders, if the scheme were to have been sanctioned on 30 June 2025, the transferring policies would have been transferred from APUK with a solvency ratio of 174% to UKLAP which, after allowance for the implementation of the scheme, would be expected to have a solvency ratio including the transferring business of 164%.

33. However, as at that date, APUK solvency ratio was below its target capital while UKLAP solvency ratio was above its solvency risk appetite. The effect from the perspective of the transferring policyholders is that the transferring business would be transferred from a company holding less than the amount needed at the one in 10 year level to a company holding more than the amount needed at the one in 10 year level. It follows that there would, if anything, be a small increase in the financial strength providing security of benefits for the transferring policies.

34. As to the impact of the scheme on the financial strength provided for the existing UKLAP policyholders, if the scheme had been implemented on 30 June 2025, there would have been a small increase in UKLAP’s solvency ratio from 162% to 164% which would have remained above its solvency risk appetite. It is also important to bear in mind the discrepancy or difference in size between the liabilities of APUK and UKLAP. This can be illustrated by the fact that, if the scheme had been sanctioned on 30 June 2025, APUK’s current liabilities would have represented approximately 0.2% of UKLAP’s BEL on a gross of insurance basis, obviously reflecting what Mr Gillespie described as the materially larger size of UKLAP.

35. Mr Gillespie also looked at administration and governance issues. In practical terms, administration is unchanged from the current position. This has led him to opine that the implementation of the scheme would not have a material adverse effect on the standards of administration and service that would apply to the transferring policies. I am satisfied from the evidence I have read that this opinion is based on sound reasoning and should be given full weight.

36. As to governance, Mr Gillespie expressed himself satisfied that UKLAP would retain knowledge of the specific characteristics of the transferring business and processes if the proposed scheme were to be implemented and that overall there would be no material adverse impact to the transferring policies as a result of being subject to the governance of UKLAP rather than that of APUK.

37. Mr Gillespie has also considered the communications strategy of APUK and UKLAP both in relation to the direct communications with the policyholders as well as the further distribution of information in respect of the scheme. He is satisfied that the approach is appropriate and fair and that the content of the communications is clear, adequate and appropriately tailored to the needs of the customers. In my judgment, taken overall, the evidence clearly justifies the summary conclusions set out in section 11 of Mr Gillespie’s first report.

38. Quite apart from the reports from Mr Gillespie, the court has also been provided with reports from the PRA and the FCA. The PRA reports give a helpful description of the UK’s solvency framework and the approach adopted to the evaluation of the scheme. The reports confirm that the PRA was not aware of any significant PRA-related issues arising in relation to the proposed scheme. These included matters in relation to the Financial Services Compensation Scheme (“FSCS”); the location of policyholders in the Channel Islands, the Isle of Man and Gibraltar; the impact of economic sanctions; the recent acquisition by the Aviva Group of the Direct Line Group, and the application of a particular re-insurance treaty. The FCA report also considered the scheme from a regulatory perspective and in particular considered the position in relation to sanctions, conflicts, access to the FSCS and the Ombudsman and the consumer duty standard of UKLAP as transferee.

39. The PRA also explained how in assessing an insurer’s financial resources it has regard to not only its solvency capital requirement but also its risk appetites and capital management policies and its solvency risk appetite calibrated to ensure that the transferee could still meet its solvency capital requirement after a one in 10 year stress event. The PRA said that it was not aware that there were any significant PRA-related regulatory issues arising in relation to the proposed scheme. Both it and the FCA also expressed themselves satisfied that the way in which communications to policyholders were made gave it no cause to object to the scheme.

40. I have also considered the documentation, which has been sent out to transferring policyholders and policyholders of UKLAP. Policyholders have been given the opportunity to comment on and object to the scheme through the operation of a comprehensive communications strategy which was authorised by the court at the time of the original directions hearing before ICCJ Prentis on 16 July. It involved the provision to policyholders of a Transfer Guide, which I have read. The evidence disclosed a level of returns of the documentation sent out to policyholders which ran at approximately 0.5% of gone-away responses, which the regulator considers, and I agree, is no more than is to be expected in a scheme of this sort. I see no reason to conclude that the opinions of the PRA and the FCA in relation to policyholder communication were not well-founded.

41. The PRA has also considered an issue which was described in paragraphs 7.24 to 7.28 of Mr Gillespie’s second report relating to the 2025 version of its life insurance stress test, an exercise exploring prominent UK life insurers’ abilities to withstand several prescribed stress scenarios. The results of that stress test have now been published. Mr Gillespie said that he had reviewed them in draft and was satisfied they did not change his conclusions on the proposed scheme. The PRA said that these results gave it no reason to object to the scheme.

42. Finally on this point, but importantly, the PRA and the FCA have given consideration to the views of policyholders who have engaged with the process. Mr Gillespie has also been provided with all material policyholder responses and has been requested to consider whether they change his view on material adverse effect. The responses to the circulation received by the applicants have been, relatively speaking, limited in the sense that of the 2.5 million individuals affected, responses relating to the scheme itself have been received from rather less than 2,500 individuals which have been included in or incorporated into six different categories: general enquiries, technical enquiries, document requests, objections, expressions of dissatisfaction and complaints.

43. Of those responses there were initially some 33 objections and six expressions of dissatisfaction, although by the time the evidence was complete I think the number of objections had potentially risen to 37. Although these objections and expressions of dissatisfaction can properly be regarded as very small indeed compared to the overall constituency of policyholders, they are each worthy of full consideration. It is always possible that, notwithstanding the care with which the scheme appears to have been put together by the applicants and their professional advisors and the diligent scrutiny of the scheme by the independent expert and the regulators, one or more of a very small minority of policyholders has identified a material problem.

44. The applicants have placed the objections in one of eight categories, most of which were a prior negative experience with or perception of the Aviva Group, an objection which was advanced by 16 policyholders. The other categories are negative experience with APUK (2); concerns about changes in terms and conditions including losing cover (5); experience of problems with previous transfers (1); an assertion that they chose APUK and do not understand why things need to change (4); concerns about financial stability, which actually was about the financial stability of a third party (1); concerns about consolidation in the insurance market (1), and objections which were simply objections without any reason being given (4). There have also been two complaints from two recent policyholders who complained that at the time they took out their policies they were not told of the imminence or extent of the transfer.

45. Each of these objections has been considered by Mr Gillespie and taken individually and overall they have not caused him to reconsider his opinion that the implementation of the scheme would not have a material adverse impact on the position of any of the objectors in any of the respects I have already identified. I can see no reason to disagree with that conclusion. It is perfectly understandable that there will be some policyholders who chose another insurer, in the present case an AIG entity, and who will then object to a compulsory transfer of their policies to a transferee which they did not choose, more particularly if it is one with which they would not have contracted at the outset. On analysis, this concern is at the root of almost all of the objections.

46. However, there are two factors which it is important to stress. The first is that it is necessary to have in mind that APUK is already a member of the Aviva Group, having been acquired from AIG during the course of 2024. Objections based on a concern about Aviva are therefore rather beside the point, given that this application is all about whether the policy should be transferred from what is already one Aviva Group company to another.

47. The second is that the law requires the court to leave out of account as irrelevant the types of subjective consideration which the Court of Appeal referred to in Prudential . It provides for compulsory business transfers in circumstances in which the court, fortified by the opinions of an independent expert and the regulators, is satisfied that the transfer will not have a material adverse effect on the security of benefits and reasonable expectations of the transferring policyholders or on the standards of administration, servicing, management and governance that would apply to the transferring policies. In the present case I am so satisfied.

48. The only other aspect of the objections on which it is appropriate for me to comment is a concern expressed about changes in the terms and conditions of transferring policies including concerns about the loss of cover. As it is not intended that there will be any changes in the terms and conditions of the policies apart from the identity of the insurer, I can well understand why Mr Gillespie took the view that this particular category of complaint, of which there were five, doubtless from people who felt very strongly about what they perceived to be a change in their position, did not cause him to consider that there would be any material adverse effect on the position of transferring policyholders. This is a view which was shared by the PRA and the FCA and is one with which I agree.

49. Therefore, stepping back as I am bound to do and looking at the exercise which I have to carry out in order to comply with the court’s duty under section 111 , I am satisfied that the requirements of the statute have been complied with and that in all the circumstances of the case it is appropriate to sanction the scheme. End of Judgment Transcript of a recording by Acolad UK Ltd 291-299 Borough High Street, London SE1 1JG Tel: 020 7269 0370 [email protected] Acolad UK Ltd hereby certify that the above is an accurate and complete record of the proceedings or part thereof. This transcript has been approved by the judge.