On 16 March 2012, Mr Justice Morgan handed down his judgment on an application for directions on the Part VII transfer of the UK insurance business of the Combined Insurance Company of America (CICA) to ACE European Group Limited (AEG) and ACE Europe Life Limited (AEL) (click here for a copy of the judgment).

The application and decision are interesting, not so much for the transfers, as for the approach taken by the FSA, the transferor and transferees, and the Court.

CICA agreed to transfer the insurance business of its UK branch (CICA UK) to AEG and AEL.

The Financial Services and Markets Act 2000 (Control of Business Transfers) (Requirements on Applicants) Regulations 2001 (the Regulations) required CICA, AEG and ACE (the Parties) to publish a notice of these transfers in the UK and EEA press. The regulations also required the Parties to give notice of the transfer to all of their policyholders and some of their reinsurers. The Parties asked the Court to relax these requirements so that notices would only have to be sent to UK policyholders and published in the UK press. The FSA asked the Court to require the Parties to give notice to 293,000 former CICA UK policyholders as well – although the Regulations did not require them to do so.

The FSA did not object to the Parties’ relaxation request, which was granted by the Court. The Parties objected strongly to the FSA’s request that former CICA UK policyholders should be notified as well. The FSA wanted notice to be given because, following FSA enforcement action, CICA UK was carrying out a past business review (PBR) that might generate compensation for current and former CICA UK policyholders. Responsibility for the PBR, and the potential obligation to pay compensation, were being transferred with the rest of CICA UK’s insurance business to AEG and AEL. Former CICA UK policyholders may therefore be affected by the transfers because the transfers will complete long before the PBR. The Parties accepted that former policyholders were entitled to make representations to the Court about the Part VII transfers. They also accepted that the Court could take former policyholders’ views into account when it decided whether to sanction the transfers, or not. However, they declined to give notice to CICA UK’s former policyholders because the cost would arguably exceed the contingent benefits and giving notice could generate compensation expectations that may not be fulfilled. In the event, the Court declined to require the Parties to give this notice.

This is interesting for several reasons. Over the last year or so, the FSA has materially increased its scrutiny of Part VII transfers. This scrutiny is more intrusive and it begins at a much earlier stage in the Part VII process. At the same time, the FSA seems to be using its lawyers more freely and giving them their heads. Some insurers say this approach is making it more difficult to get a Part VII transfer away, and to get it away on time. One possible consequence (apparent in this case) is that firms are pushing back. In the past, if the FSA wanted, or objected to, something in particular, firms generally accepted its requirements, or gave up on the transfer. The received wisdom was always that if firms resisted, and the Court was asked for a view, it would follow the FSA’s lead. In this case, the Parties wouldn’t accept the FSA’s requirements, didn’t give up on the transfer and the Court didn’t follow the FSA’s lead. Only time will tell us whether this the beginning of a new trend…or just a one off, decided on its particular facts.