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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  Legal & General Plc    LGEN   GB0005603997

LEGAL & GENERAL PLC

(LGEN)
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Legal & General : Relaxation Of The Part VII Market

11/17/2020 | 09:11am EST

On 20 August 2020, the English High Court sanctioned an insurance business transfer scheme under Part VII of the UK's Financial Services and Markets Act 2000 in Re Legal and General Assurance Society Ltd and another [2020] EWHC 2299 (Ch). 

The significance of this decision is that it can be distinguished from the 2019 decision (currently under appeal) of the English Courts in the case involving a transfer from Prudential to Rothesay in which the Court, having taken policyholders' interests into account, refused to sanction the transfer.  Market commentators note that the Prudential/Rothesay decision may be confined to the specific facts of that case and anticipate that insurance business transfer schemes may now be able to rely on the decision in Re Legal and General.

As both the Legal and General case and the Prudential-Rothesay cases were decisions of the English Courts, they are not binding on the Irish courts.  That said, we expect that both cases (and the Legal and General case in particular) will be carefully considered by the Irish Courts when considering portfolio transfers by Irish insurance companies. 

Re Legal and General Assurance Society Ltd and another [2020] EWHC 2299 (Ch)

In this case, Legal and General, for commercial reasons, sought to transfer its traditional insurance-based savings, pensions, life and with-profits business to Reassure, a specialist in acquiring and consolidating similar books of business. 

In deciding to sanction the transfer, the Court made clear that a balance must be struck between the commercial interests of the transferor and transferee, and those of the policyholders in question. That is not to say that a proposed transfer, that is proposed from a purely commercial perspective, should not be given effect. The test is whether, or not, the interests of policyholders would be adversely affected to such an extent that the transfer cannot be sanctioned.

Distinction from Prudential/Rothesay

In August 2019, the English Court declined to sanction the transfer of a portfolio of annuities from Prudential to Rothesay following complaints from policyholders. Where a transferor/transferee can distinguish its transfer application from the facts of the Prudential/Rothesay case, they may benefit from the more liberal decision in Re Legal and General. 

The transfer in Re Legal and General was distinguished from the Prudential/Rothesay case on the following grounds:

  1. Unlike in the Prudential/Rothesay case where the Court observed that the commercial objective of the transfer was achieved by way of reinsurance agreement between the parties, in Re Legal and General the Court was satisfied that the transfer was within the scope of the relevant legislation and that it was supported by sound commercial principles.
  2. The policyholders would, in fact, benefit from the proposed transfer as the new scheme had in place processes designed to address the diminishing fund being transferred.
  3. The transferee is part of a large and well-capitalised group, which gave the Court comfort as to the future viability of the fund.

Other Notable Points

The Court reiterated the established high standard for disregarding the report of the independent actuary in observing that "there must be strong grounds for supposing that the independent expert has mistaken his function or made an error before a challenge to the report can be mounted". The Court also confirmed that while an actuary is not required to demonstrate how they arrived at any particular conclusion (i.e. by showing their workings), the court must be satisfied that the scheme will not adversely affect policyholder interests.

Conclusion

This case is a welcome confirmation of the principles applicable to Part VII transfers and of the principles applicable to insurance business transfers more generally.  Although the case is not binding in Ireland, we expect that it will be closely examined by the Irish Courts. 

Originally published 27 October 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr John Larkin
William Fry
2 Grand Canal Square
Dublin 2
D02 A342
IRELAND

© Mondaq Ltd, 2020 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source Business Briefing

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Sales 2020 32 991 M 45 138 M 45 138 M
Net income 2020 1 664 M 2 276 M 2 276 M
Net Debt 2020 1 149 M 1 571 M 1 571 M
P/E ratio 2020 9,43x
Yield 2020 6,70%
Capitalization 15 737 M 21 502 M 21 531 M
EV / Sales 2020 0,51x
EV / Sales 2021 0,41x
Nbr of Employees 8 542
Free-Float 97,4%
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Number of Analysts 18
Average target price 279,56 GBX
Last Close Price 265,10 GBX
Spread / Highest target 43,3%
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Spread / Lowest Target -37,8%
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NameTitle
Nigel David Wilson Group Chief Executive Officer & Executive Director
John Kingman Chairman
Jeff Davies Group Chief Financial Officer & Executive Director
Julia Susan Wilson Senior Independent Non-Executive Director
Lesley Mary Samuel Knox Independent Non-Executive Director
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