AAI Limited, application under the Insurance Act 1973 (Cth) [2015] FCA 452

Federal Court of Australia|2015-05-06|Before: Yates J

In relation to the following: the proposed scheme (Scheme) for the transfer of the insurance business of MTA Insurance Limited ABN 35 070 583 701 (MTAI) to AAI Limited ABN 48 005 297 807 (AAI) under Part III Division 3A of the Insurance Act 1973 (Cth) (Act), the need for the applicant to comply with section 17C(2)(c) of the Act is dispensed with provided that the Applicant complies with Order 2 below.
The applicant must carry out the following steps: (a) on or shortly after 8 May 2015, email a copy of the summary of the Scheme approved by APRA for the purposes of section 17C of the Act (Approved Summary) to current policyholders of MTAI and current and former policyholders of MTAI with an open claim, for whom MTAI has an email address, to that email address; (b) if any emails are returned as undeliverable, then send, as soon as reasonably practicable after the return, a copy of the Approved Summary by ordinary pre-paid post to the policyholders in question; (c) on or shortly after 8 May 2015, send by ordinary pre-paid post a copy of the Approved Summary to current policyholders of MTAI and current and former policyholders of MTAI with an open claim, for whom MTAI has a postal address but no email address; (d) if any posted material is returned as undeliverable, attempt (to the extent reasonably possible) to contact the dealer who distributed the policy, or Citigroup Pty Ltd ABN 88 004 325 080 (Citigroup) in relation to the Suncorp Credit Guard product, to the relevant policyholder to obtain a current email or, if not available, postal address and send, as soon as reasonably practicable, a further copy of that material by email or ordinary pre-paid post (as applicable) to the policyholder; (e) advertise the Scheme, in terms of Annexure A to this Order, on the website with links on that website to a copy of: (i) the Approved Summary; (ii) the notice of intention to make the Application to the Court for confirmation of the Scheme, in the terms of Annexure B to this Order (Notice of Intention); (iii) the Scheme; and (iv) the actuarial report of Tim Andrews of Finity Consulting Pty Limited dated April 2015 and supplementary letter dated 16 April 2015, from the day after the Notice of Intention is published in accordance with order 2(f) below, until the date of the confirmation hearing of the Scheme referred to in paragraph 3 below and include links to the website on the websites of the Applicant and MTAI, and the webpage of the website of Suncorp-Metway Limited ABN 66 010 831 722 that relates to credit cards, for the same period; (f) on or shortly after 8 May 2015, publish the Notice of Intention in the Government Gazette and in newspapers circulating in the areas where the current and former policyholders of MTAI acquired their policies, in accordance with the newspaper notification programme in Annexure C to this Order; (g) on or shortly after 8 May 2015, notify by email or ordinary pre-paid post: (i) motor dealers responsible for distributing the policies that are the subject of the Scheme; and (ii) Citigroup in relation to the Suncorp Credit Guard product, providing the Approved Summary by a link (if emailed) or a physical copy (if sent by post); and (h) if MTAI issues any new policies to policyholders (future policyholders) on or after 6 May 2015 but before the confirmation hearing of the Scheme, then send a copy of the Approved Summary to each of the future policyholders: (i) by email; or (ii) by ordinary pre-paid post for future policyholders whom MTAI has a postal address but no email address, as soon as practicable, from the day after the Notice of Intention is published in accordance with order 2(f) above, until the date of the confirmation hearing of the Scheme referred to in paragraph 3 below.

ANNEXURE A Information for policyholders about a proposed transfer of general insurance business MTA Insurance Limited ABN 35 070 583 701 (MTAI) is proposing to transfer its general insurance business to a related company, AAI Limited ABN 48 005 297 807 (AAI), by way of a scheme under Division 3A of Part III of the Insurance Act 1973 (Act). AAI and MTAI are both wholly owned subsidiaries of Suncorp Group Limited ABN 66 145 290 124. Before the proposed transfer can take place, MTAI and AAI must first obtain confirmation of the scheme from the Federal Court of Australia. If the scheme is confirmed, all of the general insurance business of MTAI will be transferred to AAI and AAI will become the underwriter of all policies issued by MTAI on or about 1 July 2015. Details of the finalised date for the transfer will be included on this page when it is known. Any person who holds a policy affected by the scheme (Affected Policyholder) has the right to attend the Federal Court on the application for confirmation of the scheme. An Affected Policyholder may request to be heard by the Court on the application. Affected Policyholders are not required to take any action before, or as a result of, the scheme. The hearing will take place on 16 June 2015 at 2.15pm (or on a later date which the Federal Court may specify), at the Court's New South Wales Registry which is located at the Law Courts Building, Queens Square, Sydney NSW. Apart from the underwriter changing from MTAI to AAI, the proposed transfer will not change your policy cover in place at the time of the transfer or affect the handling of your policy or any claim under your policy. All policies of MTAI will become policies of AAI. AAI will be wholly responsible for all obligations under the general insurance components of those policies. All claims currently handled by MTAI will be handled by AAI, except for general insurance claims under the Suncorp Credit Guard product, which will continue to be handled by Suncorp Life & Superannuation Limited ABN 87 073 979 530 but on behalf of AAI instead of MTAI. Any future claims arising under the transferred policies will similarly be handled by or on behalf of AAI. You can access a copy of the scheme summary, the scheme, the notice of intention and the actuarial report via this page. If you have any questions about the proposed transfer, or have issues in accessing the scheme summary, please call us on 1300 731 042.

ANNEXURE B INSURANCE ACT 1973 (CTH) Notice of intention to apply to the Federal Court for confirmation of a scheme under Division 3A of Part III of the Insurance Act 1973 (Cth) to transfer the general insurance business of MTA Insurance Limited to AAI Limited Notice is given that AAI Limited ABN 48 005 297 807 (AAI) proposes to make an application to the Federal Court of Australia seeking confirmation of a scheme under Division 3A of Part III of the Insurance Act 1973 (Cth) to transfer the general insurance business of MTA Insurance Limited ABN 35 070 583 701 (MTAI) to AAI (Scheme). AAI and MTAI are part of the Suncorp Group of companies and the Scheme is being undertaken as part of an internal reorganisation of the group. As a consequence of the Scheme, all of the general insurance business of MTAI will be transferred to AAI and AAI will be substituted for MTAI under policies underwritten by MTAI on or about 1 July 2015. The date fixed for the hearing of the application is 16 June 2015 at 2.15pm or on such other date as the Court appoints. The hearing will be held at the New South Wales Registry of the Federal Court of Australia, which is located at the Law Courts Building, Queens Square, Sydney NSW 2000. Any person who holds a policy underwritten by MTAI or who in the Court's opinion is otherwise affected by the Scheme (Affected Policyholders), may attend the Court hearing and request to be heard by the Court on the application for confirmation of the Scheme. It is important that Affected Policyholders take notice of the Scheme and consider whether they wish to attend the hearing. If an Affected Policyholder wishes to be heard at the hearing, it would assist if you let our lawyer, Ms Pamela Madafiglio of Minter Ellison know at least 3 days before the date fixed for hearing. Ms Madafiglio's contact details are: Before 18 May 2015 From 18 May 2015 Level 19, Aurora Place Level 40, Governor Macquarie Tower 88 Phillip Street 1 Farrer Place Sydney NSW 2000 Sydney NSW 2000

The telephone number is (02) 9921 8888. Affected policyholders are not required to take any action if they have no objection to the Scheme. Copies of this notice, the Scheme, a summary of the Scheme approved by the Australian Prudential Regulation Authority (Scheme Summary) and the actuarial report prepared by Tim Andrews of Finity Consulting Pty Limited dated April 2015, as updated by the supplementary letter dated 16 April 2015, on which the Scheme is based (Actuarial Report) (Scheme Documents) will be available on www.schemesummary.com.au from tomorrow. Copies of these documents will also be available for inspection by affected policyholders between 11 May 2015 to 5 June 2015 (inclusive), between 9:00am and 5:00pm, Monday to Friday (other than public holidays) at: (a) the offices of Minter Ellison at the following addresses: New South Wales (before 18 May 2015) New South Wales (from 18 May 2015) Minter Ellison Minter Ellison Level 19, Aurora Place Level 40, Governor Macquarie Tower 88 Phillip Street 1 Farrer Place Sydney NSW 2000 Sydney NSW 2000 Queensland Victoria Minter Ellison Minter Ellison Level 22, Waterfront Place Level 23, Rialto Towers 1 Eagle Street 525 Collins Street Brisbane QLD 4000 Melbourne VIC 3000 Australian Capital Territory Western Australia Minter Ellison Minter Ellison Level 3, 25 National Circuit Level 4, Allendale Square Forrest ACT 2603 77 St Georges Terrace Perth WA 6000 Northern Territory South Australia Minter Ellison Minter Ellison Level 1, 60 Smith Street Level 10, Grenfell Centre Darwin NT 0800 25 Grenfell Street Adelaide SA 5000

(b) and the offices of Dobson Mitchell & Allport at the following address: Tasmania Dobson Mitchell & Allport 59 Harrington Street Hobart TAS 7000 If an Affected Policyholder has any questions in relation to the Scheme or any information contained in this notice, please contact AAI's dedicated Scheme hotline by calling 1300 731 042. An Affected Policyholder may request a copy of the Scheme Documents (free of charge) by contacting the Scheme hotline. We recommend that each Affected Policyholder obtain and review the Scheme, the Scheme Summary and the Actuarial Report, which contains a discussion of the impact of the Scheme on policyholders.

ANNEXURE C Newspaper Location of notification Size of notification Date of notification The Australian Public notice 124mmH x 372mmW On or shortly after 8 May 2015 The Australian Financial Review Public notice 100mm deep x 259.9mm wide On or shortly after 8 May 2015 The Sydney Morning Herald Public notice 92mm deep x 260mm wide On or shortly after 8 May 2015 The Age Public notice 92mm deep x 260mm wide On or shortly after 8 May 2015 The Courier Mail Public notice 100mmH x 263mmW On or shortly after 8 May 2015 The Advertiser Public notice 100mmH x 263mmW On or shortly after 8 May 2015 The West Australian Public notice 100mmH x 270mmW On or shortly after 8 May 2015 The Mercury Public notice 94mmH x 263mmW On or shortly after 8 May 2015 The Canberra Times Public notice 100mmH x 227.2mmW On or shortly after 8 May 2015 Northern Territory News Public notice 100mmH x 263mmW On or shortly after 8 May 2015

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 309 of 2015

THE APPLICATION OF AAI LIMITED (ABN 48 005 297 807) AAI LIMITED (ABN 48 005 297 807)

REASONS FOR JUDGMENT 1 In this proceeding, the applicant, AAI Limited (AAI), seeks an order under s 17F(1) of the Insurance Act 1973 (Cth) (the Act) that a scheme under Div 3A of Pt III of the Act be confirmed to give effect to the transfer of the insurance business of MTA Insurance Limited (MTAI) to AAI (the scheme). 2 Its present application, made under s 17C(5) of the Act, is for dispensation with the need for compliance with s 17C(2)(c) of the Act - which requires an approved summary of the scheme to be given to every affected policyholder - provided certain other steps, by way of notification, are undertaken. I will discuss these steps in more detail below.

Background 3 AAI and MTAI are each authorised by the Australian Prudential Regulation Authority (APRA) to carry on a general insurance business. On 29 August 2014, AAI purchased MTAI's issued share capital, such that MTAI is now a wholly-owned subsidiary of AAI. Both AAI and MTAI are companies within the Suncorp Group. The ultimate holding company of the Suncorp Group is Suncorp Group Limited. The proposed scheme to transfer the insurance business of MTAI to AAI is part of an internal reorganisation within the Suncorp Group intended to achieve, amongst other things, efficiencies in management. The proposed effective date of the scheme, subject to obtaining the Court's confirmation, is 1 July 2015. 4 The policies of insurance to be transferred fall into two broad groups. The first group comprises the following: Loan Protection Insurance. Under these policies, loan repayments with respect to a motor vehicle, the purchase or lease of which has been financed, may be insured against the risk of disablement, accidental injury, involuntary unemployment, trauma or death. The involuntary unemployment component of these policies is underwritten by MTAI. The other components are underwritten by Suncorp Life & Superannuation Limited (SLSL). Equity/Equity Plus Insurance. Under these policies, a policyholder is insured against the risk of a shortfall between the residual amount payable under a finance contract and the amount payable under the policyholder's comprehensive motor vehicle insurance in the event that a vehicle is written off as a total loss. Cash Benefit Insurance. Under these policies, a policyholder is insured for a pre-agreed sum if the policyholder's motor vehicle, comprehensively insured on a market value basis, is written off by the motor vehicle insurer as a total loss. Marine Equity Insurance. These policies have similar wording to the policies for Equity Insurance for motor vehicles, with references to "motor vehicle" replaced with the term "boat". 5 MTAI has also issued policies for extended warranty insurance and tyre and rim insurance. These products were discontinued or withdrawn from the market in 2009 and 2013, respectively. 6 Each of the policies in this first group provides for a once only premium. The policies are short tail in nature. No policy has a term greater than 7 years. The policies are distributed through motor vehicle dealers pursuant to distribution agreements. Generally, the services of dealers, as provided in the distribution agreements, include the provision of general advice and product information in relation to the policies. MTAI also engages a number of these dealers to market its policies through merchandising and promotional agreements, which generally make provision for the delivery of merchandising and promotional services such as displaying MTAI signs or logos, distributing written materials and providing a link to MTAI's website. 7 The second group of policies concern a product called Suncorp Credit Guard. Under these policies, certain repayments with respect to a credit card issued by Suncorp-Metway Limited (Suncorp Bank) may be insured against the risk of involuntary unemployment, disablement, trauma or death. A monthly premium is payable and varies depending on the amount owing on the policyholder's Suncorp Bank credit card. The monthly premium is automatically charged to the credit card. The policies end on the policyholder's 65th birthday, although they may be terminated sooner in certain circumstances. Suncorp Credit Guard is distributed by Citigroup Pty Ltd (Citigroup). MTAI underwrites the involuntary unemployment component only. Citigroup handles all administration associated with Suncorp Credit Guard and all claims functions are managed by SLSL. SLSL also remits the relevant part of premium to MTAI at the end of each month pursuant to a binder arrangement between SLSL and MTAI.

Data on policyholders 8 In October 2014, MTAI compiled data relating to the current holders of policies issued by MTAI in relation to the first group of policies to which I have referred. The data was updated, and reveals the following as at 31 December 2014: There were 92,969 current policyholders holding a total of 126,515 policies (a number of policyholders hold more than one type of policy). All of the policies were issued by motor vehicle dealers rather than MTAI directly. None of the policies was annually renewing. 9 An analysis has been undertaken of the claims records of MTAI for the eight year period 1 January 2007 to 31 December 2014 in relation to these policies. This period is greater than the maximum term of any of the relevant products offered by MTAI. The analysis shows the following: MTAI received 13 claims that were raised and accepted after the relevant policy had expired. This represents 0.23% of the total 5,675 claims raised and accepted during the period across the product range. Approximately 360,000 policies were on foot, including policies that commenced before the period but continued to be in force during the period. 10 With respect to the second group of policies to which I have referred (concerning Suncorp Credit Guard), data has been compiled which shows that, as at 31 March 2015, there were 1,650 current policyholders holding 1,652 policies (two policyholders holding more than one policy). An analysis of claims with respect to the involuntary unemployment component of Suncorp Credit Guard for the six year period since mid-2009 (when the product was first written) shows that SLSL received a total of 21 involuntary unemployment claims (all from 2010 to 2015), 10 of which were declined. None of the 21 involuntary unemployment claims was received by SLSL after the relevant policy had expired.

The dispensation sought 11 Given the claims experience summarised at [9]-[10] above, AAI does not propose to provide a copy of the approved summary to former policyholders of MTAI other than those policyholders with an open claim. 12 With respect to the first group of policies, AAI proposes to send, on or shortly after 8 May 2015, an email (substantially in the form set out in annexure JD-4 to an affidavit made by Jamie Dobbs affirmed 26 March 2015 (the First Dobbs Affidavit)) containing a copy of the approved summary to current policyholders of MTAI and to former policyholders of MTAI with open claims, for whom MTAI has a personal email address. The evidence before me shows that MTAI has valid email addresses for 22,785 such policyholders (as at 31 December 2014). MTAI also holds a postal address for these policyholders. If any emails are returned as undeliverable, AAI proposes to send by ordinary pre-paid post, as soon as reasonably practicable after the return, a copy of the approved summary to the policyholders to whom such emails were addressed. 13 AAI also proposes to send, by ordinary pre-paid post on or shortly after 8 May 2015, a letter (substantially in the form set out in annexure JD- 4 to the First Dobbs Affidavit) containing a copy of the approved summary to current policyholders of MTAI and to former policies of MTAI with an open claim, for whom MTAI has a postal address but no personal email address. The evidence before me shows that there are 70,184 such policyholders. If any letter is returned as undeliverable, AAI proposes, to the extent reasonably possible, to attempt to contact the dealer who distributed the policy to the relevant policyholder to obtain a current email or, if not available, postal address and to send, as soon as reasonably practicable, a further copy of the approved summary by email or ordinary pre-paid post, as applicable, to the policyholder. 14 In respect of new policies which might be issued in this group, AAI proposes to carry out, for the new policyholders, the same notification procedures to which I have referred. 15 With respect to the second group of policies, AAI proposes to carry out the same notification procedures with respect to current policyholders, and with respect to former policyholders with open claims, described in [12]-[13] above. The evidence before me indicates that, as at 31 March 2015, there were 1,569 current policyholders of Suncorp Credit Guard for whom a personal email address and postal address are held, and 81 current policyholders for whom a postal address, but no personal email address, is held. If, in respect of the latter group of policyholders, a letter is returned as undeliverable, AAI proposes, to the extent reasonably possible, to attempt to contact Citigroup to obtain a current email or, if not available, postal address and send, as soon as reasonably practicable, a further copy of the approved summary by email or ordinary pre-paid post, as applicable, to the policyholder. 16 AAI proposes to carry out additional notification steps. 17 First, it proposes to advertise the scheme, substantially in the terms of annexure JD-5 to the First Dobbs Affidavit, on a website with the domain name www.schemesummary.com.au, with links to: the approved summary; the notice of intention to apply to the Court for confirmation of the scheme (the notice of intention); the scheme; and an actuarial report and supplementary letter of Finity Consulting Pty Ltd, in respect of the scheme. 18 Links to the website will also be included on the websites of: AAI; MTAI; and Suncorp Bank (where the site relates to credit cards). 19 Secondly, pursuant to paragraphs 7 to 11 of APRA Prudential Standard GPS410 Transfer and Amalgamation of Insurance Business for General Insurers, AAI will engage in a newspaper publication program in which it will publish the notice of intention in the Government Gazette and in approximately 10 national and regional newspapers. These newspapers circulate in the areas where current and former policyholders acquired their policies. 20 Thirdly, AAI proposes that, on or shortly after 8 May 2015, MTAI will notify by email or ordinary pre-paid post motor vehicle dealers responsible for distributing the policies falling within the first group, by providing the approved summary by a link (if sent by email) or a physical copy (if sent by post). The notification will include details about where customers can find more information about the scheme or request a copy of the approved summary. This notification will be substantially in the form set out in annexure JD-8 to the First Dobbs Affidavit. 21 Fourthly, AAI proposes to notify Citigroup of the scheme by email or ordinary pre-paid post and provide Citigroup with a copy of the approved summary by a link (if sent by email) or a physical copy (if sent by post). This notification will include details about where customers can find more information about the scheme or request a copy of the approved summary. The form of the notification will be substantially in the form of annexure JD-18 to a further affidavit made by Jamie Dobbs affirmed 30 April 2015.

Consideration 22 The granting of dispensation pursuant to s 17C(5) of the Act is a matter of considerable importance and should not be regarded as a matter of course: Challenger Life Limited [2004] FCA 618 at [2]-[3]; Munich Reinsurance Company of Australasia Limited [2004] FCA 1391 at [4]. The plain policy intention is that every affected policyholder should be given a summary of the scheme and an opportunity to make submissions to the Court in respect of the scheme at a confirmation hearing: The Application of Commonwealth Life Ltd & Anor (2003) 12 ANZ Ins Cas ¶90-117 at [8]; see also Westport Insurance Corporation, in the matter of Westport Insurance Corporation [2009] FCA 1357 at [38]; HDI-Gerling Australia Insurance Company Pty Limited, in the matter of HDI-Gerling Australia Insurance Company Pty Limited (ABN 16 069 985 196) [2010] FCA 505 at [38]-[39]. Nevertheless, I am satisfied that it is appropriate in the present case to grant the conditional dispensation that is sought. 23 I am satisfied that, because of the nature of the scheme and the circumstances attending its preparation, it is not necessary that the approved summary be given to every affected policyholder as contemplated by s 17C(2)(c) of the Act. 24 First, I am satisfied that the notification procedures proposed by AAI will elicit any potential, reasonably-based objection to the scheme. In this connection, I take into account that notice will be given to all current policyholders, and all former policyholders with an open claim. As the evidence indicates, in relation to the first group of policies, only a very small (almost insignificant) percentage of claims made and accepted in the period 1 January 2007 to 31 December 2014 were with respect to policies that had expired. In relation to the second group of policies, only 21 involuntary unemployment claims (all from 2010 to 2015) were made. None of these claims were received after the policy had expired. I also take into account the other notification steps which AAI proposes, which are directed to all affected policyholders. 25 Secondly, the transfer to be effected by the scheme is one internal to the Suncorp Group. The scheme will not result in any changes to policy terms and conditions for affected policyholders or result in any changes to the claim processes presently undertaken. The only change will be to the identity of the insurer within the group. The opinion expressed in the actuarial report provided by Finity Consulting Pty Limited is that the interests of the policyholders of both AAI and MTAI will not be adversely affected in any material way by reason of the scheme. 26 Thirdly, and importantly, APRA has been fully notified of the conditional dispensation that is sought and has raised no objection. Indeed, it has expressed its satisfaction that the measures proposed will elicit any potential policyholder objections to the scheme which can be brought before the Court for consideration. 27 There is a further matter to which I should refer. AAI proposes to give the approved summary to a significant number of affected policyholders by email or ordinary pre-paid post, rather than by registered post. Section 121 of the Act provides that the service or giving of a notice for the purposes of the Act may be undertaken personally or by registered post. The serving or giving of notice by email or by ordinary pre-paid post is not contemplated. Notwithstanding s 121, I am satisfied that, in the present case, there is no reason why the approved summary should not be given by email or by ordinary pre-paid post. That said, I would expect that, at the confirmation hearing, comprehensive evidence will be given revealing, in a meaningful way, the integrity of the notification process that is proposed in that regard.

Disposition 28 For these reasons, the dispensation that is sought should be granted substantially on the terms proposed. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.

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