Application of Sompo Japan Insurance Inc. under the Insurance Act 1973 (Cth) [2014] FCA 396

Federal Court of Australia|2014-04-08|Before: Yates J

REASONS FOR JUDGMENT 1 The applicant, Sompo Japan Insurance, Inc. (Sompo), seeks an order which dispenses with the need for compliance with s 17C(2)(c) of the Insurance Act 1973 (Cth) (the Act) in respect of a scheme under which the Australian general insurance business of Nipponkoa Insurance Company Limited (Nipponkoa) will be transferred to it.

Background 2 Nipponkoa is a company incorporated in Japan. It is registered as a foreign company under the Corporations Act 2001 (Cth) (the Corporations Act). It is authorised by the Australian Prudential Regulation Authority (APRA) to carry on insurance business in Australia. Nipponkoa commenced carrying on its insurance business in Australia in about 1962. 3 Sompo is also a company incorporated in Japan and registered as a foreign company under the Corporations Act. It is also authorised by APRA to carry on insurance business in Australia. 4 Both Nipponkoa and Sompo are wholly-owned subsidiaries of NKSJ Holdings, Inc., which is a company incorporated in Japan and listed on the Tokyo Stock Exchange. 5 Nipponkoa and Sompo propose to undertake a merger under Japanese law, which is due to take effect on 1 September 2014. After the merger, Sompo will be the surviving entity. Nipponkoa will cease to exist as a separate corporate entity. 6 By proposing the scheme, Nipponkoa and Sompo seek to undertake the following steps in advance of the merger: The Australian insurance business of Nipponkoa will be transferred to Sompo. Nipponkoa will apply to APRA for revocation of its authorisation under the Act. Nipponkoa will wind up its Australian branch and apply to the Australian Securities and Investments Commission for deregistration as a foreign company in Australia.

Nipponkoa's Australian insurance business 7 Nipponkoa's Australian insurance portfolio comprises fire, motor vehicle, accident and liability product lines. Its Australian policyholders are principally Japanese corporate clients that have operations in Australia (described as commercial clients), and employees and officers of commercial clients (described as domestic clients). 8 On 1 April 2014, Nipponkoa ceased issuing new and renewal Australian policies. On and from that date, Sompo offered to issue the policies that, previously, would have been issued by Nipponkoa. 9 The management of both Nipponkoa's and Sompo's Australian branch operations is outsourced. Allianz Australia Insurance Limited (Allianz) has been Sompo's managing agent in Australia for over 40 years. Since April 2010, Allianz has also been Nipponkoa's managing agent in Australia. Before April 2010, Nipponkoa's managing agent in Australia was CGU Insurance Limited (CGU).

The identification of affected policyholders 10 No part of the insurance business of a general insurer may be transferred to another general insurer or amalgamated with the business of another general insurer except under a scheme confirmed by the Court: s 17B(1) of the Act. An application for confirmation of a scheme may not be made unless, amongst other things, an approved summary of the scheme has been given "to every affected policyholder": s 17C(2)(c) of the Act. In this connection, an "affected policyholder" is taken to mean the holder of a policy to be transferred under the scheme: Re Westport Insurance Corporation (No 2) (2009) 181 FCR 530 at [48].

Nipponkoa policies 11 Records of Nipponkoa's Australian insurance business are maintained by Allianz on a computer system called Polisy. In February and March 2010, prior to commencing as Nipponkoa's managing agent in Australia, Allianz received policyholder data from CGU. This data was not in a format that was compatible with Polisy, and therefore could not be automatically migrated into that system. The process of uploading this data manually into Polisy was judged by Allianz to be so expensive and time-consuming that it only entered policyholder data relating to policies current as at 1 April 2010 and expired policies on which there were open claims. Since 1 April 2010, additional data has been entered, namely new policies written on and after that date and data in respect of policies that expired before that date, but in respect of which claims have since been made. 12 It can be seen, therefore, that Polisy does not contain data with respect to the holders of policies issued by Nipponkoa that expired before 1 April 2010 and in respect of which no claim has been made since that date. This observation is subject to the question of claims made on Nippon Express policies to which I will shortly refer. 13 Phillip Tuinauvai, who is employed by Allianz as the Underwriting Manager - Property for Nipponkoa's Australian insurance business, has given evidence that it would be expensive and time-consuming to now attempt to search the archived files with a view to retrieving policyholder data in relation to policies that expired before 1 April 2010, which are not currently recorded in Polisy. This is not to say that the archived records cannot be obtained. However, a question arises as to the utility of undertaking that task. In this connection, Mr Tuinauvai has given evidence, based on his observation of Nipponkoa's historical claims reporting patterns, that about 98% of claims are reported within three years of policy expiry. Further, he has given evidence that Nipponkoa's retention rates are very high, with more than 95% of Nipponkoa policyholders renewing their policies each year. Given these observations, he has expressed the reasonable view that it is very unlikely that future claims will be made by policyholders whose names and addresses are not already recorded, on some basis, in Polisy.

Nippon Express policies 14 Nippon Express is a logistic service company. It is an Authorised Representative of Allianz. 15 Before 1 April 2014, Nippon Express, as agent for Nipponkoa, offered its customers marine cargo insurance issued by Nipponkoa (Nippon Express policies). In general terms, this cover was offered to insure the goods-in-transit of employees of Japanese companies moving between Japan and Australia or Japan and New Zealand. In respect of these policies, claims are reported by the policyholder to Nippon Express, rather than to Nipponkoa directly. 16 Information about Nippon Express policies was provided to Nipponkoa on a Bordereaux basis each month, together with hard copies of the declaration forms completed by the relevant policyholders. The declaration forms recorded each policyholder's name and address. However, unless a claim was made, data concerning individual policyholders was not uploaded into Polisy. The relevant declaration forms were simply archived. Mr Tuinauvai has once again given evidence that it would be an expensive and time-consuming task to now attempt to search the archives to retrieve policyholder names and addresses from the declaration forms. The same question of utility arises in relation to whether such a search should be required. 17 In this connection, the Nippon Express Policies covered goods-in-transit for the duration of single journeys. The policies are very short-tail in nature. Details of claims made are recorded by Allianz staff on an electronic claims register. The claims register records, amongst other things, the date on which each claim was notified and the date on which the relevant policy commenced. Mr Tuinauvai has reviewed this register and noted that, for the 2013 calendar year, and for the first quarter of 2014, the longest period for any claim being reported was 54 days after policy commencement. Given that Nipponkoa ceased issuing Nippon Express policies on 1 April 2014, it is likely that all claims on such policies will have been notified by the end of May 2014, and well before 1 July 2014, which is the proposed effective date of the scheme. Further, Mr Tuinauvai has given evidence that, based on information given to him by the claims and underwriting teams at Allianz, more than 90% of the claims made on Nippon Express policies have been resolved within two weeks of notification.

The Policyholder Notification List 18 On 2 April 2014, Mr Tuinauvai instructed staff at Allianz to compile a list of the names and addresses of all Nipponkoa policyholders recorded on Polisy. This resulted in the Policyholder Notification List, which records name and address details for all policyholders: who hold a current Nipponkoa policy; who held a Nipponkoa policy on 1 April 2010, or at any time since that date, but who no longer hold a current Nipponkoa policy, or who have, at any time since 1 April 2010, made a claim on a current or expired Nipponkoa policy or Nippon Express policy (including those with open claims). 19 It is to be noted, therefore, that the Policyholder Notification List does not contain the names and addresses of: policyholders of Nipponkoa policies that expired before 1 April 2010 and in respect of which no claim has been made since that date, and policyholders of Nippon Express policies who have made no claim. 20 There is a further matter that should be noted. A number of policyholders recorded in the Policyholder Notification List have given their address as that of their broker. In this connection, many of the policies issued by Nipponkoa were written through insurance brokers. Indeed, in the case of commercial clients, all policies were issued through brokers other than in respect of three clients. In the case of domestic clients, approximately 30% of Nipponkoa's policies were issued through brokers. 21 I do not think that this is a matter for concern. Mr Tuinauvai has given evidence that, with the exception of correspondence relating to claims made on commercial motor vehicle policies (in respect of which the policyholder and Nipponkoa communicate with each other directly) all correspondence from Nipponkoa in relation to policies written through insurance brokers is sent to the address of the broker, rather than to the personal address of the policyholder concerned.

Publication of the proposed scheme 22 As required by Prudential Standard GPS 410, Sompo intends to obtain APRA's approval for publication of a notice concerning the proposed scheme in the Australian Government Gazette and in the following newspapers: Australian Financial Review; The Sydney Morning Herald; The Age; The Courier-Mail, and The West Australian. 23 That notice will state that copies of the scheme, a summary of the scheme and the actuarial report on which the scheme is based (as well as a copy of the notice itself), will be made available for inspection in the period 6 to 26 May 2014 at nominated addresses in the capital cities of each State, the Australian Capital territory and the Northern territory.

The dispensation sought 24 Sompo seeks an order that the need for compliance with s 17C(2)(c) of the Act be dispensed with provided that it causes a copy of the summary of the scheme, approved by APRA, to be sent by pre-paid post to Nipponkoa's policyholders listed in the Policyholder Notification List and to any policyholder of a Nippon Express policy who notifies a claim before 1 July 2014 (the intended effective date of the scheme), upon Nipponkoa receiving notification of that claim. 25 I am satisfied that, in the particular circumstances of this case, that relief is appropriate. Based on Mr Tuinauvai's evidence, especially in relation to the short-tail nature of the Nippon Express policies and the claims reporting patterns and retention rates in respect of the other policies, it seems very unlikely that the Policyholder Notification List does not contain, overwhelmingly, the names and addresses of most affected policyholders. I am satisfied that little practical utility is likely to be achieved by requiring Nipponkoa to locate and analyse archived material with a view to ascertaining the existence of others who might be additional affected policyholders. The steps proposed for notification are likely to bring forth any objection to the scheme that is based on viable objective grounds. Further, I am mindful of the fact that APRA has been apprised of the present application, and the circumstances attending it, and has raised no objection to the conditional dispensation that has been sought.

Disposition 26 Orders as sought should be made. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.

Insurance Act 1973(Cth)ss 17B, 17C

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