Balfour v Beaumont [2014] FCA 1001 | Case summary

The need for the Applicant to comply with section 17C(2)(c) of the Insurance Act 1973 (Cth) (Insurance Act) is dispensed with provided that the Applicant complies with Orders 2 through 6 below.
The Applicant causes a copy of a summary of the Scheme in a form to be approved by the Australian Prudential Regulation Authority (APRA) (the Scheme Summary) to be sent by pre-paid post to: 2.1 each of the policyholders identified in the Policyholder Register as described in the affidavit of Suzanne Elizabeth Mackay (going by Suzanne Elizabeth Lodge) sworn on 4 September 2014 (Lodge Affidavit); 2.2 each of the general insurers authorised by APRA to conduct new and renewal insurance business and run-off insurance business under the Insurance Act, as listed on APRA's online Register of General Insurers accessible at http://www.apra.gov.au/GI/Pages/general-insurers.aspx, as described in the Lodge Affidavit; and 2.3 each of the brokers identified in the Broker List, as described in the Lodge Affidavit.
The Applicant causes a page on its website (accessible at www.genre.com) that will contain a statement indicating that an application has been made to the Court for the approval of the Scheme and a link to download the following documents: 3.1 the Notice of Intention to make the application as required under APRA Prudential Standard GPS 410 Transfer and Amalgamation of Insurance Business for General Insurers (July 2002) (in the form to be approved by APRA) (the Notice), as described in the Lodge Affidavit; 3.2 the Scheme, as described in the Lodge Affidavit; 3.3 the Scheme Summary, as described in the Lodge Affidavit; and 3.4 the Actuarial Report, as described in the Lodge Affidavit.

REASONS FOR JUDGMENT 1 These proceedings involve an application under Division 3A of Part III of the Insurance Act 1973 (Cth) (the Act) for confirmation of a scheme pursuant to which the Australian general insurance business of General Reinsurance AG (GRAG) will be transferred to the applicant. 2 GRAG is a company incorporated in Germany and registered as a foreign company in Australia. It is authorised to conduct general insurance business in Australia through a branch. 3 GRAG's Australian branch business is limited to inwards reinsurance and inwards retrocession. It does not have any direct insurance liabilities. Its reinsurance business was written through its Australian branch from the 1970s through to 1996. Although GRAG ceased writing new and renewal reinsurance business on 1 July 1996, it continued to accept business retroceded to it by the applicant in Australia up until 2003. With effect from 1 January 2004 the retroceded portfolio and the renewal rights to the applicant's future retrocession were novated to General Reinsurance Corporation (which is the parent company of the applicants and GRAG), leaving GRAG with the inwards reinsurance and inwards retrocession contracts underwritten by GRAG prior to 1 July 1996. 4 That business was placed into run off with effect from 1 January 2004 although GRAG continued to maintain an authorisation to carry on new and renewal insurance business in Australia pursuant to s 12(1) of the Act until 2 June 2010. 5 On 2 June 2010 GRAG's authorisation to carry on business in Australia under s 12(1) of the Act was limited by APRA to GRAG to discharging liabilities assumed by it prior to 1 July 1996. 6 In summary, therefore, GRAG was authorised to carry on new business between 2004 and 2010 but it did not do so. GRAG's authorisation to carry on the business was limited from 2 June 2010 in the manner that I have stated. 7 The applicant is an Australian corporation authorised to conduct general insurance business. Both GRAG and the applicant are wholly owned subsidiaries of General Reinsurance Corporation, a Delaware reinsurer which is in turn an indirect wholly owned subsidiary of the well-known American company Berkshire Hathaway Inc. Importantly, the proposed scheme is part of a global rationalisation and restructure of the General Reinsurance Corporation group of companies. Following completion of the scheme, GRAG intends to apply to APRA to have its authorisation to carry on insurance business in Australia revoked. 8 The present application which is before me this morning is an application by the applicant for dispensation orders pursuant to s 17C(5) of the Act dispensing with the need for compliance with s 17(2)(c) under which an applicant is required to give an approved summary of the scheme to every affected policyholder. 9 In the present case it is intended to notify every affected policyholder for whom GRAG has been able, after reasonable searches, to identify a contact address. The application is therefore brought as a matter of more abundant precaution to safeguard against the possibility that the steps which have been taken are insufficient to identify all of the affected policyholders. 10 The details of GRAG's policyholder records are contained in a number of computer systems which are described in an affidavit of Suzanne Elizabeth Mackay sworn on 4 September 2014. The policyholder records have been searched. There are two computer systems. One is for facultative business and the system is known by the acronym "FACTS". The other class of reinsurance is treaty business. The records for that part of the business are known by the acronym "KIWI". Of course, the distinction between facultative and treaty reinsurance is well known to those in the reinsurance world. 11 A useful description of the difference between the two is referred to in the decision of Balfour v Beaumont [1982] 2 Lloyd's Rep 493 at 496. There the relevant reinsurance was excess of loss reinsurance and it was pointed out that that type of reinsurance may be written either in respect of an underwriter's whole account or by way of facultative reinsurance under which the reinsurance is in respect of one or more original policies or a series of related original policies. Treaty reinsurance is of a wider nature and is taken out in respect of an underwriter's whole account or class of business. 12 What is important to note from the type of business which is in issue in the present application is that the reinsureds in each type of reinsurance business will be insurance companies who have ceded or retroceded their policy liabilities in whole or in part to GRAG. 13 The searches which have been conducted on the FACTS system indicate that 180 contracts exist and that those contracts related to 22 different policyholders. The search of the KIWI system yielded details of 1685 contracts relating to 118 different policyholders. 14 In both forms of business, internal and external records and resources were consulted in an attempt to obtain or verify contact details for the identified policyholders, that is to say the insurance underwriters. In addition, brokers known to have been involved in the placement of the business have been contacted and asked to assist in identifying policyholder contact details. 15 The evidence satisfies me that some of the brokers have responded to the inquiries that have been made thus far. There are other records relating to GRAG's policyholders. These are historical paper records which are archived off site. 16 I am satisfied on the basis of Ms Mackay's evidence that the index information which was searched produced no useful information to enable the identification of any other reinsureds not already identified as a result of the searches referred to above. As Mr Owens observes in his written submissions which I have marked MFI 1, it is not surprising, having regard to the age of the business concerned, that a current name and address will not always be able to be identified for each of the 140 policyholders that have been revealed by the searches. 17 The evidence indicates that some policyholders have ceased to exist or have merged or have changed their names or have otherwise ceased to be able to be located by reference to the name of the original policyholder. Nonetheless, all of the 140 policyholders have been identified. However, in summary, contact details were not able to be identified for 12 policyholders and 13 policyholders have been de-registered or otherwise ceased operations. 18 Dispensation is required in respect of policyholders for whom GRAG has been unable to identify current contact details and also to take into account the possibility that there are other policyholders not contained in the FACTS or KIWI systems or that the contact details which have been identified are not correct. 19 The authorities which govern the exercise of the discretion to grant dispensation under s 17C(5) and its analogue in the Life Insurance Act 1995 (Cth) have established well-known guidelines and principles. It is unnecessary to reiterate them in the present case. 20 What seems to me to indicate that the present application is one which has a particularly strong foundation, is that the additional steps which will be taken to seek to identify affected policyholders go beyond the steps which are ordinarily taken as referred to in well-known authorities such as Re Westport Insurance Corporation [2009] FCA 1357 and Re HDI-Gerling Australia Insurance Company Pty Limited [2010] FCA 505 at [43] to [44]. In particular, the relevant steps in question in the present case are as I have mentioned that the applicant will be required to send a copy of the approved scheme summary to each of the general insurers authorised by APRA to conduct insurance business in Australia. 21 The applicant will also be required to send a copy of the scheme summary to each broker identified as having been involved in the placement of the business. It seems to me that the first mentioned step, that is, sending a copy of the scheme summary to the general insurers authorised by APRA, is an important step which is designed to have the desired effect of bringing to the attention of any affected policyholder the details of the application for confirmation of the scheme. It is unnecessary to refer to the additional evidence. 22 I am satisfied by reason of the helpful outline of submissions, which I have marked MFI 1, and also by the discussion which has taken place with counsel this morning, that it is appropriate to exercise my powers under s 17C(5) of the Act. I will therefore make orders in terms of the draft short minutes of order handed to me by Mr Owens which I will sign and date and place with the court papers. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Balfour v Beaumont

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