BT Life Limited; In the matter of BT Life Limited [2011] FCA 1100

REASONS FOR JUDGMENT 1 The principal claim in the originating application is for an order pursuant to s 194 of the Life Insurance Act 1995 (Cth) ("the Act") that the scheme for the transfer of the life insurance business of BT Life Insurance Ltd ("BT Life") to Westpac Life Insurance Services Ltd ("Westpac Life Insurance Services") be confirmed. 2 The present application, made pursuant to s 191(5) of the Act, seeks dispensation from the requirements prescribed by s 191(2)(c) of the Act insofar as it is required that an approved summary of the scheme be given to owners of policies issued by Westpac Life Insurance Services which are referable to Westpac Life Insurance's Statutory Fund No 2. Westpac Life operates 10 statutory funds of which, relevantly, Statutory Fund No 2 relates to investment-linked superannuation business. 3 The background to the scheme is described in the actuarial report of Mr David Seng-Yen Su who is the appointed actuary for both BT Life and Westpac Life Insurance Services. He has been the appointed actuary of both of those companies since 8 June 2009. 4 As Mr Su observes in his actuarial report, as a result of certain events which took place earlier this year the only remaining policies within BT Life are referable to BT Life Statutory Fund No 4 which comprises investment-linked superannuation business and investment-linked allocated pension business. 5 BT Life's other statutory fund, which is Statutory Fund No 3, has no life insurance business currently maintained by that fund. As at 31 March 2011 there were a total of 1044 BT Life policies in force with total funds under management of $253 million. Mr Su observed that it was not viable for the relevant BT company to maintain a separate life insurance entity for this amount of business. 6 Consequently, it is proposed that, with effect from close of business on 30 September 2011, the BT Life policies referable to Statutory Fund No 4 will be transferred to Westpac Life Insurance Services pursuant to a scheme under Part 9 of the Act. If the scheme is confirmed by the court, the life insurance business of BT Life Statutory Fund No 4 will be transferred to Westpac Life Statutory Fund No 2. 7 The dispensation which is sought in the present application is in respect of the obligation to give an approved summary of the scheme to owners of policies issued by Westpac Life which are referable to Statutory Fund No 2. 8 The reasons for the dispensation sought today are set out fully in the applicant's written outline of submissions which I will mark as MFI-1. 9 It is well established that the court's discretion to grant dispensation from compliance with the provisions of s 191(2)(c) are not a rubber stamping exercise. The authorities are fully set out in the written submissions, and it is sufficient to refer only to the decision of Sackville J in The Application of Commonwealth Life Ltd & Anor (2003) 12 ANZ Insurance Cases 90-117 at [8] ("Commonwealth Life"). The considerations to be taken into account in the exercise of the discretion to grant dispensation orders under s 191(5) are well established and, again, it is sufficient to refer only to the decision in Commonwealth Life at [9]-[10]. I do not propose to set out those matters in my reasons. 10 Mr Gleeson SC has taken me fully through the scheme and the supporting material which has been relied upon on the present application. It is also important to observe that the transfer, which will take effect if the scheme is approved, is an internal transfer because the ultimate holding company of both BT Life and Westpac Life is Westpac Banking Corporation. Importantly, the transfer is a relatively small transfer which will have very little impact upon the policy holders in Westpac's Statutory Fund No 2. 11 As Mr Su observes in his report, given the relative sizes of BT Life and Westpac Life Insurance Services, the net impact on Westpac Life Insurance Services of the scheme is very small and will provide for a small positive effect on the overall capital position of Westpac Life Insurance Services. The total assets to be transferred from BT Life comprise $260.4 million and the policy liabilities are $253.6 million. 12 The Westpac Life Statutory Fund No 2 is a much larger fund. It has total assets of approximately $6.4 billion and total policy liabilities of nearly $6.2 billion. Mr Su's analysis shows that the capital ratios for Westpac Life Statutory Fund No 2 will slightly increase after the transfer reflecting the transfer of capital from BT Life Statutory Fund No 4. 13 Also, Westpac Life Statutory Fund No 2 and Westpac Life Insurance Services as a whole will have assets in excess of regulatory capital requirements immediately following the transfer date and Westpac Life Statutory Fund No 2 and Westpac Life Insurance Services as a whole will have assets available in accordance with what is called the target surplus levels under the capital management policy that already applies to both BT Life and Westpac Life Insurance Services. 14 As Mr Su observes in section 8 of his report, there are no changes proposed under the scheme to the terms or conditions of any Westpac Life policies. There are no changes proposed to the management of any Westpac Life policies. On this basis, Mr Su concludes that there will be no impact on the contractual benefits or rights or reasonable benefit expectations of Westpac Life Insurance Services policy owners arising from the scheme. 15 The BT Life policies that are transferred will represent less than 3.5 per cent of the total policy liabilities of Westpac Life Insurance Services. Mr Su has said that no adverse impact has been identified with respect to the security of Westpac Life policy owners' benefits following the implementation of the scheme. Mr Su's summary of conclusions are set out in paragraphs 9.2 and 9.3 of his report and it is sufficient to say that he concludes in respect of Westpac Life Insurance Services policy owners, there will be no impact on their contractual benefits or rights or reasonable benefit expectations arising from the scheme. 16 I also have evidence from and independent actuary who has been retained by BT Life and Westpac Life Insurance Services to review and report on the proposed scheme. The independent actuary is Mr James Anthony Collier, who is an employee of KPMG Actuarial Pty Limited. Mr Collier, in conducting his review, considered the impact on scheme policy holders and Westpac Life Insurance Services policy holders with respect to the proposed scheme of transfer on: The policy holders' contractual rights and benefits; The policy holders' reasonable expectations with respect to discretionary elements of their benefits and policies operation; and The security of policy holders' benefits. 17 I have been taken to sections 3 and 4 of Mr Collier's report. It is sufficient to say that at paragraph 3.3 Mr Collier concludes that upon transfer of the scheme policies to the Westpac Life business: Westpac Life will continue to have assets in excess of APRAs capital adequacy requirements as at the transfer date; and Security of Westpac Life policy holders' benefits as at that date will be adequate. 18 There are 67,021 Westpac Life Insurance Services policy holders in Westpac Statutory Fund No 2. The estimated cost to Westpac life of sending a scheme summary to them together with an accompanying letter, would be slightly in excess of $92,000. Whilst this does not represent a large percentage of the funds under consideration in Statutory Fund No 2, it is a substantial sum of money. 19 In particular, having regard to the opinions of the actuaries to which I have referred and also to the fact that the Australian Prudential Regulation Authority ("APRA") has no objection to the dispensation order sought in the present application, in my opinion this is an appropriate case for the exercise of my discretion under s 191(5) to make the order sought this morning. 20 All of the relevant procedural steps are described in the written submissions and in the evidence to which I have been taken. The evidence shows that those involved in the conduct of the matter have given close attention to detail. APRA has been informed of a number of minor errors and changes in the documentation and APRA has confirmed that its position in relation to the present application remains in place, notwithstanding the various typographical errors and amendments to which I have been taken fully this morning. 21 For these reason I propose to make orders in terms of paragraphs 1 to 4 of the draft order. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.