Great Lakes Insurance SE, in the matter of Division 3A of Part III of the Insurance Act 1973 (Cth) (No 2) [2017] FCA 378

1. BACKGROUND A. Calliden Insurance Limited ABN 47 004 125 268 (CIL) and Great Lakes Insurance SE, trading as Great Lakes Australia ABN 18 964 580 576 (GLA) are authorised under the Insurance Act to carry on general insurance business in Australia. CIL and GLA are both part of the Munich Re group of companies. B. This scheme has been prepared under Part III, Division 3A of the Insurance Act to give effect to the terms of an agreement by which CIL has agreed to transfer, and GLA has agreed to accept the transfer of, all of the Business carried on by CIL. In particular, CIL has agreed to transfer and GLA has agreed to accept and assume all of the Insurance Contracts, the Reinsurance Contracts and the Insurance Liabilities. C. An Actuarial Report has been prepared in connection with the scheme.

2.1 Definitions In this scheme, unless the context otherwise requires: Accounts means the accounts prepared in accordance with Australian Accounting Standard AASB 1023 General Insurance Contracts. Actuarial Report means the report dated 22 December 2016 prepared by Mr Warrick Gard of Ernst & Young in connection with the scheme. Appointed Actuary has the meaning given in the Insurance Act. APRA means the Australian Prudential Regulation Authority. Asset Value means the value of the Claims Trust Accounts. Assumed Liabilities has the meaning given in clause 4(a). Australian Accounting Standard has the meaning given in Prudential Standard GPS 001: Definitions made under the Insurance Act. Business means the insurance business carried on by CIL in Australia within the meaning of the Insurance Act. Business Assets means the assets used by CIL for the purpose of conducting the Business, including the Claims Trust Account, but excluding the Receivables and the Investment Assets. Claim means in relation to any person, a claim, action, proceeding, judgment, damage, loss, cost, expense or liability incurred by or to, or made or recovered by or against, the person, however arising and whether present, future or contingent whether ascertained or not and whether arising before or after the Effective Date. Claims Trust Accounts means the balances of the CIL claims trust accounts held by Innovation Group (Claims Services) Pty Ltd for the purpose of its management of claims on behalf of CIL. Effective Date means 12.00am Australian Eastern Daylight Time on 1 April 2017, or such other date that the Federal Court of Australia may specify as the commencement date of the scheme should the scheme be confirmed by the court. Insurance Act means the Insurance Act 1973 (Cth). Insurance Contracts means all contracts of insurance and all contracts and treaties of reinsurance issued or entered into by CIL as the insurer or reinsurer in the conduct of its Business prior to the Effective Date. Insurance Liabilities means all claims, losses, liabilities, costs or expenses of any kind under the Insurance Contracts, including those which are prospective or contingent and those where the amount of the liability is not ascertained or ascertainable and includes any insurance liability described in Prudential Standard GPS 320: Actuarial and Related Matters made under the Insurance Act. Insurance Liabilities are to be calculated net of reinsurance and non-reinsurance recoveries, discounted outstanding claims liabilities and premium liabilities and are to include expense provisions and risk margins. Investment Assets means any term deposit accounts held by CIL. Payables means the value of the recognised collateral held as deposits by CIL in Australia against the reinsurance recoverables due from non-APRA authorised reinsurers for the purpose of paragraph 6(a)(ii) of Attachment B to Prudential Standard GPS 114: Capital Adequacy: Asset Risk Charge made under the Insurance Act. Receivables means the debts and all other sums due to CIL in connection with the Business prior to the Effective Date, and including premium receivables and reinsurance and non-reinsurance recoverables on claims paid. Reinsurance Contracts means the contracts and treaties of reinsurance entered into or assumed by CIL as reinsured in respect of its liabilities under the Insurance Contracts. Transfer Agreement means the Transfer Agreement dated 15 February 2017 between CIL and GLA for the sale and transfer of CIL's Business to GLA. Transfer Value means the amount of the Insurance Liabilities: (a) reported in the Accounts of CIL for the year ending 31 December 2016, and adjusted to include any additional period up to the Effective Date, as calculated by the Appointed Actuary of CIL; and (b) adjusted to take into account the value of the Payables and the Receivables as at the Effective Date.

2.2 Interpretation Headings are for convenience only, and do not affect interpretation. The following rules also apply in interpreting this scheme except where the context makes it clear that a rule is not intended to apply: (a) A reference to: (i) a legislative provision or legislation (including subordinate legislation) is to that provision or legislation as amended, re-enacted or replaced and includes any subordinate legislation issued under it; (ii) a reference to a clause is a reference to a clause of this scheme; (iii) a reference to a corporation includes its successors and assigns. (b) A singular word includes the plural, and vice versa. (c) A word which suggests one gender includes both genders. (d) If a word is defined, any other grammatical form of that word or phrase has a corresponding meaning.

TRANSFER OF BUSINESS On the Effective Date, CIL agrees to transfer the Business to GLA and such transfer is to include: (a) all rights, title, benefit and interest that have arisen, or may in future arise, under any Insurance Contract, including but not limited to any claims by way of subrogation, contribution or outstanding premium and any other recoveries related directly or indirectly to any Insurance Contract; (b) all rights, title, benefit and interest of CIL, including any entitlement to receive or recover any money or property, under or in relation to any Reinsurance Contract; and (c) the Business Assets, in accordance with the terms of the Transfer Agreement.

TRANSFER OF LIABILITIES On and from the Effective Date: (a) CIL transfers to GLA, and GLA accepts the transfer of, the Insurance Contracts and the Insurance Liabilities (Assumed Liabilities); (b) the Assumed Liabilities will be liabilities of GLA that it is required to satisfy; and (c) GLA assumes and takes over and must indemnify and keep CIL indemnified from and against all Claims under or in connection with the Assumed Liabilities.

CONSIDERATION FOR THE TRANSFERS OF THE BUSINESS & THE INSURANCE LIABILITIES (a) In respect of GLA's assumption of the Insurance Liabilities and benefits arising under the Insurance Contracts, CIL agrees to pay to GLA an amount equal in value to the Transfer Value; (b) In respect of the transfer of the Business Assets to GLA, GLA agrees to pay CIL an amount equal in value to the Asset Value.

PROCEEDINGS If any proceedings are pending or any proceedings are brought on or after the Effective Date by or against CIL in any court or tribunal in respect of the Insurance Contracts: (a) such proceedings will be continued by or against GLA, and GLA will be substituted for CIL as the party to those proceedings; and (b) any judgment or determination for or against CIL will have effect as between CIL and GLA as if such judgment or determination had been made for or against GLA, and GLA will indemnify and keep indemnified CIL accordingly.

EFFECTIVE DATE On and from the Effective Date: (a) the transfer of the Business from CIL to GLA and the assumption of the Assumed Liabilities by GLA pursuant to this scheme will take effect; and (b) GLA will be entitled to all benefits and rights in respect of the Insurance Contracts and will assume all of the obligations in respect of the Assumed Liabilities.

RIGHTS AND OBLIGATIONS OF POLICY HOLDERS Once the scheme has been confirmed and takes effect: (a) all of the outstanding claims-related rights and liabilities of CIL in respect of the Insurance Contracts will vest to GLA; (b) any claims arising under or in connection with the Insurance Contracts will need to be made against GLA; (c) all premiums and other amounts payable to, or recoverable by, CIL under the Insurance Contracts will be payable to and recoverable by GLA instead of CIL; (d) the Insurance Contracts will be vested to GLA with the same benefits, obligations and conditions that applied before the scheme; (e) any policyholder or beneficiary under the Insurance Contracts or other person who has a claim on or obligation to CIL pursuant to the Insurance Contracts or the Reinsurance Contracts, will have the same claim on or obligation to GLA in substitution for his or her claim or obligation to CIL; (f) policyholders are not required to take any action before, or as a result of, the scheme; and (g) the scheme becomes binding on all persons.

IMPLEMENTATION CIL and GLA will do all acts and things and execute all documents necessary or desirable to give effect to the provisions of the Transfer Agreement, this scheme and the Actuarial Reports and the transactions contemplated by them.

COSTS OF THE SCHEME GLA will bear all costs and expenses of and incidental to the preparation and confirmation of the scheme and its implementation.

INTRODUCTION 1 The applicant, Great Lakes Insurance SE (formerly Great Lakes Reinsurance (UK) SE), which trades as Great Lakes Australia (GLA), 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 Calliden Insurance Limited (Calliden) to GLA (the scheme). 2 On 14 December 2016, I made orders dispensing with the need for compliance with s 17C(2)(c) of the Act, provided that certain steps, by way of notification of the approved scheme summary, were undertaken (the dispensation orders): Great Lakes Reinsurance (UK) SE, in the matter of Division 3A of Part III of the Insurance Act 1973 (Cth) [2016] FCA 1564 (my earlier reasons). 3 In my earlier reasons at [4]-[8], I set out the background to the scheme. I will not repeat that background, except to note that Calliden and GLA are part of the Munich Re group of companies. The scheme is being undertaken as part of an internal reorganisation of the group.

The scheme 4 Under the scheme, Calliden agrees to transfer the Business (as defined) to GLA on 1 April 2017, in accordance with the terms of a Transfer Agreement into which Calliden and GLA entered on 15 February 2017. On and from 1 April 2017, Calliden will transfer to GLA certain assumed liabilities which are identified in the scheme as the Insurance Contracts and the Insurance Liabilities. These assumed liabilities will then be liabilities that GLA is required to satisfy. GLA must indemnify Calliden and keep Calliden indemnified from and against all claims made under or in connection with those assumed liabilities. In consideration for the transfer, and GLA's assumption of liabilities, Calliden agrees to pay GLA an amount equal in value to the Transfer Value (as defined). In respect of the transfer of the assets used by Calliden for the purpose of conducting the Business, GLA agrees to pay Calliden an amount equal in value to the Asset Value (as defined). Any stamp duty and other costs and expenses incurred in connection with the scheme will be met by GLA.

Actuarial report 5 An actuarial report dated 22 December 2016 (the report) has been prepared by Warrick Gard. Mr Gard is an actuary and partner in Ernst & Young. Mr Gard has verified the conclusion stated in the report that the proposed transfer will not materially adversely impact on the policyholders of either Calliden or GLA. 6 Mr Gard has updated the report based on a consideration of the claims experience analysis of Calliden and GLA and internal communication packs on the insurance liabilities of Calliden and GLA as at 31 December 2016. He has also reviewed Calliden's and GLA's quarterly returns to the Australian Prudential Regulation Authority (APRA) that outline their respective financial positions as at 31 December 2016, including their estimated solvency positions. Mr Gard has not identified any matters that would cause him to change the conclusions or opinions set out in the report. 7 After the preparation of the report, the applicant changed its name and moved its headquarters from London to Munich, effective from January 2017. Mr Gard has taken into account the re-domiciliation and has concluded that this will not affect the scheme. Prior to the re-domiciliation, the applicant was prudentially regulated by the United Kingdom's Prudential Regulation Authority. It was also subject, as a subsidiary of Munich Re, to prudential oversight from the Federal Financial Supervisory Authority of Germany. In each case, this was under the same European Union insurance regulation, namely the Solvency II Directive, which regulates the amount of capital that insurance companies are required to hold. Following the re-domiciliation, the applicant continues to be prudentially regulated by the Federal Financial Supervising Authority of Germany. Thus, GLA continues to be subject to separate prudential regulation by APRA in Australia and the applicant remains subject to the Solvency II Directive, as before.

other matters 8 Following the making of the dispensation orders on 14 December 2016, APRA provided GLA with its approval of: the scheme summary under s 17C(1) of the Act; the form of the notice of intention under paragraph 9 in Prudential Standard GPS 410, Transfer and Amalgamation of Insurance Business for General Insurers (GPS 410); the publication of the notice of intention under paragraph 9(b) of GPS 410 in nominated newspapers circulating in the States and Territories; and the nominated locations for inspection under paragraph 16(b) of GPS 410 of the scheme. 9 APRA also provided a "go-ahead decision" under s 41(1) of the Insurance Acquisitions and Takeovers Act 1991 (Cth). 10 There is evidence which satisfies me that there has been compliance with Orders 2 to 7 of the dispensation orders. This has been detailed in an affidavit made by Philip Craig Daley on 20 March 2017. Mr Daley is a project manager employed by Munich Holdings of Australasia. He has responsibility for the internal project management of the scheme. I will not set out the detail of Mr Daley's evidence in this regard other than to note that of the 99,373 letters addressed to the persons identified in paragraphs (a) and (c) of Order 2, 5,773 letters (5.81% of the total number of letters sent) were returned. Mr Daley has proffered likely explanations for the letters being returned which, it seems to me, are reasonable explanations. With regard to the persons referred to in paragraph (b) of Order 2, 1,957 emails were sent and 41 were returned on the same day as undeliverable. A mail-out version of the covering letter and scheme summary to each of these policyholders was dispatched on 16 February 2017. As at 17 March 2017, none of this mail had been returned. 11 The evidence indicates that various communications have been received from policyholders following the dispatch of the scheme summary under Order 2. It is not necessary for me to summarise these communications. On the evidence, none of the policyholders raised any objection to the scheme itself. Moreover, no policyholder indicated an intention to appear at the confirmation hearing, and none has appeared. 12 I note that, as a consequence of the scheme, there will be no change to the policy terms and conditions of affected policyholders, apart from the substitution of GLA as the insurer. Further, there will be no change to claims handling procedures as a result of the scheme. GLA intends to maintain its management of Calliden's claims management process. 13 All of Calliden's reinsurance contracts are governed by Australian State law. Nevertheless, Calliden agreed with APRA that it would separately enter into deeds of novation with all of the non-APRA authorised foreign reinsurers who are parties to Calliden's reinsurance contracts, where such reinsurer's individual participation was deemed, in Calliden's view, to be material reinsurance. Nine such reinsurers were identified and, by 2 March 2017, GLA had completed the negotiation and execution of novation deeds in respect of its reinsurance arrangements with those reinsurers. 14 APRA appeared at the confirmation hearing and signified that it does not oppose confirmation of the scheme.

Conclusion and disposition 15 In light of the evidence before me (including the evidence of compliance with the dispensation orders and the opinions expressed by Mr Gard), and in light of the detailed written submissions which have been prepared by Mr Oakes S.C., who appears for the applicant, I am satisfied that it is appropriate that the scheme be confirmed and that the orders as sought should be made. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.