In The Application Of Xl Re Europe [2004] FCA 974

EX TEMPORE REASONS FOR JUDGMENT 1 This is an application under s 17E of the Insurance Act 1973 (Cth) ("the Act") for an order confirming the transfer of the Australian insurance business of XL Re Europe ("the former insurance company") to XL Re Ltd ("the new insurance company"). The application was filed on 16 June 2004. Section 17E is found in Division 3A of the Act which concerns the transfer and amalgamation of insurance business. Relevantly, no part of the insurance business of a general insurer may be transferred to another general insurer unless the scheme for the transfer is confirmed by the Federal Court: see s 17B. 2 It is convenient first to set out the statutory requirements that generally apply to such an application. First, it is necessary that the scheme set out the terms of the agreement or deed under which the proposed transfer is carried out and the particulars of any other arrangements necessary to give effect to the scheme: s 17B(3). There are a number of statutory preconditions to the making of an application: s 17C(2). Continuing the enumerated conditions, they are secondly, a copy of the scheme and any actuarial report on which the scheme is based has been given to be Australian Prudential Regulation Authority ("APRA"), thirdly, notice of intention to make the application has been published by the applicant in accordance with the relevant prudential standards and fourthly, the approval summary of the scheme has been given to every affected policyholder. Fifthly, notice of intention must include, in relation to each body corporate affected by the scheme, details of place and time in which an affected policyholder may obtain a copy of the scheme: s 17C(3). Generally, APRA may, but need not, arrange for an independent actuary to make a written report on the scheme: s 17D(1). Sixthly, the application for confirmation must be made in accordance with the prudential standards: s 17E(2).

(v) An application to the Court for confirmation must be made no earlier than the expiry of the period of inspection provided for in paragraph 16 of the standard or 15 days after the approval summary of the scheme has been given to every affected policyholder (whichever is the later). The effect of confirmation is dealt with in s 17G of the Act. 4 The rationale for this statutory scheme for confirmation (as disclosed by the discussion in the supplementary Explanatory Memorandum), introduced by the General Insurance Reform Act 2001 (Cth), was to provide a statutory mechanism to enable an insurer to voluntary transfer policies to another authorised general insurer without being exposed to the complications arising from the novation of insurance contracts involving the consent of parties to those contracts. 5 In the present case the applicants rely on 15 affidavits. The facts, in summary, are these. The former insurance company is incorporated in France and the new insurance company in Bermuda. They are both registered to carry on business in Australia as foreign companies under the Corporations Act 2001 (Cth). Each is authorised to carry on general insurance business in Australia. The former insurance company has done so since 1991 (under contract to Littlewood Services). The new insurance company has done so since 1996. Since mid-2001, the former insurance company ceased to provide new reinsurance in Australia. It wants to be relieved of its liabilities under and in respect of any current re-insurance contracts and, ultimately, to have its authorisation to carry on general insurance business in Australia revoked. By an agreement of 15 June 2004 the applicants agreed that, relevantly, the liabilities and obligations of the former insurance company would be transferred to the new insurance company subject to Court confirmation. It was proposed that the transfer take effect from 2 August 2004. In a report dated the 15 June 2004, two actuaries (Mr Andrew Houltram and Mr Geoffrey Atkins) said that on the basis of the APRA capacity adequacy test at 31 December 2003, the financial security of the policyholders of the Australian branch of the former insurance company are protected under the terms of the proposed scheme. That opinion was based on an actuarial assessment of the insurance liabilities of both the former insurance company and the new insurance company and the statement of assets set out in unaudited returns of 31 December 2003 provided to APRA. They also expressed the opinion that the capital adequacy multiple of the combined entity should be acceptable to APRA immediately after the transfer. No different view was expressed in a supplementary report of 23 July 2004 made by reference to more recent financial information. 6 On 18 April 2004 the solicitors acting for the applicants forwarded to APRA drafts of several documents. They were the transfer agreement between the former insurance company and the new insurance company, the scheme of transfer, the actuarial report, a summary of the scheme of transfer, letters to policyholders of both companies and a notice of intention under Part III of Division 3A of the Act. There was further correspondence in June 2004. It included a letter dated 7 June 2004 from APRA approving a summary of the scheme of transfer to be sent to all policyholders, a notice of intention, the newspaper in which the notice was to be published and the locations where copies of the scheme of transfer would be open for public inspection. That letter enclosed a notice of an unconditional go-ahead decision under the Insurance (Acquisitions and Takeovers) Act 1991 (Cth). 7 Counsel for the applicants took me to the 15 affidavits filed on behalf of the applicants. The evidence demonstrates (including as to some of the matters referred to already), that: (i) A copy of the actuarial report and scheme was given to APRA probably on 2 June 2004, and in any event at the latest, by the 24 July 2004, when all affidavits had been served on APRA. (ii) A notice of intention was published in the Australian Government Gazette on 22 June 2004 and a newspaper approved by APRA (the Australian Financial Review) on 22 June 2004. (iii) The notice of intention was published before public inspection. (iv) The approval by APRA of the summary of the scheme was given before publication of the notice. (v) A summary of the scheme was approved by APRA on 7 June 2004 and given to affected policyholders. (vi) The approved summary was sent to affected policyholders on or about 18 June 2004 and before the scheme was released for public inspection. (vii) There was public inspection available, (on and from 24 June 2004) at locations approved by APRA. (viii) The time for application for confirmation of the scheme was 15 July 2004. 8 I am satisfied that the matters referred to in [2] and [3] above have been established and that it is open to me to confirm the scheme. 9 APRA has appeared and indicated it does not oppose the application. I am satisfied there is no basis for refusing to confirm the scheme. I will make orders to that effect. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore.

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