INTEGRITY LIFE AUSTRALIA LIMITED ABN 83 089 981 073
First Applicant
AIA AUSTRALIA LIMITED ABN 79 004 837 861
Second Applicant
[2]
order made by: JACKMAN J
DATE OF ORDER: 19 FEBRUARY 2025
[3]
THE COURT ORDERS THAT:
Pursuant to section 194 of the Life Insurance Act 1995 (Cth), the scheme for the transfer of a part of the life insurance business of Integrity Life Australia Limited, the First Applicant, to AIA Australia Limited, the Second Applicant, in the form of Annexure A to these orders (Scheme), be confirmed without modification.
The Scheme takes effect on and from 12:01 am (AEST) on 1 March 2025.
The applicants pay the costs of the proceeding of the Australian Prudential Regulation Authority as agreed or, if no agreement can be reached, as assessed.
There be liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANNEXURE A
Scheme under Part 9 of the Life Insurance Act 1995 (Cth) for the transfer of retail life insurance business FROM Integrity Life Australia Limited ABN 83 089 981 073 to AIA Australia Limited ABN 79 004 837 861
Overview
(a) This is a scheme prepared pursuant to Part 9 of the Life Act and operates only on, and subject to, its confirmation by the Court (Scheme).
(b) ILAL has agreed to transfer its Retail Life Insurance Business to AIAA, subject to confirmation by the Court of this Scheme and the satisfaction of certain conditions.
(c) ILAL and AIAA are registered life companies under the Life Act. ILAL is incorporated in New South Wales and AIAA is incorporated in Victoria. The ultimate parent companies of ILAL and AIAA are IGHL and AIA Group Limited respectively.
(d) The objective of this Scheme is to transfer ILAL's Retail Life Insurance Business to AIAA.
(e) This Scheme is based on actuarial reports prepared by Mr Michael Dermody and Mr Nghiep Luu, the appointed actuaries of ILAL and AIAA respectively.
Interpretation
2.1 Definitions
In this Scheme:
Adjustment Amount has the meaning given to it in the Transfer Deed.
AIAA means AIA Australia Limited ABN 79 004 837 861.
AIAA Policies means the life policies issued by AIAA.
AIAA Policy Owner means the owner of an AIAA Policy.
AIAA Policy Terms means the terms and conditions contained in the AIAA "Priority Protection" product disclosure statement and policy document (version 29 dated 12 May 2024) and any supplementary product disclosure statement and includes the AIAA Priority Protection Incorporated by Reference Material (Identification No. AIA07702-10/23) document.
APRA means the Australian Prudential Regulation Authority.
ASIC means the Australian Securities and Investments Commission.
Assumed Liabilities mean all the Liabilities of ILAL (whether arising or accruing before or after Completion) that relate to the Retail Life Insurance Business, including:
(a) the Life Policy Liabilities; and
(b) Liabilities under the Contracts,
but excluding the Excluded Liabilities.
Completion means completion of the transfer of the Retail Life Insurance Business from ILAL to AIAA.
Completion Payment has the meaning given to it in the Transfer Deed .
Conduct and Operational Liabilities means a Life Policy Liability that arises after the Scheme Effective Time from any act or omission of ILAL (including QBE Life (Australia) Limited (ACN 089 981 073) and CUNA Mutual Life Australia Limited (ACN 089 981 073) in contravention of a Law in relation to the sale, distribution, claims handling or administration of an ILAL Out of Force Life Policy, but does not include:
(a) a Liability to pay a claim made under an ILAL Out of Force Life Policy; or
(b) a Liability in respect of any open remediation or open complaint set made in respect of an ILAL Out of Force Life Policy as at the Scheme Effective Time.
Contracts means the Reinsurance Contracts and the Transferring Contracts.
Court means the Federal Court of Australia.
Diversa means Diversa Trustees Limited, the trustee of the Smartsave 'Member's Choice' Superannuation Master Plan and ILAL's Here For You Super Plan, an insurance-only division of OneSuper, and any successor trustee of those plans.
Ex-CUNA Policies means those policies listed in item number 2 of Schedule 1.
Ex-CUNA Policy Terms means the relevant terms and conditions of the Ex-CUNA Policies and comprising the relevant policy document, customer information brochure, policy information statement, cover document, product disclosure statement, policy schedule and application form (as applicable).
Ex-CUNA Policy Owner means an owner of an Ex-CUNA Policy.
Ex-CUNA Product Transfer Rules means the rules that govern the transfer of cover benefits under the Ex-CUNA Policy Terms to the AIAA Policy Terms that are set out in clause 4 of Schedule 2.
Duty means any stamp, transaction or registration duty or similar charge which is imposed by any Government Agency and includes any associated interest, penalty, charge or other amount which is imposed.
Excluded Assets means the following assets of the Retail Life Insurance Business at Completion:
(a) the IT systems and/or platforms that are used by ILAL in connection with the Retail Life Insurance Business;
(b) the Intellectual Property Rights used by the Retail Life Insurance Business at Completion;
(c) the Excluded Records; and
(d) the Tax Assets.
Excluded Liabilities means the following liabilities of the Retail Life Insurance Business:
(a) the liabilities arising under the Transfer Deed;
(b) the Conduct and Operational Liabilities; and
(c) the Tax Liabilities.
Excluded Records means any documents, information, data, books, customer records accounts and data (whether machine readable or in printed form) that do not relate to the ILAL Transferring Life Policies.
Existing AIAA Policies means the AIAA Policies immediately prior to the Scheme Effective Time.
Government Agency means any governmental, semi-governmental, administrative, fiscal, judicial or quasi-judicial body, department, commission, authority, tribunal, agency or entity, and includes APRA, ASIC, the Australian Financial Complaints Authority and the Australian Taxation Office.
GST has the meaning given in the GST Act.
GST Act means A New Tax System (Goods and Services Tax) Act 1999 (Cth).
IGHL means Integrity Group Holdings Limited ABN 33 159 865 666.
ILAL means Integrity Life Australia Limited ABN 83 089 981 073.
ILAL Policy means a life policy issued by ILAL.
ILAL Policy Owner means the owner of an ILAL Policy.
ILAL Out of Force Life Policy means the ILAL Transferring Life Policies issued by ILAL in respect of the product groups set out in items 2, 3 and 4 of Schedule 1 that have expired or lapsed before the Scheme Effective Time and does not include expired or lapsed Life Policies where benefits remain payable or in respect of which a person has a guaranteed renewal right as at the Scheme Effective Time.
ILAL Transferring Life Policies means all Life Policies issued by ILAL in respect of the product groups set out in Schedule 1 that are in-force or which have expired but under which benefits remain payable or may be payable, or in respect of which a person has a guaranteed renewal right as at the Scheme Effective Time, including any policy schedules, policy documents, product disclosure statements and supplementary product disclosure statements comprising such policies.
ILAL Transferring Life Policy Owner means an owner of an ILAL Transferring Life Policy.
Integrity Policies means those policies listed in item number 1 of Schedule 1.
Integrity Policy Owner means an owner of an Integrity Policy.
Integrity Policy Terms means the relevant terms and conditions of the Integrity Policies listed in item number 1 of Schedule 1 and comprising:
(a) the policy schedule or policy certificate issued in respect of each policy; and
(b) the "Integrity's Here for You" policy document and product disclosure statement issued from time to time (including any supplementary product disclosure statements), as applicable.
Integrity Product Transfer Rules means the rules that govern the transfer of cover benefits under the Integrity Policy Terms to the AIAA Policy Terms that are set out in clause 3 of Schedule 2.
Intellectual Property Rights means all intellectual property rights throughout the world, whether registered or unregistered, including trade marks, designs, patents, circuit layouts, copyright and know how.
Investment Assets means the assets of ILAL's statutory fund that are referable to the ILAL Transferring Life Policies and comprise the Completion Payment plus the Adjustment Amount.
Law means any applicable statute, law, rule or regulation or code of practice, or any applicable guidance, directive, policy or procedure issued or adopted by a Government Agency.
Liabilities means any liability or obligation (whether actual, contingent or prospective), including any damage, loss, cost, charge and expense, and irrespective of when the acts, events or things giving rise to the liability or obligation occurred.
Life Act means the Life Insurance Act 1995 (Cth).
Life Policy has the meaning given in the Life Act.
Life Policy Liabilities means all Liabilities arising under or in respect of the ILAL Transferring Life Policies, including all accrued liabilities.
Loss means any losses, liabilities, damages, costs, charges and expenses and includes Tax and Duty.
Product Transfer Rules means the rules that govern the transfer of cover benefits under the Integrity Policy Terms and the Ex-CUNA Policy Terms to the AIAA Policy Terms that are set out in Schedule 2.
Records means all original and certified copies of the documents, information, data, books, customer records accounts and data (whether machine readable or in printed form) that are used in the Retail Life Insurance Business that relate to the ILAL Transferring Life Policies including but not limited to policy owner communications, underwriting and claims files, policy wordings and disclosure documents.
Reinsurance Contracts means the reinsurance contracts set out in Schedule 4.
Remediation Program has the meaning given to it in the Transfer Deed.
Retail Life Insurance Business means the life insurance business (within the meaning of the Life Act) conducted through ILAL Statutory Fund No.1 in respect of the ILAL Transferring Life Policies and comprising the Transferring Assets and the Assumed Liabilities but excluding all the Excluded Assets and Excluded Liabilities.
Scheme Confirmation Hearing Date means the hearing at which the Court makes orders to confirm the Scheme under section 194 of the Life Act.
Scheme Effective Time has the meaning given in clause 3.1.
Statutory Fund has the meaning given to that term in the Life Act.
Tax means any tax, levy, charge, excise, GST, impost, rates, Duty, fee, deduction, compulsory loan or withholding, which is assessed, levied, imposed or collected by any Government Agency and includes any interest, fine, penalty, charge, fee, expenses or other statutory charges or any other such amount imposed by any fiscal agency on or in respect of any of the above.
Tax Assets means all current Tax assets of ILAL referable to the Retail Life Insurance Business immediately after the Scheme Effective Time, including current Tax assets arising in connection with the Scheme.
Tax Liabilities means all current Tax liabilities of ILAL referable to the Retail Life Insurance Business immediately after the Scheme Effective Time, including current Tax liabilities arising in connection with the Scheme.
Transferring Assets means the assets of the Retail Life Insurance Business at Completion, including:
(a) the Investment Assets;
(b) the rights and benefits under the ILAL Transferring Life Policies;
(c) the rights and benefits under the Contracts;
(d) the Records,
but not including the Excluded Assets.
Transferring Contracts means each contract listed in Schedule 3.
Transfer Deed means the transfer deed between AIAA, ILAL and IGHL, dated 11 December 2024.
2.2 Interpretation
Headings are for convenience only, and do not affect interpretation. The following rules also apply in interpreting this document, 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 document (including this document) or agreement, or a provision of a document (including this document) or agreement, is to that document, agreement or provision as amended, supplemented, replaced or novated;
(iii) a party to this document or to any other document or agreement includes a successor in title, permitted substitute or a permitted assign of that party;
(iv) a person includes any type of entity or body of persons, whether or not it is incorporated or has a separate legal identity, and any executor, administrator or successor in law of the person; and
(v) anything (including a right, obligation or concept) includes each part of it.
(b) A singular word includes the plural, and vice versa.
(c) A word which suggests one gender includes the other genders.
(d) If a word or phrase is defined, any other grammatical form of that word or phrase has a corresponding meaning.
(e) If an example is given of anything (including a right, obligation or concept), such as by saying it includes something else, the example does not limit the scope of that thing.
(f) A reference to a matter being, at a relevant time, to the knowledge of a person means that the matter is, at that time, within the actual knowledge of the person.
(g) A matter that is not known by a person is not to the knowledge of that person even if that matter would have been discovered if that person had made the enquiries that a reasonable person in that person's position would have made.
(h) A reference to information is to information of any kind in any form or medium, whether formal or informal, written or unwritten, for example, computer software or programs, concepts, data, drawings, ideas, knowledge, procedures, source codes or object codes, technology or trade secrets.
(i) The expression this document or this Scheme includes the agreement, arrangement, understanding or transaction recorded in this document, including any schedule to this document or this Scheme.
(j) A reference to time is a reference to Sydney, New South Wales, Australia time.
Transfer of the Retail Life Insurance Business
3.1 Scheme Effective Time
(a) The Scheme Effective Time means 12.01 a.m. on the first calendar day of the month following the Scheme Confirmation Hearing Date, or such other date that the Court may specify as the commencement date of the Scheme should the Scheme be confirmed by the Court
(b) The Scheme becomes binding on all persons from the Scheme Effective Time.
3.2 Transfer of the Retail Life Insurance Business
(a) At and from the Scheme Effective Time:
(i) the Retail Life Insurance Business is transferred from ILAL to AIAA, and AIAA obtains and assumes all rights and benefits (including the Transferring Assets), and all obligations and liabilities (including the Assumed Liabilities), of the Retail Life Insurance Business on the basis set out in this Scheme, including all rights, title, interests, liabilities, obligations, benefits and powers that have arisen, or may in the future arise, under any of the above;
(ii) AIAA is liable for and must assume and pay, and indemnify ILAL against Loss arising from, the Assumed Liabilities; and
(iii) AIAA is entitled to the benefit of the Transferring Assets and assumes responsibility for the Transferring Assets.
(b) The Excluded Assets and Excluded Liabilities are not included in the Scheme.
3.3 Consequences of the transfer of the Retail Life Insurance Business
Without limiting clause 3.2, the matters set out in clauses 4 to 8 occur at the Scheme Effective Time unless otherwise stated.
Consequences of the transfer of the Retail Life Insurance Business
4.1 Issuer of ILAL Transferring Life Policies
AIAA becomes the issuer of the ILAL Transferring Life Policies and ILAL ceases to be the issuer of the ILAL Transferring Life Policies.
4.2 ILAL Transferring Life Policy Owners
(a) The ILAL Transferring Life Policy Owners cease to be ILAL Policy Owners and become AIAA Policy Owners.
(b) Subject to the effect of clause 4.3, the rights and liabilities of the ILAL Transferring Life Policy Owners will be the same in all respects as they would have been if:
(i) the applications on which the ILAL Transferring Life Policies were based had been made to, or accepted by, AIAA instead of ILAL; and
(ii) the ILAL Transferring Life Policies had originally been issued by AIAA instead of ILAL.
4.3 Changes to the terms and conditions of the ILAL Transferring Life Policies
(a) The terms and conditions of each ILAL Transferring Life Policy listed in item numbers 3 and 4 of Schedule 1 will not change as a result of the Scheme except for the matters set out in clause 4.12(c) and (d) below.
(b) The terms and conditions of each ILAL Transferring Life Policy listed in item numbers 1 and 2 of Schedule 1 are replaced at and from the Scheme Effective Time by:
(i) the AIAA Policy Terms; and
(ii) a replacement AIAA policy schedule issued by AIAA on or as soon as practicable after the Scheme Effective Time,
in accordance with and subject to the Product Transfer Rules set out in Schedule 2.
4.4 Assumption and release of policy liabilities
Subject to the effect of clause 4.3 and clause 4.7:
(a) AIAA assumes all liabilities and obligations of ILAL under, or in respect of, the ILAL Transferring Life Policies; and
(b) ILAL is released and discharged from all liabilities and obligations under, or in respect of, the ILAL Transferring Life Policies.
4.5 Rights and benefits
Subject to the effect of clause 4.3, AIAA is entitled to all rights and benefits of ILAL under, or in respect of, the ILAL Transferring Life Policies, including but not limited to:
(a) the right to receive any fees payable under, or in respect of, the ILAL Transferring Life Policies;
(b) the right to receive premiums payable under, or in respect of, the ILAL Transferring Life Policies;
(c) the right to enforce all rights and remedies available under the ILAL Transferring Life Policies and applicable law in respect of any non-payment of such premiums or fees;
(d) the right to enforce all rights and remedies available under the ILAL Transferring Life Policies and applicable law, including in respect of any failure by an ILAL Transferring Life Policy Owner to comply with obligations regarding disclosure and misrepresentation; and
(e) any claims by way of subrogation or contribution.
4.6 Authorities
All directions, authorities, mandates or instructions given to ILAL:
(a) to deduct premiums or fees payable in respect of the ILAL Transferring Life Policies (including by debiting a bank account, through automatic payroll deductions or through electronic bank transfer); or
(b) to disclose or obtain information in the course of carrying on the Retail Life Insurance Business,
are deemed to be given to AIAA instead of ILAL.
4.7 Policy claims
For all ILAL Transferring Life Policies listed in Schedule 1
(a) Subject to the effect of clause 4.3 and sub-clauses 4.7(b) to (f), any person having a claim on or obligation to ILAL under, or in respect of, an ILAL Transferring Life Policy, has the same claim on or obligation to AIAA instead of ILAL.
For ILAL Transferring Life Policies listed in item numbers 1 and 2 of Schedule 1
(b) Claims that are made and notified under Integrity Policies or Ex-CUNA Policies prior to the Scheme Effective Time will be assessed, or will continue to be assessed, and paid by reference to the Integrity Policy Terms or the Ex-CUNA Policy Terms (as applicable) for the life of the claim.
(c) Claims made under Integrity Policies or Ex-CUNA Policies after the Scheme Effective Time that arise from an insured event that occurred prior to the Scheme Effective Time will be assessed by reference to the Integrity Policy Terms or the Ex-CUNA Policy Terms (as applicable).
For ILAL Transferring Life Policies listed in item number 1 of Schedule 1
(d) An insured life that suffers a relapse for the purpose of their Income Insurance cover under the Integrity Policy Terms will have their relapsed claim assessed and paid under the Integrity Policy Terms where:
(i) the original claim was made prior to the Scheme Effective Time; and
(ii) the relapse occurs within the period specified in the Integrity Policy Terms.
(e) If the Life Cover Reset, Critical Illness Reset or Critical Illness Relapse option is held under an Integrity Policy, and:
(i) a claim is made under Integrity Policy Terms prior to the Scheme Effective Time or clause 4.7(c) applies to the claim, for which a right to restore cover could be made, and
(ii) the date the Policy Owner could elect to restore cover under the relevant option occurs after the Scheme Effective Time,
then where the Policy Owner does elect to restore the relevant cover it will be restored under AIAA equivalent terms as outlined in Schedule 2, and all future claims will be assessed under AIAA's Policy Terms.
(f) If the 14 Day Life Cover Reset option is held under an Integrity Policy, and:
(i) a claim is made under Integrity Policy Terms prior to the Scheme Effective Time or clause 4.7(c) applies to the claim, for which a right to restore cover could be made, and
(ii) the date the Policy Owner could elect to restore cover under this option occurs after the Scheme Effective Time,
then where the Policy Owner does elect to restore cover, such cover will be restored under the Integrity Policy Terms, and all future claims will be assessed under the AIAA Policy Terms.
(g) Capitalised terms that do not have a defined meaning in clause 2 above, have the meaning given to them in the Integrity Policy Terms.
4.8 Proceedings
(a) Any proceedings in connection with an ILAL Transferring Life Policy that are in progress, pending, or that commence, whether by or against ILAL, in any court, tribunal or entity dealing with complaints, must be continued by or against AIAA instead of ILAL and AIAA must be substituted for ILAL as a party to those proceedings.
(b) Any judgment, order, award, determination or settlement in any proceeding described in clause 4.8(a) will have effect as if such judgment, order, award, determination or settlement had been made for or against AIAA.
4.9 Applications
(a) Any pending application for an ILAL Transferring Life Policy which has not been accepted by ILAL at the Scheme Effective Time is, for all intents and purposes, to be treated as an application to AIAA, and any policy resulting from such an application takes effect as a AIAA Policy.
(b) All proposals, applications, declarations and representations made to ILAL on which any ILAL Transferring Life Policy or other life policy (whether issued or entered into by ILAL or AIAA) is based are taken to have been made to AIAA instead of ILAL.
4.10 Commissions
AIAA:
(a) bears the obligation to pay commissions payable to any person in respect of an ILAL Transferring Life Policy from the Scheme Effective Time; and
(b) is entitled to seek repayment of commission (whether originally paid by AIAA or ILAL) in excess of the recipient's entitlement, instead of ILAL.
4.11 Transferring Contracts
(a) AIAA assumes the position of ILAL under all Transferring Contracts as if AIAA was the original party to those contracts in place of ILAL. The Transferring Contracts will continue in full force and effect on this basis.
(b) Without limiting clause 4.11(a):
(i) AIAA assumes all rights, powers, privileges, and all liabilities and obligations of ILAL under the Transferring Contracts, whenever occurring or accruing;
(ii) AIAA assumes the position of ILAL under the Transferring Contracts in respect of any proceedings that are in progress, pending by, or against, ILAL in respect of the Contracts;
(iii) all references to ILAL in a Transferring Contract will be read as a reference to AIAA; and
(iv) all references to ILAL Statutory Fund No.1 in a Transferring Contract will be read as a reference to AIAA Statutory Fund No.1.
(c) ILAL is released and discharged from all obligations and liabilities under the Transferring Contracts, whenever occurring or accruing.
(d) Each Reinsurance Contract under which ILAL is a cedant will transfer to AIAA, with the same consequences as set out above in clauses 4.11(a) to 4.11(c) with respect to the Transferring Contracts.
4.12 Consequences for ILAL Transferring Life Policies
(a) Subject to the effect of clause 4.3 and clause 4.7, AIAA assumes the position of ILAL under all ILAL Transferring Life Policies as if AIAA was the original party to those policies in place of ILAL. The ILAL Transferring Life Policies will continue in full force and effect on this basis.
(b) Without limiting clause 4.12(a) and subject to clause 3.2(b):
(i) AIAA assumes all rights, powers, privileges, and all liabilities and obligations of ILAL under the ILAL Transferring Life Policies (excluding Conduct and Operational Liabilities), whenever occurring or accruing; and
(ii) AIAA assumes the position of ILAL under the ILAL Transferring Life Policies in respect of any proceedings that are in progress, pending by, or against, ILAL in respect of the ILAL Transferring Life Policies.
(c) All references to ILAL in an ILAL Transferring Life Policy are replaced with AIAA.
(d) All references to ILAL Statutory Fund No.1 in an ILAL Transferring Life Policy will be read as a reference to AIAA Statutory Fund No.1.
(e) ILAL is released and discharged from all obligations and liabilities under the ILAL Transferring Life Policies, whenever occurring or accruing.
(f) The Transferring Life Policies will remain on foot and there will be no cancellation and reissue of the Transferring Life Policies as a result of the Scheme.
4.13 Consequences for Existing AIAA Policies
The terms and conditions of the Existing AIAA Policies will not change as a result of the Scheme.
Assets and Liabilities
5.1 ILAL Transferring Life Policies
Each ILAL Transferring Life Policy referable to ILAL Statutory Fund No.1 becomes a AIAA Policy referable to AIAA Statutory Fund No.1.
5.2 Assets
The Investment Assets become assets of AIAA Statutory Fund No.1.
5.3 Liabilities
The Assumed Liabilities referable to ILAL Statutory Fund No.1 become liabilities of the AIAA Statutory Fund No.1.
Conduct of the Retail Life Insurance Business at and from the Scheme Effective Time
(a) At and from the Scheme Effective Time, AIAA will maintain such policies and procedures as are required to enable it to conduct the Retail Life Insurance Business in a manner which is consistent with its legal and regulatory obligations and which satisfies the contractual rights and benefits, and the reasonable benefit expectations, of the ILAL Transferring Life Policy Owners.
(b) For the purposes of this clause 6, "policies and procedures" includes any policies and procedures relating to:
(i) the method of determining premium rates and charges;
(ii) underwriting and claims management;
(iii) the capital management framework;
(iv) the risk management framework; and
(v) remediation programs.
(c) AIAA must review its policies and procedures periodically to ensure that they remain appropriate.
(d) At and from the Scheme Effective Time, AIAA will conduct the remediation programs currently being conducted by ILAL as set out in Schedule 5 in accordance with the general principles specified in section 1.2 of the AIAA Remediation Standard, as set out in Schedule 6.
Implementation
AIAA and ILAL will do all such things and execute all such deeds, instruments, transfers or other documents as may be necessary or desirable to give full effect to the provisions of this Scheme and the transactions contemplated by them.
Costs of the Scheme
All costs, including any tax and stamp duty, associated with the transfer of the Retail Life Insurance Business will be paid by ILAL and AIAA and not directly by ILAL Transferring Life Policy Owners or AIAA Policy Owners.
Governing law
This Scheme is governed by the laws of New South Wales, Australia.
Schedule 1
ILAL Transferring Life Policies
The ILAL Transferring Life Policies are the policies issued under the following product names:
No. Product name
The Life Policies issued by ILAL under the product name "Integrity's Here for You".
The Life Policies that were originally issued by CUNA Mutual Insurance Society for life, term life cover, crisis recovery and accident insurance under the product names:
(a) MemberCare Life Insure Policy;
(b) MemberCare Term Life Insurance Plan/Term Life Cover; and
(c) MemberCare Term Life and Crisis Recovery Plan.
The Life Policies that were originally issued by QBE Insurance (Australia) Ltd and ILAL for mortgage and loan protection cover under the product names:
(a) MemberCare Loan Insure;
The Life Policies that were originally issued by LFI Group Pty Ltd and QBE Life (Australia) Limited for mortgage and loan protection cover under the product names "Loan Protection Insurance" and "Mortgage Protection Insurance".
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Schedule 2
Product Transfer Rules for ILAL Transferring Life Policies
1 The ILAL Transferring Life Policies whose terms and conditions are to be replaced
1.1 The terms and conditions of each ILAL Transferring Life Policy as listed in:
(a) item number 1 of Schedule 1, referred to as Integrity Policies; and
(b) item number 2 of Schedule 1, referred to as Ex-CUNA Policies,
are to be replaced on the basis set out in this Schedule 2.
2 The replacement terms and conditions for the ILAL Transferring Life Policies
2.1 At the Scheme Effective Time:
(a) The Integrity Policy Terms and the Ex-CUNA Policy Terms are replaced by the AIAA Policy Terms and a replacement policy schedule issued by AIAA; and
(b) the AIAA Policy Terms will apply in accordance with and subject to the Integrity Product Transfer Rules or the Ex-CUNA Product Transfer Rules as applicable.
2.2 Terms used in this Schedule 2 have the same meaning as set out in clause 2.1 of this Scheme document.
3 Integrity Product Transfer Rules
3.1 The Integrity Product Transfer Rules set out:
(a) the main policy benefits provided to Integrity Policy Owners under the Integrity Policy Terms;
(b) how these policy benefits will transfer to their equivalent replacement policy benefits under the AIAA Policy Terms; and
(c) some rules concerning premium changes and minimum premium requirements that are applicable to all ILAL Transferring Life Policies.
3.2 Tables 1 to 9 contain a list of each of the benefits and features provided under an Integrity Policy and the rules that will determine which corresponding benefit and feature under the AIAA Policy Terms will be provided to Integrity Policy owners at and from the Scheme Effective Time.
3.3 Integrity Policy Owners will only receive the benefits and features of the AIAA Policy Terms as outlined in Tables 1 to 9 below.
3.4 Further to clause 3.3, Integrity Policy Owners will receive all built-in benefits as described in the AIAA Policy Terms under the specific cover set out in the tables below, as applicable. The Rider Benefits - being optional benefits provided at an additional cost - that are referred to in the AIAA Policy terms will not apply on transfer unless they are expressly provided for in the tables below.
3.5 Integrity Policy Owners will not receive the Care Support Package Benefit in the form provided for under the Integrity Policy Terms, save for the specified benefits that are set out in the table below, or which are provided as built-in benefits under, the applicable AIAA Policy Terms.
3.6 The amounts that are shown as being cover amounts in the policy schedule or policy certificate for an Integrity Policy will become corresponding sums insured under the AIAA Policy Terms, save that:
(a) where a Superannuation Contribution Option is held under Income Insurance for Integrity Policies; and
(b) the Superannuation Contribution Option transferring sum insured exceeds the maximum allowable sum insured under AIAA's relevant superannuation benefit,
the balance of the sum insured will be added to the relevant AIAA income protection sum insured.
3.7 Capitalised terms used in these Product Transfer Rules or the tables below have the meaning given to them in the Integrity Policy Terms or the AIAA Policy Terms, or as set out in clause 2.1 of this Scheme document, as the context requires.
3.8 As soon as practicable after the Scheme Effective Time, AIAA will issue a replacement AIAA policy schedule to each Integrity Policy Owner in accordance with the Integrity Product Transfer Rules, as applicable, and incorporating, where applicable, any specific exclusions from the cover recorded in the policy schedule or policy certificate issued in respect of the Integrity Policy.
Table 1 - Life Cover
Integrity Policy Term benefit Integrity Policy Term Replacement AIAA Policy Term
Where the Integrity Policy owner is an individual or a company and is not a superannuation fund
Life Cover * Life Cover. * Life Cover Ordinary Plan, Life Cover.
Life Cover and Care Support Package * Life Cover; and * If the insured life satisfies the criteria for "M" Occupation Category under the AIAA Policy Terms, the Policyowner will receive Life Cover Ordinary Plan, Life Cover and Needlestick Injury Rider Benefit.
(in respect to the benefit of Occupationally Acquired Needlestick Cover) * Care Support Package Benefit. * If the insured life does not satisfy the criteria for the 'M' Occupation Category under the AIAA Policy Terms, the Policyowner will receive Life Cover Ordinary Plan, Life Cover.
Where the Integrity Policy owner is Diversa or a self-managed superannuation fund
Life Cover * Life Cover * Life Cover Superannuation Plan, Life Cover.
Life Cover and Care Support Package * Life Cover; and * If the insured life satisfies the criteria for "M" Occupation Category under the AIAA Policy Terms, the Policyowner will receive Life Cover Superannuation Plan, Life Cover with Superannuation PLUS Rider Benefit and Needlestick Injury Rider Benefit.
(in respect the benefit of Occupationally Acquired Needlestick Cover) * Care Support Package Benefit. * If the insured life does not satisfy the criteria for "M" Occupation Category under the AIAA Policy Terms, the Policyowner will receive Life Cover Superannuation Plan, Life Cover.
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Table 2 - TPD Cover
Integrity Policy Term benefit Integrity Policy Term Replacement AIAA Policy Term
Where the Integrity Policy owner is an individual or a company and is not a superannuation fund
Combined Benefit * TPD Combined Cover and Life Cover is held under the Integrity Policy as at the Scheme Effective Time; and * Life Cover Ordinary Plan, Life Cover and TPD Optional Rider Benefit.
* there is no 14-day Life Cover Reset option on the TPD Cover.
TPD Combined Cover and Life Cover is held under the Integrity Policy as at the Scheme Effective Time; and * Life Cover Ordinary Plan, Life Cover and TPD Stand Alone cover
there is 14-day Life Cover Reset option on the TPD Cover.
TPD Stand Alone * TPD Stand Alone Cover is held under the Integrity Policy as at the Scheme Effective Time. * Life Cover Ordinary Plan, TPD Stand Alone cover.
TPD - Life Cover Reset * the Life Cover Reset Option under the TPD Combined Cover is held under the Integrity Policy as at the Scheme Effective Time. * Life Cover Ordinary Plan, Life Cover and TPD Optional Rider Benefit with TPD Buy-back.
TPD definition * Own Occupation TPD Cover is held under the Integrity Policy as at the Scheme Effective Time; or * The TPD Own Occupation and TPD Any Occupation definitions under the AIAA Policy Terms will apply.
* Any Occupation TPD Cover is held under the Integrity Policy as at the Scheme Effective Time.
Where the Integrity Policy owner is Diversa or a self-managed superannuation fund
Combined Benefit * TPD Combined Cover and Life Cover is held under the Integrity Policy as at the Scheme Effective Time; and * Life Cover Superannuation Plan, Life Cover and TPD Optional Rider Benefit.
* There is no 14-day Life Cover Reset option on the TPD Cover
TPD Combined Cover is held under the Integrity Policy as at the Scheme Effective Time and is provided outside of a superannuation fund in a linked ordinary policy and.
Life Cover is provided within a superannuation fund; and * Life Cover Superannuation Plan, Life Cover with Superannuation PLUS Rider Benefit and TPD Optional Rider Benefit.
There is no 14-day Life Cover Reset option on the TPD Cover
TPD Combined Cover and Life Cover is held under the Integrity Policy as at the Scheme Effective Time; and * Life Cover Superannuation Plan, TPD Stand Alone cover.
There is 14-day Life Cover Reset option on the TPD Cover.
* TPD Combined Cover is held under the Integrity Policy as at the Scheme Effective Time and is provided outside of a superannuation fund in a linked ordinary policy; and
* Life Cover is provided within a superannuation fund; and * Life Cover Superannuation Plan, Life Cover with Superannuation PLUS Rider Benefit and TPD Stand Alone Cover.
* There is 14-day Life Cover Reset option on the TPD Cover
Standalone TPD Cover * TPD Stand Alone Cover is held under the Integrity Policy as at the Scheme Effective Time. Life Cover Superannuation Plan, TPD Stand Alone cover.
If TPD Stand Alone Cover applies (as described above) then:
Split TPD Cover * If Split TPD Cover is held at the Scheme Effective Time. * Life Cover Superannuation Plan, TPD Standalone and Maximiser Linked Benefit.
If TPD Optional Rider Benefit applies (as described above) then:
* TPD Optional Rider Benefit and Maximiser Linked Benefit.
TPD Life Cover Reset * the Life Cover Reset Option under the TPD Cover is held under the Integrity Policy as at the Scheme Effective Time. * Life Cover Superannuation Plan, TPD Optional Rider Benefit with TPD Buy-back.
TPD definition * Own Occupation TPD Cover is held under the Integrity Policy as at the Scheme Effective Time; or The TPD Own Occupation and TPD Any Occupation definitions under the AIAA Policy Terms will apply.
* Any Occupation TPD Cover is held under the Integrity Policy as at the Scheme Effective Time.
[6]
Table 3 - Critical Illness
Integrity Policy Term benefit Integrity Policy Term Replacement AIAA Policy Term
The policy owner of the Integrity Policy is an individual or a company and is not a superannuation fund.
Combined Benefit * Critical Illness Combined Cover and Life Cover are held under the Integrity Policy as at the Scheme Effective Time. * Life Cover Ordinary Plan, Life Cover and Crisis Recovery Optional Rider Benefit.
Critical Illness Combined Cover is held as at the Scheme Effective Time, and: * Life Cover Superannuation Plan, Life Cover, Superannuation PLUS and Crisis Recovery Optional Rider Benefit.
Life Cover is provided within a superannuation fund.
Stand Alone * Stand Alone Critical Illness Cover is held under the Integrity Policy as at the Scheme Effective Time. * Crisis Recovery Stand Alone Plan, Crisis Recovery Stand Alone.
Life Cover Reset * Life Cover Reset Option under the Critical Illness Cover is held under the Integrity Policy as at the Scheme Effective Time; and Life Cover Ordinary Plan, Life Cover and Crisis Recovery Optional Rider Benefit with Crisis Recovery Buy-back Rider Benefit.
* Life Cover is held outside superannuation.
Life Cover Reset Option under the Critical Illness Cover is held under the Integrity Policy as at the Scheme Effective Time; and * Life Cover Superannuation Plan, Superannuation PLUS, Crisis Recovery Optional Rider Benefit with Crisis Recovery Buy-back Rider Benefit.
Life Cover is held inside superannuation.
Critical Illness Reset or Critical Illness Relapse * the Critical Illness Reset or the Critical Illness Relapse Option is held under the Critical Illness cover under the Integrity Policy as at the Scheme Effective Time and * Life Cover Ordinary Plan, Life Cover, Crisis Recovery Optional Rider Benefit with Crisis Recovery Buy-back Rider Benefit and Crisis Reinstatement Rider Benefit.
* Life Cover is held outside superannuation.
the Critical Illness Reset or the Critical Illness Relapse Option is held under the Critical Illness cover under the Integrity Policy as at the Scheme Effective Time and ; * Life Cover Superannuation Plan, Life Cover, Superannuation PLUS and Crisis Recovery Optional Rider Benefit with Crisis Recovery Buy-back Rider Benefit and Crisis Reinstatement Rider Benefit.
Life Cover is held inside superannuation.
The Critical Illness Reset or the Critical Illness Relapse Option is held under the Stand Alone Critical Illness cover under the Integrity Policy as at the Scheme Effective Time. * Crisis Recovery Stand Alone Cover with Crisis Reinstatement Rider Benefit.
[7]
Table 4 - Income Insurance (for Integrity Policies with a PDS that has a date of issue on or after 1 October 2021)
Integrity Policy Term benefit Integrity Policy Term Replacement AIAA Policy Term
The policy owner of the Integrity Policy is an individual or a company and is not a superannuation fund.
Income Insurance Cover with an Income Replacement Ratio (IRR) of 50%, 60% or 70% * an IRR of 50%, 60% or 70% of Monthly Earnings is held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time. * Income Protection Plan, Income Protection CORE Flat 70% Option and Complimentary Income Protection CORE Extras.
Claim Benefit Indexation Option * Claim Benefit Indexation Option is held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time. * Income Protection Plan, Income Protection CORE Flat 70% Option and Complimentary Income Protection CORE Extras and Claim Escalation benefit.
Superannuation Contribution Option * Superannuation Contribution Option is held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time. * Income Protection Plan, Income Protection CORE Flat 70% Option and Complimentary Income Protection CORE Extras and Retirement Protector benefit.
Waiting Period * the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 30 days, 60 days, 90 days or 2 years. * a corresponding 30 day, 60 day, 90 day or 2 year Waiting Period under the AIAA Policy Terms will be applied.
the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 180 days or 1 year. * a Waiting Period of 90 days under the AIAA Policy Terms will apply.
Benefit Period * the Benefit Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 2 years, 5 years or to age 65. * a corresponding 2 year, 5 year or to age 65 Benefit Period under the AIAA Policy Terms will apply.
Where the Integrity Policy owner is Diversa or a self-managed superannuation fund
Income Insurance Cover with an Income Replacement Ratio (IRR) of 50%, 60% or 70% * an IRR of 50%, 60% or 70% of Monthly Earnings is held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time. * Superannuation Income Protection Plan, Income Protection CORE Flat 70% Option; and
* Complimentary Income Protection CORE Extras
Split Income Insurance * Split Income Insurance is held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time. * Superannuation Income Protection Plan, Income Protection CORE Flat 70% Option; and
* Complimentary Income Protection CORE Extras
Claim escalation * Claim Benefit Indexation Option is held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time * Superannuation Income Protection Plan, Income Protection CORE Flat 70% Option and Complimentary Income Protection CORE Extras and Claim Escalation Rider Benefit.
Waiting period * the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 30 days, 60 days, 90 days or 2 years * a corresponding 30 day, 60 day, 90 day or 2 year Waiting Period under the AIAA Policy Terms will apply.
the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 180 days or 1 year. * a Waiting Period of 90 days under the AIAA Policy Terms will apply.
Benefit Period * The Benefit Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 2 years, 5 years or to age 65. * a corresponding 2 year, 5 year or to age 65 Benefit Period under the AIAA Policy Terms will apply.
[8]
Table 5- Income Insurance (for Integrity Policies with a PDS that has a date of issue on or before 1 April 2021)
Integrity Policy Term benefit Integrity Policy Term Replacement AIAA Policy Term
The policy owner of the Integrity Policy is an individual or a company and is not a superannuation fund.
* Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
Income Insurance * Superannuation Contribution Option is not held; and * Income Protection Plan, Advantage Optional and Claim Escalation benefit.
* neither of the Care Support Package Benefit nor the Specified Injuries and Specified Medical Conditions Benefit is also held.
Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
Superannuation Contribution Option is not held; and * Income Protection Plan, PLUS Optional and Claim Escalation benefit.
one or both of the Care Support Package Benefit and the Specified Injuries and Specified Medical Conditions Benefit is also held.
Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
Superannuation Contribution Option is held; and * Income Protection Plan, Advantage Optional, Retirement Optimiser and Claim Escalation benefit.
neither of the Care Support Package Benefit nor the Specified Injuries and Specified Medical Conditions Benefit is also held.
Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
Superannuation Contribution Option is held; and * Income Protection Plan, PLUS Optional, Retirement Optimiser and Claim Escalation benefit.
one or both of the Care Support Package Benefit and the Specified Injuries and Specified Medical Conditions Benefit is also held.
Waiting period * the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 30 days, 60 days, 90 days, 1 year or 2 years. a corresponding 30 day, 60 day, 90 day, 1 year or 2 year Waiting Period under the AIAA Policy Terms will apply.
the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 180 days. * a Waiting Period of 90 days under the AIAA Policy Terms will apply.
Benefit Period * the Benefit Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 2 years, 5 years or to age 65 or age 70. * a corresponding 2 year, 5 year or to age 65 or age 70 Benefit Period under the AIAA Policy Terms will apply, save that:
* those persons who are classified under the AIAA Policy Terms as being under Occupation Category B1 (being those occupations not classified as white collar and which may involve some very light manual work), who have a Benefit Period to age 70 under the Integrity Policy Terms, will have a reduced Benefit Period under the AIAA Policy Terms to age 65.
Where the Integrity Policy owner is Diversa or a self-managed superannuation fund
* Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
Income Insurance * Superannuation Contribution Option is not held; and * Superannuation Income Protection Plan, Income Protection, Super Extras, Advantage Optional and Claim Escalation benefit.
* neither of the Care Support Package Benefit nor the Specified Injuries and Specified Medical Conditions Benefit is also held.
Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
Superannuation Contribution Option is not held; and * Superannuation Income Protection Plan, Income Protection, Super Extras, PLUS Optional and Claim Escalation benefit.
one or both of the Care Support Package Benefit and the Specified Injuries and Specified Medical Conditions Benefit is also held.
Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
Superannuation Contribution Option is held; and * Superannuation Income Protection Plan, Income Protection, Super Extras, Advantage Optional, Claim Escalation benefit and Retirement Optimiser benefit.
neither the Care Support Package Benefit nor the Specified Injuries and Specified Medical Conditions Benefit is also held.
Income Insurance Cover is held under an Integrity Policy as at the Scheme Effective Time and where:
Superannuation Contribution Option is held; and * Superannuation Income Protection Plan, Income Protection, Super Extras, PLUS Optional, Claim Escalation benefit and Retirement Optimiser benefit.
one or both of the Care Support Package Benefit and the Specified Injuries and Specified Medical Conditions Benefit is also held.
Waiting Period * the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 30 days, 60 days, 90 days, 1 year or 2 years; * a corresponding 30 day, 60 day, 90 day, 1 year or 2 year Waiting Period under the AIAA Policy Terms will apply.
the Waiting Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 180 days. * a Waiting Period of 90 days under the AIAA Policy Terms will apply.
Benefit Period * the Benefit Period held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is 2 years, 5 years or to age 65 or age 70. * a corresponding 2 year, 5 year or to age 65 or age 70 Benefit Period under the AIAA Policy Terms will apply, save that:
* those persons who are classified under the AIAA Policy Terms as being under Occupation Category B1 (being those occupations not classified as white collar and which may involve some very light manual work), who have a Benefit Period to age 70 under the Integrity Policy Terms, will have a reduced Benefit Period under the AIAA Policy Terms to age 65.
Basis of Cover * the Basis of Cover held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is Indemnity 12 months. * Indemnity cover.
the Basis of Cover held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is Indemnity 36 months. * Extended Indemnity cover.
the Basis of Cover held under the Income Insurance Cover on the Integrity Policy as at the Scheme Effective Time is Agreed Value. Agreed Value cover.
[9]
Table 6- Premium rates
Integrity Policy Premium Type Replacement AIAA Policy Premium Type
All of the insurance cover held under the Integrity Policy as at the Scheme Effective Time has a Stepped Premium structure. * a Stepped premium structure will apply.
All of the insurance cover held under the Integrity Policy as at the Scheme Effective Time has a Level Premium structure * a Level premium structure will apply. Where there is an applicable policy term, AIAA will calculate the Level premium to match the Level Premium payable under the Integrity Policy term. Where the AIAA Policy term provided is in addition to the existing Integrity Policy term, AIAA will calculate the AIAA premium based on the entry age as at the Integrity Policy.
If the insurance cover held under the Integrity Policy as at the Scheme Effective Time has a combination of Stepped Premium and Level Premium structure. * a Level premium structure will apply. For Stepped premium converting to Level premium, AIAA will use the insured life age at next birthday at the start of their cover with Integrity to calculate level premium rates.
Premium changes and minimum premium requirements (applicable to all ILAL Transferring Policies)
AIAA will not apply any new premium rate changes introduced during 2025 to its Priority Protection policyholders as a whole to the ILAL Transferring Life Policies.
AIAA will waive its $300 minimum premium requirement for all ILAL Transferring Life Policies at the date of transfer and for subsequent Policy Anniversary premium calculations. This waiver will cease to apply if the cover is changed following the Scheme Effective Time.
The new premium rates for the ILAL Transferring Life Policies will take effect from the first date of payment following the Scheme Effective Time.
[10]
Table 7 - Adviser Commission Discounts impacting Premium Rates
Commission Discounts
The following table sets out the rules that will apply to transfer existing adviser commission discounts that apply to the Integrity Policies on and after the Scheme Effective Time when they become AIAA Policies.
Integrity Policy Premium Discounts for Hybrid Commission Arrangements AIAA Policy Premium Discounts for Hybrid Commission Arrangements
0.0% P100 - 0.0%
2.5% P90 - 10%
5.0%
7.5% P85 - 15%
10.0%
12.5% P80 - 20%
15.0%
17.5%
20.0%
22.5% P70 - 30%
25.0%
Integrity Policy Premium Discounts for Level Commission Arrangements AIAA Policy Premium Discounts for Level Commission Arrangements
0.0% P100 - 0.0%
2.5% P95 - 10%
5.0%
7.5% P85 - 15%
10.0% P80 - 20%
12.5%
15.0%
17.5% P70 - 30%
20.0%
22.5%
25.0%
Other Premium Discounts
Subject to meeting AIA's qualification rules (as applicable), Integrity Life transferring policies may receive the following listed discounts:
Bundled discount;
Lump Sum Bundled discount; and
Preferred adviser discount provided under Integrity Life's Here For You policy.
No other discounts will apply on transfer.
[11]
Table 8 - Consumer Price Increase (CPI)
Integrity Policy Term Replacement AIAA Policy Term
Any of the insurance cover held under the Integrity Policy as at the Scheme Effective Time has a CPI Rate increase applicable to it. CPI Increase will apply to all covers in accordance with Benefit Indexation under the AIAA Policy Terms.
[12]
Table 9 - Occupation categories
Integrity Policy Term Occupation Class Replacement AIAA Policy Term Occupation Category
1- Professional, other than medical professional occupations * A1
1- White * A2
2 - Light Blue * B1
3 - Blue * C1
4 - Heavy Blue * D
5 - Red * E
Medical professional occupations, comprising:
Anaesthetist
Cardiologist - non surgeon
Cardiologist - surgeon
Clinical Psychologist
Counsellor (psychology)
Dental Practitioner
Dental Surgeon
Dentist
Dermatologist
Doctor
Gastroenterologist
General Medical Practitioner
General Practitioner
Gynaecologist
Medical Practitioner
Medical Officer
Neurosurgeon
Obstetrician
Oncologist * M
Ophthalmologist
Orthodontist
Orthopaedic Surgeon
Paediatrician
Pathologist
Periodontist
Physician - Consultant, non-surgeon
Psychiatrist
Psychiatrist - Consultant
Psychologist
Psychotherapist (qualified)
Radiologist
Radiologist - Consultant
Rheumatologist
Specialist Physician
Surgeon
Urologist - surgeon
Veterinarian
[13]
4 Ex-CUNA Product Transfer Rules
4.1 The Ex-CUNA Product Transfer Rules set out:
(a) the main policy benefits provided to Ex-CUNA Policy Owners under the Ex-CUNA Policy Terms; and
(b) how these policy benefits will transfer to their equivalent replacement policy benefits under the AIAA Policy Terms.
4.2 Tables 1 and 2 contain a list of each of the benefits and features provided under a Ex-CUNA Policy and the rules that will determine which corresponding benefit and feature under the AIAA Policy Terms will be provided to Ex-CUNA Policy Owners at and from the Scheme Effective Time.
4.3 Benefits and features of the AIAA Policy Terms are only to be provided to Ex-CUNA Policy Owners to the extent that they are expressly referred to in Tables 1 and 2.
4.4 Further to clause 4.3, Ex-CUNA Policy Owners will receive all built-in benefits as described in the AIAA Policy Terms under the specific cover set out in the Replacement AIAA Policy Term in the Tables below, as applicable. The Rider Benefits - being optional benefits at an additional cost - that are referred to in the AIAA Policy terms will not apply on transfer. Where an accidental death benefit is provided under an Ex-CUNA Policy, that benefit will not be provided under the AIAA Policy Terms.
4.5 The amounts that are shown as the sum insured for benefits (other than accidental death) in the policy schedule or policy certificate for an Ex-CUNA Policy will become corresponding Sums Insured under the AIAA Policy Terms.
4.6 Capitalised terms used in these Product Transfer Rules or the tables below have the meaning given to them in the EX-CUNA Policy Terms or the AIAA Policy Terms, or as set out in clause 2.1 of this Scheme document, as context requires.
4.7 As soon as practicable after the Scheme Effective Time AIAA will issue a replacement AIAA policy schedule to each owner of an EX-CUNA Policy in accordance with the Ex-CUNA Product Transfer Rules, as applicable, and incorporating, where applicable, any specific exclusions from cover recorded in the policy schedule or policy certificate issued in respect of the Ex-CUNA Policy.
Table 1 - Life Cover
Ex-CUNA Policy benefit Ex-CUNA Policy Term Replacement AIAA Policy Term
Life Cover / Term Life * Life cover or term life cover held under the Ex-CUNA Policy as at the Scheme Effective Time * Life Cover Ordinary Plan, Life Cover.
[14]
Table 2- Premium rates
Ex-CUNA Policy Premium Type Replacement AIAA Policy Term Premium Type
All Ex-CUNA Policies as at the Scheme Effective Time. * a Stepped premium structure will apply.
Premium changes and minimum premium requirements
Subject to meeting AIA's qualification rules (as applicable), Ex-CUNA transferring policies may receive the following listed discount;
Lump Sum Bundled discount;
No other discounts will apply on transfer.
Promoter Agreement dated 12 April 2019 ILAL and Diversa Trustees Limited
Insurance Service Level Agreement dated 12 April 2019 ILAL and Diversa Trustees Limited
Outsourced Services Agreement dated 22 December 2017 as amended and restated by the Amendment and Restatement Deed dated 6 February 2025 ILAL and QBE Management Services Pty Ltd
Retail Business Reinsurance Agreement dated 28 February 2019 (2019 HLRA Treaty) ILAL and Hannover Life Re of Australasia Limited
Addendum No.1 to the 2019 HLRA Treaty dated 4 June 2021 ILAL and Hannover Life Re of Australasia Limited
Addendum No.2 to the 2019 HLRA Treaty dated 28 January 2021 ILAL and Hannover Life Re of Australasia Limited
Addendum No.3 to the Life, TPD, GSC Proportional Reinsurance Agreement Covering Corporate Group Insurance dated 28 January 2021 ILAL and Hannover Life Re of Australasia Limited
Addendum No.3 to the 2019 HLRA Treaty dated 6 February 2025 ILAL and Hannover Life Re of Australasia Limited
Addendum No.4 to the 2019 HLRA Treaty dated 6 February 2025 ILAL and Hannover Life Re of Australasia Limited
Addendum No.5 to the 2019 HLRA Treaty dated 6 February 2025 ILAL and Hannover Life Re of Australasia Limited
Addendum No.6 to the 2019 HLRA Treaty dated 6 February 2025 ILAL and Hannover Life Re of Australasia Limited
Addendum No.7 to the 2019 HLRA Treaty dated 6 February 2025 ILAL and Hannover Life Re of Australasia Limited
Addendum No.8 to the 2019 HLRA Treaty dated 7 February 2025 ILAL and Hannover Life Re of Australasia Limited
Individual Life Reinsurance Treaty (AU-INT-A-B-I-22) dated 10 October 2022 (2022 RGA Treaty) ILAL and RGA Reinsurance Company of Australia Limited
Addendum 1 to the 2022 RGA Treaty (AU-INT-A-B-I-22-1) dated 31 March 2023 ILAL and RGA Reinsurance Company of Australia Limited
Addendum 2 to the 2022 RGA Treaty (AU-INT-A-B-I-22-2) dated 11 February 2025 ILAL and RGA Reinsurance Company of Australia Limited
[17]
Schedule 5
ILAL Remediation Programs
Refunds not yet processed incident remediation
Schedule 6
Extract of AIAA Remediation Standard
5 General Principles
5.1 Remediation must:
(a) commence promptly and ensure conflict of interest controls are in line with the Conflicts of Interest Standard;
(b) return affected customers as closely as possible to the position they would have otherwise been in had the misconduct or other failure not occurred;
(c) give customers the benefit of the doubt and minimise the risk of under- compensation ie. ensure customers do not incur fees or charges as a result of the Remediation;
(d) use best endeavours to identify all customers impacted by the Remediation issue;
(e) use best endeavours to identify customers in hardship or vulnerable circumstances and consider if any special treatment or immediate action is appropriate for them;
(f) understand and be accountable for addressing the root cause(s) of the Remediation issue;
(g) make the Remediation process easy for customers by minimising complexity and, where possible, limiting their involvement in the process;
(h) adhere to the relevant internal dispute resolution obligations and timeframes when a customer complains about the Remediation issue;
(i) ensure customers are made aware of AIAA's external dispute resolution scheme if they are not satisfied with the outcome provided to them, and provide details of the external dispute resolution scheme;
(j) treat all impacted customers in a consistent manner, to the extent possible;
(k) ensure that AIAA does not profit from a Remediation issue;
(l) ensure the determination of whether a customer is impacted by the Remediation issue and the extent of any impact is assessed in an objective, straightforward and consistent manner; and
(m) monitor and improve processes and methods as required to ensure that each Remediation is executed in line with the AIAA Remediation Standard.
5.2 Defined terms in this Schedule 6 have the meanings ascribed to them in the AIAA Remediation Standard.
REASONS FOR JUDGMENT
JACKMAN J:
[18]
Introduction
1 In these proceedings the applicants, Integrity Life Australia Limited (ILAL) and AIA Australia Limited (AIAA), make an application under s 193 of the Life Insurance Act 1995 (Cth) (Life Act) for an order under s 194 of the Life Act confirming a scheme for the transfer of part of the life insurance business of ILAL to AIAA (Scheme). The terms and details of the Scheme are stipulated in the scheme document (Scheme document).
2 On 17 December 2024, I made orders pursuant to s 191(5) of the Life Act dispensing with the need for compliance with s 191(2)(c) of the Life Act insofar as it requires a summary of the Scheme approved by APRA (Scheme Summary) to be given to owners of policies issued by the applicants affected by the Scheme, provided that the applicants carry out certain steps (Dispensation Orders). As set out below, the steps required under the Dispensation Orders and the procedural requirements under the Life Act have been substantially complied with.
3 The Scheme is based on actuarial reports prepared by Mr Michael Dermody, the appointed actuary of ILAL, dated 12 December 2024 (ILAL Actuarial Report) and Mr Nghiep Luu, the appointed actuary of AIAA, dated 12 December 2024 (AIAA Actuarial Report). Mr David Goodsall, an independent actuary, has also prepared a report on the Scheme dated 12 December 2024 (Independent Actuarial Report). Each of the actuaries has updated his report by further evidence in the form of an affidavit.
[19]
Background to the Scheme and the life insurance business of the applicants
[20]
Life Insurance Business of ILAL
4 ILAL is authorised under the Life Act to conduct life insurance and conducts this business in Australia. It is a wholly owned subsidiary of Integrity Group Holdings Limited (IGHL) and operates IGHL's life insurance business. IGHL is a registered non-operating holding company that is privately owned by a number of local and offshore investors. Leadenhall Capital Partners and Schroder Investment Management Limited are its majority shareholders.
5 ILAL was acquired by IGHL in December 2017 from QBE Insurance Group. ILAL was formerly known as:
(a) QBE Life (Australia) Limited (QBE Life) from March 2012 to January 2018; and
(b) CUNA Mutual Life Australia Limited (CUNA) before March 2012.
6 ILAL has a single statutory fund that contains ordinary and superannuation life business, referred to as Statutory Fund No 1 (ILAL SF1). ILAL also operates a shareholders' fund which is maintained separately from ILAL SF1.
7 ILAL carries on three main categories of life insurance business as follows:
(a) individual life risk business. This comprises death, total and permanent disablement (TPD), trauma and income protection cover, as follows:
(i) life policies sold under the "Integrity's Here for You" product disclosure statement and policy document (Integrity Policies) which were distributed through financial advisers; and
(ii) life policies sold under the "Medibank" and "ahm" brands (Medibank Policies) which were distributed directly;
(b) group risk business (Group Risk Business). This comprises group insurance schemes where cover is provided for group life insurance (death and TPD) and group salary continuance. This business was distributed through a network of brokers, superannuation trustees and commercial partnerships and comprises the following portfolios:
(i) corporate group life policies which include the Australian Retirement Trust superannuation fund's corporate plans and Marsh Pty Limited's Mercer Marsh Benefits (Marsh) small and midsize enterprises corporate plans;
(ii) group life policies sold under the "Coverforce" brand; and
(iii) group life policies for small business sold under the "Five+" brand; and
(c) legacy business from QBE Life and CUNA. This comprises the following products that have been closed to new business since soon after the acquisition of QBE Life:
(i) loan and mortgage protection insurance jointly issued by QBE Life and each of QBE Insurance (Australia) Limited and LFI Group Pty Limited (Ex-QBE CCI Policies); and
(ii) life, term life cover, crisis recovery and accident insurance cover issued by CUNA (Ex-CUNA Policies).
8 The life business which is proposed to be transferred under the Scheme is that referable to the Integrity Policies, the Ex-QBE CCI Policies and the Ex-CUNA Policies (Transferring Policies). This business is referred to and defined in the Scheme document as the "Retail Life Insurance Business" (Retail Life Insurance Business). The other business of ILAL, including the remaining group life insurance sold under the Marsh corporate plans and the Five+ brand, as well as the Medibank Policies are not the subject of the proposed Scheme.
[21]
Life Insurance Business of AIAA
9 AIAA is authorised to conduct life insurance under the Life Act. Since 28 February 2009, AIAA has been a wholly owned subsidiary of AIA Company Limited, a company incorporated in Hong Kong. AIAA is part of the AIA Group which comprises the largest independent publicly listed Pan-Asian life Insurance group. It has a presence in 18 markets and has total assets of US$286 billion as of 31 December 2023. The AIA Group services the holders of more than 42 million individual policies and over 18 million participating members of group insurance schemes.
10 The AIA Group has operated in Australia since 1972. AIAA provides life insurance coverage to over 2.5 million people in Australia and employs approximately 1,850 people in Australia.
11 AIAA's life insurance business is managed within two statutory funds: Statutory Fund No 1 for non-investment linked business (AIAA SF1) and Statutory Fund No 2 for investment linked ordinary business (AIAA SF2). AIAA operates, among other life insurance business, individual lump sum (death, disablement, trauma and income protection insurance) business, with a gross annual premium in-force of $1,511 million as at 31 December 2023, and group lump sum (death, disablement, trauma and income protection insurance) business, with a gross annual premium in-force of $2,068 million as at 31 December 2023.
12 As at 31 December 2023, AIAA SF1 had net assets of $1,325 million and a Capital Adequacy Multiple (CAM) of 212%. As at 31 December 2023 AIAA, as a whole, had net assets of $2,226 million and a CAM of 223%. As at 31 December 2024, AIAA SF1 had net assets of $1,232 million and a CAM of 182%. As at 31 December 2024, AIAA, as a whole, had net assets of $2,116 million and a CAM of 183%.
[22]
ILAL's entry into run-off and its current financial position
13 Following the acquisition of QBE Life from QBE Insurance Group, ILAL's plan under new management and ownership was to cease to write the legacy business from QBE Life and CUNA, and to expand into retail advised and group insurance business channels. This expansion involved ILAL offering the Integrity Policies and the Group Risk Business referred to above.
14 Over time, ILAL was unable to achieve the targets and sales volumes in its business plans so as to grow and operate at a large enough scale to be profitable. This lack of growth stemmed from substantial reductions in both the number of financial advisers providing risk advice and the number of lives insured across all of the sales channels. Not being able to achieve sufficient scale required significant ongoing investment from ILAL's institutional investors that could not be maintained.
15 Attempts were made during 2023 to make ILAL's financial position more sustainable. This involved exploring options to recapitalise the business from existing and new shareholders, selling IGHL's life insurance business and restructuring ILAL's business (including migrating existing business through a platform operated by the administrator of the Medibank portfolio and closing the retail advised business while continuing to write the Group Risk Business). These processes were not successful.
16 On 5 September 2023, ILAL made a decision to stop writing new business because of the lack of ongoing investment. The decision resulted in a reduction to the forecast revenue position for the business. ILAL assessed that its forecasted capital position at 30 September 2023 would, as a result of the reduction in future cashflows, be below its prescribed capital requirement. This placed ILAL in a position of non-compliance with Prudential Standards LPS 110 Capital Adequacy and LPS 100 Solvency Standard, and in turn, in breach of s 230AAA of the Life Act.
17 ILAL entered into run-off for its Group Risk Business on 5 September 2023, and its retail advised business on 29 September 2023 when it ceased sales of new business. New sales of Medibank Policies ceased in April 2024. ILAL invoked its documented process for the run-off and administration of each of its portfolios (Run-Off Plan). ILAL reported its breaches of the Life Act to APRA and APRA issued directions to ILAL under s 230B(1) of the Life Act on 18 October 2023. These directions required ILAL:
(a) only to carry on life insurance business for the purpose of discharging liabilities arising under life policies issued on or before 31 October 2023 or, with APRA's approval for existing contractual arrangements with certain business partners, life policies issued on or before 31 March 2024 (in effect, ILAL was prohibited from writing new business after these dates);
(b) to seek APRA's written approval before making a reduction in its Capital Base or before making any payments to shareholders or related entities whether by dividend, interest or any other means; and
(c) to seek APRA's written approval before transferring any asset of a Statutory Fund.
18 Under its Run-Off Plan, ILAL is working towards completing the run-off of its Retail Life Insurance Business by June 2025, or earlier if possible. This involves the transfer or transition of the various portfolios comprising ILAL's Retail Life Insurance Business, the main purpose of which is to protect policy owners' contractual benefits and to provide options for continuing their cover in light of ILAL's deteriorating financial position. The proposed Scheme is an integral part of this run-off process.
19 The various arrangements for the run-off of the remaining business of ILAL (other than through the proposed Scheme) have been set out in detail in applicant's evidence. They include transfer of the Medibank Policies, which have been transferred to Zurich Australia Limited under Pt 3 of the Financial Sector (Transfer and Restructure) Act 1999 (Cth) (FSTR Act), with an effective date of 20 December 2024. Further, the twenty or so group life insurance and group salary continuance plans comprising the remaining portfolio of corporate group life business have either been transitioned to TAL Life or cancelled at the policyholder's instruction. One in-force policy remains as part of the Five+ group life business, which is to be cancelled with effect on 28 February 2025.
20 ILAL is currently in the process of negotiating commercial arrangements with a number of life insurers for them to accept certain residual open claims and incurred-but-not-reported (IBNR) claims liabilities for ILAL's corporate group life business. These arrangements are proposed to be effected by deeds of assignment that are to be approved by APRA under s 27A of the Life Act. These liabilities include about 271 open claims as at 31 December 2024. ILAL is also arranging transfer of any remaining claims exposure for each individual policy not transferred under the Scheme that relates to an out-of-force policy. The expected claims cost for these IBNR liabilities is close to nil.
21 Commercial negotiations to finalise these transfers are continuing. Two of the three insurers involved have provided indicative commercial terms which are not considered financially viable, and ILAL is working with these insurers on solutions to reduce their costs. ILAL remains confident that the transfers of these remaining liabilities can be effected by 30 June 2025, if not earlier.
22 The run-off process is being closely monitored by APRA. This is a necessary consequence of the directions that APRA has issued and some aspects of the transfer of the remaining business contemplate the exercise of powers by it.
23 Notwithstanding the risks associated with the breaches that have been reported to APRA, ILAL has performed an assessment of its solvency under the course of executing the Run-Off Plan. In particular, ILAL performs financial analysis of the expected remaining assets across IGHL (including the capital available in IGHL and ILAL) once the Run-Off Plan is complete. This is referred to as the Residual Capital Value (RCV). This analysis is performed monthly and is updated for actual experience, material changes in anticipated future experience of the policies and any other material changes to the Run-Off Plan. Mr Dermody has set out in the ILAL Actuarial Report an RCV analysis based on different scenarios:
(a) first, a "Baseline Scenario", taking into account expected internal and external expenses, including those involved in transitioning the business and costs of the proposed Pt 9 transfer and the ultimate winding-up of IGHL; and
(b) second, a "Risk Scenario", which involves longer time frames for the transfer of cover. Under this scenario, the transferring policies and corporate group life policies are assumed not to be transferred until August 2025 and September 2025 respectively.
The results of this detailed analysis are set out in tables 2 to 4 of the ILAL Actuarial Report, and show projected available assets at 30 June 2025 of $4.8 million in the Baseline Scenario and $1.5 million in the Risk Scenario. However, further analyses involving claims 20% and 50% higher than expected show negative RCV projections at 30 June 2025, ie a shortfall of assets. Mr Dermody states:
In summary the analysis indicates that ILAL is expected to meet its obligations to policy owners on the Baseline Scenario and the Risk Scenario if claims are expected. My overall view is that ILAL is not in a strong financial position to address the potential risks that may emerge.
24 Mr Dermody updated his review of ILAL's current financial position and in particular the RCV, with data available as at 30 November 2024. The RCV analysis shows a deterioration of the financial position compared to the forecast of approximately $1.4 million, the primary driver of which is excess claims in November 2024. Mr Dermody finds that ILAL is expected to have limited remaining assets once the run-off is complete in both the Baseline (or Best Case) and the Risk scenarios, assuming that an escrow amount of $1.5 million (to meet potential warranty and contract claims by AIAA under the transfer deed) is available to meet any remaining policy liabilities of AIAA. Importantly, the date by which ILAL's capacity to meet policy owner benefits in full is now expected to be exhausted by November 2027, some three months earlier than the assessment at [2.10] of the ILAL Actuarial Report.
25 The board of ILAL has also developed an "in principle" plan referred to as the Retail Contingency Plan (RCP) which sets out the approach to run-off the retail advised business and Ex-QBE CCI Policies if the proposed transfer under the Scheme does not proceed and no other opportunity to transfer the business arises. The key features of the RCP include:
(a) a plan to increase premiums on the first policy anniversary following the hypothesised failure of the transfer by a range of between 20% and 60% (now more likely to be at the higher end of this range), and on the second policy anniversary, an increase in the order of 50% on the premium after the first year increase; and
(b) an expectation that expense overruns will continue to occur, notwithstanding ILAL seeking to reduce and manage expenses, as a result of the difficulties in reducing policy numbers, by financial incentive or otherwise, to a level that would substantially eliminate the costs associated with the business.
Importantly, under the RCP, it is expected that ILAL's capacity to meet policy owner benefits in full, would be exhausted in the period between July and November 2027.The proposed Scheme and Transfer
[23]
The Scheme
26 The Scheme gives effect to a transfer deed dated 11 December 2024 under which ILAL has agreed to transfer the Retail Life Insurance Business (defined in the same way as it is under the Scheme) to AIAA, subject to confirmation by the Court and other conditions precedent (which are addressed below) (Transfer Deed).
27 The Scheme involves the transfer of the majority of ILAL's Retail Life Insurance Business comprising in-force policies relating to some 6,800 policy owners to AIAA SF1. As set out above, the in-force policies to be transferred are:
(a) the Integrity Policies;
(b) the Ex-QBE CCI Policies; and
(c) the Ex-CUNA Policies.
Policies within these product groups which have expired but under which benefits remain payable, or in respect of which a person has a guaranteed renewal right as at the scheme effective time will also be transferred under the Scheme.
28 The scheme effective time, ie the time at which the Scheme is intended to commence and take effect, is 12.01 am (AEST) on 1 March 2025 (Scheme Effective Time). The transfer date is accordingly, 1 March 2025 (Transfer Date).
29 In light of ILAL's execution of its Run-Off Plan, with a mandated cessation of any new business and ILAL's current and deteriorating financial position, the primary purpose of the Scheme is to:
(a) provide ongoing cover to the owners of the Transferring Policies; and
(b) improve the financial security of the owners of the Transferring Policies.
The timely confirmation of the proposed Scheme is also an important part of ILAL's plans to transfer the remaining portfolios of business in ILAL by 30 June 2025 or earlier.
30 A feature of this Scheme is that the terms and conditions of the Integrity Policies and Ex-CUNA Policies are to be replaced by the terms and conditions of AIAA's life product known as "Priority Protection".
31 Mr Katon's evidence (Mr Katon being the General Manager, Finance, Risk and Compliance of ILAL) is that it has been necessary to structure the Scheme in this way because the commercial position is that the size of the transferring in-force Retail Life Business is too small for a life insurer to receive and be able to manage profitably on the Transferring Policies' existing terms and conditions. During 2023 and 2024, ILAL management approached and undertook negotiations with a number of potential life insurers in the market to understand their interest and capacity to receive the transfer of various parts of ILAL's retail life insurance portfolio. ILAL was not able to identify any insurer that would accept the transferring business without changing its product terms to the receiver's insurance product terms. The substance of the responses from the insurers that were approached was that it was not commercially viable for any of them to replicate the terms and conditions because of the small scale of the portfolio and the prospective cost in building resources and capability to replicate ILAL's products, other than for the loan and mortgage insurance comprising the Ex-QBE CCI Policies.
32 AIAA's evidence confirms this. The Scheme involves the proposed transfer of approximately 9,000 in-force policies compared to the some 511,000 policies issued by AIAA. As Mr Hamilton (Head of Commercial and Transition Services of AIAA) states, if the proposed changes were not implemented, the Scheme would be uneconomical and unsustainable for AIAA, particularly given the accelerated timeframes, as it would increase AIAA's program delivery and ongoing operational costs and significantly reduce the value of the transaction.
33 Ultimately, AIAA was selected by ILAL as its preferred partner for the transfer of the Retail Life Insurance Business because it represented the best outcome for securing policy owner benefits that could be achieved. AIAA was also able to commit to work towards completing the transfer during 2024, which was an important consideration in executing ILAL's Run-Off Plan for the benefit of all ILAL's policy owners. ILAL also took into account that AIAA is a major participant in the Australian life insurance market and part of a very substantial global life insurance group, and that AIAA was motivated to achieve some growth in its retail business. AIAA was assessed as having a strong financial and prudential capital position. ILAL also took into account AIAA's product suite and, in particular, the adaptability of its "Priority Protection" product.
34 Having considered the opportunity to pursue a transfer with other potential life insurers, ILAL determined that AIAA's product suite was suitable for Transferring Policy owners because:
(a) ILAL's Integrity Policies were sold through financial advisers to individuals and couples and AIAA competes in this segment of the life insurance market and issues a single and flexible product under the AIA Priority Protection Product Disclosure Statement & Policy Document and Policy Wording;
(b) the benefits and features of the existing AIAA product were considered competitive on a general basis; and
(c) AIAA was prepared to receive the Ex-QBE CCI Policies on the basis that the terms of the policies would remain unaltered save for formal changes.
35 The process by which the Integrity Policies and the Ex-CUNA Policies are to be transferred onto the terms and conditions of the AIAA "Priority Protection" product are set out in cl 4 and Sch 2 of the Scheme document. In summary:
(a) under cl 4.3 of the Scheme document, policy owners of Integrity Policies and Ex-CUNA Policies will have their policy terms and conditions replaced in accordance with the application of a series of rules that govern how the terms of the cover held by an ILAL policy owner will transfer across from their Integrity Policy or Ex-CUNA Policy to the corresponding equivalent cover under AIAA's "Priority Protection" product;
(b) these rules, which are referred to in the Scheme document as the "Product Transfer Rules" and which are set out in Sch 2 to the Scheme document, have been developed in close consultation between ILAL and AIAA, including Mr Dermody and AIAA's product team. The ILAL team for this work has been led by the Head of Retail Product, and overseen by the General Manager of Product and Pricing;
(c) the Product Transfer Rules provide for the application of specific rules in relation to the Integrity Policies (cl 3 of Sch 2) and in relation to the Ex-CUNA Policies (cl 4 of Sch 2). In both cases, the Scheme provides for the issuance of a replacement policy schedule by AIAA to policy owners, in accordance with the relevant rules as soon as practicable after the Scheme takes effect (cl 4.3(b) of the Scheme and cll 3.8 and 4.7 of Sch 2);
(d) the Product Transfer Rules also set out how other elements of the Integrity Policies and Ex-CUNA Policies are to be administered following completion of the Scheme; for example, how future premium rate changes will be applied and what adviser commission discounts will apply (which affect premium rates);
(e) clause 4.7 of the Scheme deals with claims for Integrity Policies and Ex-CUNA Policies in the following manner:
(i) claims that have been made and notified to ILAL before the Scheme Effective Time will continue to be assessed (if not completed beforehand) and paid by AIAA under their original policy terms for the life of the claim; and
(ii) claims that are made after the Scheme Effective Time and which arise from an insured event that occurred before the Scheme Effective Time will be assessed and paid by AIAA under their original policy terms;
(f) clause 4.7 also contains claims' rules that are specific to the Integrity Policies. These rules set out how claims will be treated by AIAA where:
(i) claimants with income insurance cover suffer a relapse of their condition after the Transfer Date; and
(ii) how the policy limits for life and critical illness benefits can be reinstated where an insured life holds an existing option of restatement (resetting) under their Integrity Policy as at the Scheme Effective Time;
36 The development of the Product Transfer Rules was guided by a set of principles, the objective of which was to minimise the potential for ILAL's policy owners to be detrimentally affected by the replacement of the terms of their cover or pricing structure, within the context of ILAL and AIAA agreeing on a position for the product mapping that would be commercially viable for AIAA so that the Scheme could take place. The main commercial consideration for AIAA was to avoid aspects of the proposed product mapping that would involve significant changes being made to AIAA's internal systems and processes and the current premium rates and structures for its "Priority Protection" product. Within that commercial context, the overall approach to developing the principles was to avoid, as much as possible, ILAL's Transferring Policy owners having their cover reduced as a result of the Scheme.
37 The principles which were created to develop the rules were as follows:
(a) where it was possible to do so, each Integrity Policy and Ex-CUNA Policy benefit was to be mapped across to its equivalent benefit under the AIAA policy terms;
(b) where there was no equivalent AIAA policy term benefit, the Integrity Policy and Ex-CUNA Policy benefit was to be mapped to its nearest equivalent benefit so that policy owners could have similar cover. In doing so, where more than one near or closely equivalent benefit was available, the more favourable benefit from the Transferring Policy owner's perspective would be sought to be preferred. In applying this principle, any gratuitous application of benefits was to be avoided to prevent unnecessary increases in cover that would result in additional premium being charged;
(c) where a reasonably equivalent benefit existed under the AIAA policy terms but it could not automatically be applied because of a system or process constraint for AIAA, Transferring Policy owners would be offered an opportunity to apply to AIAA for the equivalent benefit so that this could be processed manually;
(d) where a gap in cover was identified through the mapping process, consideration would be given to developing a tailored solution that bridged or mitigated this gap where possible and so long as this did not require AIAA to build a new technology for the solution or introduce significant operational complexity; and
(e) for insurance mapping and pricing, the general rule was that each Integrity Policy owner's occupational category was to be mapped across to the same or the closest AIAA policy term occupation class.
38 The application of these principles also determined the revised pricing that would apply to the Transferring Policy owners under their new AIAA policies. Premium rates were to be charged by reference to the cover and benefits that Integrity Policy owners and Ex-CUNA Policy owners were mapped to under the AIAA Policy Terms.
39 By the development and adoption of these principles, the particular rights and benefits under the ILAL policies have been mapped to AIAA's "Priority Protection" product to equivalent or similar cover where available, ie the terms and conditions have been changed to reflect those of the most closely corresponding product of AIAA, where available. Ultimately, the preparation of the Product Transfer Rules was driven by commercial necessity and negotiation between the parties, founded on the principles set out above, which strive for such consistency and fairness as could be achieved in the circumstances.
40 The Ex-QBE CCI Policies will transfer to AIAA under the Scheme with no changes to their terms and conditions other than the formal changes to the identity of insurer and statutory fund referred to in sub-cll 4.12(c) and (d).
41 Subject to the changes to terms and conditions and the manner in which claims are to be assessed, the Scheme includes many of the features commonly provided for in Schemes for the transfer of life insurance business under Pt 9 of the Life Act:
(a) ILAL will transfer the Retail Life Insurance Business, including the Transferring policies, to AIAA at the Scheme Effective Time. The amount of assets to be transferred is based on an estimate of reserves for the net of reinsurance claim payment obligations to be assumed by AIAA;
(b) AIAA becomes the issuer of the Transferring Policies and ILAL ceases to be the issuer of those policies;
(c) AIAA assumes all liabilities and obligations of ILAL under the Transferring Policies and becomes entitled to all rights of benefits of ILAL under those policies;
(d) any proceedings in connection with a Transferring Policy that are in progress or that commence must be continued by or against AIAA instead of ILAL;
(e) some of ILAL's reinsurance arrangements (as to which see below) and other contracts for the administration of the Retail Life Insurance Business will be transferred under the Scheme; and
(f) under cl 6 of the Scheme, AIAA will maintain such policies and procedures as are required to conduct the Retail Life Insurance Business in a manner which is consistent with its legal and regulatory obligations.
[24]
Conditions precedent in the Transfer Deed
42 The Scheme is expressed to operate only on, and subject to, its confirmation by the Court: cl 1(a) of the Scheme. However, the Transfer Deed contains other conditions precedent for its completion.
43 The first of these is a "go-ahead decision" under the Insurance Acquisitions and Takeovers Act 1991 (Cth) (IATA) being made by or on behalf of the Treasurer. By letter dated 31 January 2025, the applicants received notification of an unconditional go-ahead decision by a delegate of the Treasurer under s 41(1A) of IATA.
44 The Transfer Deed was also conditional on the execution by ILAL of amendments to certain reinsurance treaties covering liabilities under the Integrity Policies with each of Hannover Life Re of Australasia Limited (HLRA) and RGA Reinsurance Company of Australia Limited (RGA). Amendments to these treaties are in the process of being executed. The modified treaties are to be transferred under cl 4.11(d) and Sch 4 of the Scheme. The topic of reinsurance under the Scheme is addressed further below.
45 Finally, the Transfer Deed contains a condition precedent that a particular underwriting error incident in remediation programs conducted by ILAL be resolved to the satisfaction of AIAA or that they agree in writing to the amount of any adjustment to the completion accounts. An agreement has been reached as between HLRA and AIAA to resolve this remediation such that the incident has been resolved to the satisfaction of AIAA.
[25]
Principles for Confirmation
46 The provisions applicable to the curial supervision of schemes of transfer of life insurance business are contained in Pt 9 of the Life Act. Section 190(1) of the Life Act provides that no part of the life insurance business of a life company may be transferred to another life company except under a scheme confirmed by the Court.
47 Section 193 of the Life Act relates to the application to the Court for confirmation and provides as follows:
(a) Any of the companies affected by a scheme may apply to the Court for confirmation of the scheme.
(b) An application for confirmation must be made in accordance with the regulations.
(c) APRA is entitled to be heard on an application.
48 Under s 194 of the Life Act, the Court has the discretion to confirm the scheme with or without modification, or to refuse to confirm it. Section 194(2) of the Life Act sets out the factors to which the Court must have regard in deciding whether to confirm the scheme. They are:
(a) the interests of the policy owners of a company affected by the scheme;
(b) if a report relevant to all or part of the scheme has been filed with the Court under section 175 of the Life Act - that report; and
(c) any other matter the Court considers relevant.
49 As the permissive language of s 194 of the Life Act makes clear, the confirmation of the scheme is a matter for the Court's discretion; however, confirmation is not a matter of course, nor is it a mere formality: St Andrew's Insurance (Australia) Pty Ltd, in the matter of St Andrew's Insurance (Australia) Pty Ltd [2024] FCA 881 at [8] (St Andrew's) (Jackman J); AIA Australia Limited, in the matter of AIA Australia Limited (No 2) [2023] FCA 1305 at [30] (AIA Australia Limited No 2) (Derrington J); Asteron Life & Superannuation Limited, in the matter of Asteron Life & Superannuation Limited (No 3) [2021] FCA 1148; (2021) 394 ALR 89 at [126] (Asteron Life No 3) (Allsop CJ).
50 While the Court's discretion is broad, it is not unfettered and must be exercised on the evidence and having regard to the objects of the Life Act, principally the protection of the interests of policy owners in a manner consistent with the continued development of a viable, competitive and innovative life insurance industry: s 3(1) of the Life Act; In the Application of Commonwealth Insurance Holdings Ltd and the Colonial Mutual Life Assurance Society Ltd [2007] FCA 1012 at [12] (Commonwealth Insurance Holdings) (Edmonds J); OnePath Life Limited, in the matter of OnePath Life Limited (No 2) [2022] FCA 811 at [17]-[18] (OnePath Life No 2) (Jagot J). The regime for the supervision of the transfer or amalgamation of life insurance businesses by the Court is one of the means adopted to achieve this object: Colonial Mutual Life Assurance Society Limited, in the matter of Colonial Mutual Life Assurance Society Limited [2021] FCA 394 at [26] (Colonial Mutual Life) (Allsop CJ); Re Royal & Sun Alliance Life Assurance Ltd [2000] FCA 1259; (2000) 104 FCR 37 at [3] (Royal & Sun) (Katz J); Asteron Life No 3 at [82].
51 As Allsop CJ explained in Asteron Life No 3 at [127]-[129], drawing upon the reasons of Edmonds J in Commonwealth Insurance Holdings at [13], there are two main dimensions to the protection of the interests of policy owners:
(a) first, the procedural dimension by which the Court considers whether the process undertaken in connection with the scheme has been properly executed in accordance with the requirements of the Life Act, the Life Insurance Regulations 2024 (Cth) (Life Regulations) and any orders made by the Court pursuant to s 191(5) of the Act: see St Andrew's at [9]; and
(b) second, the substantive dimension in which the Court is concerned to see that the scheme will not be prejudicial to the interests of policy owners, and that policy owners are properly safeguarded, ie there is not likely to be any material detriment to policy owners affected by the scheme: see AIA Australia Limited No 2 at [32].
52 The question as to whether policy owners will be adversely affected is to be answered predominantly by reference to the actuarial evidence. It involves a comparison of the security of those policy owners' benefits and their reasonable benefit expectations as they stood prior to the implementation of the scheme (ie without the scheme), and as they would stand following the implementation of that scheme: Commonwealth Insurance Holdings at [14]; Asteron Life No 3 at [129]; St Andrew's at [10].
53 However, as Stone J explained in National Mutual Life Association of Australasia Limited v Challenger Life No 2 Limited [2009] FCA 1 at [23] (Challenger Life No 2):
Consistent with the principal object of the [Life] Act, however, the Court is not directed to consider only the interests of policyholders or to consider [their] interests as paramount. Their interests must be considered in the context identified in s 3(1). Moreover, it should not be assumed that the interests of policyholders are necessarily identical with their preferences.
54 The context identified in s 3(1) of the Life Act is of particular significance in this case. The objects of the Life Act include the protection of the interests of policyholders in a manner consistent with a viable, competitive and innovative life insurance industry. The Court's supervision of transfers under Pt 9 of the Life Act is one of the means adopted to achieve this object. Not all businesses will necessarily thrive or survive in a viable, competitive and innovative industry. The power to confirm a transfer or amalgamation of life insurance business must be understood as contemplating such circumstances.
55 The Court has confirmed schemes which have involved the substantive amendment of terms and conditions of policies under the scheme: AIA Australia Limited No 2 at [26] and [87]-[94]; Macquarie Life Limited, in the matter of Macquarie Life Limited [2022] FCA 1602 (Macquarie Life) at [13]-[16]; Challenger Life No 2 Limited [2009] FCA 1 at [9]; Re Metlife Insurance Limited [2007] FCA 1327; (2007) 63 ACSR 492 at [18]-[19]. However, the amendments dealt with in those cases were not as extensive as those proposed in the present Scheme.
56 So long as the Court takes into account the objects of the Act and the mandatory factors in s 194(2), these principles should not be applied in such a manner as to fetter the Court's discretion in the particular circumstances of the case. In particular, the Court has not been faced with an application to confirm a scheme, such as the present, where:
(a) the transfer is a consequence of the depleted financial capital position of the transferor and the main object of the scheme is to safeguard the ongoing cover of policyholders and the security of those benefits, which would otherwise be imperilled in the immediate future; and
(b) the scale and nature of the transferring business is such that policy terms need to be replaced in their entirety for some products by those of the transferee insurer in order for the scheme to be commercially viable.
57 There is no authority to the effect that the Court cannot confirm a scheme if the proposed scheme will have a material adverse effect on a policy owner or some policy owners. Stone J explained in Challenger Life No 2, that the Court is not directed to consider the interests of policyholders as necessarily paramount, and their interests must be considered in the context of the matters identified in s 3(1) of the Life Act.
58 Further, s 194(2) of the Life Act provides that one of the matters the Court must have regard to is a report relevant to a scheme that has been filed with the Court under s 175 of the Life Act. Section 175 relates to a report by a judicial manager, following an order under s 157 of the Life Act placing a company under judicial management. Section 175 provides for the judicial manager to file with the Court a report that recommends a course of action listed in subs (2) that is, in his or her opinion, "most advantageous to the general interests of the policy owners of the company while promoting financial stability in Australia". Section 175(2) lists the possible courses of action for judicial management, including:
(a) to transfer the business, or part of the business, of the company to another company under Part 9 (whether the policies issued by the company continue for the original sums insured, with the addition of bonuses that attach to the policies, or for reduced amounts);…
(d) to take such other course of action as the judicial manager considers desirable… (emphasis added)
59 Although, plainly no order for judicial management has been sought in these proceedings and no report under s 175 has been filed, Mr Hollo SC (who appeared for ILAL) submits, and I accept, that these provisions concerning judicial management indicate that the legislature expressly contemplated that schemes under Pt 9 of the Life Act may include different or reduced benefits for policy owners, and that a Court exercising its discretion under s 194 may, depending on the circumstances, confirm such a scheme.
60 Mr Hollo SC has also drawn my attention to the manner in which the Courts in the United Kingdom have approached the exercise of discretion under Pt VII of the Financial Services and Markets Act 2000 (UK) (FSMA) to "sanction" insurance schemes under s 111 of that Act.
61 In Re Prudential Assurance Company Limited and Rothesay Life plc [2020] EWCA Civ 1626; [2021] Lloyd's Law Reports 623 (Prudential Assurance), Sir Geoffrey Vos C, giving the judgment of the English Court of Appeal, said at [84] that even if the court finds that the proposed scheme will have a material adverse effect on some group or groups of policyholders, it may still sanction the scheme in the exercise of its discretion, which might occur, for example, if the scheme is in the nature of a rescue of the business. His Lordship stated earlier (at [39]) that, given the wide range of businesses that may be transferred under Part VII of the FSMA and the even wider range of circumstances in which such transfers may be proposed, there can be no single test nor a single list of factors that can be applied in all cases. In my view, those propositions are also applicable to this Court's power under s 194 of the Life Act.
62 One of the main authorities considered in Prudential Assurance was the earlier decision of Hoffman J (as his Lordship then was) in Re London Life Association Ltd (unreported, Ch D, Higgins J, 21 February 1989); [1989] Lexis Citation 1731 (London Life). This concerned an application under the predecessor of s 111 of FSMA, namely s 49 of the Insurance Companies Act 1982 (UK). Hoffman J said the following (at 3):
Although the statutory discretion is unfettered, it must be exercised according to principles which give due recognition to the commercial judgment entrusted by the company's constitution to its board. The court in my judgment is concerned in the first place with whether a policyholder, employee or other person would be "adversely affected" by the scheme in the sense that it appears likely to leave him worse off than if there had been no scheme. It does not however follow that any scheme which leaves someone adversely affected must be rejected … In the end the question is whether the scheme as a whole is fair as between the interests of the different classes of persons affected. But the court does not have to be satisfied that no better scheme could have been devised. A board might have a choice of several possible schemes, none of which taken as a whole, could be regarded as unfair. Some policyholders might prefer one such scheme and some might think they would be better off with another. But the choice is in my judgment a matter for the board. Of course one could imagine an extreme case in which the choice made by the board was so irrational that a court could only conclude that it had been actuated by some improper motive and had therefore abused its fiduciary powers. (Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821, 835). In such a case a member would be entitled to restrain the board from proceeding. But that would be an exercise of the court's ordinary jurisdiction to restrain breaches of fiduciary duty; not an exercise of the statutory jurisdiction under section 49 of the Insurance Companies Act 1982.
What is true of choice as between different schemes is also true of the details within a scheme. There are no doubt few schemes which could not in some respect be improved. But the terms of the scheme are a matter of negotiation between transferor and transferee companies and will, to a greater or lesser extent depending upon their respective bargaining strengths, involve concessions on both sides. Under the 1982 Act the court cannot any more than under the Act of 1870, sanction the scheme subject to the making of amendments. (Re Argus Life Assurance Company (1888) 39 Ch D 571, 580). It must be either confirmed or rejected although no doubt the court in rejecting a scheme could indicate that it thought the vice lay in some particular term and that a fresh scheme without that term was likely to be acceptable. I am therefore not concerned with whether, by further negotiation, the scheme might be improved, but whether, taken as a whole, the scheme before the court is unfair to any person or class of persons affected.
In providing the court with material upon which to decide this question, the Act defines important roles to the independent actuary and the Secretary of State. A report from the former is expressly required and the latter is given a right to be heard on the petition. The question of whether policyholders would be adversely affected by the scheme is largely actuarial and involves a comparison of their security and reasonable expectations without the scheme with what it would be if the scheme were implemented. I do not say that these are the only considerations but they are obviously very important. The Secretary of State, by virtue of his regulatory powers, can also be expected to have the necessary material to express an informed opinion on whether policyholders are likely to be adversely affected. (emphasis added)
63 That reasoning requires some modification in relation to this Court's power under s 194 of the Life Act, which includes the power to confirm the scheme subject to such modifications as the Court thinks appropriate, and as to the UK legislation expressly requiring a report by an independent actuary. However, with those exceptions, I regard Hoffmann J's reasoning as being in substance applicable to the corresponding decision under s 194 of the Life Act.
64 In Prudential Assurance the Court of Appeal also drew upon the earlier judgment of Sir Geoffrey Vos C in Re Barclays Bank plc [2018] EWHC 472 (Ch); [2018] 4 All ER 845. There, the Chancellor was dealing with a "ring-fencing" transfer scheme under Pt VII of the FSMA and stated in the course of setting out the main factors to be kept in mind in exercising its discretion at [100]:
(iii) The adverse effects of a ring-fencing transfer scheme must be viewed through the lens of the statutory question, so that the court must consider, with the aid of the Skilled Person, first whether persons other than the transferor are likely to be adversely affected by the scheme, and, if so, whether the adverse effect is likely to be greater than is reasonably necessary in order to achieve the statutory purposes. …
(iv) Even if the statutory question is answered negatively, it will not automatically follow that a proposed scheme will be rejected. The court's approach will depend on all the circumstances, including the balance between the chosen design of the scheme, the benefits that will be achieved by the scheme, and the nature of the adverse effects identified, all viewed through the lens of the approach inherent in the statutory question itself. (emphasis added)
65 I regard that approach set out in bold as broadly applicable also to s 194 of the Life Act.
[26]
Compliance with the Dispensation Orders and Procedural Requirements
66 Before assessing the substantive aspects of the Scheme, it is convenient to consider the procedural requirements for confirmation in this case.
67 The steps to be taken before an application for confirmation of the Scheme are set out in s 191 of the Life Act and also reg 7 of the Life Regulations, to the extent they are applicable. Additionally in the Dispensation Orders, the Court set out steps for the applicants to take as a condition of dispensation from complying with s 191(2)(c) of the Life Act.
68 The applicants have substantially complied with each of orders 3(a)-(l) of the Dispensation Orders. The details of this compliance are helpfully set out in a letter from ILAL (Mr Katon) to APRA on behalf of both applicants dated 31 January 2025 (Compliance Letter). In particular:
(a) the Notice of Intention approved by APRA was published on the dedicated ILAL and AIAA webpages on and from 18 December 2024 in accordance with order 3(a) of the Dispensation Orders and ss 191(2)(b) and 191(2)(A) of the Life Act;
(b) the scheme documents, being the list of documents stipulated in order 3(b) of the Dispensation Orders (Scheme Documents), which include the Scheme Summary, have been available on the dedicated ILAL and AIAA webpages since 18 December 2024 in accordance with orders 3(b) and (c) of the Dispensation Orders and ss 191(2)(d) and 191(2F) of the Life Act. As at 16 January 2025 the ILAL landing page had received views from 280 unique visitors and the Scheme Documents have been downloaded 129 times, and the AIAA landing page had received views from 218 unique visitors;
(c) mail-outs by email and by regular prepaid post of the approved Scheme Summary to the cohorts of ILAL policy owners were effected on 19 and 20 December 2024 in accordance with orders 3(f) and (g) of the Dispensation Orders. The Scheme Summary was provided to 5,138 policy owners by email and 137 policy owners by post;
(d) the returned email and mail procedures were applied in accordance with orders 3(h) and (i) of the Dispensation Orders. As at 23 January 2025, 349 emails to policy owners were returned undelivered and alternative email or postal address were identified for all of these policy owners and sent to the new email or postal address;
(e) the applicants established dedicated online enquiry forms, accessible from each of their Scheme webpages and dedicated email addresses for the Scheme. Responses to the email addresses and enquiry forms are addressed below;
(f) the applicants have provided training to their staff to take calls at the call centre numbers provided in the policyholder communications. ILAL's call centre was established using a local toll 1300 number which is not a toll-free number as provided by order 3(j) of the Dispensation Orders. AIAA, on the other hand, established a toll-free 1800 number; and
(g) ILAL completed a mail-out of the Scheme Documents to 852 independent financial advisers on 19 December 2024 in accordance with order 3(l) of the Dispensation Orders.
69 Other than in the establishment by ILAL of a local toll number, rather than a toll-free number as contemplated by order 3(j), the applicants have complied with the Dispensation Orders. This non-compliance is not in any way substantial and not of a kind that would impact the exercise of the Court's discretion (cf Asteron Life No 3 at [103]-[104]). The cost of the local toll 1300 number is relatively trivial and other methods of making enquiries or objections to the Scheme, for example, by AIAA's toll-free 1800 number or by use of the online enquiry form and the dedicated email addresses, were available to any policy owner who wished to communicate with the applicants about the Scheme.
70 Otherwise, as required by s 191(2)(a) of the Life Act, the ILAL Actuarial Report and the AIAA Actuarial Report on which the Scheme is based, have been given to APRA.
71 Each of the Notice of Intention and the Scheme Summary are required to be published in a manner that results in the Notice and the Scheme Summary being "accessible to the public" and "reasonably prominent": s 191(2A) and (2F) of the Life Act. The publication of these documents on the dedicated ILAL and AIAA webpages resulted in them:
(a) being accessible to the public. There were no restrictions to accessing the dedicated webpages on the websites of the applicants. The several hundred unique visitors to the dedicated websites and the downloads of Scheme Documents demonstrates this accessibility; and
(b) being reasonably prominent. The landing pages on the dedicated webpages containing the Scheme Documents included in large font and in colour the headings "Transfer of Integrity's Retail Business to AIAA Australia" (on the ILAL landing page) and "Proposed Transfer of Integrity's Here for You" (on the AIAA landing page). In each case, the landing page provided an overview of the proposed transfer and then clearly marked links under a further heading to the Scheme Documents, including in each case and specifically marked, the Notice of Intention and the Scheme Summary.
72 Although dispensation was given with the need for compliance with s 191(2)(c), the Scheme Summary was provided to the identified ILAL policy owners after the actuarial reports were provided to APRA, and after publication of the Notice of Intention as contemplated by s 191(2E).
73 In short, the procedural requirements under the Life Act and the Dispensation Orders have substantially been complied with, such that I am confident that a sufficiently large number of affected policy owners would have been provided with an opportunity to bring forward any viable objection to confirmation of the Scheme.
[27]
Assessment of the Scheme - the Actuarial Evidence
74 As I have said in the introduction above, the Scheme is based on the actuarial reports of Mr Dermody, the appointed actuary of ILAL, in the form of the ILAL Actuarial Report and Mr Luu, the appointed actuary of AIAA, in the form of the AIAA Actuarial Report. Each of them is an experienced actuary and they have prepared their reports in the course of carrying out their statutory roles under Div 3 of the Life Act and having regard to the Court's Expert Evidence Practice Note including the "Harmonised Expert Witness Code of Conduct". Mr Goodsall, who has vast experience in Pt 9 Schemes and who has been a consulting actuary for 40 years, has prepared the Independent Actuarial Report. APRA had been provided with drafts of these reports for their comment prior to their finalisation.
75 Mr Dermody has summarised the conclusions he has reached in the ILAL Actuarial Report as follows:
In summary, based on the more detailed analysis and reasons set out in my report, my
opinion is:
(a) the Scheme is in the interests of ILAL's policy owners as a whole;
(b) if the transfer does not take place then ILAL's policy owners are expected to lose their insurance cover by February 2028 [now updated to November 2027] and ILAL's capacity to meet policy owner benefits will be exhausted by this time;
(c) the only viable approach to take to the Scheme is for some of the policy owners that are transferring (referred to in the Scheme as the Integrity Policies and the Ex-CUNA Policies) to have their terms and conditions replaced with the terms and conditions of AIAA's life insurance product. There will be no changes to the terms and conditions of legacy loan and mortgage protection products that are referred to in the Scheme as the ILAL Transferring CCI Policies;
(d) the objective of the approach that has been taken to replace the terms and conditions of the Integrity Policies and Ex-CUNA Policies has been to avoid as much as possible these policy owners having their cover reduced as a result of the Scheme;
(e) the policy owners of Integrity Policies and Ex-CUNA Policies will be charged premiums based on the AIAA product that their ILAL product is mapped to. In this regard AIAA will not apply any new premium rate changes introduced during 2025 to the AIAA product as a whole introduced during 2025 to ILAL transferring policy owners. ILAL is planning to make an ex-gratia payment to affected policy owners where the new AIAA premium rate exceeds the current ILAL premium rate by more than 60%;
(f) if the Scheme did not proceed, the combined premium rate increases over the next two years [with] ILAL are expected to be greater than the premium increase that will result from the implementation of the Scheme;
(g) those transferring policy owners who are currently on claim, or who in the future will make a claim, will be better off as a result of the Scheme because AIAA can provide greater financial security for their claims;
(h) the transfer does not impact the contractual benefits and rights of the remaining policy owners. Confirmation of the Scheme will improve their benefit security because ILAL's ongoing expenses will be reduced after transfer of business under the Scheme and because the transfer of their policies to another life insurer is more likely to take place without delay following completion of the Scheme and with APRA's support; and
(i) the parties will undertake a communications plan, including but not limited to the provision and publication of the Notice of Intention and Scheme summary, which will allow policy owners, with the assistance of their advisers, to find alternative cover or reduce the level of benefits under the AIAA to manage the premium increase. Policy owners who are unable to organise cover by the transfer date of the Scheme will have their benefits based on the AIAA product until they are able to organise such cover.
76 Mr Goodsall has summarised the conclusions he reached in the Independent Actuarial Report as follows:
In summary, my opinion is:
(a) There will be significant changes to the policy terms and conditions and premium rates of most of the Transferring Policies, in some cases disadvantageous through a significant increase in premiums and/or a reduction in some benefits. I consider that the proposed changes are acceptable compared to the alternative potential of increased premiums in the short term, followed by the eventual loss of all cover under the Retail Contingency Plan if the Proposed Transfer does not proceed;
(b) Apart from the proposed changes to policy terms and conditions, the Proposed Transfer will not further materially prejudice the interests of ILAL Transferring Policy Owners of ILAL;
(c) Apart from the proposed changes to policy terms and conditions there will not be any further adverse impact on reasonable benefit expectations of Transferring Policy Owners of ILAL which will otherwise improve as a result of the Proposed Transfer;
(d) The Financial Position of ILAL will improve following the Proposed Transfer, improving the benefit security of the ILAL Remaining Policy Owners;
(e) There will be no changes to the policy terms and conditions of the ILAL Remaining Policies as a result of the Proposed Transfer;
(f) Following the Proposed Transfer the financial position of AIAA will remain in a sound financial position, meeting regulatory capital requirements. The financial position and benefit security of the Transferring Policies will be materially improved following the Proposed Transfer;
(g) The security of existing AIAA Policy Owners benefits will not be impacted by the Proposed Transfer;
(h) There will be no changes to the policy terms and conditions of the AIAA Existing Policies as a result of the Proposed Transfer;
(i) The reasonable benefit expectations of AIAA Non-Participating and Participating Policies will not be adversely impacted;
(j) The Proposed Transfer will not materially prejudice the interests of Policy Owners of AIAA.
77 Finally, Mr Luu has concluded that the proposed Pt 9 Transfer is necessary to provide adequate security for the Transferring Policy owners' benefits. As for the interests of Existing AIAA Policy Owners, Mr Luu concludes that:
The proposed Part 9 transfer will not adversely impact the contractual benefits and rights of Existing AIAA Policy Owners[;]
The proposed Part 9 transfer will not adversely impact the reasonable benefit expectations of Existing AIAA Policy Owners[;] and
The security of Existing AIAA Policy Owners' benefits will continue to be appropriate post the proposed Part 9 transfer.
78 Each of the actuaries has provided updated evidence giving consideration to developments since their reports were prepared, especially the financial and capital position of ILAL, and the progress of the transfer of the remaining business of ILAL. Each of the actuaries has confirmed the opinions and conclusions that they reached in their respective reports. I set out below some of the salient aspects of the actuarial evidence pertaining to the transferring and remaining ILAL policy owners.
[28]
The Financial Position of ILAL and Benefit Security
79 ILAL reported breaches of prudential standards relating to its capital and solvency position in September 2023 and has been subject to directions issued by APRA in October 2023 and under its supervision. These breaches remain such that ILAL provides lower financial security to policy owner benefits than is expected of a regulated life insurance company that is open to new business. While ILAL remains solvent, its financial position is sensitive to unanticipated adverse experience and any delays that might be experienced in the transfer of business under the Scheme or in the transfer of its remaining business.
80 The sensitivity to adverse claims experience is apparent in Mr Dermody's consideration of ILAL's financial position taking into account the November 2024 figures. The updated assessment of the RCV on the Baseline (or Best Case) and the Risk scenarios, assuming that an escrow amount of $1.5 million (to meet potential warranty and contract claims by AIAA under the Transfer Deed) is available to meet any remaining policy liabilities of AIAA is as follows:
81 The deterioration of RCV in both the Baseline and Risk scenarios is a consequence of higher than expected claims of $1.2m in November 2024 and planning updates for the run-off of the ILAL business, including the costs of the Scheme. ILAL is still expected to meet its obligations to policy owners on the Baseline Scenario and the Risk Scenario if claims are as expected; however, the position is different if ILAL experiences higher claims risk or there are delays in the transfer of the businesses. If the escrow amount is not available, there is expected to be a shortfall in all of the risk (stress) scenarios. Future claims exposure, on the other hand, has been reduced because of the run-off of the existing business. Mr Dermody's overall view is that ILAL is not in a strong financial position to address the potential risks that may emerge.
82 ILAL has now determined that if the Scheme does not proceed then ILAL's capacity to meet policy owner benefits in full is expected to be exhausted, such that ILAL policy owners will lose the benefit of their cover by November 2027. This is three months earlier than forecast in the ILAL Actuarial Report. These developments have not caused ILAL to change the planned premium rate increases or Mr Dermody's overall conclusions in relation to the Scheme.
83 Mr Goodsall has also given consideration to the revised RCV analysis in his second affidavit. He cautions that there is considerable uncertainty regarding ILAL's forecasts because of ongoing volatility of the claims experience and the continuing commercial negotiations for the transfer of the remaining business. However, he concludes as follows:
[10] The main impact of the deterioration is the reduction in the capital available to fund the transfer of the Remaining Policies and the ex-gratia payment to eligible Transferring Policy Owners (as those defined terms that refer to these groups of persons are defined in the Scheme). This increases the importance of the Proposed Transfer proceeding to protect the interests of both the Transferring Policy Owners and the Remaining Policy Owners.
[11] My consideration of the change in the current financial position and forecast RCV has not altered my opinion.
84 In light of ILAL's execution of its Run-Off Plan with the mandated cessation of any new business and ILAL's current and deteriorating financial position, the primary purpose of the Scheme is to:
(a) provide ongoing cover to the owners of the Transferring Policies; and
(b) improve the financial security of those policy owners.
The protection of the benefit security of ILAL Transferring Policy owners is, in these circumstances, of primary significance in assessing the Scheme.
85 AIAA is a very large life insurer providing coverage to over 2.5 million people in Australia. AIAA's life insurance business is managed within two statutory funds, the largest of which is AIAA SF1, into which the ILAL transferring business is to be received. As at 31 December 2024, AIAA SF1 had net assets of $1,232m and a Capital Adequacy Multiple (CAM) of 182%. As at 31 December 2024 AIAA, as a whole, had net assets of $2,116m and a CAM of 183%.
86 The financial impact of the transfer under the Scheme for the ILAL Transferring Policy owners and existing AIAA policy owners can be seen in AIAA's financial position before and after the proposed transfer in Mr Luu's second affidavit:
87 Mu Luu observes that the CAM as at 31 December 2024 is less than the previous year (post transfer 210% for AIAA SF1 and 221% for AIAA as a whole) due to a worse than expected claims experience. Nevertheless, the CAM ratios are well over 100% and are expected to strengthen in the future. Mr Dermody gives evidence that the reduced CAMs were anticipated at the time he prepared the ILAL Actuarial Report and that the updated information does not change his conclusions on AIAA's financial strength and the impact of the proposed transfer on AIAA.
88 In relation to AIAA SF1, the proposed Pt 9 transfer is expected to reduce slightly the CAM, mainly due to increased capital requirements for AIAA SF1 arising from a slight increase of insurance risk. The transfer of ILAL's business is forecast to generate free capital over time for AIAA, as profits are recognised and reduced capital margins are released. The acquisition costs associated with the Transferring Policies are low because initial commissions and underwriting costs are not incurred. Although it is expected that some of the Transferring Policies will lapse their cover shortly after the proposed Pt 9 transfer, the acquisition of the Transferring Policies is expected to improve AIAA's future capital generation over the current business planning period.
89 Mr Luu observes that the additional capital buffer over the regulatory capital requirement in AIAA is currently below the target level but is forecast to be organically restored back to target within a reasonable time period following the transfer. In this regard, the updated forecasts prepared by Mr Luu show CAM multiples at 31 December 2025 of 213% and 235% respectively for AIAA SF1 and AIAA as a whole, reflecting that AIAA expects to again exceed its target surplus by April 2025.
90 The minimal impact of the transfer of the ILAL business on AIAA's forecast capital position is unsurprising having regard to the relative scales of the business. However, as Mr Dermody observes, the consequence of the Scheme on the benefit security of transferring ILAL policy owners is that there is likely to be a material improvement in the benefit security of transferring ILAL policy owners because AIAA SF1 and AIAA as a whole will remain in a sound financial position with financial assets exceeding all regulatory requirements after the proposed transfer.
91 In view of the loss of benefit entitlements to ILAL policy owners as forecast in ILAL's RCP, and the impact that may have on ILAL policy owners, Mr Luu has concluded that:
… the proposed Part 9 transfer is necessary to provide adequate security for Transferring ILAL Policy Owners' benefits and will avert expected financial loss to Transferring ILAL Policy Owners.
Mr Goodsall states:
The proposed transfer will greatly enhance the benefit security of Transferring Policy Owners as AIAA is a large, strong company that meets its regulatory capital requirements and is able to provide ongoing cover and customer service.
[29]
Changes to terms and conditions under the Scheme
92 A feature of this Scheme is that the terms and conditions of the Integrity Policies and Ex-CUNA Policies are to be replaced by the terms and conditions of AIAA's life product known as "Priority Protection".
93 I have referred above to Mr Katon's evidence that it has been necessary to structure the Scheme in this way because the commercial position is that the size of the transferring in-force retail life business is too small for a life insurer to receive, and be able to manage profitably, on its existing terms and conditions. ILAL was not able to identify any insurer that would accept the transferring business without changing its product onto the receiving insurance product terms. Mr Hamilton's evidence confirms that AIAA was not prepared to receive the transferring ILAL business except on terms that the Integrity Policies and Ex-CUNA Policies were replaced. This is because AIAA did not consider that it was commercially viable for AIAA to maintain contractual terms and conditions of ILAL's products due to the significant costs involved in building resource and capability to achieve this, considering the relatively small number of policies (when viewed against AIAA's life insurance business) proposed to be transferred to AIAA under the Scheme.
94 The process by which the Integrity Policies and the Ex-CUNA Policies are to be transferred onto the terms and conditions of the AIAA "Priority Protection" product is set out in cl 4 and Sch 2 of the Scheme document, which contains the Product Transfer Rules. The principles applied to develop the Product Transfer Rules have been addressed above. In this way, the Product Transfer Rules were designed to avoid, so far as was possible and subject to commercial and practical constraints, cover being reduced as a result of the Scheme and to ensure that the mapping of particular rights and benefits was undertaken in a principled and careful way.
95 At [6.1.1] of the ILAL Actuarial Report, Mr Dermody sets out the results of a comparison of the Integrity Policies and AIAA's "Priority Protection" product under the IRESS Risk Researcher, which is a tool used by financial advisers to assist them in understanding and summarising the difference in products available when providing advice to clients. In relation to that comparison, he stated:
I note that AIAA's product is well rated across the cover types and, whilst not exactly the same, broadly similar to ILAL's product. Whilst the IRESS ratings are an important perspective which provides a view of overall product competitiveness, further analysis was then conducted to understand the specific areas of difference between the products.
96 Mr Dermody has summarised the results of product comparisons undertaken by ILAL staff in a supplementary product comparison report dated 12 December 2024. He has found that:
While overall the products mapped closely, there are cases where the AIAA product provides more generous benefits than the ILAL product and vice versa (i.e. cases where the ILAL product is more generous).
For cases where the AIAA benefit is more generous, this may have resulted in an additional cost. The premium comparison is discussed at Section 7 [of the ILAL Actuarial Report].
97 Mr Dermody has considered both the main product benefits and also ancillary benefits, options to increase sums insured and indexation rules, noting that in some cases the AIAA product provides more generous benefits than the ILAL product and vice versa. He provides some examples of the main product benefits at [6.3.2] of the ILAL Actuarial Report.
98 Mr Dermody gives consideration to the ability of policy owners to seek cover with an alternative insurer at [6.4] of the ILAL Actuarial Report. He observes that whether or not the proposed transfer proceeds, policy owners who are healthy and have an active adviser, have the option to continue cover with alternative insurance through AIAA. He makes the point that owners of policies with generous features that are no longer available in the market will automatically be transferred to products that would not otherwise be available if they sought cover from an alternative insurer to AIAA. Healthy policy owners with no active adviser will be transferred to a product providing cover similar to their existing policy, while in the absence of a Pt 9 transfer there would be the potential that, because they are not under active advice, the policy owner may fail to make a decision or make a sub-optimal decision where they are otherwise expected to lose cover. On the other hand, there are "unhealthy" policy owners who, if they applied to another insurer for the same cover they have with ILAL, would be declined cover entirely or be provided with cover with additional exclusions or a higher underwriting loading. Mr Dermody states:
Under the proposed Part 9 transfer cover continues for these policy owners and the same underwriting applies. Without a Part 9 these policy owners are otherwise expected to lose cover by February 2028 [now November 2027] and ILAL's capacity to pay benefits in full if they claim would be exhausted.
99 Mr Dermody states his conclusion on the changes to contractual terms and conditions under the Scheme at [6.5] of the ILAL Actuarial Report:
My overall conclusion is that the only viable approach to the transfer is to amend ILAL's policy to the premiums, terms and conditions of AIAA's product (with the exception of the Ex-QBE CCI policies). Under the alternative without a Part 9 ILAL policy owners are expected to otherwise lose cover by February 2028 [now expected to be November 2027] and ILAL's capacity to meet policy owner benefits in full would be exhausted. …
Under the Communication Plan Transferring ILAL policy owners and their advisers will be notified of the premium changes at least 30 days prior to the premium change coming into effect but less than 60 days before the Transfer Date. They will be notified approximately two and a half months before the Transfer Date of the Scheme and be provided access to the Scheme Document which contains the product mapping.
This is a relatively short amount of time to identify and obtain alternative cover. Policy owners who are unable to organise cover by the Transfer Date will have their benefits based on the cover provided by the AIAA policy from the Transfer Date until cover with the policy from an alternative insurer is organised.
100 Mr Goodsall says this in relation to changes in terms and conditions at [6.3] of the Independent Actuarial Report:
In section 6 of his report the ILAL Appointed Actuary discusses the options available to arrange alternative cover for healthy lives and the impact on those who may not be able to obtain alternative cover, as well as the impact of access to an insurance adviser. Some policyholders who are in poorer health or don't meet eligibility requirements for new insurance will not have an option to take out alternative cover and it will be necessary for them to accept any decreases in cover and any increase in premiums arising from the proposed transfer if they wish to continue cover at comparable levels to their current cover with ILAL. However, AIAA is providing a level of ongoing cover that would almost certainly be lost to these policy owners if the Proposed Transfer does not proceed.
Consequently I consider that, on balance, when compared to the likely outcome if the Proposed Transfer does not proceed, and in the absence of an alternative proposal, that where the proposed terms and conditions are less generous than current policy terms and conditions for the Transferring policies, they are acceptable in order to protect Transferring Policy Owners from losing their existing cover. (emphasis added)
[30]
Reasonable benefit expectations and premiums
101 Mr Dermody considers the impact of the proposed transfer on the reasonable benefit expectations of Transferring Policy owners at [7] of the ILAL Actuarial Report. The fundamental expectation of policy owners is that they will receive their contractual benefit entitlements when they fall due. However, there are aspects of the operation of the Transferring Policies that involve some discretion being exercised by ILAL historically, and AIAA in the future, and therefore have the potential to impact the reasonable benefit expectations of a policy owner. Mr Dermody considered various aspects of the Transferring Policies, the most significant of which is the product and pricing strategy.
102 He concludes that ILAL policy owners' reasonable benefit expectations in relation to policy administration and systems, claims management, investment management and the management of guarantees are expected to be met as there are no material differences between AIAA and ILAL in these areas. Mr Goodsall reaches substantially similar conclusions in relation to these matters at [6.4] of his report.
103 Mr Dermody also makes the further observation that in the RCP, ILAL has adjusted its resourcing to reflect limiting policy alterations. Accordingly, the proposed transfer is expected to have a beneficial impact on the ability of Transferring Policy owners to increase their sums insured on reasonable underwriting terms.
104 In considering the impact of premiums under the Scheme, the current terms of the Integrity Policies contain a provision which permits the insurer to increase premium rates provided that 30 days' notice in writing is given and the change takes effect from the next policy anniversary after the change is introduced. Each of the Ex-CUNA Policies specifically provides that "premium rates are not guaranteed". As a matter of contract, the insurer thus has conditional rights to increase premium rates.
105 Under the proposed Scheme, transferring ILAL policy owners (except for Ex-QBE CCI policy owners, who pay one-off premiums at policy issuance) will be charged premiums based on the AIAA product features to which their policy has been mapped. For policies that pay annually, this will occur at their policy anniversary following the Transfer Date. For policies with monthly paying premiums, this will occur for the first monthly premium due following the Transfer Date. The Product Transfer Rules also provide for the type of premium structure to be applicable for the replacement AIAA policy premium.
106 While executing its Run-Off Plan, ILAL has deferred planned premium rate increases and has also received communications from its reinsurers of the need for further increases that would be required in 2025. However, as set out above, the RCP developed by the board of ILAL includes a plan to increase premiums of ILAL policies, if the Scheme does not proceed, on the first policy anniversary by a range of between 20% to 60%, and on the second policy anniversary, an increase in the order of 50% on the premium after the first-year increase. Those plans remain in place, but in view of the updated financial analysis, management has indicated increases would likely be at the higher end of this range.
107 Mr Dermody has included in the ILAL Actuarial Report an analysis of the average indicative rate increases that can be expected under the Scheme compared with ILAL's current rates for both the Integrity Policies and the Ex-CUNA Policies. This modelling showed an average indicative increase of 22.3% for Integrity Policy owners and a reduction of 19.4% in relation to the premium rates of the Ex-CUNA Policies. More recent modelling now shows an average indicative increase of 38.9% for Integrity Policy owners. However, these analyses do not take into account the intended increases under the RCP if the Scheme does not proceed. When these increased rates are taken into account, Mr Dermody's conclusion is that the premium rate increases that most Transferring Policy owners would face over the next two years with ILAL, are expected to be greater than the prospective premium increases under AIAA if the proposed Pt 9 transfer is confirmed. Mr Dermody confirms this key conclusion in his updating affidavit. Two further matters should be noted in connection with the application of premium rates under the Scheme.
108 First, AIAA will not apply any premium rate changes introduced during 2025 to its "Priority Protection" policyholders as a whole to the Transferring Policies. This means that ILAL Transferring Policy owners will be protected under the Scheme for any premium increases that are applied by AIAA in respect of its "Priority Protection" product.
109 Second, ILAL is planning to make a one-off ex gratia payment to Transferring Policy owners where the AIAA premium exceeds the current ILAL premium by more than 60%. This one-off ex gratia payment was considered reasonable to provide some temporary assistance to policy owners in managing the impact of large increases or to allow time to find alternative cover. It remains the intention of ILAL management and the ILAL board to make the ex-gratia payment if it has sufficient assets to make a solvency declaration for the winding up of ILAL after taking the payment into account. However, the updated estimate of this payment, the future claims experience, the outcomes of negotiations to transfer the remaining business, and the timing and operational costs in implementing the updated Run-Off Plan may affect ILAL's ability to make the ex gratia payment.
110 Mr Dermody has expressed his conclusion on prospective premium changes under the Scheme as follows at [7.10] of the ILAL Actuarial Report:
As noted in Section 6.5 my overall conclusion is that the only viable approach to the Part 9 Transfer is to amend ILAL's products to the premiums, terms and conditions of AIAA's products (with the exception of the Ex-QBE CCI policies). Under the alternative without a Part 9 Transfer ILAL policy owners are expected to otherwise lose cover by February 2028 [now expected by November 2027] and ILAL's capacity to meet policy owner benefits in full would be exhausted. Also, the premium rate increases that most Transferring ILAL Policy Owners would face over the next two years with ILAL are expected to be greater than the prospective premium increases under AIAA if the proposed Part 9 Transfer is confirmed.
The following points are noted based on the above discussion and analysis in this section:
It is noted that a number of Transferring ILAL Policy Owners will face a significant increase in premiums. For policies that pay premiums annually this will occur at their next policy anniversary following the Transfer Date. For policies with monthly paying premiums this will occur for the first monthly premium due after the Transfer Date.
Transferring ILAL Policy Owners with a premium increase will be provided communication setting out their options for managing the increase. As noted above the proposed Part 9 Transfer does not obstruct policy owners from obtaining cover from another life insurer. In particular, policy owners who are healthy and are able to find alternative cover are free to cancel their policy and take out a policy with another life insurer if they consider an alternative life insurer's product with its premium rates and benefit is more suitable to them than those under the AIAA product.
Transferring ILAL Policy Owners who are unhealthy will have their cover continue with the AIAA policy they have been mapped to. Unhealthy lives face difficulties seeking cover from an alternative insurer as if they applied for cover with another insurer they would either be declined cover entirely, be provided cover but with additional exclusions and/or with a higher underwriting loading.
All policy owners, i.e. policy owners who are able to find alternative cover and those unable to find alternative cover, have the option to reduce the level of benefits under the AIAA product to manage the impact of premium rate increases.
111 Even if ILAL is unable to make the ex gratia payment, Mr Dermody maintains his conclusion that the Scheme is in the interest of ILAL policy owners as a whole. On this issue he says at [29] of his second affidavit:
In short, I do not consider that the withdrawal of this ex-gratia benefit, while regrettable, would be a reason for not otherwise proceeding with the proposed Part 9 Transfer with its benefits to ILAL Policy Owners as whole. If the ex-gratia payment is not able to be made, all affected Transferring ILAL Policy Owners will be treated the same in that they will all have their premiums based on the AIAA product premium rates.
112 Mr Goodsall gives consideration to the changes in premiums consequent upon the Scheme at [6.3] of the Independent Actuarial Report. He notes that when considering the impact of the change in terms and conditions and premium rates, it is relevant to consider the position if the proposed transfer does not go ahead rather than the current position. He observes that all Transferring Policies are expected to receive total premium increases in the next two years in the order of 80% to 140%, with a very high likelihood of further premium increases and all cover ceasing within about three years. He gives consideration to the premium rate change analysis that has been performed by Mr Dermody (and referred to above) and states:
While these conclusions are based on average results and the results for individual Policy Owners may be different to the average, they indicate that the general level of premiums for AIAA products is lower than that necessary for ILAL to continue operations, and the results for individual policy Owners reflects the differences in assumptions and/or experience of AIAA compared to ILAL as well as, in some cases, different benefits under the AIAA products.
113 Mr Goodsall notes that Transferring Policy owners will receive a notice about the Scheme in December 2024, information on proposed premium changes at least 30 days prior to the Transfer Date and a welcome pack with their policy documentation after the Transfer Date as well as several options for contacting AIAA to enquire about their policy. He considers this is important to enable them to make a choice as to whether to continue with their policy, seek a different product from AIAA, seek alternative cover from another insurer or to discontinue their policy and forgo any future insurance. Mr Goodsall ties his conclusion on the changes to premium rates with the changes to the policy terms and conditions which are set out above.
114 Mr Goodsall considers that even if ILAL is unable to make the ex gratia payment, his conclusion is that the Scheme is in the interest of ILAL policy owners as a whole. He states at [14] of his second affidavit:
While affected Transferring Policy Owners will be disadvantaged if the payment is delayed or not made in full, as the ex-gratia payment is not part of the Scheme, it was not an essential consideration in forming my opinion and I consider the completion of the Proposed Transfer of the Scheme is of more importance to the overall benefit security and delivery of policy owner benefit expectations than the possible withdrawal of the ex-gratia payment.
[31]
Remaining policy owners
115 Naturally, the terms and conditions of the policies of the remaining policy owners will not be changed under the Scheme; they stand outside of it. However, having regard to the financial and capital position in ILAL, the security of the benefits of policy owners referable to the remaining business may be impacted by the Scheme. This is because if the Scheme does not proceed, the costs of maintaining the transferring business will need to be absorbed by ILAL and the remaining policy owners may be affected by adverse claims experience of the transferring business. Further, the costs associated with the Scheme (of approximately $4m) will reduce IGHL's net asset position.
116 For the remaining ILAL business, ILAL has liabilities in respect of past claims for IBNR, open income protection and group salary continuous claims (where these have not been transferred). ILAL will also incur future liabilities in respect of cover it continues to provide for Group Risk Business that has not yet terminated.
117 The progress of the various transfers and transitions for the remaining business of ILAL has been set out above. The remaining business now comprises:
(a) One in-force policy under the Five+ group life business, where a cancellation notice is to take effect by the end of February 2025;
(b) IBNR claims liabilities and open claims for its corporate group life business, where the in-force policies have either been transferred, cancelled or lapsed. ILAL is in the course of negotiating commercial arrangements with a number of life insurers which are to be effected by deeds of assignment to be approved by APRA under s 27A of the Life Act; and
(c) any remaining claims exposure for individual policies not transferred through the Scheme that relate to out-of-force policies. ILAL has engaged a life insurer to take on the IBNR claims. The expected claims cost is close to nil for these liabilities. These liabilities are also expected to be assigned under s 27A of the Life Act.
118 Some of the indicative terms of the commercial arrangements for the open claims and IBNR liabilities require further negotiation as the indicative terms provided are not viable. ILAL expects to be able to agree terms for the transfer of the remaining business by 30 June 2025.
119 As Mr Dermody confirms, ILAL expects to have sufficient assets to transfer under the various arrangements proposed for the remaining business, as well as the assets required to transfer under the proposed Pt 9 transfer, including meeting the anticipated costs associated with the Scheme. However, there remains a risk that ILAL may not be able to come to timely or suitable terms with receiving insurers.
120 Mr Goodsall considers that the Scheme will have a positive impact on the benefit security of the remaining policy owners:
The Proposed Transfer will also enhance, but not necessarily ensure, the benefit security of the Remaining Policies until they can be transferred to another insurer as the significant drain on assets of the administration expenses of the Retail Business will rapidly diminish.
121 In his second affidavit Mr Goodsall observes at [22]:
The reduction in RCV is unfortunate but not outside the reasonable range of likely outcomes and reinforces the need to complete the Proposed Transfer and the transfer of the Remaining Policies as soon as possible, and that the Proposed Transfer is in the interests of both the Transferring and Remaining Policy Owners.
122 Mr Dermody posits a very strong linkage between confirmation of the Scheme and the interests of policy owners referable to the remaining business. Barring unexpected adverse developments, after the proposed Pt 9 transfer has occurred and the arrangements for transferring remaining ILAL policies are implemented, the remaining policy liabilities benefits will be secured by a life insurer that meets regulatory requirements. However, if the Pt 9 transfer is not confirmed, Mr Dermody considers it very unlikely that ILAL will be able, with its limited assets, to successfully undertake a transfer of the remaining policy liabilities on or within 3 months of 1 March 2025. Mr Dermody presents this very bleak picture:
Absent a Part 9 and any viable alternative arrangements for the transfer of the Transferring ILAL Policies and the Remaining ILAL Policies, there is an increased likelihood that each of APRA and ILAL may form the view that ILAL's remaining liabilities cannot be extinguished as and when they become due. Consideration will need to be given to other options, including seeking a winding up of ILAL. This is because ILAL's current costs of operating the business are not covered by revenue as noted in Section 2.12, and without a Part 9 ILAL is expected to exhaust its capacity to meet policy owner benefits in full by February 2028 [now expected to be November 2027].
[32]
Reinsurance
123 The retail advised business and Ex-QBE CCI Policies to be transferred under the Scheme are reinsured under two main categories of reinsurance:
(a) the Integrity Policies are reinsured with RGA in respect of business written after 11 April 2022, with HLRA covering business up to and including 11 April 2022; and
(b) the Ex-QBE CCI Policies and Ex-CUNA Policies are reinsured under legacy arrangements with HLRA and Munich Reinsurance Company of Australasia Limited.
124 The RGA and HLRA reinsurance treaties covering liabilities under the Integrity Policies are to be transferred to AIAA (see cl 4.11 and Sch 4 of the Scheme). The parties are in the process of executing amendments to both these treaties that:
(a) increase the retention level to AIAA's preferred level, reducing the level of reinsurance on future claims; and
(b) amend the premium rates to reflect the revised retention.
125 The legacy reinsurance treaties are not proposed to be transferred under the Scheme and will be terminated prior to the Transfer Date. The actuarial evidence is to the effect that the reduction in the level of reinsurance for future claims for Transferring Policies is appropriate given the greater size of the AIAA portfolio and the amount of capital of AIAA. As Mr Goodsall observes, the significantly greater size of the AIAA portfolio means that the claims experience of AIAA will be much less volatile than that of ILAL, reducing the need for, and cost of, reinsurance.
[33]
Remediation
126 At the time of the dispensation hearing, ILAL had been administering four open customer remediation programs for the Transferring Policies. Three of the four have now been completed, with the last expected to be concluded by the end of February 2025.
127 Mr Katon gives evidence that ILAL is not currently subject to any class actions or any regulatory proceedings and is not aware of any potential class actions or regulatory proceedings that are in contemplation or which have been threatened.
128 AIAA also has the benefit of contractual indemnities from ILAL and IGHL.
[34]
Responses from policy owners
129 ILAL and AIAA policy owners have been given notice of the Scheme through the various channels required by the Dispensation Orders as set out above. Almost all ILAL Transferring Policy owners were provided with a Scheme Summary, either by email or by post. AIAA has also made available comparative flyers which summarise the changes to the covers of the Integrity Policies and Ex-CUNA Policies.
130 In addition, ILAL and AIAA have sent notice to the Integrity Policy owners and Ex-CUNA Policy owners, who will be the subject of premium changes when the Scheme takes effect. This correspondence was sent between 24 and 31 January 2025.
131 The Dispensation Orders required the establishment of dedicated email addresses to receive enquiries about and complaints or objections to the Scheme. As at 16 January 2025 the ILAL email address had received 27 emails. Twenty-four of these emails received by ILAL related to either requests to update email addresses or advisers communicating with clients and copying the ILAL email address into their emails. Three emails raised questions or concerns about the post-transfer position of policies, pricing and the timing of the policy owner communications that was made. As at 16 January 2025 the AIAA email address received three emails from two different advisers, raising general questions regarding the post-transfer position or policy terms and benefits for their clients.
132 Both ILAL and AIAA also established telephone call centres under the Dispensation Orders. The ILAL telephone call centre received nine calls. The majority of these callers asked questions about the terms of their policy cover after the transfer or commented on their perceptions of AIAA's pricing or the timing of policy owner communications being sent. No calls were received by the AIAA telephone call centre.
133 Neither ILAL nor AIAA have received any enquiries through the online enquiry forms which could be accessed from the dedicated webpages which have been live since 18 December 2024.
134 Neither ILAL nor AIAA has received any notice from a policy owner objecting to the Scheme or any notice from such a policy owner intending to appear and make submissions at the confirmation hearing. No policy owner appeared at the confirmation hearing. Given the widespread notice and publicity of the Scheme, this is a significant matter in favour of exercising the Court's discretion to confirm the Scheme.
[35]
Position of APRA
135 APRA has closely supervised the progress of the proposed Scheme and the transferring and transition of ILAL's remaining business. Following the issue of directions by APRA to ILAL in October 2023, ILAL has been in regular contact with APRA to discuss the progress of ILAL's Run-Off Plan including the proposed Scheme. APRA has continued to supervise the run-off of ILAL's remaining business and has exercised or is prepared to exercise its powers under the FSTR Act and the Life Act to facilitate the transfer of aspects of ILAL's remaining business. APRA has been provided with drafts of the Scheme Documents including drafts of the actuarial reports and the applicants have consulted with APRA in relation to the forms of communications to policy owners and compliance with the Dispensation Orders.
136 It is apparent from the provisions of the Life Act and the Life Regulations that APRA is a significant participant in the process of confirmation of schemes of transfer: see Royal & Sun at [24]. APRA has exercised its entitlement to be heard on the application (s 193(3) of the Life Act). APRA is charged with ensuring that the interests of policy owners are protected, and APRA operates "as something of a watchdog in relation to transfers under Part 9 of the Act": Colonial Portfolio Services Ltd v Australian Prudential Regulation Authority [1999] FCA 1779; (2000) 11 ANZ Insurance Cases 90-103 at [28].
137 APRA was separately represented at the confirmation hearing and supports the confirmation of the Scheme for the reasons advanced in its written submissions.
[36]
Conclusion: the Scheme should be confirmed
138 ILAL is in breach of applicable prudential capital requirements and its capacity to meet policy owner benefits in full is now expected to be exhausted by November 2027 in the event that the Scheme does not proceed and no other opportunity to transfer the business arises. No alternative opportunities for transfer emerge from the evidence. Under ILAL's RCP, very significant premium increases are planned in the next two years in the event that the Scheme does not proceed, reflecting in part that adjustments to premiums have been deferred while the business is in run-off.
139 Integrity Policy owners and Ex-CUNA Policy owners will have their rights and benefits under their existing policy replaced by the equivalent or nearest equivalent rights and benefits under the AIAA "Priority Protection" policy wording, and their premiums adjusted accordingly. These changes are regulated under the Scheme by the Product Transfer Rules which were designed to minimise the loss of benefits and cover in a principled and careful way within the constraints of the commercial context in which AIAA was prepared to receive the transferring business.
140 The changes to policy terms and conditions and premium rates may be disadvantageous to some policy owners either because of the loss or reduction of benefits, or because of significant increases in premiums, or both. However, such adverse impacts should, as a matter of principle, be assessed having regard to the circumstances giving rise to the Scheme and to the position if the Scheme does not proceed. There is no authority that constrains the exercise of discretion under s 194 of the Life Act to confirm a Scheme because it may have an adverse impact on some policy owners. There is also no such constraint contained in the broad discretion conferred under Pt 9 of the Life Act; rather, as explained above, policyholder interests are to be considered in the context of a viable, competitive and innovative life insurance industry, where from time to time, some businesses may not thrive or survive.
141 The United Kingdom authorities (referred to above) acknowledge that the adverse impact of a scheme on some policyholders is not a bar to the confirmation ("sanction") of a scheme, especially where the transfer is a business rescue. Transferring Policy owners under the Scheme are treated fairly as a whole because where AIAA has required the replacement of terms and conditions, all of those policy owners (ie owners of Integrity Policies and Ex-CUNA Policies) are to have their terms and conditions and premiums replaced and premiums adjusted in accordance with the Product Transfer Rules to align as closely as possible to AIAA's "Priority Protection" product. The replacement of some Transferring Policies was the only viable way in which the proposed transfer could occur, while recognising that the Scheme and the Product Transfer Rules are the product of commercial negotiation between the parties.
142 Moreover, the actuarial evidence is to the effect that the Scheme is in the interests of policy owners as a whole, and that such adverse impacts by loss or reduction of rights or the increase of premiums are acceptable in the circumstances. This is largely because, if the Scheme does not proceed, ILAL policy owners are expected to lose their benefits in the near future (by November 2027), and because the premium increases under the RCP are, in general, greater than those which can be expected if the Scheme is confirmed. Healthy policy owners will have the opportunity to find alternative cover in the market, if they desire or are so advised. Unhealthy policy owners, for whom these opportunities are not available or may be costly, at least have their core benefits secured with a large and well capitalised insurer. Transferring Policy owners with advantageous legacy products will have their core benefits transferred where those products may not be generally available in the market. Significantly, the benefit security of all Transferring Policy owners will be materially improved as policy owners of AIAA.
143 As Mr Potts SC, who appeared for AIAA, neatly encapsulated the matter:
This Scheme is of course unusual, in that in certain respects, ILAL policyholders will be detrimentally affected by the Scheme. It is however clear, that overall, given a comparison between their position if the Scheme is not confirmed and the transfer does not proceed, with their position under the Scheme if the transfer occurs, looked at holistically, all ILAL policyholders will be better off overall if the Scheme is confirmed.
144 The run-off of the remaining business of ILAL is now well progressed. The limited number of policy owners referable to the remaining business of ILAL are better off if the Scheme is confirmed because they will not be subject to the potential for further adverse claims experience and the expenses of operating the transferring business, and because the prospects of execution of the transfer or transition of the remaining business are enhanced from a solvency and regulatory perspective.
145 As Mr Goodsall has observed, the reduction in the RCV of ILAL reinforces the need to complete the transfer proposed under the Scheme and the transfer of the remaining policies as soon as possible, and the Scheme is in the interests of both the transferring and remaining ILAL policy owners.
146 Given the scale of the business to be transferred, and the fact that there are no changes to the terms and conditions of any AIAA policies as a result of the Scheme, there are no adverse impacts of the Scheme on AIAA policy owners.
147 The Scheme Summary has been provided to ILAL Transferring Policy owners and the Scheme generally has been the subject of notification under the Dispensation Orders, including to the financial advisers of ILAL policy owners. AIAA has notified ILAL policy owners of impending premium increases. Notwithstanding these communications and the publicity of the Scheme, no policy owner, or anyone on their behalf, has made any objection to the Scheme or sought to be heard in opposition to its confirmation by the Court.
148 Further, APRA which has closely supervised and facilitated the run-off of ILAL, and which has been involved in the preparation of the Scheme and its notification, supports the confirmation of the Scheme on the basis of the detailed reasons advanced in its written submissions.
149 Accordingly, it is appropriate to exercise the discretion under s 194 of the Life Act to confirm the Scheme without modification and to make orders in the form proposed by the parties.
150 Finally, I wish to acknowledge my gratitude to counsel, solicitors, actuaries and lay witnesses involved in this matter for the way in which they have discharged their different responsibilities. The Scheme is complex, and raises some novel issues in terms of Australian case law. In particular, the written submissions by Mr Hollo SC (who appeared for ILAL), Mr Potts SC (who appeared for AIAA) and Ms Lyons (who appeared for APRA) exposed in a lucid and candid way the problematic features of the Scheme and the ways in which the parties have overcome them. My own task has been greatly assisted by the admirable way in which the matter has been presented and argued.
I certify that the preceding one hundred and fifty (150) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.
Legislation Cited (7)
Pursuant to Life Insurance Act 1995(Cth)s 194
Life Act, the Life Insurance Regulations 2024(Cth)