REASONS FOR JUDGMENT
1 The applicants, MDU Australia Insurance Company Pty Limited (MDU), and Avant Insurance Limited (Avant), have applied to the Court pursuant to Div 3A of Part III of the Insurance Act 1973 (Cth) (the Act) for confirmation by the Court of a scheme for the transfer of the insurance business of MDU to Avant. Pending the hearing of the application for confirmation, MDU and Avant have applied to the Court for an order under s 17C(5) of the Act dispensing with the need for compliance with s 17C(2)(c).
2 Section 17B of the Act provides that no part of the insurance business of a general insurer may be transferred to another general insurer except under a scheme confirmed by this Court. Section 17C(2)(c) relevantly provides that an application for confirmation of a scheme may not be made unless an approved summary of the scheme has been given to every affected policyholder. An approved summary is a summary approved by the Australian Prudential Regulation Authority (APRA). An affected policyholder is a holder of a policy affected by a scheme.
3 MDU is a wholly owned subsidiary of United Medical Protection Limited (United), in that 34.78% of its issued shares are held by United and 65.22% of its shares are held by Avant, which itself is a wholly owned subsidiary of United. The Avant group provides insurance and other services to medical practitioners, dentists and related professions in Australia. Each of MDU and Avant carries on an insurance business in Australia and is a licensed insurer under the Act. MDU and Avant propose a scheme whereby the whole of the business of MDU will be transferred to Avant in order to simplify the structure and operations of the group.
4 In essence, the proposed scheme will provide as follows:
MDU's portfolio of insurance contracts will be assigned to Avant.
The whole of the insurance business and assets of MDU will be transferred to Avant, including benefits arising from reinsurance contracts.
Avant will assume all liabilities and be entitled to all benefits as insurer under the insurance contracts as if it were a party.
Following the transfer:
(a) Avant will indemnify MDU against any future claims, losses, liabilities, costs or expenses that might arise in connection with the insurance contracts.
(b) Avant will be entitled to the benefits of and to take action in respect of the insurance contracts and will be entitled to the benefits of and to take action in respect of the reinsurance contracts within MDU and its re-insurers.
5 MDU is effectively in run-off. It has only a limited number of policies, all of which were issued during the period 1 July 1997 to 31 December 1998 to medical practitioners and dentists. All of the liabilities under the insurance contracts issued by MDU were reinsured. However, by reason of the insolvency of HIH Casualty and General Insurance Limited, which was the re-insurer in respect of a share of the liabilities, MDU is not fully reinsured.
6 In respect of 1997 claims and 1999 claims there are no longer any open files. However, there are still 10 open files in respect of claims notified during 1998. At present there is an outstanding estimate in respect of only one of those, in the sum of approximately $130,000. The 10 open files are notifications involving children. None is yet statute-barred and one involves a potential major claim. The incident files were individually reviewed in December 2005 and all of the patients in respect of which the claims were notified are still of a young age. While none of the files can yet be closed, there has been no activity in respect of nine of them since notification in 1998.
7 Avant has approximately 30,000 policyholders, who would be affected policyholders within the meaning of s 17C(2)(c). Since it is proposed to amalgamate the business of MDU and Avant, there is at least theoretically a possibility that the policyholders of Avant would be affected by the transfer because there would be further claims possibly open to be made on the assets of Avant, albeit assets that would be swollen by the amalgamation of the assets of MDU.
8 Mr Adrian Gould, a fellow of the Institute of Actuaries of Australia and a fellow of the Institute of Actuaries (London), has prepared a report on the proposed transfer. A section of that report deals with the financial effects of the proposed scheme. In particular, Mr Gould's report deals with the financial position of Avant after the implementation of the proposed scheme. The scheme will take effect on 19 March 2008. Mr Gould has considered the implications notionally on the basis that the proposed scheme took effect as at 31 December 2007.
9 Mr Gould embarked on a comparison of the prudential security ratios required by APRA in relation to both companies. APRA requires that the ratio of APRA-approved capital base of an insurance company to the minimum capital requirement of that company be at least 150%. As at 31 December 2007, the ratio of Avant's capital base to the minimum capital requirement was 319%. Thus, it is significantly in excess of APRA's requirement. APRA has a minimum capital requirement which is far in excess of the charges that would normally be taken into account in calculating that requirement so far as MDU is concerned. The effect of that minimum is that the ratio for MDU as at 31 December 2007 was 162%. Apart from the artificial minimum, the ratio would have been very significantly greater than the ratio of Avant.
10 Following the national implementation of the proposed scheme as at 31 December 2007, the ratio of the merged business would have been 321%. Thus, the affected policyholders of Avant will in effect be better off as a result of the amalgamation. That is the consequence of the absorption of the assets of MDU with only a very disproportionate amount of liabilities to be included.
11 It is apparent that, although theoretically the policyholders of Avant are affected policyholders within the meaning of s 17C, it is inconceivable that they would be worse off as a consequence of the amalgamation and in fact would be better off. In those circumstances, the disadvantage of incurring the costs of giving an approved summary of the scheme to every Avant policyholder far outweighs the extent to which such a policyholder might be prejudicially affected by the scheme.
12 While there are only 10 MDU policyholders who have notified claims in respect of the periods to which I have referred, there are in fact some 14,000 policyholders who would be affected policyholders under the Act. While none have made a claim and it is highly unlikely now that a claim will be made, it is still possible. Accordingly, such policyholders are affected policyholders within the meaning of s 17C. However, having regard to the time that has elapsed since the currency of the policies, it is apparent that it is highly unlikely that there would be any prejudice to such policyholders by reason of the transfer. Since no claims have been notified it is impossible to assess the likely quantum of any claim that might arise. Having regard to the time that has elapsed it seems to me that it is sufficiently unlikely to allow the requirement of s 17C(2)(c) to be dispensed with in relation to the policyholders of MDU.
13 In all of the circumstances, I consider that it is appropriate to accede to the application that has presently been made for an order dispensing with the need for compliance with s 17C(2)(c).
I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.
[2]
Associate:
Dated: 17 March 2008
Counsel for the Applicants: Mr M. Dawson
Solicitors for the Applicants: Tresscox Lawyers
Date of Hearing: 14 February 2008
Date of Judgment: 14 February 2008