National Mutual Life Association of Australasia Limited, the application of National Mutual Life Association of Australasia Limited and AMP Life Limited [2016] FCA 1219

NMLA 9 NMLA writes a range of life insurance products, including life risk insurance products and investment life insurance products. In particular, NMLA issues the following types of group and retail risk insurance products in both Australia and New Zealand: (1) income protection; (2) death; (3) terminal illness; (4) total and permanent disability; (5) trauma; and (6) disability income. 10 NMLA has six statutory funds which are structured as follows: Statutory fund Class of business Benefit type Key product groups Country 1 Ordinary and superannuation Participating and Non-Participating Wealth Protection, Annuities, Conventional, Investment Account, Investment Linked NZ Australia and New Zealand 2 Superannuation Non-Participating Investment Linked Australia 3 Ordinary Non-Participating Wealth Protection Taiwan 4 Superannuation Participating and Non-Participating Wealth Protection, Conventional, Investment Account Australia 5 Ordinary Non-Participating Investment Linked Australia 6 Superannuation Non-Participating Deferred Lifetime Annuity Australia

11 As at 2 September 2016, there were approximately 350,706 NMLA policy owners in Australia and New Zealand (approximately 231,543 in Australia and approximately 119,163 in New Zealand ). 12 NMLA also has a shareholders' fund ("NMLA shareholders' fund") which is maintained separately from its statutory funds. No life insurance business is conducted from the NMLA shareholders' fund.

AMP Life 13 AMP Life currently writes a range of life insurance products, including risk insurance and life investment products. AMP Life also has some in-force participating capital guaranteed business. 14 AMP Life has three statutory funds which are structured as follows: Statutory fund Class of business Benefit type Key product groups Country 1 Ordinary Participating and Non-Participating Wealth Protection, Annuities, Conventional, Investment Account, Investment Linked Australia and New Zealand 2 Superannuation Non-Participating Investment Linked Australia 3 Ordinary Non-Participating Ordinary Investment Linked Australia

15 As at 15 June 2016, there were approximately 500,236 AMP Life policy owners (approximately 337,741 in Australia and approximately 162,495 in New Zealand). 16 AMP Life also has a shareholders' fund ("AMP Life shareholders' fund") which is maintained separately from its statutory funds. No life insurance business is conducted from the AMP Life shareholders' fund.

New Zealand life insurance business 17 The New Zealand life insurance businesses of both NMLA and AMP Life are conducted through branches forming part of statutory funds established and maintained by NMLA and AMP Life, respectively, pursuant to the requirements of the Act.

Overview of scheme 18 NMLA will transfer its Australian and New Zealand life insurance business ("business") to AMP Life, which will involve the transfer of: (1) all of NMLA's contracts of life insurance referable to the business; (2) all of NMLA's liabilities under the contracts of life insurance referable to the business; and (3) certain business assets and liabilities of NMLA. 19 In substance, the scheme provides for the transfer of policies from one insurer within a group to another within the same group.

Transfer agreement 20 On 20 September 2016, NMLA and AMP Life entered into a conditional transfer agreement by which AMP Life has agreed with NMLA to assume its liabilities in respect of contracts of insurance issued, entered into or assumed by NMLA in the course of its life insurance business in Australia and New Zealand ("transfer agreement"). The terms of the transfer agreement form part of the scheme. 21 It is not intended that the entirety of the NMLA portfolio be subject to the scheme. The life insurance business carried on by NMLA in Taiwan, which is a closed book, will not be transferred to AMP Life. This business is referable to NMLA's statutory fund no. 3. 22 The transfer agreement is conditional on: (1) confirmation of the scheme by this Court under Pt 9 of the Act; (2) approval from the New Zealand regulator, the Reserve Bank of New Zealand, in accordance with ss 44 and 53(2) of the Insurance (Prudential Supervision) Act 2010 (NZ); and (3) approval from the Treasurer of the Commonwealth of Australia (or other responsible Minister) in accordance with s 41 of the Insurance Acquisitions and Takeovers Act 1991 (Cth) ("IATA") to the effect that there is no objection to AMP Life acquiring the life insurance business of NMLA in Australia in New Zealand. 23 The Commonwealth Minister for Revenue and Financial Services has given the applicants written advice that she has made a "go-ahead decision" under s 41 of the IATA conditional on the Court's confirmation and the Reserve Bank of New Zealand approval. The Reserve Bank of New Zealand has confirmed in writing that it has no objection to the applicants proceeding with the dispensation application. It is anticipated that Reserve Bank of New Zealand approval will be obtained following provision of further information after conclusion of the notification program.

Outline of scheme 24 In summary, the scheme will have the following effect: (1) all of the life insurance business of NMLA in Australia and New Zealand, including all of the life insurance contracts and life insurance liabilities as well as certain assets and liabilities related to that business, will be transferred to AMP Life. AMP Life will indemnify NMLA against all present, future or contingent claims, losses, liabilities, costs and expenses that might arise in connection with the life insurance contracts; (2) the transfer will not change the terms of any life insurance contract, or affect any claim in respect of any life insurance contract, issued by NMLA other than that AMP Life will become the insurer and the statutory fund to which it is referable will change; (3) NMLA policy owners will continue to have the same rights and obligations under or in respect of any insurance contract or claim, but with AMP Life as the insurer; (4) all outstanding claims-related rights and liabilities of NMLA in respect of the life insurance contracts will be transferred to AMP Life such that any claims arising under or in connection with any life insurance contract must be made against AMP Life, rather than NMLA; (5) all premiums and other amounts payable to or recoverable by NMLA under the life insurance contracts will be payable to and recoverable by AMP Life; (6) AMP Life will be entitled to enforce all rights and remedies that, but for the scheme, would have been enforceable by NMLA under or in respect of the life insurance contracts; (7) any policy owner under a life insurance contract or other person who has a claim on or obligation to NMLA under or in respect of a life insurance contract will have the same claim on or obligation to AMP Life in substitution for his or her claim on or obligation to NMLA irrespective of when such claim or obligation arose; (8) any stamp duty and other costs and expenses incurred in connection with the scheme will not be paid by or charged to policy owners, but will be met by AMP Financial Services Holdings Limited; and (9) the transfer will take effect on or around 1 January 2017 or another date agreed between AMP Life and NMLA and approved by the Court ("effective date").

Reasons for the scheme 25 The applicants contend that the scheme will result in the rationalisation of the AMP Group's Australian and New Zealand life insurance business into a single legal entity (apart from the business carried on in Taiwan and referred to in [21] above), with a simplified statutory fund structure that aligns more closely with the existing management structure. This rationalisation is intended to improve the efficiency of policy owner and shareholder capital use through improved risk diversification within the statutory funds, simplify certain administrative processes (such as the production of statutory financial reports), and facilitate future operational efficiency improvements.

Intentions following implementation of the scheme 26 It is AMP Group's intention (as well as the intention of the applicants) that the scheme will not result in any changes to: (1) the insurance policies issued by NMLA apart from AMP Life being substituted as the insurer under the policies and consequential changes to statutory fund references; (2) the processes for capital management within the AMP Group; (3) reinsurance arrangements; (4) the current procedures for underwriting policies as a result of the transfer; (5) the current procedures for handling claims as a result of the transfer; and (6) the current business planning or operating models.

The proposed process for notifying affected policy owners 27 In substance, the applicants propose to give an approved summary of the scheme to all transferring NMLA policy owners to the extent that it is reasonably feasible to do so, but not to give an approved summary to: (1) The remaining NMLA policy owners, being those policy owners whose policies are referable to NMLA's statutory fund no. 3; and (2) The AMP Life policy owners. 28 The applicants propose the following procedures to bring the scheme to the attention of affected policy owners: (1) a notice of intention to make the application to the Court for confirmation of the scheme ("notice of intention") will be published in several newspapers circulating in Australia and New Zealand (as approved by APRA) and in the Commonwealth Notices Gazette to draw attention to the scheme. This advertising is required by s 191(2)(b) of the Act and reg 9.02 of the Life Insurance Regulations 1995 (Cth); (2) a further advertisement about the scheme will be published in the front section of the newspapers referred to above. This advertising will be in addition to, and in a different form from, the notice of intention; (3) communications about the scheme have or are proposed to be published on AMP Group's official Twitter account in both Australia and New Zealand; (4) policy owners of the applicants will have an opportunity to inspect the notice of intention, scheme document, scheme summary, appointed actuary's report and independent actuary's report ("inspection documents") in all the locations in Australia and New Zealand referred to in the notice of intention and scheme summary and will be able to request a copy of these documents free of charge (the notice of intention will explain that the documents are so available); (5) the inspection documents will also be published on the dedicated webpages www.amp.com.au/transfer and www.amp.co.nz/transfernz and links to these dedicated webpages will be included on the websites www.amp.com.au and www.amp.co.nz (the websites of AMP Group in Australia and New Zealand) and on "My AMP" (an online customer portal used by the applicants' customers). The newspaper advertisements and policy owner notification will include references to the webpages; (6) newsletters communicating the scheme to AMP Group's licensed advisers (in New Zealand, the AMP Group's nominated representatives) and independent financial advisers ("advisers") have been sent by email, with a further communication to the advisers proposed for 6 October 2016; (7) each of the scheme summary, the notice of intention and the webpages will include references to dedicated toll free phone numbers in Australia and New Zealand to a dedicated contact centre to receive enquiries in relation to the scheme). The applicants will provide a formal briefing and training to those staffing the call centre for that purpose; (8) a flyer about the scheme will be sent to persons who become NMLA policy owners on and from the day after the date of the confirmation hearing up to and including the effective date; and (9) a product disclosure statement ("PDS") update in relation to the scheme will be published on a dedicated website on and from 8 October 2016, up to and including the effective date. Each person who takes out an NMLA policy is offered a "cooling-off" period of 30 days in Australia and a "free look" period of 14 days in New Zealand under the terms of the policy as referred to in the relevant PDS for the product. Policy owners may cancel their policies during the "cooling-off"/"free look" period.

Legal Framework 29 Section 191 of the Act provides: (1) In this section: affected policy owner means the owner of a policy that is referable to a statutory fund affected by a scheme. approved summary means a summary approved by APRA. (2) An application for confirmation of a scheme may not be made unless: (a) a copy of the scheme and any actuarial report on which the scheme is based have been given to APRA in accordance with the regulations; and (b) notice of intention to make the application has been published by the applicant in accordance with the regulations; and (c) an approved summary of the scheme has been given to every affected policy owner. (3) Without limiting the provision that may be made by the regulations for the purposes of paragraph (2)(b), the notice referred to in that paragraph must include, in relation to each company affected by the scheme, details of the place and time at which an affected policy owner may obtain a copy of the scheme. (4) An affected policy owner is entitled, on his or her request, to be provided by the company with one copy of the scheme free of charge. (5) The Court may dispense with the need for compliance with paragraph (2)(c) in relation to a particular scheme if it is satisfied that, because of the nature of the scheme or the circumstances attending its preparation, it is not necessary that the paragraph be complied with. 30 Section 10 provides: (1) For the purposes of this Act: (a) a life company issues a policy when the company enters into the contract that constitutes the policy; and (b) a policy is issued to the person with whom the life company enters into the contract. (2) For the purposes of this Act, the owner of a policy is: (a) the person to whom the policy is issued; or (b) if the rights of that person under the policy have been assigned under this Act or transferred by the operation of the policy, the person who has those rights. 31 The cases have recognised that the policy underlying s 191(2)(c) is to give every affected policy owner a summary of the scheme and an opportunity, if he or she so desires, to make submissions to the Court in respect of any application for confirmation of the Scheme. In particular, in The Application of Commonwealth Life Ltd & Anor [2003] FCA 501; (2003) 12 ANZ Insurance Cases 90-117 at [8], Sackville J stated: I think that some care needs to be taken before an order is made dispensing with the requirements of s191(2)(c) of the Act. Clearly enough, the policy underlying the statutory requirement, when read in conjunction with s191(2)(b), is to give every affected policyholder a summary of the scheme and, an opportunity, if he or she so desires, to make submissions to the Court in respect of any application for confirmation of the scheme. A right to be heard in relation to a proposed scheme may be of little value if a person does not know of the proposal. 32 The principle stated by Sackville J has most recently been approved in the context of applications for dispensation under s 17C in Application of Gordian RunOff Limited under the Insurance Act 1973 (Cth) [2013] FCA 983 at [16]; AAI Limited, application under the Insurance Act 1973 (Cth) [2015] FCA 452 at [22]; QBE Insurance (Australia) Ltd, in the matter of Division 3A of Part IIIA of the Insurance Act 1973 (Cth) & QBE Insurance (Australia) Ltd [2015] FCA 1223 at [23]. 33 Even so, the applicants submitted that dispensation from the requirement to give policy owners referable to the receiving fund, such as AMP Life policy owners, a summary of the Scheme has been routinely granted in previous applications under Pt 9 of the Act. Examples given were Asteron Life Ltd, in the matter of Asteron Life Ltd [2011] FCA 1230; BT Life Limited, in the matter of BT Life Limited [2011] FCA 1100; St Andrew's Life Insurance Pty Ltd, the application of St Andrew's Life Insurance Pty Ltd and The Colonial Mutual Life Assurance Society Limited [2010] FCA 488; PrefSure Life Limited & Tower Australia Limited [2007] FCA 88. 34 While each case necessarily turns on its own facts, the considerations which have been taken into account in the exercise of the discretion to grant dispensation include: (1) the intra-group nature of a scheme due to the lack of, or limited, difficulty in passing on a claim that is made on the transferring insurer to the receiving insurer: see Calliden Group Limited in the matter of Calliden Group Limited [2007] FCA 2019 ("Re Calliden Group"); MMIA Pty Ltd and QBE Insurance (Australia) Limited [2008] FCA 1239 ("Re MMIA"); (2) the nature of the scheme and whether it involves changes to the contractual benefits or entitlements and security of policy owners in respect of whom dispensation is sought; (3) evidence by qualified actuaries as to whether policy owners in respect of whom dispensation is sought will be detrimentally affected by the scheme; (4) the practical difficulties and the costs involved in providing a scheme summary to policy owners in respect of whom dispensation is sought; (5) the extent to which the scheme may be brought to the attention of policy owners by means other than the scheme summary; (6) the lack of material changes to policy terms and conditions: see Re QBE; and (7) the involvement and attitude of APRA to the application: see Re Calliden Group ; Re MMIA; Westport Insurance Corporation, in the matter of Westport Insurance Corporation [2009] FCA 1357; (2009) 16 ANZ Insurance Cases 61-830; American Home Assurance Company, in the matter of American Home Assurance Company [2010] FCA 1499; Re QBE. 35 The discretion to make dispensation orders is a general one and the provision does not specify the criteria that the Court is to apply in determining whether "the nature of the scheme or the circumstances attending its preparation warrant" the making of proposed orders: Re QBE at [16].

Reasons for seeking dispensation 36 The grounds for seeking dispensation relate to the nature of the scheme and the circumstances attending to its preparation. The applicants contended that the following matters support the orders sought: (1) the scheme will not result in any changes to the policy terms and conditions of policies issued by NMLA apart from AMP Life being substituted as the insurer and consequential changes to statutory fund references for policies being transferred; (2) the scheme will not result in any changes to the policy terms and conditions of policies issued by AMP Life; (3) the appointed actuary's report and the independent actuary's report have concluded that in respect of the effect of the scheme on existing AMP Life policy owners, NMLA policy owners whose policies are proposed to be transferred to AMP Life and NMLA policy owners whose policies are to remain with NMLA, that: (a) there will be no effect on their contractual benefits or other rights; (b) there will be no adverse effect on their reasonable benefit expectations; (c) each of the statutory funds of AMP Life, and AMP Life as a whole, will be in a sound financial position immediately following the Scheme taking effect; (d) NMLA statutory fund no. 3 (relating to business which is not included in the scheme), and NMLA as a whole, will be in a sound financial position immediately following the scheme taking effect; and (e) there will be no adverse effects on the security of their benefits in any material respect; (4) the proposed notification program; (5) the steps taken by the applicants to reduce the number of policy owners for whom NMLA does not hold a current address; (6) there would be a considerable cost involved in mailing out a scheme summary and covering letter to AMP Life policy owners; and (7) the applicants would not be in a position to mail out a scheme summary and covering letter to AMP Life policy owners within the business timeline and doing so would significantly delay achieving the benefits the scheme will bring.

Nature of the scheme 37 I accept the evidence that the scheme will not result in any changes to policy terms and conditions of policies: (1) issued by NMLA apart from AMP Life being substituted as the insurer and consequential changes to statutory fund references for policies being transferred; and (2) issued by AMP Life. 38 The scheme will not result in any changes to the claim management approaches and procedures for NMLA. 39 The appointed actuary's report and the independent actuary's report have concluded that in respect of the effect of the scheme on existing AMP Life policy owners, NMLA policy owners whose policies are proposed to be transferred to AMP Life and NMLA policy owners whose policies are to remain with NMLA: (1) there will be no effect on their contractual benefits or other rights; (2) there will be no adverse effect on their reasonable benefit expectations; (3) each of the statutory funds of AMP Life, and AMP Life as a whole, will be in a sound financial position immediately following the scheme taking effect; (4) NMLA statutory fund no. 3 (relating to the Taiwanese business which is not included in the scheme), and NMLA as a whole, will be in a sound financial position immediately following the scheme taking effect; and (5) there will be no adverse effects on the security of their benefits in any material respect.

Circumstances attending the preparation of the scheme 40 The applicants sought to rely on the extensive notification program which they propose to undertake. In particular, they noted the following matters: (1) their proposal to send, by regular pre-paid post, a copy of the scheme summary and covering letter to NMLA policy owners in Australia and New Zealand for whom NMLA holds a current address up to and including 5 October 2016 and a copy of the scheme summary in the welcome packs to NMLA policy owners in Australia and New Zealand who become policy owners from 6 October 2016 up to and including the date of the confirmation hearing of the scheme. For this reason, it can be expected that most new policy owners who are issued a policy by NMLA in Australia and New Zealand 25 days before the confirmation hearing will receive a copy of the scheme summary; (2) that as at 12 March 2016, the applicants did not have current addresses for approximately 26,769 policy owners who are flagged on its record keeping systems as having postal material returned as undeliverable or incomplete addresses. In an effort to reduce the number of policy owners for whom the applicants do not have a current address, the applicants engaged Veda Advantage Ltd to assist with a one-off process to obtain address information sourced for a variety of external data resources. Following this process, the 26,769 owners for whom the applicants had no current mailing address was reduced by 3,525; (3) the notification program was designed having regard to the recommendations of Universal McCann, external media advisers engaged by the applicants; (4) it would cost approximately $1.5 million to require the applicants to mail out a scheme summary and covering letter to the AMP Life policy owners, of whom there were 500,236 as at 15 June 2016. Further, the applicants would not be able to do so within the planned business timeline for an effective date of 1 January 2017. The effective date would likely have to be moved to 1 July 2017, which would significantly delay the benefits the scheme will bring. This is due, among other things, to: (a) at least six weeks being required to extract and validate (to the extent possible) customer details from multiple systems and a further two weeks to build and test a data base; (b) a longer time required for printing and processing; and (c) an increased period for sending out the scheme summary and covering letter: this is currently planned over three days, it would likely have to extend over a period of six days to facilitate orderly customer support.

Conclusions 41 Mr Jackman SC submitted, and I accepted that the remaining NMLA policy owners (being the policy owners in respect of the Taiwanese business) are not affected policy owners within the meaning of s 191(2)(c): cf Macquarie Life Limited, in the matter of Macquarie Life Limited [2016] FCA 973 at [25] and [27] per Allsop CJ. 42 Based on the evidence provided, I was satisfied that the notification program will be likely to lead to notification of a very large number of affected policy owners, sufficient to bring forth, in all likelihood any objection to the scheme that is based on viable objective grounds: cf. Application of Sompo Japan Insurance Inc. under the Insurance Act 1973 (Cth) [2014] FCA 396 at [25]. 43 On that basis, and taking into account APRA's satisfaction with the dispensation orders, I was satisfied that it was not necessary that there be compliance with s 191(2)(c) and that it was appropriate to make the orders sought. 44 In particular, I was satisfied that it would be unduly burdensome to require the applicants to take additional steps to notify AMP Life policy owners of the proposed scheme. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.