PrefSure Life Limited & Tower Australia Limited [2007] FCA 480

REASONS FOR JUDGMENT 1 The applicants seek an order under s 194 of the Life Insurance Act 1995 (Cth) confirming a scheme for the transfer of the life insurance business (including all assets and liabilities) of PrefSure Life Limited to TOWER Australia Limited. 2 The purpose of the requirement that implementation of such a scheme be subject to confirmation by the Court is apparent from the objects of the Act as set out in s 3. Section 3(1) states: "The principal object of this Act is to protect the interests of the owners and prospective owners of life insurance policies in a manner consistent with the continued development of a viable competitive and innovative life insurance industry." This object is achieved, in part, by providing for the Court to supervise transfers and amalgamations of life insurance business; s 3(2)(f). Provisions governing the transfer and amalgamation of life insurance business are found in Part 9 of the Act. The present scheme is intended to effect the transfer from PrefSure to TOWER pursuant to Part 9 and, if it is to proceed, confirmation by the Court is required; see s 190 3 On a previous occasion I made the following orders under s 191(5) of the Act dispensing with the applicants' obligation to comply with preconditions to confirmation of the scheme imposed by s 191(2)(c): "(1) Pursuant to subsection 191(5) of the Life Insurance Act 1995 (Cth), the need for compliance by the applicants with paragraph (2)(c) of s 191 of the Act by giving an approved summary of the scheme for the transfer and amalgamation of the life insurance business of PrefSure Life Limited with the life insurance business of Tower Australia Limited to policy owners of Tower be dispensed with. (2) Pursuant to subsection 191(5) of the Act, the need for compliance by the applicants with paragraph (2)(c) of s 191 of the Act by giving an approved summary of the scheme to those policy owners of PrefSure who become affected policy owners as defined in subsection 191(1) of the Act, less than 15 business days prior to the hearing of this application or become affected policy owners of policies issued by PrefSure after the effective date as defined in the scheme pursuant to an application made before the effective date be dispensed with." 4 My reasons for making those orders are set out in an earlier judgment, PrefSure Australia Limited & Tower Australia Limited [2007] FCA 88. The applicants now seek a further dispensation under s 191(5) being relief from the requirement to serve an approved summary of the scheme on those policy holders of PrefSure whose addresses are not recorded with, and are unknown to PrefSure. 5 The proposed scheme is set out in a document exhibited to the affidavit of Megan Elizabeth Beer sworn on 5 February 2007. Ms Beer is the appointed actuary of the two applicants for the purposes of the Act. She prepared an actuarial report dated 2 February 2007 which was also exhibited to her affidavit. The scheme was prepared by the applicants based on Ms Beer's report. Ms Beer also provided a later report, dated 30 March 2007 which updates her earlier report. Ms Beer's reports are supplemented by a report dated 5 February 2007 prepared by the independent actuary, Mr David Goodsall who is highly experienced in this area. 6 PrefSure and TOWER are registered life insurance companies and are ultimately owned by TOWER Australia Group Limited which is listed on the Australian stock exchange. Both companies offer participating and non-participating life insurance products and investment linked and non-investment linked products. As required by the Act they conduct their business in statutory funds. The scheme for the transfer of PrefSure's business to TOWER is summarised in the written submissions of Mr R Hollo of counsel who appeared for the applicants: "The substance of the Scheme is to provide for the transfer of policies held from one insurer in the group to another together with a transfer of assets equal to those liabilities to be assumed by TOWER, the acquiring entity. PrefSure is to be released from liabilities and obligations underwritten by it and will cease to operate as a life insurance company. TOWER is to be substituted for PrefSure as insurer of the policies issued by PrefSure. All premiums and claims in respect of policies issued by PrefSure will be payable to and by TOWER." The effective date of the scheme is 2 April 2007. 7 In her first report Ms Beer says that the purpose of the proposed transfer is "to simplify administration for both entities and save some administration costs and capital". In her overview of the scheme and her opinions Ms Beer says: "The major points of the Scheme are: · The assets and liabilities of the Statutory Funds of PrefSure will be transferred to the relevant Statutory Funds of TOWER. · All premiums and claims in respect of policies issued by PrefSure will be payable to and by TOWER. · There will be no change to the contractual terms and conditions of PrefSure or TOWER policies except as noted in the bullet points below. ○ The bonus declaration date for all PrefSure participating traditional policies will be altered to 30 September each year. ○ The crediting date for all PrefSure investment account business will be altered to 30 September each year. ○ PrefSure participating policies will be altered to participate in the aggregate profits of the sub funds established in TOWER's Statutory Fund 1 for PrefSure participating policies. ○ PrefSure participating and non-participating investment account policies which refer to the crediting rate being based wholly or in part on the rate of interest earned or investment return of PrefSure's Statutory Fund 1 will be altered to refer to the rate of interest earned or investment return calculated on the aggregate of the sub funds established in TOWER's Statutory Fund 1 for PrefSure participating and non-participating investment account and traditional participating policies. · Any policyholder or other person having a claim against or obligation to PrefSure will have the same claim against or obligation to TOWER instead. · PrefSure's reinsurance arrangements will be transferred to TOWER. · The costs of the Scheme, including any stamp duty, will be borne by the shareholder's fund of TOWER." 8 As the appointed actuary Ms Beer states her opinion as follows: "Based on the information set out in this report, I have formed the following opinions: · That the proposed Transfer will have no material adverse impact on the existing contractual benefits and rights of PrefSure and TOWER policyholders; · That the proposed Transfer will have no impact on the reasonable benefit expectations of PrefSure's and TOWER's participating policyholders and PrefSure's discretionary non-participating investment account policyholders. I am of the opinion that the proposed Transfer will have no impact on the benefit expectations of PrefSure's other non-participating policyholders and TOWER's non-participating policyholders; · That had the Transfer taken place as at 30 September 2006, each TOWER Statutory Fund would have been in a sound financial position following the Transfer and PrefSure and TOWER policyholder liabilities would have been well secured; and · That the proposed Transfer treats PrefSure and TOWER policyholders equitably." [footnotes omitted] 9 In her second report Ms Beer states that she has relied on unaudited monthly management reports covering the period from 1 October 2006 to 28 February 2007 and on enquiries she has made of management. She notes, however, that since her earlier report there has been no material change in either company in respect of its capital position, management practices or processes, the nature of new business written or the expected profitability of new business. She concludes that she is not aware of any material change in the business of either PrefSure or TOWER that would change the opinions contained in her earlier report. 10 In his overview of the scheme Mr Goodsall states: "The proposed Scheme is a simple transfer of all the life insurance business of the statutory funds of PrefSure, including the assets and liabilities, to TOWER. Existing PrefSure sub funds will be maintained within TOWER after the transfer for participating and investment business (participating and non-participating). This has the effect of ensuring that the PrefSure business currently impacted by the experience of a sub fund, being participating and investment business, will continue to be managed as separate funds thus avoiding any impact on the policyholders as a result of the transfer. Apart from minor administrative changes the policy terms and conditions will not be changed as a result of the transfer. There will be an amendment to the bonus and interest declaration dates of the PrefSure policies to align them with that of TOWER." 11 Following his review of the scheme and, in particular, Ms Beer's first report, Mr Goodsall concluded: "Based on my review of the documentation provided to me and, in particular, the Actuarial Report, I consider that the proposed scheme: · Provides proper policyholder security through adequate capital resources within each of the statutory funds · Appropriately maintains policy terms and conditions for both PrefSure and TOWER policies · Results in no change to policyholder reasonable expectations · Treats the policyholders of both PrefSure and TOWER equitably in regards to the transfer." 12 The reports of Mr Goodsall and Ms Beer satisfy me that, subject to all the procedural requirements of the Act and the Regulations being met the proposed scheme should be confirmed. I am satisfied that all those requirements have been met other than the matters for which I gave dispensation in the orders made on 7 February 2007 (see [3] above) and that for which dispensation is sought today. 13 The dispensation sought today is relief from the requirement to serve an approved summary of the scheme on those policy holders of PrefSure whose addresses are not recorded with, and are unknown to PrefSure. The number of such policyholders is 2525 out of a total of 149,308. The applicants have provided detailed affidavit evidence concerning the efforts they have made to discover the missing addresses. They include reviewing archived records and engaging Acxiom Australia to review various electronic databases. Although the number initially outstanding was reduced the 2,525 referred to above have resisted all efforts. It is not necessary to detail all the steps that have been taken to discover the missing addresses. I am satisfied that these efforts have been appropriate. In particular I note that the notice of intention that was published in accordance with the Regulations and was approved by APRA gave a toll free telephone number by which enquiries could be made and a summary of the scheme obtained. In addition the summary and the actuarial report of Ms Beer were available for inspection at locations in each State and Territory and by way of the TOWER website. In view of these factors I am of the opinion that the dispensation sought should be granted. 14 As noted at [3] above, at the earlier hearing in this matter I relieved the applicants of their need to comply with the requirement to give an approved summary of the scheme to those policy owners of PrefSure who become affected policy owners as defined in s 191(1) of the Act, less than 15 business days' prior to this confirmation hearing or become affected policy owners of policies issued by PrefSure after the effective date as defined in the scheme (2 April 2007) pursuant to an application made before the effective date. In my earlier judgment I commented that crucial to my conclusion was, "the assurance … that PrefSure will not accept new business unless it is satisfied that the relevant customer has received the Supplementary PDS which in simple terms will adequately inform them as to the details of the proposed scheme and its ramifications. That Supplementary PDS will also ensure that all prospective customers on and from 14 February 2007 until midnight on 1 April 2007 will be provided with a summary of the scheme prior to becoming an affected policy owner and each new policy owner will have a 28-day cooling-off period in which they may elect to terminate the policy they have entered into. Clearly, indication that that intention has been carried out will be a relevant issue in approval of the scheme when that matter comes to be considered." 15 I am satisfied that this the assurance has been honoured except in relation to 15 policies that were issued in error by one of TOWER's externally administered Alliance Partners, DirectLine International Limited. In her affidavit sworn on 30 March Ms Kellie Clenton, TOWER's Product Manager, states that after discovering this mistake on 27 March she "sent a letter to each of those 15 policy owners, enclosing a Supplementary PDS and giving them the opportunity to discontinue their policy in light of the information in the Supplementary PDS". I am satisfied that this action rectifies the error and that it should not prevent confirmation of the proposed scheme. 16 Finally, I should point out that APRA was represented at the confirmation hearing by Mr M Allat of the Australian Government Solicitor. Mr Allat confirmed that APRA was aware of the applications being made and did not object to them. In those circumstances and for all of the above reasons I am satisfied that the orders sought by the applicants should be made. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.