Federal Court of Australia

Asteron Life & Superannuation Limited, in the matter of Asteron Life & Superannuation Limited (No 3) [2021] FCA 1148

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 194 of the Life Insurance Act 1995 (Cth), the scheme for the transfer of all of the life insurance business of Asteron Life & Superannuation Limited (the first applicant) to TAL Life Limited (the second applicant) (Scheme) in the form of Annexure A to these orders, be confirmed without modification.

2.    The Scheme is to take effect on and from 12:01am AEST on 1 October 2021.

3.    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.

4.    Liberty to apply.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

annexure a

REASONS FOR JUDGMENT

ALLSOP CJ:

1    In this proceeding, the first applicant (Asteron) and the second applicant (TAL Life) apply under s 193 in Part 9 of the Life Insurance Act 1995 (Cth) (Act) for an order of the Court pursuant to s 194 confirming a proposed Scheme for the transfer of the life insurance business of Asteron to TAL Life. By s 190(1) of the Act, no part of a life insurance business of a life company may be transferred to another life company except under a scheme confirmed by the Court. The proposed Scheme consists of an intra-group transfer of life insurance business within the TAL Group.

2    The applicants sought interlocutory orders dispensing with the need to comply with s 191(2)(c) of the Act, which requires that every affected policy owner is to be provided with information about the proposed Scheme. At the conclusion of the dispensation hearing on 25 June 2021, I made the orders sought by the applicants and gave brief reasons for doing so: Asteron Life & Superannuation Limited, in the matter of Asteron Life & Superannuation Limited [2021] FCA 708. In those reasons I made reference to issues of principle in relation to the granting of dispensation under s 191 of the Act, which were to be dealt with, alongside more detailed reasons for dispensation, in the Court’s reasons following the confirmation hearing. I will address these issues of principle, and my reasons for dispensing with the need to comply with s 191(2)(c), in due course.

3    On 29 July 2021, I made orders varying the orders of 25 June 2021 nunc pro tunc to create an exception to those orders, or any part thereof, that were rendered impracticable by the operation of any COVID-19 public health order which restricted the movement of persons and their ability to attend their place of work. Provision was made in the orders of 29 July 2021 for the inspection of electronic scheme documents, available online. Those orders, and my brief reasons for the making of those orders, can be found in Asteron Life & Superannuation Limited, in the matter of Asteron Life & Superannuation Limited (No 2) [2021] FCA 880.

4    On 10 September 2021, the parties sought orders confirming the Scheme. For the reasons that follow, I am satisfied that the Scheme ought to be confirmed without variation.

The business of Asteron and TAL Life

5    Both Asteron and TAL Life are registered life companies under s 21 of the Act. As a result, both companies are authorised to carry on life insurance business in Australia and do so through their various statutory funds prescribed under the Act.

6    Asteron carries on various categories of life insurance business: life risk insurance business (death and terminal illness cover, total and permanent disablement cover, critical illness or trauma cover, income protection benefits resulting from sickness or accidents, and insurance riders on investment-linked business), participating and non-participating traditional (whole of life and endowment cover) business, investment management business, consumer credit insurance, lifetime deferred, allocated and immediate, annuity business, and ordinary and superannuation investment-linked business.

7    Asteron maintains two Statutory Funds and a Shareholders’ Fund within the meaning of the Act. The Asteron Statutory Fund No. 1 contains business for individual and group risk policies, participating traditional and investment account policies, lifetime immediate annuities and deferred variable income streams. The Asteron Statutory Fund No. 2 contains investment-linked superannuation and investment-linked ordinary life business.

8    TAL Life also carries on various categories of life insurance business: life risk insurance business (death and terminal illness cover, total and permanent disablement cover, critical illness or trauma cover, and income protection benefits resulting from sickness or accident); participating and non-participating traditional (whole of life and endowment cover) business; ordinary and superannuation investment-linked business; and lifetime and deferred allocated and immediate annuity business.

9    TAL Life has three statutory funds within the meaning of the Act. The TAL Statutory Fund No. 1 contains business for individual and group risk policies, participating traditional and investment account policies, non-participating traditional and investment account policies and immediate annuities. The TAL Statutory Fund No. 2 contains ordinary investment-linked policies and the TAL Statutory Fund No. 3 contains allocated annuity and allocated pension investment-linked policies. TAL Life’s business comprises of Retail, Group, Direct and Investment business units.

10    Asteron and TAL Life are both companies within the TAL Group. They share an ultimate holding company, being Dai-ichi Life Holdings, Inc, which is listed on the Tokyo Stock Exchange. The sole shareholder of Asteron is TAL Dai-ichi Life Australia Pty Limited (TDA). The sole shareholder of TAL Life is TAL Dai-ichi Life Group Pty Ltd.

11    Asteron Life was acquired by TDA from Suncorp Life Holdings Limited (Suncorp Holdings) under a share sale deed in September 2018, with the sale being completed in February 2019. Prior to the acquisition, Asteron Life was known as Suncorp Life and Superannuation Limited.

12    Since February 2019, Asteron has operated as a business unit within the TAL Group and a process of integration has taken place, which was described at [9] of the applicants’ written submissions on the dispensation hearing as follows:

a)    Asteron Life employees have been transferred from Asteron to TAL Services;

b)    support functions provided by TAL Group have been progressively introduced to support Asteron Life’s life insurance business;

c)    three systems which held policy owner information for policies issued by Asteron Life have been migrated to systems operated by TAL Life; and

d)    Asteron Life is now governed by several of the same TAL Group frameworks which apply to TAL Life including its Risk Management Framework, Risk Appetite Statement and Reinsurance Management Policy.

13    After the acquisition by TDA in 2019, Asteron closed its broker and adviser distribution channels and took a phased approach to closing its direct sales channels. It has been closed to new business since 31 August 2020. In his affidavit, Mr Lees, Chief Financial Officer of TAL Services Limited, deposed that since its acquisition in February 2019, Asteron has operated its life insurance business as a functional business unit within the TAL Group.

The current financial position of Asteron and TAL Life

14    Asteron’s Net Profit after Tax for the year ending 31 March 2021 was a loss of $218 million. Asteron has made losses in the two preceding years, being a loss of $209 million in the year ending 31 March 2020, and $13 million in the year ending 31 March 2019.

15    In his first affidavit, the Appointed Actuary of Asteron and TAL Life, Mr Corrigan, deposed that the losses incurred since TDA acquired ownership of Asteron in 2019 were anticipated at the time of the transaction, and further losses of the same nature and materiality are not expected to occur in future. Mr Corrigan deposed that, as at March 2021, Asteron was in a sound financial position, with assets in excess of the Prescribed Capital Amount of $126 million. Mr Corrigan deposed that Asteron continues to be well capitalised and positioned for future sustainability.

16    TAL Life’s Net Profit After Tax was $99 million in the year ending 31 March 2021, $98 million in the preceding year, and $188 million in the year before that. Mr Corrigan deposed that, as at 31 March 2021, TAL Life was in a sound financial position with assets in excess of the Prescribed Capital Amount of $253 million. Mr Corrigan deposed that TAL Life, too, continues to be well capitalised and positioned for future sustainability.

The proposed Scheme

17    The Scheme, which can be found at Annexure A of the orders of the Court, is based on the actuarial reports prepared by the Appointed Actuary of Asteron and TAL Life, Mr Corrigan, and the independent actuary engaged by the applicants, Mr Nicholls. Since the preparation of the two Corrigan Reports and the Nicholls Report, both actuaries have examined more recent financial information (as at June 2021) and reaffirmed the conclusions in those earlier reports.

18    The Scheme gives effect to a transfer deed under which Asteron has agreed to transfer all of its Life Business to TAL Life, subject to confirmation by the Court of the Scheme and satisfaction of certain other conditions. While both Asteron and TAL Life are managed within the same group, and thus share many processes, management of the two distinct entities within the same group increases complexity, costs, and capital for the insurance operations. The Scheme proposes to rationalise and simplify TDA’s life insurance entity structure by transferring all of Asteron’s life business to TAL Life.

19    The Scheme is to take effect on 1 October 2021 (Effective Date). The evidence discloses that by simplifying TDA’s life entity structure, costs, operational complexity, risk and capital will thereby be reduced. As a result of the foregoing, the Scheme is anticipated to provide an improved customer experience, through a greater scale, a higher level of benefit security, and improvements in reporting processes and requirements.

20    Under the proposed Scheme, the assets and liabilities of the Asteron Life Statutory Fund No. 1 become assets and liabilities of the TAL Life Statutory Fund No. 1. The assets and liabilities of the Asteron Life Statutory Fund No. 2 become assets and liabilities of the TAL Life Statutory Fund No. 2.

21    The following aspects of the Scheme are of note:

(a)    All of the life policies issued by Asteron referable to its Statutory Fund No. 1 and No. 2 immediately prior to the Effective Date will become life policies of TAL Life referable respectively to TAL Life’s Statutory Fund No.1 and No. 2 (cll 2.2 and 4.1);

(b)    The assets and liabilities of Asteron Statutory Fund No. 1 and No. 2 will be transferred to TAL Life Statutory Fund No. 1 (cl 4.2(c));

(c)    TAL Life will become the issuer of Asteron policies (cl 3.1);

(d)    The rights and liabilities of Asteron policy owners will be the same as they would have been if the applications on which their policies are based had been accepted by TAL Life instead of Asteron (cl 3.2);

(e)    TAL Life will assume all liabilities and obligations of Asteron under, or in respect of, Asteron life policies (cl 3.3);

(f)    Any person having a claim or obligation to Asteron under or in respect of an Asteron policy will have the same claim on or obligation to TAL Life, irrespective of when that claim or obligation arose (cl 3.7);

(g)    Proceedings pending in connection with an Asteron policy must be continued by or against TAL Life (cl 3.8);

(h)    TAL Life will acquire Asteron’s rights and assume its liabilities and obligations in respect of contracts in relation to its life business and reinsurance treaties entered into by Asteron as cedant (cl 3.11);

(i)    All costs associated with the Scheme will be paid by TDA and not Asteron or TAL Life policy owners (cl 6).

22    Neither the terms nor the conditions of either Asteron life policies, or TAL Life policies, will change as a result of the Scheme: cll 3.12(d) and 3.13. References to Asteron (and its statutory funds) will be replaced with references to TAL Life (and its statutory funds): cl 3.12(a).

23    By cl 5 of the Scheme, TAL Life is to maintain such policies and practices as are required to enable it to conduct the Life Business in a manner which is consistent with its legal and regulatory obligations and which satisfies the contractual rights and benefits of the Asteron Life Policy Owners. “Policies and practices” is defined by cl 5(b) to mean: the method of determining premium rates and charges; underwriting and claims management; each insurer’s capital management framework; each insurer’s risk management framework; and each insurer’s remediation programs.

24    Under the Scheme, there will be no assets or liabilities transferred to the TAL Life Statutory Fund No. 3. However, independently of the proposed Scheme and subject to the approval of the Australian Prudential Regulation Authority (APRA), TAL Life intends to transfer all assets and liabilities from the TAL Life Statutory Fund No. 3 to the TAL Life Statutory Fund No. 2 pursuant to s 52 of the Act and APRA Prudential Standard LPS 600 Statutory Funds (LPS 600). This transfer is intended to take effect on 30 September 2021, prior to the Effective Date of the proposed Scheme. TAL Life intends to terminate the TAL Life Statutory Fund No. 3 after the restructure. Much like the Scheme, the rationale for transfer is the simplification of the business structure, and the anticipated consequential reduction of costs and operational risk.

25    By a letter dated 24 June 2021, and marked Exhibit A at the dispensation hearing, APRA gave its approval under s 52 of the Act and LPS 600 to the statutory fund restructure. The actuarial evidence, to which I will turn in due course, was prepared on the assumption that APRA’s approval would be obtained, and on the basis that the restructure has occurred.

Evidence

26    In support of the interlocutory orders sought at the dispensation hearing, the applicants relied upon the following affidavits and reports:

(a)    Affidavit of David Lees, Chief Financial Officer of TAL Services Limited, sworn on 15 June 2021;

(b)    Affidavit of Anne Clarke, Chief General Counsel of the TAL Group, sworn on 23 June 2021 (First Clarke Affidavit);

(c)    Affidavit of Joshua Corrigan, appointed actuary of the applicants, affirmed on 24 June 2021 (First Corrigan Affidavit);

(d)    Report of Joshua Corrigan in his capacity as appointed actuary of TAL Life, dated 9 June 2021, as amended on 24 June 2021 (annexure JC-1 to the affidavit of Joshua Corrigan) (Corrigan TAL Report);

(e)    Report of Joshua Corrigan in his capacity as appointed actuary of Asteron, dated 9 June 2021, as amended on 24 June 2021 (annexure JC-2 to the affidavit of Joshua Corrigan) (Corrigan Asteron Report); and

(f)    Report of John Nicholls, independent actuary, dated 11 June 2021 (annexure DL-10 to the affidavit of David Lees).

27    In support of the application made to vary the orders of 25 June 2021 nunc pro tunc, in light of prevailing COVID-19 public health orders which hindered the applicants’ ability to make documents available for public inspection at certain locations, the applicants tendered an unsworn affidavit of Shan-Verne Liew on 28 July 2021 (First Liew Affidavit).

28    At the confirmation hearing, the applicants tendered and read the following further evidence:

(a)    Affidavit of Anne Clarke sworn on 3 September 2021 (Second Clarke Affidavit);

(b)    Affidavit of Shan-Verne Liew, solicitor for the applicants, affirmed on 3 September 2021 (Second Liew Affidavit);

(c)    Affidavit of Andrew Sharp, Senior Program Manager of TAL Services Limited, sworn 3 September 2021 (First Sharp Affidavit);

(d)    Affidavit of Tamanna Islam, solicitor for the applicants, sworn 3 September 2021;

(e)    Affidavit of Joshua Corrigan affirmed 3 September 2021 (Second Corrigan Affidavit);

(f)    Affidavit of John Nicholls affirmed 3 September 2021;

(g)    Affidavit of Michael Vrisakis, partner of Herbert Smith Freehills and solicitor for the applicants, sworn 9 September 2021;

(h)    Affidavit of Andrew Sharp, sworn 9 September 2021 (Second Sharpe Affidavit).

29    Mr Lees, as the Chief Financial Officer of TAL Services Limited, has overall responsibility for both of the applicants in relation to the supervision, management and implementation of the proposed Scheme. He is the chair of a steering committee to which a working group tasked with the management of the Scheme reports and, as such, he oversees the planning and implementation of that proposed Scheme. The affidavit of Mr Lees summarised the business of Asteron Life, and the business of the receiving entity, TAL Life. Mr Lees furthermore sets out the proposed Scheme, and the regime for notification of the same to affected policy owners.

30    The first affidavit Ms Clarke, the Chief General Counsel of the TAL Group, sworn on 23 June 2021, exhibited the Scheme Document, Scheme Summary and Notice of Intention. The First Clarke Affidavit also addressed the outcome of discussions with the APRA, including an expanded notification programme to affected policy owners and updated Scheme documents. Ms Clarke’s second affidavit of 3 September 2021 addressed the status of the remediation programs conducted by Asteron and TAL Life, a class action against AAI Limited and Asteron Life in relation to the sale of consumer credit insurance products, the issue identified by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) concerning TAL Life, and authorisations and regulatory approvals obtained by TAL in preparation for the proposed Scheme.

31    The first affidavit of Mr Corrigan, the appointed actuary of Asteron Life & Superannuation Limited and Tal Life Limited, affirmed on 24 June 2021, explained the nature of the clarifications and corrections made to the actuarial reports of 9 June 2021 in support of the Scheme with respect to both Asteron and TAL Life. Mr Corrigan’s second affidavit of 3 September 2021 updated the conclusions he reached in those reports of 9 June 2021 based on a review of the financial position of each entity as at 30 June 2021. In the Second Corrigan Affidavit, the Appointed Actuary in effect made annotations to his reports regarding Asteron and TAL Life to reflect whether his conclusions remained apposite in light of more recent unaudited quarterly returns submitted to APRA.

32    Mr Liew is employed by the applicants’ solicitors, Herbert Smith Freehills, and is assisting the applicants with proceedings in respect of the Scheme. Mr Liew is responsible for arranging the process by which certain documents were made available for public inspection. Mr Liew’s first affidavit supported the application to vary the orders of 25 June 2021 as a consequence of the outbreak of the Delta variant of COVID-19. Mr Liew’s second affidavit addressed the extent to which the applicants were able to make copies of the Scheme Documents available at the locations referred to in Annexure B to the orders of 25 June 2021 in light of the COVID-19 pandemic.

33    Mr Sharp is the Senior Program Manager of TAL Services Limited. TAL Services, like TAL Life and Asteron Life, is a wholly-owned subsidiary of TAL Dai-ichi Life Australia Pty Limited. Mr Sharp was tasked with the project management of the working group overseeing the proposed Scheme. The First Sharp Affidavit addressed the applicants’ compliance with the dispensation orders. The Second Sharp Affidavit addressed the further actions that the applicants undertook to continue to comply with the orders of 25 June 2021 in the intervening period between the First Sharp Affidavit and the date of the confirmation hearing.

34    Ms Islam is employed by the applicants’ solicitors, Herbert Smith Freehills, and has primary carriage of the proceedings. Ms Islam’s affidavit explained the processes undertaken by the applicants’ solicitors to provide policy owners with the relevant Scheme Documents and information regarding the confirmation hearing.

35    Mr Nicholls is an actuary and Senior Consultant at Towers Watson Australia. Mr Nicholls prepared an actuarial report dated 11 June 2021, which considered the security of policy owners’ benefits as at 31 March 2021. Mr Nicholls’ affidavit addressed the financial position of TAL Life and Asteron after 31 March 2021, following his acquisition of updated financial documents and information.

36    Mr Vrisakis is a Partner at Herbert Smith Freehills. He and his team were engaged by the applicants to act as external legal advisers in relation to the proposed Scheme. Mr Vrisakis’ affidavit addressed further developments relating to the class action in relation to the sale of consumer credit insurance products, confirming that the plaintiff in the class action proceedings would not seek to be heard at the confirmation hearing. Mr Vrisakis’ affidavit further addressed concerns raised by an additional policy owner and former employee of TAL Services Limited, and further correspondence with affected policy owners.

37    The nature and substance of this evidence will be examined more closely in due course.

The actuarial evidence

38    The Corrigan Asteron Report reviewed the basis and terms of the proposed transfer in order to identify and provide comment on the effect of that transfer on the contractual benefits, rights, benefit security, and benefit expectations of existing Asteron policy owners. For the purposes of s 191(2)(a) of the Act, the Corrigan Asteron and TAL Life Reports were actuarial reports upon which the Scheme was based.

39    Mr Nicholls was engaged by TAL Dai-Ichi Life Australia Pty Ltd on behalf of TAL Life and Asteron to review the Scheme for the proposed transfer of all of life insurance business of Asteron to TAL Life under Part 9 of the Act. The Nicholls Report was limited to assessing, and providing opinions on, the impact of the Scheme on the entitlements and reasonable benefit expectations of the policy owners of Asteron and TAL Life, and on the security of their benefits.

40    In the Corrigan Asteron Report, the Appointed Actuary set out four high level benefits which were said to be engendered by the Scheme, the first being scale. The result of the proposed transfer was said to be the creation of the largest life insurance company in Australia. The second benefit was said to be an increase in security through the diversification of insurance and asset risks, and decreased volatility due to an increase in the size of the portfolio. The third benefit was said to be a reduction in operational risk through a harmonisation and streamlining of processes, including regulatory reporting requirements. The final benefit was said to be an increase in the scale of the legacy portfolio, which would in turn provide opportunity for legacy system upgrades and product simplification.

41    In that report, Mr Corrigan concluded:

I, Joshua Corrigan, in my capacity as the Appointed Actuary of Asteron and a Fellow of the Institute of Actuaries of Australia, am of the opinion that the Proposed Transfer will not result in any unfairness to the owners of the policies referable to any of the statutory funds involved in the Proposed Transfer. Additionally, the proposed scheme will not materially prejudice the interests of owners of the policies of Asteron. Immediately after the Proposed Transfer, the transferring fund, Asteron will satisfy the prudential capital standards and remain in a sound financial position.

Specifically, regarding Asteron’s transferring policy owners:

•    the Proposed Transfer does not adversely impact the contractual benefits and rights of the transferring policy owners.

•    TAL Life’s intended basis of determining and implementing the non-contractually specified and/or discretionary aspects of the transferring policies will continue to meet the overall reasonable benefit expectations of the transferring policy owners; and

•    TAL Life will remain in a sound financial position and the transferring policy owners’ benefit security will remain adequate after the proposed transfer.

Specifically, regarding any remediation programs:

•    The Proposed Transfer from Asteron to TAL Life will not in any way affect the remediation programs outlined in section 5.5.3, and the policy owner will not be disadvantaged or inequitably treated in any way as a result of the Proposed Transfer

42    In the Corrigan TAL Life Report, Mr Corrigan, as Appointed Actuary of TAL Life, concluded that the Scheme would not result in any unfairness to the owners of the policies referable to any of the funds involved in the proposed transfer, nor would it result in any material prejudice to the interests of owners of the policies of either TAL Life or Asteron. The reasoning supporting this conclusion was expressed as follows:

In terms of the policy owners’ contractual benefits and rights

•    there is no impact to the contractual benefit and rights of the existing policy owners of TAL Life as a result of the Proposed Transfer.

In terms of the policy owners’ reasonable benefit expectations

•    there is no impact to the reasonable benefit expectations of the existing policy owners of TAL Life as a result of the Proposed Transfer.

In terms of the policy owners’ benefit security

•    each of the statutory funds of TAL Life and TAL Life as a whole will remain in a sound financial position and the existing policy owners’ benefit security will remain appropriate after the Proposed Transfer, and

•    there are no material disadvantages for the existing policy owners of TAL Life as a result of the Proposed Transfer.

43    In the Independent Actuarial Report, Mr Nicholls reached the following conclusions:

In accordance with the scope of my review, I have considered whether the Scheme properly and adequately safeguards the contractual benefits and other rights of the policy owners of Asteron and TAL Life and whether their reasonable benefit expectations or the security of their policy benefits would be adversely affected if the Scheme were implemented. My opinions are as follows:

(i)     the Scheme will not adversely affect the contractual benefits or other rights of the policy owners of Asteron or TAL Life;

(ii)     the Scheme will not adversely affect the reasonable benefit expectations of Asteron policy owners in any material respect;

(iii)     the Scheme will not adversely affect the security of Asteron policy owners’ benefits in any material respect;

(iv)     the Scheme will not adversely affect the reasonable benefit expectations of TAL Life policy owners in any material respect; and

(v)     the Scheme will not adversely affect the security of TAL Life policy owners’ benefits in any material respect.

44    Messrs Corrigan and Nicholls reached those conclusions on the basis of the evidence that follows.

Capital adequacy position

45    In the Independent Actuarial Report of Mr Nicholls, the capital adequacy position for both Asteron policy owners and TAL Life policy owners is helpfully set out in tabular form. Those tables are reproduced below. The first of the two tables summarises the relative levels of capital to the Prescribed Capital Amount (PCA) requirements as determined by APRA as at 31 March 2021, and as measured by the PCA Coverage Ratio (that is, the ratio of the capital base within a statutory fund or shareholder fund expressed as a proportion of the Prescribed Capital Amount determined under the Prudential Standards) for the existing TAL Life policy owners before and after the transfers proposed by the Scheme. The PCA is ultimately determined having regard to a range of risk factors that may adversely impact an insurer’s ability to meet its obligations. These factors include: insurance risk, insurance concentration risk, asset risk, asset concentration risk, and operational risk.

46    The second table summarises equivalent information for the transferring Asteron policy owners.

47    Prior to the proposed transfer, the PCA for Asteron’s Statutory Fund No. 1 was $162 million, and the PCA for TAL Life’s Statutory Fund No. 1 was $456 million. Following the transfer, Mr Corrigan deposed that the combined PCA for TAL Life’s Statutory Fund No. 1 would be $605 million. As a result of the Scheme, the combined PCA is, on the evidence of Mr Corrigan, anticipated to reduce by $13 million, due to a more even balance of risks. The Insurance Risk Charge is expected to reduce by $6 million due to a greater diversification of the portfolio and a reduction in random stress margins. The Asset Risk Charge is expected to reduce by $3 million again due to greater diversification. The aggregation benefit is anticipated to increase by $4 million due to an even split between insurance risk and asset risk.

Investment strategy

48    Prior to the Scheme, the investment strategies (which are governed by Asteron and TAL Life’s respective Investment Governance frameworks) have been aligned, and are thus largely consistent. Accordingly, the actuarial evidence demonstrates that there will be no material changes to the investment strategy. Asteron cash asserts supporting the liabilities and capital of Asteron statutory funds are to be combined into the larger pool of TAL Life cash assets. In combining the cash funds across the entities, the actuarial evidence suggests that policy owners will by benefitted by lower investment management fees.

Scale

49    The Scheme, if confirmed, will have the result that TAL Life is the largest writer of group life business and retail business, and the second largest writer of direct life business in Australia. It was said in the Corrigan Asteron Report that the scale of this company would yield benefits to all policy owners, through the minimisation of external costs and the ability to occupy a more competitive position in the market through associated changes in pricing. Benefits of this scale were said, in the Independent Actuarial Report of Mr Nicholls, to include opportunities for greater expense synergies arising from the larger scale of the combined business and simplification of systems and processes needed to support the business, reduced volatility of experience due to diversification benefits of the larger combined business, and lower operational risk from the simplification of systems and processes. Asteron policy owners were projected to benefit from lower pressure on costs due to the declining volume of business of Asteron as an entity which is closed to new business, by being part of a larger, amalgamated entity that will continue to issue new business.

Benefit security

50    With respect to Asteron policy owners’ benefit security, Mr Corrigan concluded that the post-transfer capital reserving levels of TAL Life’s Statutory Fund No. 1 and No. 2 would not adversely impact that benefit security. The post-transfer risk profile of TAL Life’s Statutory Fund No. 1 and No. 2 was said to positively contribute towards the transferring policy owners’ benefit security. Projected increases post-transfer to cash-flow and profitability are anticipated to positively contribute to benefit security. On the basis of the foregoing, Mr Corrigan concluded that the transferring Asteron policy owners’ benefit security would remain adequate following the transfer.

51    In the Nicholls Report, the Independent Actuary concluded that the Scheme would not adversely affect the security of Asteron policy owners’ benefits in any material respect. Mr Nicholls reached this conclusion on the basis of the anticipated benefits emerging due to the increase in scale, the ability of TAL Life’s Statutory Fund No. 1 to meet its PCA requirements following implementation of the Scheme, the ability of the Shareholder Fund to meet its PCA requirements, the expectation that TAL Life will meet its Target Operating Range capital requirements at the date of the Scheme and in the future, and the fact that there would be no material changes to investment strategies or reinsurance cover as a result of the Scheme.

52    Mr Nicholls further concluded that the Scheme would not affect the security of TAL Life policy owners’ benefits in any material respect. The Independent Actuary again reached this conclusion having regard to the anticipated benefits of increased scale and decreased capital strain, projected increase in the PCA Coverage Ratio in TAL Life’s Statutory Fund No. 1, the ability of the Shareholder Fund to meet its PCA requirements following the transfer, and the fact that there would be no material changes to investment strategies or reinsurance cover.

Operational risk

53    The Corrigan Asteron Report anticipates that, in combining the different levels of insurance risk within TAL Life’s Statutory Fund No. 1, those risks would be more diversified, which would resultantly improve policy owner security in that fund. Mr Corrigan concluded that, in the aggregate, the risk profile of the combined business would be improved as a result of increased scale, and the diversification of risk. In light of the streamlining of operational and reporting processes for a single entity, Mr Corrigan further concluded that operational risks would experience a reduction in the long term, although such risks may be heighted for both applicants for a period of time while the portfolios are integrated. This transitional risk was, however, mitigated by the gradual integration of the business which has taken place since the acquisition of Asteron in February 2019. In light of this, the additional operational risk arising from the Scheme was small, given that the transfer effected by the Scheme is a small proportion of the overall combined statutory funds.

54    Mr Corrigan did, however, note a likely increase in TAL Life’s operational risks for a period of time while Statutory Fund No. 2 and No. 3 are integrated. This additional risk was said to be minimal, in light of the fact that no system changes were being implemented to either Statutory Fund. Mr Corrigan concluded that this increase notwithstanding, TAL Life would continue to meet policy owner expectations following the proposed restructure, which was to occur independently of the Scheme.

Legacy portfolio

55    In the Corrigan Reports, the Appointed Actuary concluded that the scale of the legacy portfolio (being the Suncorp business retained after the acquisition of Asteron by TDA) would increase as a result of the transfer, which would in turn provide greater opportunity for legacy system upgrades and product simplification, resulting in an improved policy owner experience.

Reinsurance business

TAL Life’s reinsurance strategy

56    Reinsurance is managed in accordance with TDA’s Reinsurance Management Policy (RMP). The RMP sets out the reinsurance management framework which enables TAL Life to meet its obligations to policy owners and comply with regulatory requirements. The current reinsurance structure results in TAL Life reinsuring around one third of its core insurable risks of mortality and morbidity. TAL Life’s reinsurance agreements are predominately quota share with some surplus treaty arrangements. TAL Life’s single largest open reinsurance exposure is to Swiss Re International SE: this exposure is in Statutory Fund No. 1 with the exposure amounts remaining within the relevant limits prescribed by APRA Prudential Standard LPS 117 Capital Adequacy: Asset Concentration Risk Charge. A sizeable proportion of TAL Life’s recent reinsurance is done through offshore reinsurers, with measures in place to manage the credit risk associated with these arrangements.

57    TAL Life reinsures a small portfolio of group claims to Asteron life which relates to the Australian Super group scheme. This arrangement will automatically terminate on the Effective Date in accordance with the reinsurance treaty, as Asteron’s liabilities relating to this arrangement will be absorbed into TAL Life. Mr Corrigan deposed that the termination of this reinsurance arrangement will have no material impact on TAL Life policy owners in the Corrigan TAL Report. Notwithstanding the transfer of the reinsured component of this portfolio back to TAL Life, Mr Corrigan opined that there would be no policy owner impact as pricing terms and conditions were already managed on a gross of reinsurance basis.

Asteron’s reinsurance strategy

58    Asteron’s reinsurance is managed in accordance with TDA’s RMP, in much the same way as TAL Life. The current reinsurance structure results in Asteron reinsuring approximately two thirds of its core insurable risks of mortality and morbidity, and approximately one third of policy owner lapse risk. This structure also provides some relief on the capital costs of funding acquisition costs. Asteron’s single largest reinsurance exposure is Munich Re Australia, which accounts for 65% of total reinsurance premiums. None of Asteron’s reinsurers are foreign domiciled. Asteron is also the reinsurer for a small portfolio of TAL Life group claims from the Australian Super scheme. This arrangement is intended to terminate on the Effective Date with no anticipated impact on policy owners.

Reasonable benefit expectations

59    The fundamental expectation of policy owners is that they will receive their contractual benefit entitlements when due. Additionally, there are a number of areas in both Asteron and TAL Life’s life businesses which involve the exercise of a discretion by Asteron (historically) and by TAL Life (in future) which have the potential to impact policy owners’ reasonable benefit expectations. The actuarial evidence addresses the operation of such discretions in the context of: participating businesses; premium rate charges; claims handling; policy administration’ underwriting; and product improvements and investment strategy.

60    In the Corrigan Asteron Report, the Appointed Actuary considered: the consistency of policy terms and conditions prior to and following the transfer; the consistent philosophy adopted by both Asteron and TAL Life with respect to the setting of premium rates and the expectation that the policy owners’ reasonable benefit expectations will be met with regards to premium rate changes; the consistent approach to claims handling as between Asteron and TAL Life and the expectation that the policy owners’ reasonable benefit expectations will be met with respect to claims handling following the implementation of the Scheme; the expectation that Asteron policy holders will not be adversely affected by the migration of policy administration systems to TAL Life; the intended incorporation of Asteron’s underwriting practices to adopt, in time, a consistent approach to underwriting for both Asteron and TAL Life customers which is anticipated to meet the reasonable benefit expectations of the Asteron policy owners; and the expectation that product improvements will not change as a result of the Scheme. On the basis of the foregoing, Mr Corrigan concluded that Asteron’s intended basis of determining and implementing the non-contractually specified and discretionary aspects of the transferring policies will continue to meet the overall reasonable benefit expectations of the transferring policy owners.

61    The conclusions of Mr Nicholls, the Independent Actuary, largely mirrored those of Mr Corrigan in this respect. Mr Nicholls concluded that the Scheme would not adversely affect the reasonable benefit expectations of either Asteron’s or TAL Life’s participating policy owners in any material respect, on the basis that:

(a)    There were no changes proposed under the Scheme to:

(i)    The contract terms, benefit scales or premium rates of the participating business;

(ii)    The structure of participating sub-funds and pools;

(iii)    The investment strategy for the assets backing participating business;

(iv)    The principles of expense allocation amongst the different blocks of business;

(v)    The principles of profit allocation amongst the different blocks of business;

(vi)    The policy used for setting bonuses and interest credits for policies in each pool;

(vii)    The bases for determining discretionary entitlements;

(viii)    The relative profit entitlements of policy owners and shareholders; and

(ix)    Policy administration and system processes.

(b)    There were no changes proposed under the Scheme to the basis for exercising any other management discretions associated with the business;

(c)    The expenses attributable to the business were not expected to increase as a result of the Scheme;

(d)    The Scheme would not affect the ongoing remediation programs of Asteron and TAL Life nor disadvantage policy owners in any way;

(e)    All costs associated with the Scheme were to be met by TDA and therefore would not affect the policy owners’ reasonable benefit expectations.

62    Largely for the same reasons, the Independent Actuary concluded that the Scheme would not adversely impact the reasonable benefit expectations of the policy owners of other lines of business in any material respect.

Participating business

63    The Asteron Life participating business is maintained in Asteron Life Statutory Fund No. 1 in a number of sub-funds and pools. The structure of these sub-funds and pools will be retained upon transfer into TAL Life Statutory Fund No. 1, and the inherited estate and retained profits associated with each cohort will be transferred unaffected. Both the Asteron participating funds and the TAL Life participating funds will be ring-fenced, such that the assets and the policy liabilities for each of the funds will be maintained separately from the other. Bonus declaration dates across the participating business may be aligned as a means of increasing operational efficiency, however this was not expected to occasion any detriment to policy owners, as the benefit declarations are to be appropriately pro-rated for any partial payment period. Further, Mr Corrigan deposed that there would not be any additional changes to the management approach or investment strategy of the Asteron or TAL Life participating businesses as a result of the Scheme.

Premium rate changes

64    The actuarial evidence provided that Asteron and TAL Life, as entities owned by the same parent company, being TDA, follow a consistent philosophy in terms of setting premium rates. Accordingly, Messrs Corrigan and Nicholls opined that no changes were expected to result from the Scheme in this regard.

Claims handling

65    The claims handling function of Asteron was merged with that of TAL Life upon its acquisition in February 2019. Mr Corrigan’s reports provided that, as a result, efficiency in processing claims has increased.

Policy administration

66    Mr Corrigan’s two reports explained that the majority of Asteron’s administration systems would be directly transferred to TAL Life as a result of the Scheme, however no changes would be made to the systems themselves. No impact to policy owners was expected to result from the transfer of policy administration systems, and indeed no impact had been occasioned by those transfers that had already occurred following acquisition of Asteron by TDA.

Corporate culture

67    The above evidence was relied upon at the confirmation hearing by counsel for the applicants, in response to questions raised about the nature of the objections raised by the policy owners: namely, concern that the proposed Scheme would adversely affect the intangible notion of culture which informed the policy owners’ decisions to take out policies with Suncorp and Asteron, as opposed to TAL Life, in the first place. The objections of policy owners will be addressed more fully in due course. However, the notion of corporate culture is difficult to distil in actuarial evidence. This is said with the utmost respect to Messrs Corrigan and Nicholls. Potential and present policy owners often have a sense of trust or confidence in a chosen insurer, and oftentimes this assessment or value judgment is steeped in perceptions regarding the ephemeral concepts of culture, values and sometimes indefinable experience.

68    In response to these questions, counsel for the applicants submitted that notwithstanding subjective differences as to the normative criteria that make up one’s concept of culture, or company values, the actuaries did attempt to grapple with these notions by way of the foregoing. On the applicants’ submission, what might constitute the culture of a business can be characterised as being manifested by its interface with customers and consumers. Descending from this broad notion of culture to the many variegations of interface with the customer, the preservation of the reasonable benefit expectations of the applicants’ policy owners demonstrated, it was submitted, insofar as it is possible to do so, that culture, values, and philosophy generally are largely aligned as between Asteron and TAL Life.

The remediation programs

69    At the time of the confirmation hearing, both Asteron and TAL Life were each undertaking two remediation programs which were reported to ASIC. The four programs related to income protection policies and non-forfeiture loans offered under some traditional whole of life endowment products issued by each of the applicants.

Remediation in relation to income protection policy claims

70    The remediation programs were designed to be completed in two phases. The first phase, which focused on claims made under certain retail policies issued by TAL Life, was completed in May 2019. The second phase was ongoing at the time of hearing, and covered remediation for all affected claims under retail, group and direct disability income protection policies issued by Asteron Life, group disability income insurance policies issued by TAL Life, and retail disability income insurance policies issued by TAL Life which were not remediated in the first phase. Both Asteron and TAL Life intend to complete the second phase by 31 December 2021. As at 27 August 2021, Asteron had remediated approximately 46% of the affected claims. As at 19 August 2021, TAL Life had remediated approximately 50% of the affected claims under the group policy.

71    The remediation programs are overseen by both Asteron and TAL Life. The Second Clarke Affidavit stated that neither Asteron nor TAL Life intend to make any changes to the design or resourcing of the programs as a result of the Scheme. The remediation programs will continue to be administered by the same executive sponsor following the Scheme, and to be overseen and implemented by the same project team. Ms Clarke further deposed that no changes were expected to be made to the remediation methodology. Following the Scheme, TAL Life is to fund both remediation programs.

Remediation program for non-forfeiture loans

72    Both Asteron and TAL Life are each conducting a separate remediation program in relation to non-forfeiture loans offered under traditional whole of life and endowment products issued by the applicants. The applicants anticipate that the remediation program for non-forfeiture loans will be completed by 30 September 2021, prior to the Effective Date. In the event that the programs have not reached completion by the Effective Date, Ms Clarke deposed in her second affidavit that neither Asteron nor TAL Life intend to make any changes to the human and financial resourcing of the programs as a result of the Scheme, nor to the remediation methodology.

Class action

73    AAI Limited and Asteron are defendants in a class action filed by Maurice Blackburn in the Supreme Court of Victoria, relating to an add-on insurance product, branded MTAI Loan Protection Insurance. As part of the acquisition by TDA of Asteron in February 2019, both TDA and Asteron have been indemnified by Suncorp Life Holdings Limited for any loss arising from the class action, provided that each entity takes all reasonable steps to mitigate any loss. As such, Asteron has determined that the class action will not adversely impact the Scheme.

74    Indeed, in the affidavit of Mr Vrisakis it was made clear that the plaintiff in the class action would not seek to be heard at the confirmation hearing, following the receipt by Maurice Blackburn of a letter from the applicants’ solicitors confirming that the Scheme would not impact the rights of the plaintiffs in the class action proceedings. Further, the applicants confirmed that, as soon as practicable after the Scheme is to take effect, TAL Life intends to apply for substitution orders in order that it be substituted for Asteron as the second defendant in the class action proceedings.

Royal Commission

75    The Second Clarke Affidavit addresses the findings made by the Royal Commission, with respect to TAL Life’s claims handling practices, and the finding of this Court in Australian Securities and Investments Commission v TAL Life Limited (No 2) [2021] FCA 193, that TAL Life had breached its duty of utmost good faith under s 13 of the Insurance Contracts Act 1984 (Cth). Ms Clarke deposed that TAL Life has conducted remediation for affected policy owners which concluded in December 2020. Ms Clarke further deposed that she was not aware of any outstanding remediation, regulatory enforcement action, or other exposures arising from the Royal Commission with respect to either applicant.

The statutory context

76    The objects of the Life Insurance Act 1995 (Cth) are set out in s 3, and are as follows:

(1) The main objects of this Act are:

(a) 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; and

(b) to promote financial system stability in Australia.

(1A) An additional object of this Act is to protect the interests of persons entitled to other kinds of benefits provided in the course of carrying on life insurance business (including business that is declared to be life insurance business).

(2) The principal means adopted for the achievement of these objects are the following:

…

(f) providing for the supervision of transfers and amalgamations of life insurance business by the Court.

77    Section 190 of the Act is in the following terms:

(1) No part of the life insurance business of a life company may be:

(a) transferred to another life company; or

(b) amalgamated with the business of another life company;

except under a scheme confirmed by the Court.

…

(3) A scheme must set out:

(a) the terms of the agreement or deed under which the proposed transfer or amalgamation is to be carried out; and

        (b) particulars of any other arrangements necessary to give effect to the scheme.

78    Section 191 of the Act, which outlines the steps which must be taken prior to confirmation, is in the following terms:

(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.

79    Section 193 of the Act, which provides for application to the Court for confirmation of a scheme, is in the following terms:

(1) Any of the companies affected by a scheme may apply to the Court for confirmation of the scheme.

(2) An application for confirmation must be made in accordance with the regulations.

(3) APRA is entitled to be heard on an application.

80    Pursuant to s 194 of the Act, a Court may confirm a scheme without modification, confirm the scheme subject to such modifications as it thinks appropriate, or refuse to confirm the scheme. In so deciding, the Court must have regard to the interests of the policy owners affected by the scheme, any report filed with the Court pursuant to s 175 of the Act, if such a report exits, and any other matter the Court considers relevant.

81    Section 195 provides that where a scheme is confirmed, it is binding on all persons, and it has effect notwithstanding anything in the constitution of any company affected by the scheme. Where confirmation orders are made, the company must lodge a copy of the scheme at an office of ASIC in every State and Territory in which a company affected by the scheme carries or carried on business.

Dispensation

82    The object of the Act is to protect policy owners both current and prospective in a manner which is consistent with the development of a competitive and innovative life insurance industry: s 3(1). The regime under Part 9 of the Act (which provides for the supervision of the transfer or consolidation of life insurance businesses by the Court) was adopted as a means of achieving this object: Re Royal & Sun Alliance Life Assurance Ltd [2000] FCA 1259; 104 FCR 37 at [3].

83    Section 191(2)(c) 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 policy owner”. An “approved summary” means a summary approved by the APRA and “affected policy owner” means the owner of the policy that is referable to a statutory fund affected by a scheme: s 191(1).

84    Pursuant to s 191(5), the Court may dispense with the need for compliance with s 191(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.

85    Both of Asteron’s Statutory Funds are affected by the proposed Scheme. The applicants also accept that TAL Life’s Statutory Funds No. 1 and No. 2 are affected by the proposed Scheme, since they are receiving policies under the Scheme: St George Life Limited, in the matter of St George Life Limited [2018] FCA 1206 at [32]. While the TAL Life Statutory Fund No. 3 is not receiving any policies under the proposed Scheme, it will be affected by the Scheme because, assuming APRA approves, the policies referable to that Statutory Fund will be transferred to the TAL Life Statutory Fund No. 2 prior to the Effective Date.

86    Thus, the affected policy owners are the owners of policies referable to all of Asteron’s and TAL Life’s Statutory Funds. A “policy owner” is a person to whom a relevant policy has been issued, or an assignee or transferee of the rights of that person: s 10 of the Act. A person who may have rights under the policy, but is not a person to whom a relevant policy has been issued, or an assignee or transferee of the rights of that person is not a “policy owner”: The Colonial Mutual Life Assurance Society Limited, in the matter of The Colonial Mutual Life Assurance Society Limited [2020] FCA 1809 at [26]; Macquarie Life Limited, in the matter of Macquarie Life Limited [2016] FCA 973 at [22] and [27]; St George Life Limited [2018] FCA 1206 at [35].

87    The purpose of s 191(2)(c) is to give every affected policy owner a summary of the Scheme and an opportunity, if he or she wishes, to make submissions to the Court in respect of the application for confirmation of the Scheme: The Application of Commonwealth Life Limited [2003] FCA 501; 12 ANZ Insurance Cases 90-117 at [8]. In light of the object of s 191(2)(c), the granting of dispensation is a matter of considerable importance: care must be taken before the requirements of the provision are dispensed with: QBE Insurance Australia Limited, in the matter of QBE Insurance Australia Limited [2012] FCA 1127 at [16]. Dispensation is not to be granted as a matter of course.

88    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 the proposed dispensation orders: National Mutual Life Association of Australasia Limited, the application of National Mutual Life Association of Australasia Limited and AMP Life Limited [2016] FCA 1219 at [35]. That being said, the considerations which have been taken into account in the exercise of the discretion to grant dispensation include: the nature of the Scheme and whether it involves changes to the contractual entitlements and security of policy owners; evidence by the appointed and independent actuaries as to whether policy owners in respect of whom dispensation is sought will be detrimentally affected by the Scheme; the practical difficulties and costs involved in providing approved summaries of the Scheme to policy owners; the extent to which the proposed Scheme may be brought to the attention of policy owners by means other than a Scheme summary being sent to individual policy owners; whether the Scheme occasions material changes to the policy terms and conditions; and the approach of APRA to the dispensation application: see Macquarie Life Limited [2016] FCA 973 at [26].

Consideration

89    The applicants sought dispensation from the requirement to provide a Scheme summary to each individual owner of policies issued by Asteron, referable to its Statutory Funds No. 1 and No. 2, and each owner of policies issued by TAL Life, referable to its Statutory Funds No. 1, No. 2 and No. 3, provided that the steps set out in Order 2 of the orders of 25 June 2021 were complied with. The effect of the steps set out in order 2 was that an approved summary of the Scheme would be provided to all affected Asteron policy owners, other than those for whom Asteron does not hold a current mailing address. There were 4,197 such policy owners for whom the applicants did not have the current mailing address, representing 1.63% of all policy owners with policies referable to the statutory funds. The applicants thus intended to mail a copy of the Scheme summary to approximately 256,000 affected Asteron Life policy owners for whom the applicants had the current mailing address.

90    The applicants did not propose to give an approved Scheme summary to any TAL Life policy owners, instead relying on the indirect methods of notification and publication enumerated below. This was largely the result of the anticipated cost of providing summaries to the policy owners referable to the TAL Life statutory funds: the mailing and associated costs of providing each of the 848,000 policy owners with a Scheme summary was estimated to be $1,689,451. In light of these costs, and the actuarial evidence that TAL Life policy owners were not likely to be adversely affected by the proposed Scheme, the applicants sought dispensation of the requirement to provide those owners with the summary in question, citing earlier cases in which this had been done, including but not limited to: BT Life Limited, in the matter of BT Life Limited [2011] FCA 1100 at [18]; Colonial Mutual Life [2020] FCA 1809 at [34].

91    The applicants’ suggested course in relation to the TAL Life policy owners (being the policy owners referable to the receiving funds) has become commonplace among applicants seeking confirmation of schemes under Part 9. This is especially so where those policy owners experience no change in their relationship with the insurer, where the statutory funds to which their policies are referable remain intact, and the interests of those policy owners are not materially prejudiced by the Scheme. See, for example: Colonial Mutual Life [2020] FCA 1809 at [29] and [34]; St George Life [2018] FCA 1206 at [40]–[41]; National Mutual Life [2016] FCA 1219 at [37]–[42]; Commonwealth Life [2003] FCA 501 at [8]–[13]. The course should not be viewed as always appropriate.

The form of dispensation orders

92    The steps to be taken by the applicants under dispensation order 2 were as follows:

(a)    On or shortly after 8 July 2021, a Notice of Intention to make the application to the Court for confirmation of the Scheme, the form of which has been approved by APRA, was to be published in the Commonwealth Government Notices Gazette, The Sydney Morning Herald, The Daily Telegraph, The Courier Mail, The Advertiser, The Age, The Herald Sun, The West Australian, The Mercury, The Examiner, The Canberra Times, The Northern Territory News, The Australian Financial Review and The Australian. A number of these publications were inserted into the order at the Court’s direction, in order to ensure that notification adequately reached a number of diverse demographics.

(b)    From or shortly after 9 July 2021, a copy of the Scheme, the Scheme Summary, the Notice of Intention and the actuarial reports of Messrs Corrigan and Nicholls (together, the Scheme Documents), were to be published for viewing and download.

(c)    From on or shortly after 9 July 2021, up to and including the Effective Time, links to the Scheme Documents were to be included on the following webpages on the “Asteron Life” and “TAL Life” branded websites of TAL Dai-ichi Life Australia Pty Limited: www.asteronlife.com.au/scheme-transfer (Asteron Life Website); and www.tal.com.au/scheme-transfer (TAL Life Website).

(d)    From 8 July 2021 until the date of the confirmation hearing of the Scheme, a dedicated email address was to be established to receive enquiries about the Scheme.

(e)    A copy of the approved Scheme Summary was to be mailed to the postal addresses of all affected Asteron policy owners whose contact information is held in Asteron’s systems.

(f)    For mail which was returned undelivered, a returned mail procedure was to be followed.

(g)    Persons who became affected Asteron policy owners from 11 June 2021 up to the Effective Date were to be sent a copy of the Scheme Summary by regular post.

(h)    From 8 July 2021 up to the date of the confirmation hearing for the Scheme, a call centre was to be established to handle calls about the Scheme, with a dedicated toll free phone number (1800 316 355).

(i)    Call centre staff were to receive training on how to handle calls relating to the Scheme.

(j)    From 16 July 2021 up to the date of the confirmation hearing, the applicants were to provide a copy of the Scheme Documents upon request to affected Asteron and TAL Life policy owners free of charge.

(k)    A general overview of the Scheme and the Scheme Documents was to be provided to the trustees of registrable superannuation entities who are TAL Life policy owners.

(l)    A general overview of the Scheme and the Scheme Documents was to be provided to financial advisors, brokers and financial advice licensees on a distribution list maintained by Asteron and TAL Life.

(m)    From 9 July 2021, a short notification about the Scheme, including information about how affected policy owners can obtain further information, was to be published through social medial channels maintained by Asteron and TAL Life, including their respective Facebook pages, the TAL Life LinkedIn page and the TAL Life Twitter feed.

(n)    From 23 July 2021 to 20 August 2021, the Scheme Documents were to be available for public inspection from 9:00am to 5:00pm (excluding public holidays) at the offices of the applicants’ solicitors in New South Wales, Queensland, Victoria and Western Australia, and the offices of King & Wood Mallesons in Canberra, DMAW Lawyers in South Australia, HWL Ebsworth in the Northern Territory and Dobson Mitchell Allport Lawyers in Tasmania except insofar as doing so would be rendered impracticable because any such location was situated in an area affected by a public health order made in response to the COVID-19 pandemic.

(o)    From 28 July 2021 until the date of the confirmation hearing, notification was to be published on the Asteron Life Website and the TAL Life Website, the social media channels referred to in (m) which provided that certain locations for public inspection of the Scheme Documents were closed by reason of a COVID-19 public health order, and that policy owners could contact the call centre, dedicated email address, or complete a webform available online in order to obtain a hard copy of the Scheme Documents.

The submissions on dispensation

93    In their written submissions on the dispensation hearing at [36(a)], the applicants also stated that they intended to provide notification of the proposed Scheme to industry partners such as researchers, consultants and analysts with whom the applicants have an existing commercial relationship by publishing a media release on TAL Life’s website.

94    Despite the fact that persons who merely have a benefit of insurance are not “affected policy owners”, the applicants contacted superannuation trustees who hold a group policy to arrange for significant event notices under s 1017B of the Corporations Act 2001 (Cth) to be issued to inform fund members of the proposed Scheme. The applicants further contacted policy administrators for corporate employers to arrange for the administrator to notify employees and intend to send emails to advisors of corporate employers to inform them of the proposed Scheme.

95    In their written submissions on dispensation the applicants submitted that the procedures for notification and publication set out above would be likely to result in the notification of a sufficiently large number of affected policy owners to bring forward any objection to the Scheme based on any viable objective grounds: National Mutual Life [2016] FCA 1219 at [42]; Colonial Mutual Life [2020] FCA 1809 at [35].

Conclusions on dispensation

96    In this case, the indicia which inform an exercise of the discretion to dispense with the requirements of s 191(2)(c), as I set them out in Macquarie Life Limited at [26], and as developed by Gleeson J in National Mutual Life Association of Australasia Limited [2016] FCA 1219 at [34]–[35], supported dispensation. Here, the proposed transfer of business is via an intragroup scheme that will not result in any changes to the terms and conditions of the life policies for any of the policy owners. The contractual benefits or entitlements of the policy owners are unchanged by the Scheme. The TAL Life Statutory Funds will remain intact. The actuarial evidence established that the policy owners in respect of whom dispensation was sought will not be adversely affected by the Scheme. And indeed, the Scheme was able to be brought to the notice of those policy owners by other means than sending the Scheme out to each individually. The notification regime was such that a sufficiently large number of affected policy owners would be provided with a meaningful opportunity to bring forward any viable objections to the Scheme.

97    In determining whether to make the dispensation orders sought pursuant to s 191(5), the position of APRA, as the relevant regulatory body, is a relevant and highly persuasive consideration: National Mutual Life [2016] FCA 1219 at [4]. In their written submissions at [66]–[69] the applicants set out the consultative process between Asteron and TAL Life, on the one hand, and APRA, on the other, throughout the preparation of the Scheme. APRA was provided with drafts of all of the relevant documentation, including the Actuarial Reports prepared by Messrs Corrigan and Nicholls. The applicants have further consulted with APRA regarding the approach to notifying the policy owners of the Scheme and the form of proposed orders for dispensation. At the dispensation hearing on 25 June 2021, APRA did not object to the orders sought and confirmed that the orders were developed happily in consultation with APRA, in which process of consultation additional provisions regarding consultation and notification were agreed between the applicants and APRA.

98    It was by virtue of the foregoing that I made orders dispensing with the requirements of s 191(2)(c) on 25 June 2021, varied nunc pro tunc on 29 July 2021: dispensation was not granted as a matter of course, but rather on the basis of my satisfaction that the object of s 191 was fulfilled in this case. The terms of Order 2 of the orders of 25 June 2021 were such that all affected policy owners were, in effect, given sufficient information regarding the nature of the Scheme and the opportunity to be heard, such that the opportunity in question was real and meaningful.

Compliance with dispensation orders

99    The affidavit of Mr Sharp addressed the applicants’ compliance with the orders of 25 June 2021. The first and second affidavits of Mr Liew set out the difficulties experienced in complying with Order 2(n) in the context of an ongoing pandemic, and the extent to which the applicants were able to comply with that order.

Publication of the notice of intention

100    Pursuant to Order 2(a) of the orders of 25 June 2021, on 8 July 2021 the applicants published a copy of the approved Notice of Intention in the Commonwealth Government Notices Gazette, and the publications listed in Annexure C to those orders, being:

(a)    In New South Wales: The Sydney Morning Herald and The Daily Telegraph;

(b)    In Queensland: The Courier Mail;

(c)    In South Australia: The Advertiser;

(d)    In Victoria: The Age and the Herald Sun;

(e)    In Western Australia: The West Australian

(f)    In Tasmania: The Mercury and The Examiner;

(g)    In the Australian Capital Territory: The Canberra Times;

(h)    In the Northern Territory: The Northern Territory News; and

(i)    Nationally: The Australian and The Australian Financial Review.

101    The terms of Order 2(a) were that the Notice of Intention was to be published in the “company announcements” section of the above publications. Insofar as the publication had no “company announcements” section, the applicants published the Notice of Intention in the most closely related section. This was the first instance of potential noncompliance identified by counsel for the applicants in oral submissions. It was submitted, however, that this was of no substance: Order 2(a)(ii) was said to be substantially complied with. I accept that submission: the publication of the Notice of Intention in the section of the relevant publication most closely resembling the “company announcements” section is a matter of form, not substance.

Publication of the Scheme Documents electronically

102    Pursuant to Order 2(a), (c) and (o) of the orders of 25 June 2021, the Scheme Documents were to be made available on the Asteron Life and TAL Life branded webpages for viewing and download. Those websites went live on 9 July 2021, wherein the Notice of Intention, Scheme document, Scheme Summary, Corrigan TAL Report, Corrigan Asteron Report, and the Nicholls Report were all available to view and download. As of 27 August 2021, the Scheme Websites had collectively been visited 521 times.

103    In compliance with Order 2(o), notification was published on the Scheme Websites and social media channels reflecting the closure of public inspection locations due to COVID-19 related restrictions. Order 2(o) further required that those channels refer to the alternative mechanisms for obtaining and inspecting a copy of the Scheme Documents, being: the call centre, the dedicated email address, or by completing a web form available on the webpages, in addition to downloading an electronic copy of the Scheme Documents via the Scheme Websites. The first affidavit of Mr Sharp identified one instance of non-compliance: following the lockdown imposed in the Northern Territory, the Scheme Websites were not updated due to an oversight in arranging for the change to be made prior to the conclusion of the public inspection period. I do not take the view that this non-compliance was in any way substantial, nor that it was of a kind that would affect the Court’s exercise of discretion to confirm the Scheme.

104    Furthermore, in oral submissions, a further instance of technical non-compliance emerged, namely that the notification of COVID-19 related closure of public inspection sites neglected to mention the call centre, the dedicated email, or the web form as alternative mechanisms for obtaining the Scheme Documents. Rather (and in some circumstances as a result of the meagre word limit imposed by the social media channels) the notification published on those channels simply contained a link to the webpage. The webpage that was linked, which was provided to the Court in the form of a screenshot annexed to the First Sharp Affidavit, did make mention of the call centre, the dedicated email address and the web form. It was submitted on this basis that, notwithstanding the omissions in the social media notifications, Order 2(o) was substantially complied with insofar as the website to which the social media channels directed policy owners did make mention of the call centre, dedicated email and web form. I accept this submission: again, any non-compliance was a matter of form, rather than substance.

Public inspection of the Scheme Documents

105    Pursuant to Order 2(n) of the orders of 25 June 2021, documents were to be made available for public inspection at a specific location in each State and Territory. Order 2(n) was varied nunc pro tunc by the Court on 29 July 2021 to dispense with this requirement insofar as prevailing public health orders rendered it impracticable. According to the second affidavit of Mr Liew, the public inspection of the Scheme Documents was affected by COVID-19 related restrictions as follows:

106    In light of the orders of 29 July 2021, the closure of these public inspection sites does not raise any issues of non-compliance.

Dedicated email address and phone number

107    Order 2(d), (h) and (i) required that the applicants establish a dedicated email address (schemesupport@tal.com.au) and a toll free contact number (1800 316 355) that were to be attended by staff of TAL Services. In Mr Sharp’s affidavit, he confirmed that TAL Services staff were provided with training on how to approach communications from policy owners in relation to the proposed Scheme. A number of training modules were provided to these staff members. The dedicated email address and toll free phone number became operational from 8 July 2021. Between that date and 26 August 2021, the applicants received 788 telephone calls relating to the Scheme, and 24 emails were sent to the dedicated email address. The subject matter of these calls w largely requests for the Scheme Documents, general queries as to the nature of the Scheme, and 37 objections to the proposed scheme, the details of which are addressed below.

Postage of Scheme Documents on request

108    Pursuant to Order 2(j), the applicants were required to mail the Scheme Documents to those policy owners who requested them. Between 8 July 2021 and 26 August 2021, the applicants received 27 requests for copies of the Scheme Documents to be posted to the policy owners’ addresses. Mr Sharp stated in his affidavit that he arranged for a copy of the Documents to be posted to any person who made such a request, free of charge, and as soon as reasonably practicable.

Mail out of Scheme Documents

109    Pursuant to Orders 2(e), (f), and (g) of the orders of 25 June 2021, Mr Sharp provided in his affidavit that he arranged for a third party vendor to send by regular pre-paid post a copy of the Scheme Summary to each holder of an Asteron policy for whom the applicants held a postal address. The applicants provided the vendor with the mailing addresses of 249,086 policy owners. The letters were sent on 22 July 2021. As of 26 August 2921, the applicants received 3,605 letters which were returned undelivered. Address checks were conducted for these returned letters in accordance with the procedure described in the affidavit of Mr Lees. Through this procedure, the postal or email addresses of 639 policy owners were identified, and the Scheme Summary sent to these policy owners by either mail or email. In total, a copy of the Scheme Summary remained returned and undeliverable to 1.2% of the policy owners who were posted the Summary.

110    From 11 June 2021 to 26 August 2021, 56 persons acquired ownership of an Asteron Life policy. Each of these additional policy owners were sent by regular pre-paid post a copy of the Scheme Summary. As at 26 August 2021 none of these letters were returned undeliverable.

Notification to superannuation trustees and other stakeholders

111    Pursuant to Order 2(k) of the orders of 25 June 2021, Mr Sharp arranged for the identification of the trustees of registrable superannuation entities who were TAL Life policy owners. In so doing, Mr Sharp was able to identify 26 trustees of registrable superannuation entities who were TAL Life policy owners, who were notified of the Scheme in accordance with Order 2(k). Pursuant to Order 2(l), the applicants were to utilise their distribution list, comprising of financial advisers, brokers, financial advice licensees and other corporate partners, to send a general overview of the proposed Scheme and links to the Scheme Documents to those stakeholders. The applicants did so, sending the Scheme Documents via email to 14,909 financial advisers, brokers and financial advice licensees on the distribution list. 1,770 of these emails were undeliverable.

Social media notifications

112    Order 2(m) of the orders of 25 June 2021 provided that a notification of the proposed Scheme was to be published on the Facebook pages operated by Asteron and TAL Life, the LinkedIn page operated by TAL Life, and the Twitter feed operated by TAL Life. These notifications were published on 9 July 2021. Collectively, these social media channels were viewed 15,696 times.

113    The social media channels also provided updated notifications regarding the public inspection process in light of COVID-19 public health orders. These updates were first published on 28 July 2021 in accordance with Order 2(o).

Notification of reinsurers

114    While not expressly provided for in the orders of 25 June 2021, the applicants arranged to give notice of the Scheme to each of the six reinsurers party to a reinsurance agreement under which Asteron is a cedant. In the First Sharp Affidavit, Mr Sharp makes clear, albeit in conclusory terms, that notification was given to each of those reinsurers and that each had acknowledged receipt. These communications were not provided to the Court, however it emerged in oral argument that the correspondence was provided to APRA, so that the Authority could satisfy itself that those reinsurance arrangements had been made.

Conclusions on compliance with dispensation orders

115    Counsel for the applicants submitted that there has been substantial compliance with the orders of 25 June 2021. Any occasions of strict non-compliance were not said to have adversely affected policy owners in any material way, and, it was submitted, did not amount to non-compliance of a nature that would affect the Court’s exercise of discretion to confirm the Scheme. I accept these submissions. In each instance of technical non-compliance I find that such non-compliance was of such a nature so as not to affect the exercise of my discretion to confirm the Scheme.

Policy owner objections

116    Mr Sharp gave evidence that the applicants had received 37 objections to the proposed Scheme at the date of his first affidavit. The nature of these objections may be summarised as follows:

(a)    Twelve policy owners objected on the basis that they did not want any change to the issuer of their life insurance policy;

(b)    Eight policy owners objected to the transfer of their life insurance policy to a non-Australian company, with three of those policy owners expressing concern that such a transfer would occasion changes to their policy terms, or with respect to the quality of the customer service;

(c)    Four policy owners objected to the transfer of their life insurance policy to a Japanese company;

(d)    Seven policy owners objected to TAL Life or Dai-ichi Life becoming their insurer. Three of these policy owners referred to negative prior experience with TAL Life;

(e)    Four policy owners objected on the basis that they did not want the terms of their life insurance policy, or the customer service under that policy, to change; and

(f)    Two policy owners stated that they had objections to the Scheme but omitted to give reasons for that objection.

117    Of these 37 policy owners, six requested that their policy be cancelled in light of the Scheme.

118    The Court was informed that two policy owners intended to be heard at the confirmation hearing. Neither of these two policy owners appeared. With respect to one of these policy owners, however, the nature of his objections were helpfully set out in the affidavit of Ms Islam. The policy owner in question sought a written guarantee that the terms of his policy would not change as a result of the Scheme. He expressed concerns that TAL Life would be in a position to unilaterally make changes to, or cancel, his policy upon confirmation of the Scheme. In anticipation of this objection, counsel for the applicants submitted in writing that, by cl 3.12(d) of the scheme, the terms and conditions of Asteron policies would not change as a result of the Scheme. Further, TAL Life’s entitlement, if any, to cancel or alter the policy would be the same (and no greater than) that of Asteron in respect of the policy by the operation of cl 3.5 of the Scheme. These responses are valid and I accept these submissions. The nature of the objections of the second policy owner were not expressed to the solicitors for the applicants.

119    A further policy owner provided the Court with a written statement, which sought recognition that a particular document, being a Statement of Advice, was to be honoured by TAL Life. The Statement of Advice that was referred to contained financial advice designed to comply with the requirements of Division 3 Part 7.7 of the Corporations Act 2001 (Cth). The affidavit of Mr Vrisakis revealed, however, that Asteron did not issue the Statement of Advice to the policy owner in question, but rather, the Statement was issued by Suncorp Financial Services. Counsel for the applicants submitted orally at the confirmation hearing that such statements of advice do not form part of an insurer’s policy documents. That being so, it was submitted that there was no warrant to expressly include the Statement of Advice in the Scheme Document. In light of the terms of the Scheme Document, which provide for the assumption by TAL Life of all of Asteron’s liabilities in respect of statements of advice issued by third parties in connection with the policies it issued in carrying out its life insurance business, counsel for the applicants submitted that the concerns that generally emanated from that policy owner’s statement were adequately protected by the Scheme. This was so notwithstanding the rejection of his requests specific to the Statement of Advice. I accept these submissions.

120    With respect to the objections concerning the transfer of the life insurance policies to a non-Australian company, or to a Japanese company, counsel for the applicants submitted that, in the circumstances, such objections do not constitute a proper basis for confirming the Scheme. This was so, it was submitted, for five reasons.

121    First, it was submitted that the discretion to confirm a scheme of this kind is to be exercised having regard to the interests of policy owners: those interests are not necessarily synonymous or identical with their preferences: National Mutual Life Association of Australasia Limited v Challenger Life No 2 Ltd [2009] FCA 1 at [23]. The actuarial evidence did not show that the Scheme will be prejudicial to those interests. However, it ought to be recognised that preferences such as these do underpin a policy owner’s decision to procure a particular policy. It is not to be gainsaid that the transfer of a life insurance business to a company which operates in a manner inimical to those interests would be a frustrating and disappointing experience for policy owners who chose their erstwhile insurance providers based precisely on those preferences. Indeed, the frustration that may so understandably be felt by policy owners in these circumstances was eloquently outlined by Stone J in National Mutual Life [2009] FCA 1 at [22].

122    Secondly, it was submitted that the transfer to be effected by the Scheme has been the subject of a number of government approvals. Approval was obtained from the Treasurer by TDA to acquire 100% of the shares in Asteron in accordance with the national interest test in s 14(1) of the Financial Sector (Shareholdings) Act 1998 (Cth). Furthermore, APRA, as a delegate of the Treasurer, gave approval under the Insurance Acquisitions and Takeovers Act 1991 (Cth), notably s 41(1) of that Act, which in effect confirmed that the Treasurer had no objection to the Scheme, nor considered that it would be contrary to the public interest for TAL Life to acquire the life assets of Asteron by means of the Scheme.

123    Thirdly, it was submitted that the TAL Group employs approximately 2,100 people as part of its Australian operations, and that fourthly, the distribution of profits of a statutory fund is governed by the provisions in Part 4, Division 6 of the Act. Fifthly, it was submitted that, since February 2019 and the completion of the sale of the shares of Asteron to TDA, Asteron’s ultimate holding company has been domiciled in Japan, and would continue to be so domiciled irrespective of whether the Scheme is confirmed.

124    I accept these submissions.

The position of APRA

125    APRA made no objection to the Scheme at the confirmation hearing. Indeed, the applicants submitted that APRA played an active role in the preparation of the Scheme, and in the proceedings relating thereto. APRA has closely monitored the Scheme documents, and the actuarial reports upon which those documents were based. Further, APRA did not exercise its power to require a report from an independent actuary pursuant to s 192 of the Act. In these circumstances, counsel for the applicants submitted that, at least in the absence of evidence to the contrary, the Court is entitled to assume that APRA is satisfied on all the material that there is sufficient evidence to conclude that the policy owners will not be adversely affected by the Scheme. I accept this submission.

Principles applicable to confirmation

126    Pursuant to s 194 of the Act, the Court has a genuine discretion to confirm the Scheme, with or without modification, or to refuse to confirm the Scheme. Like dispensation of the requirements under s 191(2)(c), confirmation under s 194 is not a matter of course, nor a mere formality: Colonial Mutual Life Assurance Society Limited, in the matter of the Colonial Mutual Life Assurance Society Limited [2021] FCA 394 at [27]; MLC Lifetime Company Limited and MLC Limited (No 2) [2006] FCA 1367 at [5].

127    Of primary importance in exercising this discretion is the object of the Act: to safeguard the interests of policy owners: NULIFE Insurance Ltd v Norwich Union Life Australia Ltd [2005] FCA 1635 at [24].

128    In exercising its discretion pursuant to s 194 of the Act, the Court is to have regard to the two dimensions of the protection of policy owners’ interests, being the procedural dimension and the substantive dimension: Re Commonwealth Insurance Holdings Ltd [2007] FCA 1012 at [13]. Considerations relevant to the procedural dimension are the requirements of the Act and the Life Insurance Regulations 1995 (Cth) (Regulations), including any orders of the Court made pursuant to s 191(5) of the Act. Considerations relevant to the substantive dimension include prejudice to the interests of the policy owners; that those policy owners are property safeguarded and will not experience material detriment as a result of the Scheme: NULIFE [2005] FCA 1635 at [24].

129    The question as to whether policy owners will be adversely affected by the Scheme is largely actuarial: 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, and as they would stand following the implementation of that Scheme: Re Commonwealth Insurance Holdings [2007] FCA 1012 at [14]. It ought to be noted, however, that actuarial evidence and projections are oftentimes ill-suited and awkward mechanisms for the expression and quantification of the frustration, and perhaps even resentment, that result from the non-consensual transfer of one’s policy to an insurer for which one may feel no trust, nor affection, nor loyalty. These somatic considerations bear upon a consumer’s decision to take out a life insurance policy with a particular provider, yet they fall outside of the somewhat clinical terms of Part 9 of the Act. It ought to be queried whether this should be so.

Disposition

130    I am satisfied that the procedural considerations that inform the exercise of this Court’s discretion pursuant to s 194 point in favour of orders confirming the Scheme: the applicants have diligently adhered to the terms and requirements of the Act, and the Regulations. Any instances of non-compliance with the orders of 25 June 2021 could only be so characterised in a strict or technical sense: there was, at all times, substantial compliance with those orders, which exceeded what was required of the applicants under the Regulations.

131    Further, I am satisfied in an actuarial sense that the Scheme will not occasion material detriment to the policy owners. I am satisfied that the earlier-discussed actuarial evidence, which I accept, reveals that the policy owners’ benefit security will be positively affected by the Scheme, and that cl 5 of the Scheme adequately safeguards the reasonable benefit expectations of those policy owners. Insofar as culture, or corporate values, can be pinned down in verbal formulations, cl 5 adequately protects those intangible concepts. The benefits, rights, claims, liabilities and obligations of both Asteron and TAL Life policy owners are protected by the Scheme, and will not be prejudiced by the implementation of such Scheme.

132    Accordingly, the Court orders that the Scheme be confirmed without variation.

Associate:

Dated:    24 September 2021