Federal Court of Australia

Professional Insurance Australia Pty Ltd, in the matter of Professional Insurance Australia Pty Ltd [2022] FCA 422

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 17F(1) of the Insurance Act 1973 (Cth) (“Act”), the Scheme proposed by the Applicants in the form of the document annexed to these orders and marked “A”, in relation to the transfer of the medical malpractice insurance portfolio issued by the First Applicant (as general insurer under the regime governed by the Act) to the Second Applicant, be confirmed.

2.    Pursuant to s 17F(2) of the Act, all reinsurance treaties and agreements entered into by the First Applicant as reinsured, are assigned to the Second Applicant as valid, effective and continuing agreements between the Second Applicant and the parties (other than the First Applicant) to the reinsurance treaties and agreements.

3.    Pursuant to s 17F(2) of the Act, the Second Applicant:

(a)    be bound by;

(b)    perform the obligations under;

(c)    be entitled to the benefits of and to take action under; and

(d)    assume any obligations and liabilities in respect of and relating to any matter arising out of,

the reinsurance treaties and agreements referred to in order 2 above as if it were a party, and at all times had been a party, to such reinsurance treaties and agreements in the place of the First Applicant.

4.    Pursuant to s 17F(2) of the Act, the First Applicant is released from all obligations and liabilities under the reinsurance treaties and agreements referred to in order 2 above.

5.    The Transfer Time for the purposes of the Scheme referred to in order 1 is 4:00pm on 13 April 2022.

6.    The Applicants pay the Australian Prudential Regulation Authority’s costs of the application.

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

REASONS FOR JUDGMENT

JAGOT J:

1    This is an application seeking an order under s 17F(1) of the Insurance Act 1973 (Cth) (Act) confirming the proposed scheme by which the insurance business of Professional Insurance Australia Pty Ltd (PIA) will be transferred to Avant Insurance Ltd (Avant). The application also seeks related orders in relation to re-insurance agreements entered into by PIA.

2    I have had the benefit of detailed written submissions filed on behalf of the applicants. I accept those submissions.

3    PIA is an Australian general insurance company which conducts a run-off general insurance business under the Act. Avant is an Australian general insurance company which primarily writes medical indemnity insurance policies.

4    Between 1997 and July 2003, PIA wrote medical malpractice insurance policies issued to five medical defence associations.

5    In 2013, PIA entered into a commutation and release deed with three of those medical defence associations which released PIA from claims arising from those policies which PIA had issued to those associations. As a result, PIA now remains the insurer under policies issued to only two medical defence associations, the Medical Defence Association of South Australia Ltd (MDASA), and the Medical Defence Association of Victoria Ltd (MDAV). The last time a claim was notified under those policies was in June 2003, and the last open claim under those policies was closed in early 2007.

6    MDAV is part of the same corporate group as Avant and PIA which all have the same ultimate holding company, Avant Mutual Group Ltd (AMGL).

7    The reason for the proposed scheme has been identified as follows:

(1)    PIA ceased to write new medical malpractice insurance policies and commenced an orderly run-off of its liabilities in July 2003;

(2)    PIA currently has no open claims and no premium liabilities. The last time a new claim was notified to PIA was in June 2003. This claim was settled in August 2003. The last open claim was closed in early 2017. This claim was notified in 1997/98 and settled in September 2016;

(3)    since 2010, when PIA became a member of the Avant Mutual Group, a team within the Avant Mutual Group has been administering and managing the existing insurance policies and running off liabilities of PIA on PIA’s behalf; and

(4)    transferring PIA’s business to Avant is expected to simplify financial and administrative processes and to streamline the claims management process within the Avant Mutual Group.

8    Based on a consideration of financial security policy terms and conditions, claims management and operations, the independent actuary engaged by the applicants to prepare an actuarial report in connection with the scheme (Mr Jefferson Gibbs of KPMG Financial Services Consulting Pty Ltd) concluded that the proposed scheme does not adversely impact the interests of the policy holders of PIA or Avant.

9    Section 17C of the Act is in these terms:

17C  Steps to be taken before application for confirmation

(1) In this section:

affected policyholder means the holder of a policy 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 prudential standards; and

(b) notice of intention to make the application has been published by the applicant in accordance with the prudential standards; and

(c) an approved summary of the scheme has been given to every affected policyholder.

(3) Without limiting the provision that may be made by the prudential standards for the purposes of paragraph (2)(b), the notice referred to in that paragraph must include, in relation to each body corporate affected by the scheme, details of the place and time at which an affected policyholder may obtain a copy of the scheme.

(4) An affected policyholder is entitled, on the person’s request, to be provided by the company with one copy of the scheme free of charge.

(5) The Federal 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.

10    The requirements of s 17C(2) have been satisfied. Drafts of the proposed scheme and actuarial report were provided to APRA. In March 2022 APRA indicated that it had no further comments on either the scheme or the actuarial report. On 16 March 2022 PIA and Avant provided final copies of those documents to APRA. Accordingly, s 17C(2)(a) of the Act has been satisfied.

11    Section 17C(2)(b) of the Act requires notice of intention to make the application to be published in accordance with the relevant prudential standards. The relevant prudential standard is Prudential Standard GPS410: Transfer and Amalgamation of Insurance Business for General Insurers, and, particularly paragraphs 7 to 11 relating to publication requirements. Those requirements have been satisfied in that, on 17 March 2022, APRA approved the scheme summary, the form of the notice of intention, the proposed publication of the notice of intention in the Sydney Morning Herald in New South Wales, and the advertisement in South Australia and the specified locations for the inspection of the scheme. On 18 March 2022, the notice of intention was published in the approved form as required. It follows that s 17C(2)(b) has also been satisfied.

12    In relation to s 17C(2)(c) of the Act, the applicants caused the approved summary of the scheme to be sent to MDASA and MDAV by email and courier. Neither has indicated any opposition to the scheme.

13    The applicants and APRA have considered the statutory requirement that an affected policy holder be notified of the scheme and provided with the approved summary. In their written submissions the applicants examine whether the only affected policy holders are MDAV and MDASA, rather than members of MDAV or MDASA. The written submissions refer to the relevant authorities relating to the concept of an “affected policy holder”. Those authorities include Re WR Berkley Insurance (Europe) Limited [2016] FCA 374 at [17], Re Insurance Australia Limited [2016] FCA 1387 at [36], and Re Axis Specialty Europe SE (Australia Branch) [2016] FCA 1594 at [33]. It is sufficient to observe that, in the present case, under the transferring policies, PIA has not agreed to provide cover to medical professionals or those with claims against such professionals. Rather, the policies provide for PIA to indemnify MDASA and MDAV in respect of those associations’ own grants of indemnity or assistance to their members. In these circumstances, I accept that the affected policy holders (defined in s 17C(1) of the Act as “the holder of a policy affected by a scheme”) are MDASA and MDAV and not the members of those associations. It follows that there is no need in this case for any dispensation order under s 17C(5) of the Act from the obligation to give the scheme to persons other than MDASA and MDAV. APRA agrees with this position.

14    In terms of s 17C(3) of the Act, the relevant provision is set out in paragraph 16 of GPS410. The evidence confirms that APRA has approved locations for the inspection of the scheme and that those locations were available for inspection of the scheme as required. It follows that this requirement has been satisfied.

15    The written submissions for the applicants also confirm that the condition in the scheme (of the grant of all necessary approvals and consents required under the Insurance Acquisitions and Takeovers Act 1991 (Cth)) has been satisfied by the notice of a “go-ahead decision” under s 41(1) of that Act, issued on 17 March 2022. That notice is conditional only upon confirmation of the scheme by this Court.

16    The relevant discretion to confirm the scheme is set out in s 17F(1A) of the Act. Section 17F(1A) provides that in deciding whether to confirm a scheme (with or without modifications), the Court must have regard to (a) the interests of the policyholders of a body corporate affected by the scheme, (b) if a report relevant to all or part of the scheme has been filed with the Court under s 62ZI – that report, and (c) any other matter the Court considers relevant.

17    Again, the written submissions for the applicants have identified the relevant principles.

18    In Re Swiss Reinsurance Company Ltd (No 2) [2019] FCA 2042; (2019) 140 ACSR 597 at [19] Allsop CJ said:

It is well-accepted that the Court is to look to the interests of the relevant policyholders of both the transferor and transferee insurers and consider whether implementation of the scheme will detrimentally affect them in a material way: see, for example, Re MDU Australian Insurance Co Pty Ltd [2008] FCA 490 at [7] per Emmett J; Re Westport Insurance Corporation (No 2) (2009) 181 FCR 530; [2009] FCA 1598 at [32] per Lindgren J.

19    The scheme in this case includes the following key features:

(1)    all assets of PIA (save for $5 million which is to be retained by PIA at APRA’s request in order to meet minimum capital requirements under Prudential Standard GPS110), including rights under the “Transferring Policies”, are to be transferred to Avant: clause 3.1;

(2)    all liabilities and obligations of PIA, including all actual or contingent obligations as insurer under the Transferring Policies, will be transferred to and assumed by Avant: clause 3.2; and

(3)    all reinsurance treaties and arrangements of PIA will be transferred to Avant: clause 6.

20    It is also relevant that Mr Gibbs has considered each of the following matters, amongst others:

(1)    following the proposed transfer, the outstanding claims liabilities will continue to provide a high level of confidence that the reserves held will be adequate, albeit that the outstanding claims liabilities will be valued at a lower probability of sufficiency (85% vs 99.5%). In particular, the risk of not being able to meet obligations from higher than expected claims is “very low”, given that PIA has no open claims, and has not had any new notifications for over 17 years. Accordingly, Mr Gibbs does not anticipate material changes to the adequacy of the overall outstanding claims liability as a result of the transfer: pp iv, 22–23, 26;

(2)    PIA’s rights under the reinsurance contracts will transfer to Avant and the recoverable amount will be identical before and after implementation of the scheme: pp iv, pp 28–29;

(3)    given the small size of PIA’s business as compared with Avant’s business, the scheme is not expected to materially affect Avant’s capital position: pp 27–28;

(4)    as the proposed scheme would occur between companies within the same corporate group, available sources of capital support are unlikely to be affected: pp 25–26; and

(5)    after implementation of the scheme, the claims management policies, processes and staff will be unchanged: pp 29.

21    Orders are also sought by the applicants under s 17F(2) of the Act, which would have the effect of substituting Avant in place of PIA as a party to reinsurance treaties and arrangements, consequentially releasing PIA from liabilities under those arrangements. The applicants accept that these orders may be unnecessary (Re MDU Australian Insurance Co Pty Ltd [2008] FCA 490; Re Insurance Australia Limited [2004] FCA 524; (2004) 139 FCR 450 at [80]; Re SGIC General Insurance Limited [2004] FCA 1639 at [28]; and Re ACE Insurance Limited (No 2) [2016] FCA 1258 at [81]–[82]). Nevertheless, I agree that these orders should be made to remove any doubt.

22    In these circumstances, having regard to the requirements of s 17F(1A) of the Act, I am satisfied that all relevant procedural requirements have been met and there is no adverse impact on the interests of the relevant policy holders. In these circumstances, I consider that the orders confirming the scheme and otherwise should be made. Accordingly, I now make those orders.

Associate:

Dated:    21 April 2022