Federal Court of Australia
Macquarie Life Limited, in the matter of Macquarie Life Limited [2022] FCA 1602
ORDERS
MACQUARIE LIFE LIMITED ABN 56 003 963 773 First Applicant RESOLUTION LIFE AUSTRALASIA LIMITED ABN 84 079 300 379 Second Applicant | ||
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Pursuant to subsection 194(1)(b) of the Life Insurance Act 1995 (Cth) (the Act), the scheme for the transfer of all of the life insurance business of the First Applicant to the Second Applicant (the Scheme) be confirmed subject to the following modifications, as set out in the form annexed to these orders and marked “A”:
(a) By deleting the words “an Indemnified Conduct Action or” from subparagraph (d) of the definition of “Excluded Liabilities” in Clause 8 of the Scheme; and
(b) By deleting the definition of “Indemnified Conduct Action” in Clause 8 of the Scheme; and
(c) By deleting the definition of “Regulatory Matter” in Clause 8 of the Scheme; and
(d) By deleting the definition of “Third Party Claims” in Clause 8 of the Scheme.
2. The Scheme take effect on and from 12:01am (AEST) on 1 November 2022.
3. The Applicants pay APRA’s costs of the proceedings to date, as agreed or, if agreement cannot be reached, as assessed.
4. The orders be entered forthwith.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Annexure A – Scheme
Scheme under Part 9 of the Life Insurance Act 1995 (Cth) for the transfer of the life insurance business of Macquarie Life Limited to Resolution Life Australasia Limited
Parties
1 Macquarie Life Limited (ABN 56 003 963 773) of Level 6, 50 Martin Place, Sydney NSW 2000 (Macquarie Life)
2 Resolution Life Australasia Limited (ABN 84 079 300 379) of Level 20, 400 George Street Sydney NSW 2000 (Resolution Life Australasia)
Recitals
A Macquarie Life and Resolution Life Australasia are life companies registered under the Life Act.
B Macquarie is the ultimate holding company of Macquarie Life. Resolution Life Australasia is indirectly wholly owned by Resolution Life.
C This Scheme is prepared pursuant to Part 9 of the Life Act and operates only on, and subject to, its confirmation by the Federal Court.
D The purpose of this Scheme is to give effect to the Transfer Agreement under which Macquarie Life has agreed to transfer its remaining in-force Life Business issued from the Macquarie Life Statutory Fund (comprising the Transferred Assets and Transferred Liabilities) to Resolution Life Australasia, subject to confirmation by the Federal Court of this Scheme and satisfaction of certain conditions.
E If confirmed by the Federal Court, the Scheme will become binding on all persons.
F This Scheme is based on the following actuarial reports:
(a) a report dated 12 August 2022, prepared by Mr. Martin Paino, the appointed actuary of Macquarie Life;
(b) a report dated 12 August 2022, prepared by Mr. Greg Martin, the appointed actuary of Resolution Life Australasia; and
(c) a report dated 15 August 2022, prepared by Mr. David Goodsall as independent actuary.
1 Conditions Precedent
1.1 Conditions precedent
This Scheme is subject to satisfaction of the following conditions precedent set out in the Transfer Agreement:
(a) (Court approval) approval of the Scheme by the Federal Court in accordance with Part 9 of the Life Act; and
(b) (IATA) a go-ahead decision under the IATA being made by or on behalf of the Treasurer (or the Treasurer’s delegate) with respect to the transfer of the Life Business.
1.2 Condition precedent not satisfied
In the event that any condition precedent in clause 1.1 of this Scheme is not satisfied by the Conditions Precedent End Date then, without limiting or varying the Transfer Agreement, this Scheme has no further operation.
2 Transfer of Transferred Assets and Transferred Liabilities
Subject to the Federal Court confirming the Scheme, this Scheme takes effect on and from 12.01 am (AEST) on 1 November 2022 or on such other date as the Federal Court may determine (Effective Time).
2.2 Transfer of the Transferred Assets
At the Effective Time, the Transferred Assets that form part of the Macquarie Life Statutory Fund are transferred from the Macquarie Life Statutory Fund to, and will become part of, the Resolution Life Australasia Statutory Fund, without the need for any further steps to be taken.
2.3 Transfer of the Transferred Liabilities
At the Effective Time:
(a) Resolution Life Australasia is liable for and assumes the Transferred Liabilities (whether arising or accruing before or after the Effective Time);
(b) Resolution Life Australasia is substituted for Macquarie Life in all the Macquarie Life Policies as if Resolution Life Australasia was, and at all times had been, a party to the Macquarie Life Policies in respect of the Transferred Liabilities, and Macquarie Life is released and discharged from all Transferred Liabilities (whether arising or accruing before or after the Effective Time);
(c) Transferred Liabilities which immediately prior to the Effective Time were liabilities of the Macquarie Life Statutory Fund become liabilities of the Resolution Life Australasia Statutory Fund; and
(d) the rights, benefits and liabilities of the Macquarie Life Policy Owners, and any persons claiming through or under them, under the Macquarie Life Policies in respect of the Transferred Liabilities are the same as if:
(i) the proposals and applications on which they were based had been made to and accepted by Resolution Life Australasia instead of Macquarie Life; and
(ii) those policies had been issued by Resolution Life Australasia instead of Macquarie Life,
without the need for any further steps to be taken.
3 Consequences of the transfer
3.1 Issuer of Macquarie Life Policies
Resolution Life Australasia becomes the issuer of the Macquarie Life Policies and Macquarie Life ceases to be the issuer of the Macquarie Life Policies.
3.2 Macquarie Life Policy Owners
(a) The Macquarie Life Policy Owners cease to be Macquarie Life Policy Owners and become Resolution Life Australasia Policy Owners.
(b) Subject to clause 3.7, the rights and liabilities of the Macquarie Life Policy Owners shall be the same in all respects as they would have been if:
(i) the applications on which the Macquarie Life Policies were based had been made to, or accepted by, Resolution Life Australasia instead of Macquarie Life; and
(ii) the Macquarie Life Policies had originally been issued by Resolution Life Australasia instead of Macquarie Life.
3.3 Rights and benefits
Resolution Life Australasia is entitled to all rights and benefits of Macquarie Life under, or in respect of, the Macquarie Life Policies, including but not limited to:
(a) the right to receive any fees payable under, or in respect of, the Macquarie Life Policies;
(b) the right to receive premiums payable under, or in respect of, the Macquarie Life Policies; and
(c) the right to enforce all rights and remedies available under the Macquarie Life Policies in respect of any non-payment of such premiums or fees.
3.4 Authorities
All directions, authorities, mandates or instructions given to Macquarie Life:
(a) to deduct premiums or fees payable in respect of the Macquarie Life Policies (including by debiting a bank account, through automatic payroll deductions or through electronic bank transfer); or
(b) to disclose or obtain information in the course of carrying on the Life Business of Macquarie Life,
are deemed to be given to Resolution Life Australasia instead of Macquarie Life.
3.5 Policy claims
Any person having a claim on or obligation to Macquarie Life under, or in respect of, a Macquarie Life Policy, has the same claim on or obligation to Resolution Life Australasia instead of Macquarie Life, irrespective of when such claim or obligation arose.
3.6 Proceedings
Any proceedings in connection with a Macquarie Life Policy that are pending, or that commence, whether by or against Macquarie Life, in any court, tribunal or entity dealing with complaints, must be continued by or against Resolution Life Australasia instead of Macquarie Life and must be amended to that effect.
3.7 Consequences for all Macquarie Life Policies
(a) All references to Macquarie Life in a Macquarie Life Policy are replaced with Resolution Life Australasia.
(b) All references to the Macquarie Life Statutory Fund in a Macquarie Life Policy are to be read as a reference to the Resolution Life Australasia Statutory Fund.
(c) The terms and conditions of the Macquarie Life Policies are not changed as a result of this Scheme other than as described in sub-paragraphs 3.7(a) and 3.7(b) above and sub-paragraphs 3.7(c)(i) and (ii) below:
(i) Reporting: Macquarie Life post-retirement, allocated annuity policy owners (Allocated Annuity Policy Owners) and Macquarie Life pre-retirement, deferred annuity policy owners (Flexible Rollover Funds Policy Owners) currently receive half-yearly printed statements. In accordance with its normal practice, after the Effective Time, Resolution Life Australasia will provide annual printed statements, and allow online access to policy information throughout the year.
(ii) Conversion: In relation to pre-retirement, deferred annuity policies (Flexible Rollover Funds Policies), Flexible Rollover Funds Policy Owners are currently provided with a fixed dollar non-indexed, lifetime annuity benefit from the annuity commencement date (on or before age 65). After the Effective Date, Resolution Life Australasia will instead provide to Flexible Rollover Funds Policy Owners an account-based annuity set by the Policy Owner that is withdrawn from an investment fund.
(d) The changes to the terms and conditions of the Macquarie Life Policies described in sub-paragraph 3.7(c) are set out and shown in Schedule A to this Scheme, noting that for the Flexible Rollover Funds Policies there are currently two in force policy wordings. The first was issued to policy owners from 29 June 1992 to 17 December 1995 and the second was issued to policy owners from 18 December 1995 to 1 September 1997 (the Macquarie Flexible Rollover Funds Policy Documents). For the Allocated Annuity Policy, all in force policy wordings will be amended as set out in Schedule A.
3.8 Consequences for Resolution Life Australasia Policies
The terms and conditions of the Resolution Life Australasia Policies are not changed as a result of the Scheme.
4 Macquarie Life Statutory Fund and Shareholders’ Funds
(a) Each Macquarie Life Policy referable to the Macquarie Life Statutory Fund becomes a Resolution Life Policy referable to the Resolution Life Australasia Statutory Fund.
(b) The cash equivalent of the Investment Assets equal to the value of the Life Policy Liabilities as at the Effective Time become assets of the Resolution Life Australasia Statutory Fund.
(c) The Transferred Liabilities of the Macquarie Life Statutory Fund become liabilities of the Resolution Life Australasia Statutory Fund
(d) The assets and liabilities of the shareholders’ fund of Macquarie Life are not transferred under this Scheme and are retained by Macquarie Life.
(a) On and from the Effective Time, Resolution Life Australasia will 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 Macquarie Life Policy Owners.
(b) For the purposes of this clause 5, “policies and practices” includes any policies and practices relating to:
(i) the method of determining premium rates and charges;
(ii) investment management;
(iii) unit pricing management;
(iv) administration and operational management;
(v) capital management;
(vi) risk management; and
(vii) remediation programs.
(c) Resolution Life Australasia must review its policies and practices periodically to ensure that they remain appropriate. Where appropriate, Resolution Life Australasia will adjust the policies and practices to take better account of its legal and regulatory obligations and with due regard to maintaining the contractual rights and benefits of the Macquarie Life Policy Owners.
6 Costs of the Scheme
All costs, including any stamp duty, associated with the transfer of the Life Business will be paid by the shareholders of Macquarie Life and Resolution Life Australasia and not by Macquarie Life Policy Owners or Resolution Life Australasia Policy Owners.
7 Governing Law
This Scheme is governed by the law in force in New South Wales. Each of Macquarie Life and Resolution Life Australasia submit to the non-exclusive jurisdiction of the courts of that place.
8 Dictionary
Allocated Annuity Policy has the meaning given in clause 3.7(c), the terms and conditions for which are included in the Macquarie Life Allocated Annuity Policy documents.
Allocated Annuity Policy Owner has the meaning given in clause 3.7(c).
APRA means the Australian Prudential Regulation Authority.
Business Records means all documents, information, data, books or records that are used in the Life Business that relate to the Macquarie Life Policies (which, for the
avoidance of doubt includes all historical policy owner records in the possession of any member of the Macquarie Group) but excluding the Historic Policyholder Statements.
Conditions Precedent End Date means 12 months from the date of the Transfer Agreement or any other date agreed in writing by Resolution Life Australasia and Macquarie Life.
Custodian Transition means the transition by Macquarie Life from a self-custody and fund administration arrangement to an outsourcing arrangement with JP Morgan.
Duty means any stamp, transaction or registration duty or similar charge which is imposed by any Government Agency and includes any associated interest, penalty, charge or other amount which is imposed.
Effective Time has the meaning given in clause 2.1.
Excluded Assets means any assets of Macquarie Life other than the Transferred Assets, including:
(a) the Macquarie Group IP and any other Intellectual Property Rights relating to or connected with the Macquarie Group IP;
(b) any right, licence, lease or interest in any properties used by Macquarie Life in operating the Life Business;
(c) the shareholders’ fund of Macquarie Life;
(d) any deferred income tax assets;
(e) any refunds or credits arising under any tax funding agreement Macquarie Life is a party to; and
(f) the rights and benefits of Macquarie Life under the Transfer Agreement.
Excluded Liabilities means:
(a) the Excluded Tax Liabilities;
(b) any liability owing by Macquarie Life to any other member of the Macquarie Group, other than under the Macquarie Life Policies;
(c) the Retained Liabilities;
(d) any liabilities arising out of or in connection with the Custodian Transition; and
(e) the liabilities arising under the Transfer Agreement.
Excluded Tax Liabilities means:
(a) any liability which Macquarie Life has or will have relating to Tax payable in relation to the Life Business before the Effective Time, including without limitation any liability to contribute to Taxes of the GST Group or income tax consolidated group, respectively, of which Macquarie Life is a member; and
(b) any insurance duty liability payable in respect of premiums received prior to the Effective Time in respect of the Life Business.
Federal Court means the Federal Court of Australia.
Flexible Rollover Funds Policy has the meaning given in clause 3.7(c), the terms and conditions for which are included in the Macquarie Flexible Rollover Funds Policy Documents.
Flexible Rollover Funds Policy Owner has the meaning given in clause 3.7(c).
Government Agency means any governmental, semi-governmental, administrative, fiscal, judicial or quasi-judicial body, department, commission, authority, tribunal, agency or entity in any part of the world. It also includes a self-regulatory organisation established under statute or stock exchange.
GST has the meaning given in the GST Act.
GST Act means A New Tax System (Goods and Services Tax) Act 1999 (Cth).
GST Group has the meaning given in section 195-1 of the GST Act.
Historic Policyholder Statements means any annual or bi-annual written account statements issued to policyholders in relation to Macquarie Life Policies other than those statements for the period ending 30 June 2022.
IATA means the Insurance Acquisitions and Takeovers Act 1991 (Cth).
Intellectual Property Rights means all intellectual property rights, including all current and future registered and unregistered rights in respect of copyright, trademarks, designs, circuit layouts, trade secrets, know-how, confidential information, plant breeders rights, patents, inventions, discoveries, business names and domain names and all other intellectual property as defined in article 2 of the convention establishing the World Intellectual Property Organisation 1967, and all applications or rights to apply for any such rights.
Investment Assets means the assets of the Macquarie Life Statutory Fund as at the Effective Time.
Life Act means the Life Insurance Act 1995 (Cth).
Life Business means Macquarie Life’s remaining life insurance business, comprising the Transferred Assets and Transferred Liabilities.
life insurance business has the meaning given in the Life Act.
Life Policy Liabilities means all liabilities arising under or in respect of the Macquarie Life Policies, including all accrued liabilities.
Macquarie means Macquarie Bank Limited (ABN 46 008 583 542).
Macquarie Group means Macquarie Life and each of its Related Bodies Corporate.
Macquarie Group IP means the Intellectual Property Rights of Macquarie Life or any other Macquarie Group member.
Macquarie Life means Macquarie Life Limited (ABN 56 003 963 773).
Macquarie Life Policies means the policies issued by Macquarie Life that are recorded as in-force in the records of Macquarie Life and that are referrable to the Macquarie Life Statutory Fund immediately prior to the Effective Time. This does not include any other policy that is not so recorded or that has discontinued prior to the Effective Time.
Macquarie Life Policy Owner means an owner of a Macquarie Life Policy. Macquarie Life Statutory Fund means Macquarie Life’s Statutory Fund No.1.
Resolution Life means Resolution Life Group Holdings L.P.
Resolution Life Australasia means Resolution Life Australasia Limited (ABN 84 079 300 379).
Resolution Life Australasia Policies means the policies issued by Resolution Life Australasia that are referrable to the Resolution Life Australasia Statutory Fund immediately prior to the Effective Time.
Resolution Life Australasia Policy Owner means an owner of a Resolution Life Australasia Policy.
Resolution Life Australasia Statutory Fund means Resolution Life Australasia’s Statutory Fund No.2.
Retained Liabilities means all liabilities of Macquarie Life as at the date of the Transfer Agreement that are personal to Macquarie Life and are not capable of being transferred to Resolution Life Australasia under the Scheme and which are not otherwise Excluded Liabilities.
Tax means any tax, levy, charge, excise, GST, impost, rates, Duty, fee, deduction, compulsory loan or withholding, which is assessed, levied, imposed or collected by any fiscal Government Agency and includes any interest, fine, penalty, charge, fee, expenses or other statutory charges or any other such amount imposed by any fiscal Government Agency on or in respect of any of the above.
Transfer Agreement means the transfer agreement dated 6 July 2022 between Macquarie Life, Macquarie and Resolution Life Australasia.
Transferred Assets means the assets of the Life Business comprising:
(a) the cash equivalent of the Investment Assets equal to the value of the Life Policy Liabilities as at the Effective Time;
(b) the rights and benefits under the Macquarie Life Policies; and
(c) the Business Records,
but excluding the Excluded Assets.
Transferred Liabilities means the liabilities of Macquarie Life (whether arising or accruing before or after completion of the sale and purchase of the Life Business) pursuant to the Life Policy Liabilities but excluding the Excluded Liabilities.
The above definitions importing the singular include the plural, and vice versa.
Schedule A - Changes to Macquarie Life Policy terms and conditions (Clause 3.7(c))
Changes to Allocated Annuity Policy terms
Macquarie Life Allocated Annuity Policy document
(a) Reporting: The following changes are made to clause 10.1 or clause 11.1 (as the case may be), by removing the
strickenwording where they appear:
… The statement[s] will be sent at
halfyearly intervals, or more frequently if we choose. If you fully commute the policy we will send you a final statement.
Changes to Flexible Rollover Funds Policy terms
Macquarie Flexible Rollover Funds Deferred Annuity Policy document, issued between 29 June 1992 to 17 December 1995
(b) Reporting: The following changes are made to clause 12.1, by removing the
strickenwording and adding the underlined wording:
MacquarieResolution Life will report to the Annuitant on ansemi-annualannual basis. The report will include performance achieved after allowing for Management Fees and Expenses, taxations, units allocated, Reclaimable Units, and details of commutations, if any, during the period.
(c) Conversion:
(i) The following changes are made to clause 1, by removing the
strickenwording and adding the underlined wording:
“AnnuityBenefit”meanstheamountpayableperannumcalculatedbyapplyingthefollowing formula:
“$ (Capital Value)
(110–ageinyears)“Annuity Benefit” means the payment of an annuity, made by the regular cancellation of units in an Investment Fund, at a rate as directed in writing by the Annuitant, which must be in accordance with the Superannuation Industry (Supervision) Regulations 1994 (Cth) or any successor legislation, as amended from time to time (SIS Regulations). If no direction is provided by the Annuitant, the minimum annuity rate prescribed under the SIS Regulations will be paid.
(ii) the following changes are made to clause 7, by removing the
strickenwording and adding the underlined wording:
7. Annuity Benefits
7.1
On the Annuity Commencement Date and on each anniversary of the Annuity Commencement Date, until the Termination Date
MacquarieResolution Life will pay to theperson named in the schedule as theAnnuitant the Annuity Benefit. The Annuitant may change the frequency of payments as allowed by Resolution Life by direction in writing.NobenefitwillbepayableunderthisPolicyaftertheTerminationDate.All units allocated to this Policy will becancelledontheAnnuityCommencementDateswitched(in accordance with clause 8) into one or more of the Investment Funds maintained by Resolution Life for allocated annuities on the Annuity Commencement Date. The Annuitant may direct in writing the allocated annuity Investment Funds into which units will be switched. Where no direction is provided by the Annuitant, Resolution Life will determine the allocated annuity Investment Funds into which units will be switched in its discretion having regard to the Investment Funds in which units were held by the Annuitant under the Policy prior to the Annuity Commencement Date.
7.2
The Annuity Benefit shall be payable each year to
the person named in the scheduleasthe Annuitant from age 65 of that Annuitant or earlier if so requested by that Annuitant, with the payment of the Annuity Benefit effected by cancellation of units in accordance with clause 3.3.
(iii) the following changes are made to clause 8, by removing the
strickenwording and adding the underlined wording:
8 Switching
8.1
Prior to the Annuity Commencement DatetheThe Annuitant may in a manner approved by ResolutionMacquarieLife cancel units allocated to this Policy in one Investment Fund and at the same time have the value of the units cancelled allocated to units in another Investment Fund.the following changes are made to clause 9, by removing the
strickenwording and adding the underlined wording:9 Death of Annuitant
9.1 When a Reversionary Annuitant named in the Policy schedule survives the Annuitant named in the Policy schedule, on the death of the Annuitant
prior to the AnnuityCommencement Datethis Policy shall vest in and the benefits under this policy shall be payable to that Reversionary Annuitant and the expression “Annuitant” in this Policy shall mean that Reversionary Annuitant.9.2 On the death of the Annuitant
before the Annuity Commencement Date,MacquarieResolution Life will, upon proof of the entitlement of the claimant, pay to the Beneficiary or the legal personal representative of the Annuitant the amount calculated by multiplying the Unit Cancellation Value in the Investment Fund by the number of units determined by reducing the number of units then allocated to this Policy by Reclaimable Units, if any.
(iv) the following changes are made to clause 10, by removing the
strickenwording and adding the underlined wording:
10 Commutation
10.2 Subject to clauses 10.1 15 and 16, the Annuitant may commute the benefits under this Policy
priortotheAnnuityCommencementDateby the cancellation of units. Subject to clause 10.3, the amount payable will be the amount determined by multiplying the number of units cancelled less the withdrawal fee, if any, applicable pursuant to clause 6.3, by the Unit Cancellation Value of a unit in the Investment Fund on the day of cancellation.…
10.5 Commutation of benefits payable after the Annuity Commencement Date shall onlybepermittedwithinthelimitsimposedunderSection27AoftheITAAforeligibleannuitiesand subject to the terms and conditions then applied by Macquarie Life.10.6 The proceeds of any such commutation will be paid within 60 days after receipt by
MacquarieResolution Life of a commutation noticebutnotlaterthanthe65thanniversaryof the birth of the person named in the schedule as the Annuitant.
Macquarie Flexible Rollover Funds Deferred Annuity Policy document, issued between 18 December 1995 to 1 September 1997
(d) Reporting: The following changes are made to clause 11.1, by removing the
strickenwording:
11.1 Statement
We will send you a statement at
halfyearly intervals, or more frequently if we choose. The statement sets out details of:• units held in the policy at the statement date;
• investment payments received; and
• commutations;
over the reporting period.
If you fully commute the policy we will send you a final statement.
(e) Conversion
(i) the following changes are made to clause 1.1, by removing the
strickenwording and adding the underlined wording:1.1 Commutation
This policy can be fully or partially commuted at any time
beforetheannuitystart date,by the withdrawal of units. The amount payable will be the amount determined by multiplying the number of units withdrawn less the withdrawal fee, if any, by the unit withdrawal value of a unit in the investment fund on the day of the withdrawal. We will advise the value of the policy if you wish to commute it on request. Payment of all or part of the commutation value to you may be restricted by law, but the commutation value may be transferred to another approved benefit arrangement.
Commutationsaftertheannuitystartdateareonlypossibletotheextentpermittedunderlegislation regulating this policy.The proceeds of any such commutation will be paid within 60 days after receipt by us of a commutation notice.(ii) the following changes are made to Part 2, by adding the underlined wording:
annuity benefit:
means the payment of an annuity, made by the regular withdrawal of units in an investment fund, at a rate as directed in writing by the annuitant, which must be in accordance with the Superannuation Industry (Supervision) Regulations 1994 (Cth) or any successor legislation, as amended from time to time (SIS Regulations). If no direction is provided by the Annuitant, the minimum annuity rate prescribed under the SIS Regulations will
be paid.
(iii) the following changes are made to clause 5.1, by removing the
strickenwording and adding the underlined wording:
5.1 Annuity benefit
On the annuity start date and each anniversary of that date which occurs before your death, we will pay you an annuity benefit. You may change the frequency of payments as allowed by us by direction in writing. All units allocated to this policy will be switched (in accordance with part 9) into one or more of the investment funds maintained by us
for allocated annuities on the annuity start date. The annuitant may direct in writing the allocated annuity investment funds into which units will be switched. Where no direction is provided by the annuitant, we will determine the allocated annuity investment funds into which units will be switched at our discretion having regard to the investment funds in which units were held by the annuitant under the policy prior to the annuity start date.
Theamountofthepaymentisdeterminedbydividingthecommutationvalueofthepolicy(determinedunderparagraph3.2andPart4)attheannuitystartdateby110minus your age (in years) on that date.
(iv) the following changes are made to clause 5.2, by removing the
strickenwording and adding the underlined wording:
5.2 Instalments
Youcanrequesttheannuitytobepaidinmonthlyorquarterly instalmentsbynoticetous.The annuity benefit shall be payable each year to the annuitant from age 65 of that annuitant or earlier if so requested by that annuitant, with the payment of the annuity benefit effected by the withdrawal of units.
(v) clause 5.5 is deleted in its entirety, as shown by the
strickenwording:
5.5Commutationafterannuitystartdate
Commutations after the annuity start date are only possible to the extent permittedunderlegislationregulatingthispolicy.Wewillcalculatethecommutationvalueinthesecircumstances on the basis determined by our actuary.
(vi) the following changes are made to clause 18, by removing the
strickenwording:
Part 18 – Termination
The policy terminates on the first to occur of:
• payment or transfer of the full commutation value of the policy
beforetheannuity start date under Part 4;• payment of the full commutation value of the policy on your death
beforethe
annuitystartdate;•
commutationofthepolicyaftertheannuitystartdateunderparagraph5.5;and•
yourdeathaftertheannuitystartdate.
ALLSOP CJ:
1 This matter concerns an application brought by the first applicant (Macquarie Life) and the second applicant (Resolution Life) for orders that the Court confirm a scheme for the transfer of all of the life insurance business of Macquarie Life to Resolution life (the Scheme). Pursuant to s 190(1)(a) of the Life Insurance Act 1995 (Cth) (the Act), no part of the life insurance business of a life company may be transferred to another life company except under a scheme confirmed by the Court.
2 Prior to the confirmation hearing before me, the applicants sought interlocutory orders that the need for compliance with s 191(2)(c) of the Act be dispensed with. That provision requires that every affected policy owner be provided with an approved summary concerning the proposed scheme. Dispensation Orders were made by her Honour Justice Jagot on 18 August 2022 and, in place of compliance with s 191(2)(c), the applicants were ordered to carry out certain bespoke steps in relation to the publication of notices and documents relating to the Scheme and the contacting of affected policy owners.
3 On 5 October 2022, the applicants sought orders confirming the Scheme, as modified, in the form presented to the Court. I made orders confirming the Scheme on 6 October 2022. What follows are my reasons for doing so.
The applicants
4 Both Macquarie Life and Resolution Life are authorised under the Act to conduct life insurance businesses and do so through their statutory funds as required by the Act.
5 Macquarie Life is a wholly owned subsidiary of Macquarie Bank Limited, Macquarie Bank Limited being in turn a wholly owned subsidiary of Macquarie Group Limited. Historically, Macquarie Life conducted a substantial life insurance business which included life investment products (comprising over $1 billion of assets) and life risk insurance products (with over $300 million of annual premium). The Court confirmed a scheme to transfer Macquarie Life’s life risk business to another entity in 2016 with the result that the remaining life insurance business of Macquarie Life concerned a small portfolio of life investment or unit linked business issued under its Statutory Fund No.1. That portfolio was closed to new business and new contributions from existing members were not accepted.
6 As at 30 June 2022, Macquarie Life had policy liabilities of $8.4 million and, as at 15 August 2022, recorded 208 issued in-force policies with 207 policy owners. In total, Macquarie Life estimated that 190 policy owners would be transferred as part of the Scheme. Macquarie Life’s remaining life insurance business comprised two groups of policies, which were proposed to be transferred under the Scheme: post-retirement Allocated Annuity policies and pre-retirement Deferred Annuity policies. The former paid a regular annuity amount with the underlying investment earnings not subject to tax while the latter were savings policies that converted to a lifetime annuity. Both groups of policies were investment-linked contracts under s 14(4) of the Act and life policies under s 9(1)(g) of the Act, however, they were non-participating policies and did not receive regular, ongoing premiums. The Deferred Annuity policies were issued between June 1992 and September 1997 and the Allocated Annuity policies were first issued from June 1994 and closed to new business in about September 1999.
7 Macquarie Life’s profitability had declined over the past three to four years as the policy portfolio and funds under management had significantly reduced with the passage of time. Macquarie Life experienced a loss over the twelve-month period to 31 March 2022 and was forecast to record losses in the future, as the fee revenue earned together with investment income were not anticipated to cover Macquarie Life’s operating expenses.
8 At the time I made orders confirming the Scheme, Macquarie Life had no active reinsurance arrangements in place, there were no material remediation projects underway, and Macquarie Life was not subject to, or aware of any threats to commence, any regulatory or class actions against it.
9 Resolution Life carries on a substantial life insurance business in Australia by way of three statutory funds and is part of the Resolution Life Group, which is a global life insurance group focused on the acquisition and management of in-force life insurance portfolios. The Resolution Life Group’s corporate purpose is to consolidate in-force life insurance companies and portfolios in mature markets globally. The Chief Executive Officer of Resolution Life gave evidence that Resolution Life is in the business of acquiring portfolios of existing policies from life insurers and assuming responsibility to policy owners rather than being a life insurer who is in the business of selling new policies directly to customers.
10 As at 31 December 2021, Resolution Life had 950,000 customers comprising $27.6 billion of policy and other liabilities supported by $29.8 billion of assets.
11 It was proposed that Macquarie Life’s business be transferred into Resolution Life’s second statutory fund, which is a specialised fund covering Australian non-participating superannuation investment linked (unitised) business.
The Scheme
Overview
12 The Scheme was intended to give effect to the Transfer Agreement under which Macquarie Life agreed to transfer its remaining in-force life business to Resolution Life. The Transfer Agreement was expressed to be conditional on the receipt of a go-ahead decision under the Insurance Acquisitions and Takeovers Act 1991 (Cth) (which condition was satisfied by the time of the confirmation hearing) and the confirmation of this Court. The proposed effective date of the transfer under the Scheme was 12.01am on 1 November 2022 (Effective Date).
13 Under the Scheme:
(a) All of the remaining in-force Macquarie Life policies immediately prior to the Effective Date were to be transferred from Macquarie Life’s Statutory Fund No.1 to Resolution Life’s Statutory Fund No.2.
(b) Resolution Life was to become the issuer of the Macquarie Life policies and was to assume all of the rights and liabilities in respect of the Macquarie Life policies such that:
(i) Resolution Life would be substituted for Macquarie Life and Macquarie Life would be released and discharged from all liabilities and obligations under the Macquarie Life policies; and
(ii) Resolution Life would become entitled to all rights and benefits of Macquarie Life under the Macquarie Life policies, including but not limited to the rights to receive fees, premium or any other form of remuneration payable under the Macquarie Life policies.
(c) Macquarie Life policy owners were to become Resolution Life policy owners, and, subject to the proposed changes to the terms of the Macquarie Life policies, the rights and liabilities of Macquarie Life policy owners were to be the same in all respects as they would have been if the proposals and applications on which the Macquarie Life policies were based had been made to, or accepted by, Resolution Life instead of Macquarie Life and the Macquarie Life policies had originally been issued by Resolution Life.
(d) Each Macquarie Life policy referable to Macquarie Life Statutory Fund No.1 was to become referable to Resolution Life Statutory Fund No.2 and references to Macquarie Life in the Macquarie Life policies would be read as a reference to Resolution Life and references to Macquarie Life Statutory Fund No.1 would be read as a reference to Resolution Life Statutory Fund No.2.
(e) Any claims or proceedings in connection with a Macquarie Life policy were to be maintained or continued by or against Resolution Life.
14 The proposed changes to the terms and conditions of the Macquarie Life policies referred to at (c) above involved the following: first, the provision of printed policy statements on a yearly basis, necessitating a change to the terms of both the Deferred Annuity and Allocated Annuity policies which provided for the provision of printed policy statements on half-yearly basis; and second, the replacement of the fixed dollar, lifetime annuity under the Deferred Annuity policies with a modern, account-based allocated annuity to be withdrawn from an investment fund and which will not be enforced until age 75.
15 There were also some proposed operational changes including that the existing investment options available to Macquarie Life policy owners be changed from Macquarie Life investment funds to Resolution Life investment funds containing similar investment objectives and that the units held by Macquarie Life policy owners be transferred into corresponding Resolution Life investment funds; certain management fees and expenses charged to Macquarie Life policy owners be changed to align with those adopted by Resolution Life; and some administrative rules concerning withdrawal and redemptions be amended to align with Resolution Life’s existing rules.
16 The proposed changes to the terms and conditions of the Macquarie Life policies and the proposed operational changes were intended to align the transferring policies with Resolution Life’s systems and processes and to ensure that the ongoing costs of administering the Macquarie Life policies are economical and do not expose those policies to increased operational risk.
17 No changes were proposed in relation to the terms, conditions, operation or administration of existing Resolution Life policies. All costs associated with the transfer were to be paid by the shareholders of Macquarie Life and Resolution Life rather than by the policy owners.
Modifications
18 Following the dispensation hearing before Justice Jagot and subsequent discussion with the Australian Prudential Regulatory Authority (APRA), the applicants proposed to modify the Scheme to address the position of the transfer of potential liabilities arising from any class action or regulatory proceedings that may be commenced, or any remediation program that may be established in respect of current Macquarie Life policies.
19 Against the risk that such liabilities may arise (Macquarie Life not being aware of any at the time of the confirmation hearing), the Transfer Agreement provided Resolution Life with an indemnity and guarantees in respect of losses arising from such liabilities from Macquarie Life and Macquarie Bank Limited, where such liabilities arise from Macquarie Life’s pre-completion conduct. The proposed modifications (effected by changes to clause 8 of the Scheme) attempted to redress any ambiguity, and give effect to the parties’ intention that liabilities arising from Macquarie Life’s pre-completion conduct in relation to Macquarie Life policies be met by Resolution Life with Resolution Life having the right to be indemnified for such liabilities under the Transfer Agreement.
Rationale
20 For Macquarie Life’s part, the transfer of its remaining in-force life insurance business to Resolution Life was desired due to the increasing lack of scale in a small life insurance business and accompanying increases in costs, and in circumstances where another organisation is in a better position to manage investment-linked business closed to new customers.
21 From the perspective of Resolution Life, the proposed transfer accords with Resolution Life’s broader strategy and commitments to growing its presence in the Australian market, diversifying its existing portfolios and delivering policy sustainability for Australian policy owners.
The evidence
22 At the confirmation hearing, Mr Hollo SC tendered on behalf of the applicants a list of affidavits upon which the applicants relied in support of their application. Those affidavits were:
(a) Affidavit of Megan Elizabeth Beer affirmed on 8 August 2022 and annexures (excluding [67]–[72] and Annexures MEB17 and MEB18);
(b) Affidavit of Christopher Gregory Dunn affirmed on 10 August 2022 and annexures;
(c) Affidavit of Bill Stanfield affirmed on 10 August 2022 and annexures;
(d) Affidavit of Daniel Edward Tuddenham affirmed on 11 August 2022 and annexures;
(e) Affidavit of Gregory Charles Martin affirmed on 12 August 2022 and annexures;
(f) Affidavit of Martin Paino affirmed on 15 August 2022 and annexures;
(g) Affidavit of David Millington Goodsall sworn on 15 August 2022 and annexures;
(h) Affidavit of Christopher Gregory Dunn affirmed on 16 August 2022 and annexures;
(i) Affidavit of Daniel Edward Tuddenham affirmed on 23 September 2022 and annexures;
(j) Affidavit of Richard Marc Rasker affirmed on 28 September 2022 and annexures;
(k) Affidavit of Martin Paino affirmed on 28 September 2022 and annexures;
(l) Affidavit of Gregory Charles Martin affirmed on 28 September 2022;
(m) Affidavit of Selma Bekric sworn on 28 September 2022 and annexures;
(n) Affidavit of David Millington Goodsall sworn on 29 September 2022;
(o) Affidavit of Richard Marc Rasker affirmed on 4 October 2022; and
(p) Affidavit of Daniel Edward Tuddenham affirmed on 5 October 2022.
23 By way of summary, the majority of these affidavits were sworn by relevant employees or advisers of Macquarie Life and Resolution Life concerned with the Scheme and described, among other things, the rationale for and the nature of the business proposed to be transferred under the Scheme, the work undertaken to identify affected policy owners, and the steps taken to comply with the Dispensation Orders.
24 The affidavits sworn by Mr Paino, Mr Martin, and Mr Goodsall described matters relevant to their respective actuarial reports, to which I now turn.
The actuarial reports
25 The applicants relied on a number of actuarial reports to support the proposed Scheme. The first of those reports was a report entitled “MLL Appointed Actuary Report on the Proposed Scheme of Transfer of the Life Insurance Business of Macquarie Life Limited to Resolution Life Australasia Limited” (Paino Report) dated 12 August 2022 and authored by Mr Martin Paino, who is the appointed actuary of Macquarie Life under s 93 of the Act. This report was annexed to Mr Paino’s second affidavit.
26 The second actuarial report relied on was a report entitled “Proposed Transfer of the Life Insurance Business of Macquarie Life Limited to Resolution Life Australasia Limited” (Martin Report) dated 12 August 2022 and authored by Mr Gregory Martin, who is the appointed actuary of Resolution Life under s 93 of the Act. This report was annexed to Mr Martin’s second affidavit.
27 The final actuarial report relied on was a report entitled “Proposed Transfer of the Life Insurance Business of Macquarie Life Limited to Resolution Life Australasia Limited” (Goodsall Report) dated 15 August 2022 and authored by Mr David Goodsall. This report was annexed to Mr Goodsall’s first affidavit. Mr Goodsall was engaged by the applicants to provide an independent actuarial report on the proposed Scheme. Mr Goodsall is a director of Synge & Noble, a consulting actuarial firm, and a member of the Life Insurance Code Compliance Committee.
The Paino Report
28 Mr Paino opined in his first affidavit that he did not consider that the proposed changes to the transferring Macquarie Life policy owners’ contractual rights and benefits were adverse to those policy owners, considering the information and options that would be available to them. Mr Paino considered that Macquarie Life’s policy owners would benefit from transferring to a company with a desire to manage, and expertise in managing, legacy life insurance portfolios, with Resolution Life’s intended basis of implementing the non-contractually specified and/or discretionary aspects of the Macquarie Life policies continuing to meet the overall reasonable benefit expectations of the Macquarie Life policy owners. Mr Paino further considered that the benefit security of the Macquarie Life policy owners would remain adequate, with financial assets exceeding all regulatory requirements and internal Resolution Life targets after the transfer under the Scheme. Mr Paino confirmed by way of his second affidavit that he continued to hold those views in view of additional information becoming available to him.
29 In particular, Mr Paino considered that the removal of the fixed dollar lifetime annuity benefit was not adverse to the interests of Macquarie Life policy holders because Macquarie Life’s current operational procedure was not to enforce or support the conversion of the benefit into a fixed dollar lifetime annuity, and the fixed annuity provided under the contract was not competitive relative to what a policy owner could obtain from the market. The introduction of the proposed allocated annuity benefit does not change the need for policy owners to consider their personal circumstances at age 65.
30 In reaching the overall conclusions that he came to, Mr Paino had regard to the reduction in Macquarie Life’s profitability over time, reflecting that the total funds under management had been reducing. Were the transfer not to proceed, Macquarie Life would need to address the costs associated with operating the business to stem the losses being incurred and would likely be required to review the current available investment options and rationalise those options and/or increase fees. Macquarie Life might also be required to request that APRA provide exemptions from certain prudential standard requirements to lower costs and capital requirements. In terms of the cultural impact of Macquarie Life’s decreasing scale, Mr Paino noted that as Macquarie Life was now a very small entity, there was an increasing risk that the corporate knowledge and understanding of life insurance would be centralised in a small number of employees. This was juxtaposed to Resolution Life’s position as a specialist insurer that continues to invest in technology.
31 Mr Hollo SC submitted that as a result of the decreasing scale of Macquarie Life’s remaining business, being closed to new business and being, at the time of the confirmation hearing, run at a loss and projected to continue to run at a loss, Mr Paino’s actuarial evidence supported the view that, were the proposed transfer under the Scheme not to take place, Macquarie Life policy owners’ interests might ultimately be negatively affected. In contrast, the fact of Resolution Life’s appetite to conduct business with a specific focus on the management of in-force life policies and the acquisition of mature books may be seen as a commercial advantage for the policy holders.
The Martin Report
32 Mr Martin’s actuarial conclusions were summarised in his first affidavit. Mr Martin opined that the Scheme would not result in unfairness to the existing policy owners of Resolution Life or the transferring policy owners of Macquarie Life. He further concluded that the Scheme would not materially prejudice the interests of these policy owners and took the view that the changes proposed under the Scheme to the transferring policy owners of Macquarie Life and their administration would facilitate the practical and economic transfer of the remaining in-force Macquarie Life insurance business to Resolution Life and that transferring Macquarie Life policy owners would benefit from improved benefit outcomes and customer service, compared with the position that would obtain if the transfer did not proceed and the policy owners remained in a subscale, run-off portfolio. In his second affidavit, Mr Martin explained several amendments he had made to his actuarial report, but confirmed that those amendments did not cause him to change the conclusions or opinions he had originally expressed.
33 The basis for Mr Martin’s views was described thus in the Martin Report:
The changes proposed to be made to the MLL [Macquarie Life] transferring policies and their administration…are being made to facilitate the practical and economic transfer of the remaining in-force MLL life insurance business to RLAL [Resolution Life]. The Proposed Transfer is anticipated to improve longer term policyholder benefit outcomes and customer service provided to them, compared with remaining with MLL in a subscale, run-off portfolio.
The Proposed Transfer will not result in unfairness to the policyholders of the policies referable to any of the statutory funds involved in the Proposed Transfer. The Proposed Transfer will not materially prejudice the interests of policyholders of the policies of either MLL or RLAL.
Immediately after the Proposed Transfer:
• RLAL, the RLAL receiving statutory fund, and all other RLAL statutory funds, will continue to satisfy the regulatory capital standards and remain in a sound financial position.
• MLL will have no remaining in-force life insurance business. MLL will continue to have sufficient assets to continue to be able to pay its liabilities as and when they are due.
MLL’s transferring policyholders
In terms of the change to the policy terms proposed to be made under the scheme of transfer, in respect of the financial statements provision change, these are not regarded as material changes having regard to the alternative options available to the MLL Policyholders to access relevant information. The provision of improved annuitisation terms is regarded as a favourable change. The Proposed Transfer does not materially adversely impact the contractual benefits and rights of the transferring policyholders.
In terms of the policyholders’ reasonable benefit expectations, there are no “profit participation” aspects of the transferring policies to be considered. Nonetheless, within the policies’ contractual terms, from the Transfer Date RLAL will make some permitted changes to the policy fees, charges and expense recovery charges and there will be some change to various operational aspects of the policies. Many policyholders will experience reduced fees and charges. It is expected that, allowing for the one-off policy credit to be provided by RLAL to policy accounts with increasing fees and charges, and the introduction of a fee rebate scale for some MLL Allocated Annuity policies offsetting the fee and charges changes being made as at the Transfer Date, the overall reasonable benefit expectations of the transferring policyholders will continue to be met after the Proposed Transfer.
In terms of the policyholders’ benefit security, RLAL will remain in a sound financial position and the transferring policyholders’ benefit security will remain adequate after the Proposed Transfer.
RLAL’s existing policyholders
In terms of the RLAL policyholders’ contractual benefits and rights, there will be no change to the contractual benefits and rights of the existing policyholders of RLAL as a result of the Proposed Transfer.
In terms of the policyholders’ reasonable benefit expectations, there will be no impact on the reasonable benefit expectations of the existing policyholders of RLAL as a result of the Proposed Transfer.
In terms of the policyholders’ benefit security, each of the statutory funds of RLAL, and RLAL as a whole, will remain in a sound financial position and the existing policyholders’ benefit security will remain appropriate after the Proposed Transfer.
There are no material disadvantages for the existing policyholders of RLAL as a result of the Proposed Transfer.
34 Like Mr Paino, Mr Martin considered that it was “somewhat inevitable” that the effects of Macquarie Life’s diminishing business would be felt by Macquarie Life policy holders if a transfer did not occur. In particular, Mr Martin considered that a small, declining legacy portfolio such as Macquarie Life would become increasingly exposed to unintended administrative mistakes and errors, including as corporate knowhow with respect to policies declined over time, as well as potential negative impact on future investment outcomes.
The Goodsall Report
35 Mr Goodsall summarised his actuarial opinions in his first affidavit as follows:
(a) the changes to policy terms and conditions contained in the Scheme will not materially adversely affect the contractual rights or benefits of policy owners of Macquarie Life or Resolution Life;
(b) there will not be any material adverse impact on reasonable benefit expectations of policy owners of Macquarie Life and Resolution Life;
(c) the Scheme will not materially prejudice the interests of policy owners of Macquarie Life or Resolution Life; and
(d) the security of policy owner benefits for policy owners of Macquarie Life and Resolution life is maintained.
36 In particular, in the Goodsall Report, Mr Goodsall noted the declining profitability of Macquarie Life’s funds under management and that, in his experience, subscale businesses tend to have difficulty attracting staff with the necessary experience which can lead to reduced service and increased operational risk.
37 Mr Goodsall also considered the proposed change to the fixed annuity, considering that the fixed annuity provided an annual annuity payment much lower than could be purchased in the Australian market from the account balance and provided no benefit on the death of the annuitant or ability to withdraw the funds as a lump sum once the annuity had commenced. Although that approach was once common, because of the prevailing taxation rules in the 1990s, the tax rules have since changed and it is now no longer attractive to withdraw lump sums at age 65. While policy owners still have the choice to take a lump sum, Resolution Life proposed to amend the policy to provide for conversion to a modern allocated annuity that will provide better value. On that basis, Mr Goodsall came to the view that the proposed change was not prejudicial to the rights of policy owners and was in fact an overall advantage to the policy owners.
38 In respect of Resolution Life’s proposal to allow policy owners to remain invested in the deferred annuity until age 75 when it will be converted to the better value allocated annuity option, although this change could be considered more restrictive than Macquarie Life’s approach, Mr Goodsall noted that Macquarie Life had not given an undertaking that its approach would continue and in any event whether it may constitute a disadvantage to a policy owner depends on a policy owner’s individual circumstances. Taken as a whole, Mr Goodsall did not consider that the proposed change would materially adversely affect the interests of Macquarie Life policy owners.
Compliance with Dispensation Orders
39 The Dispensation Orders required the applicants to take specified steps intended to notify policy owners and others of the Scheme and of the applicants’ application to have the Scheme confirmed by this Court. The evidence of the applicants’ compliance with the Dispensation Orders was contained in Mr Rasker’s two affidavits, Ms Bekric’s affidavit, and Mr Tuddenham’s second affidavit.
40 The following may be gleaned from that affidavit evidence:
(a) A Notice of Intention was published on 23 August 2022 in the Commonwealth Government Notices Gazette, the Australian and The Australian Financial Review, in a form approved by APRA.
(b) Dedicated email addresses were established by both Macquarie Life and Resolution Life to receive enquiries about the Scheme. No enquiries directly related to the Scheme were received at those email addresses.
(c) Macquarie Life undertook a mail out of the Scheme Summary and relevant Product Information Sheets, sending 189 letters in total; Macquarie Life sent 77 emails to policy owners and their attorneys and 62 emails to financial advisers of Macquarie Life policy owners with copies of the Scheme Summary and Relevant Product Information Sheets; 75 policy owners received an SMS message; and an outbound telephone call was made to all policy owners with a landline or mobile phone number recorded in Macquarie Life’s systems. Of the 207 policy owners recorded in Macquarie Life’s systems, only 18 were unable to be contacted by these methods or through other engagement with its contact centre.
(d) The Scheme materials were published online on the Macquarie website from 23 August 2022 and the website was visited on 101 occasions by persons external to Macquarie as at 27 September 2022, with a further 8 external visitors as at 3 October 2022. The Scheme materials were also published from 23 August 2022 on the Resolution Life website, which was visited 137 times as at 23 September 2022.
(e) The Scheme materials were made available for public inspection in each State and Territory from 29 August 2022 to 19 September 2022, and were inspected on one occasion in Victoria.
41 Strict compliance with Orders 2(e) and 2(n) of the Dispensation Orders was not achieved by the applicants. Order 2(e) required the applicants to “establish dedicated email addresses for each of the Applicants as specified in the Notice of Intention and Scheme Summary to receive enquiries about the Scheme”. Order 2(n) required the applicants to “send an SMS to Macquarie Life Policy Owners” setting out, among other things, that “they can access key documents relating to the transfer via the Macquarie Website.”
42 Macquarie Life did establish a dedicated email address, however, the dedicated email address was not in fact specified in the Notice of Intention in the form approved by APRA and annexed to the Dispensation Orders. Rather, the Notice of Intention contained telephone contact details for Macquarie Life’s call centre and the lawyers for Resolution Life, and also details of the Macquarie website. The dedicated email address was hyperlinked on the Macquarie website and was also contained in a Macquarie Help Centre article, and was included in the correspondence sent to policy owners and advisers.
43 Macquarie Life did cause an SMS message to be sent to 75 policy owners. Macquarie Life was able to send an SMS message to policy owners resident in Australia or New Zealand using its automated SMS system. However, in respect of two policy owners, SMS messages were not able to be sent because the mobile telephone numbers on record for those policy owners were not Australian or New Zealand telephone numbers and the automated SMS system functionality was limited to Australian and New Zealand telephone numbers. For those two policy owners with international mobile numbers, Macquarie Life had an email address on file and the policy owners received an email notification relating to the Scheme. Both emails were successfully sent, without Macquarie Life receiving a bounce back notification. Attempts to contact the policy owners by outbound call were also made.
The position of APRA
44 Ms Westgarth appeared for APRA at the confirmation hearing. Ms Westgarth submitted that, based on APRA’s review of the evidence and the submissions put forward by the applicants, it was satisfied that confirming the Scheme in the form proposed by the applicants was appropriate. In particular, APRA was satisfied that the proposed transfer would not result in any overall detriment to the affected policy owners. This was said to be the case for five principal reasons.
45 First, the reasonable benefit expectations and the benefit security of affected policy owners are likely to be maintained by the Scheme. The impact of the proposed changes to the policy terms and conditions and administrative changes were adequately addressed in the accompanying actuarial reports and were supplemented by an analysis set out in a legal opinion obtained by the applicants and shared with the affected policy owners. The actuarial reports concluded that the proposed changes would not be detrimental to affected Macquarie Life and existing Resolution Life policy owners, moreover, they will in fact enhance options available to the transferring Macquarie Life policy owners and the transfer will avoid rises in fees which would otherwise be likely to occur if the Scheme were not confirmed.
46 Secondly, Resolution Life will remain in a sound financial position following the transfer and will continue to meet regulatory capital requirements.
47 Thirdly, the costs of the Scheme were to be met by the shareholders.
48 Fourthly, there is evidence to suggest that Resolution Life maintains a critical focus on its corporate culture, including ensuring appropriate risk management and customer focus practices.
49 Fifthly, although there were no material remediation projects underway nor any class actions anticipated or commenced, the proposed modifications to the Scheme made it clear that any liabilities arising from Macquarie Life’s pre-completion conduct would be met by Resolution Life with Resolution Life having rights to indemnity under the Transfer Agreement.
50 Ms Westgarth further submitted that APRA was satisfied that there had been substantial compliance with the Dispensation Orders. The two instances of non-compliance adverted to were not, in APRA’s view, material. In the context of there being a small number of affected Macquarie Life policy holders who were not contacted through direct channels, the steps taken to draw out any reasonable objections to the Scheme, and the limited inquiries made by the affected policy owners, APRA was satisfied that no reasonable objections had been raised against the Scheme.
51 Ms Westgarth described APRA’s role in the process as “active” and “closely engaged”, ensuring that the Scheme documents and actuarial reports were subject to “robust scrutiny”.
52 APRA was also supportive of a proposal, which was raised at the confirmation hearing, to give affected policy owners a further notice, within a specified time, after confirmation of the Scheme should such confirmation occur.
Applicable statutory provisions and principles
53 The objects of the Act 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.
54 The provisions applicable to curial supervision of schemes of transfer are contained in Part 9 of the Act.
55 Section 190 of the Act is expressed 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.
56 Section 193 relates to applications to the Court for confirmation and provides as follows:
(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.
57 Section 194 sets out what the Court must have regard to in considering whether to exercise its discretion to approve a proposed scheme:
(1) The Court may:
(a) confirm a scheme without modification; or
(b) confirm the scheme subject to such modifications as it thinks appropriate; or
(c) refuse to confirm the scheme.
(2) In deciding whether to confirm a scheme (with or without modifications), the Court must have regard to:
(a) the interests of the policy owners of a company affected by the scheme; and;
(b) if a report relevant to all or part of the scheme has been filed with the Court under section 175 –– that report; and
(c) any other matter the Court considers relevant.
58 By s 195 of the Act, when a scheme is confirmed it becomes binding on all persons and has effect notwithstanding anything in the constitution of the company affected by the scheme. The company on whose application the scheme was confirmed must cause a copy of the scheme to be lodged at an office of ASIC in every State and Territory in which a company affected by the scheme carried on business.
59 As the permissive language of s 194 of the Act makes clear, the confirmation of a scheme is a matter of the Court’s discretion; it is not a matter of course nor is it a mere formality: Asteron Life & Superannuation Limited, in the matter of Asteron Life & Superannuation Limited (No 3) [2021] FCA 1148 at [126]; 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].
60 As to the principles informing the exercise of the Court’s discretion, it is sufficient to repeat what I said in Asteron at [127]–[129]:
[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), 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 properly 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
61 I was satisfied that it was appropriate to make orders that the Scheme be confirmed in the form proposed to the Court on 5 October 2022.
62 I was satisfied that the Dispensation Orders were substantially complied with. The two instances of non-compliance discussed at [41]–[43] above were not of a nature which would have materially adversely affected relevant policy owners. The two instances of non-compliance with the Dispensation Orders may be characterised as minor, in the context of the applicants’ efforts to contact policy owners by a multitude of channels and the clear and public display of means by which interested persons could contact the applicants to inquire about the Scheme.
63 Having regard to the considerations set out in s 194(2) of the Act, I was satisfied on the evidence before me that the Scheme would not materially adversely affect the interests of the affected policy owners. Indeed, as canvassed in the actuarial reports, the affected Macquarie Life policy owners are likely to benefit from transferring to a company with a desire to manage, and expertise in managing, legacy life insurance portfolios, with anticipated longer-term improvements in customer service and benefit outcomes.
I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Chief Justice Allsop. |
