Federal Court of Australia

AIA Australia Limited, in the matter of AIA Australia Limited [2023] FCA 167

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to subsection 191(5) of the Life Insurance Act 1995 (Cth) (the Act), the need for compliance with paragraph (c) of subsection 191(2) of the Act be dispensed with insofar as it requires that a summary of the Scheme approved by the Australian Prudential Regulation Authority (APRA) (Scheme Summary) be given to:

(a)    each owner of policies issued by AIA Australia Limited, the First Applicant, referable to its Statutory Funds No.1, No.1L, No.2L and No.4 (AIAA Life Policy Owners); and

(b)    each owner of policies issued by Resolution Life Australasia Limited, the Second Applicant, referable to its Statutory Funds No.1, No.2 and No.3 (Resolution Life Policy Owners),

provided that the Applicants comply with order 2 below.

2.    The Applicants carry out the following steps:

Publication

(a)    on or shortly after 17 March 2023, publish the notice of intention to make the application to the Court for confirmation of the Scheme (Notice of Intention), in the form of Annexure A to these orders and as approved by APRA, in the Commonwealth Government Notices Gazette;

(b)    on or shortly after 22 March 2023, publish the Notice of Intention, in the form of Annexure A to these orders and as approved by APRA, in the newspapers approved by APRA as listed in Annexure C to these orders;

Webpages and email

(c)    from on or shortly after 17 March 2023 (but not before the Notice of Intention has been published in the Commonwealth Government Notices Gazette), up to and including the Effective Time (as defined in the Scheme document), make copies of the following documents available for viewing and download on the dedicated webpages set out in order 2(d) (webpages):

(i)    the Notice of Intention;

(ii)    the Scheme document;

(iii)    the Scheme Summary;

(iv)    the actuarial report of Jeroen van Koert, the Appointed Actuary of the First Applicant;

(v)    the actuarial report of Greg Martin, the Appointed Actuary of the Second Applicant; and

(vi)    the actuarial report of David Goodsall, an independent actuary,

(together, the scheme documents);

(d)    from on or shortly after 17 March 2023 (but not before the Notice of Intention has been published in the Commonwealth Government Notices Gazette), up to and including the Effective Time, include links to the following dedicated Scheme webpages:

(i)    www.aia.com.au/part9scheme on the “AIA Australia” branded website of the First Applicant;

(ii)    www.resolutionlife.com.au/aia-transfer on the “Resolution Life” Australian-branded website of the Second Applicant; and

(iii)    www.resolutionlife.co.nz/aia-transfer on the “Resolution Life” New Zealand-branded website of the Second Applicant;

(e)    from on or shortly after 17 March 2023 (but not before the Notice of Intention has been published in the Commonwealth Government Notices Gazette) until the date of the confirmation hearing of the Scheme, include access to an online enquiry form on each webpage, which can be accessed to submit enquiries about the Scheme;

(f)    from on or shortly after 17 March 2023 (but not before the Notice of Intention has been published in the Commonwealth Government Notices Gazette) until the date of the confirmation hearing of the Scheme, establish a dedicated email address for each Applicant as specified in the Notice of Intention and Scheme Summary to receive enquiries about the Scheme;

Mail out

(g)    on or shortly after 22 March 2023, send, by regular pre-paid post, the Scheme Summary to AIAA Life Policy Owners, except for those AIAA Life Policy Owners:

(i)    whose policies will not transfer to the Second Applicant as part of the Scheme (Remaining AIAA Life Policy Owners); or

(ii)    for whom the First Applicant has no record of a current mailing address;

(h)    for AIAA Life Policy Owners for whom the First Applicant has no record of a current mailing address as at the date of the mail out in order 2(g), the First Applicant will:

(i)    attempt to contact the AIAA Life Policy Owner by SMS via their nominated mobile phone number and email address to obtain an updated mailing address; and

(ii)    where the First Applicant obtains an updated mailing address in accordance with order 2(h)(i), send, by regular pre-paid post, the Scheme Summary to that AIAA Life Policy Owner;

(i)    in the event that any posted material referred to in orders 2(g) and 2(h) is returned undelivered up to and including 15 days prior to the date of the confirmation hearing, to the extent reasonably practicable, follow the returned mail procedure (as described in the affidavit of Mark Moss on 15 February 2023) for the posted material referred to in orders 2(g) and 2(h);

Call Centre

(j)    from on or shortly after 17 March 2023 up to and including the date of the confirmation hearing, each Applicant to utilise its existing call centres to handle calls about the Scheme made to the toll free phone number in Australia specified in the Notice of Intention and Scheme Summary (each, a call centre);

(k)    train call centre staff to handle calls to the call centre relating to the Scheme;

Other Notification

(l)    on request, from on or shortly after 17 March 2023 until the date of the confirmation hearing, as soon as reasonably practicable, provide a copy of the scheme documents to the AIAA Life Policy Owners and Resolution Life Policy Owners free of charge;

(m)    for persons who become AIAA Life Policy Owners, other than Remaining AIAA Life Policy Owners, on or after the date that the addressees are extracted for the mail out in order 2(g) up to the Effective Time, provide a copy of the Scheme Summary in the welcome pack provided to such AIAA Life Policy Owner or send, by regular pre-paid post, the Scheme Summary in a standalone letter to the new AIAA Life Policy Owner;

(n)    from on or shortly after 17 March 2023 (but not before the Notice of Intention has been published in the Commonwealth Government Notices Gazette), send, by email, a link to the scheme documents, to:

(i)    independent financial advisers who are on a distribution list maintained by the First Applicant as at 10 March 2023; and

(ii)    independent financial advisers who are on a distribution list maintained by the Second Applicant as at 8 March 2023;

(o)    from on or shortly after 17 March 2023, send, by email, a link to the scheme documents to Resolution Life Policy Owners who are corporate policy owners of group life insurance policies;

(p)    from on or shortly after 22 March 2023 (but not before the Notice of Intention has been published in the Commonwealth Government Notices Gazette), publish a short notification about the Scheme, including details of how affected policy owners can access further information about the Scheme, through a LinkedIn page maintained by Resolution Life Australasia Limited, accessible at https://www.linkedin.com/company/resolution-life-group; and

Public Inspection

(q)    from 23 March 2023 to 14 April 2023, make a copy of the scheme documents available for public inspection from 9.00am to 5.00pm on weekdays (excluding public holidays) at each location approved by APRA and set out in Annexure B to these orders.

3.    In the event that any of the locations referred to in order 2(q) above is situated in a State or Territory affected by a public health order made in response to the COVID-19 pandemic (COVID-19 Health Order) which restricts the movement of persons from their place of residence, or restricts the ability of persons to attend their place of work, or restricts the movement through or entry into that area, the Applicants are not required to comply with order 2(q) above in the affected State or Territory, provided that until the date of the confirmation hearing, they publish notification on the webpages, which provides that certain locations for public inspection of the scheme documents are closed by reason of a COVID-19 Health Order and that policy owners can contact the call centre, or email the dedicated email addresses referred to in order 2(f), or otherwise access an electronic copy of the scheme documents on the webpages.

4.    The application be adjourned to 31 May 2023 at 10:15 am AEST for a confirmation hearing.

5.    The Applicants pay APRA’s costs of the proceedings to date, as agreed or assessed.

6.    The Applicants and APRA be given liberty to apply on two days’ notice.

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

Annexure A – Notice of Intention

NOTICE OF INTENTION

Proposed transfer of the superannuation and investments (S&I) life insurance business of AIA Australia Limited ABN 79 004 837 861 (AIAA) to Resolution Life Australasia Limited ABN 84 079 300 379 (Resolution Life)

AIAA and Resolution Life give notice of their intention to make an application to the Federal Court of Australia (Federal Court) for confirmation of a scheme under Part 9 of the Life Insurance Act 1995 (Cth) to transfer the S&I life insurance business of AIAA to Resolution Life (the Scheme). The proposed effective date of the transfer is 12.01am (AEST) on 1 July 2023 (the Effective Time).

The application is scheduled to be heard on 31 May 2023, or on such other time or date as the Federal Court appoints.

The hearing will be heard at the New South Wales Registry of the Federal Court, located at the Law Court’s Building, Queen’s Square, Sydney.

Affected policy owners have the right to attend the hearing and can request to be heard by the Court.

If the Scheme is confirmed by the Federal Court, then it is proposed that with effect from the Effective Time, Resolution Life will assume all of AIAA’s rights and liabilities in relation to all S&I life insurance policies issued by AIAA. The S&I life insurance policies are the risk and investment life policies referable to AIAA’s S&I life insurance business, which are in-force or which have expired but under which benefits remain payable or a person has a guaranteed renewal right. The list of AIAA life policies that will be transferred under the Scheme can be viewed online at:

•    www.aia.com.au/part9scheme; and

•    www.resolutionlife.com.au/aia-transfer.

Each transferring S&I life policy of AIAA will become a Resolution Life policy referable to the corresponding statutory fund of Resolution Life, as shown in the table below:

The contractual benefits and rights of AIAA policy owners will remain unchanged, other than:

•    a change to the insurer;

•    a change to the relevant statutory fund;

•    for certain term life, disability income, trauma and life insurance policies, inclusion of a right for Resolution Life to make changes to the policy terms and insurance benefits provided under the policy but only where there is no adverse impact on policy owners or other insured persons; and

•    for certain insurance bond and allocated annuity policies, inclusion of a right for Resolution Life to make changes to the unit pricing used for transactions, to change from historical pricing to forward pricing.

There will be no changes to Resolution Life policies as a result of the Scheme.

If you are affected by the Scheme

Any policy owner who may be affected by the Scheme is entitled to attend the court hearing and request to be heard on the application. If you wish to be heard at the hearing, please contact the lawyers for AIAA, Ashurst, Level 16, 80 Collins Street, Melbourne VIC 3000 (telephone 03 9679 3000) or Resolution Life, Herbert Smith Freehills, Level 34, 161 Castlereagh Street, Sydney NSW 2000 (telephone 02 9225 5000) before the hearing date.

If you wish to obtain further information on your rights as a policy owner or if you have any questions about the Scheme, please contact:

•    AIAA on 1800 879 078 or by emailing supportpart9@aia.com; and

•    Resolution Life on 133 731 or by emailing AIAtransfer@resolutionlife.com.au.

A copy of the Scheme document, the actuarial reports upon which the Scheme is based, and an independent actuarial report on the Scheme can be viewed online at:

•    www.aia.com.au/part9scheme; and

•    www.resolutionlife.com.au/aia-transfer.

A Scheme summary has been sent to affected AIAA policy owners.

These documents will also be available for inspection between 9am and 5pm each weekday from 23 March 2023 to 14 April 2023 (except public holidays in the relevant State or Territory) at the following places:

Any AIAA policy owner and any Resolution Life policy owner may obtain a copy of the Scheme document and the actuarial reports, free of charge, from the above offices during the inspection period, or by calling AIAA on 1800 879 078 or Resolution Life on 133 731.

It is in the interests of policy owners to examine the Scheme document and the actuarial reports so as to assure themselves that the Scheme, if confirmed, will not adversely affect their interests.

If you have any questions or feedback

If you have any questions or feedback in relation to the proposed transfer under the Scheme, or if you require further information on your rights as a policy owner, please contact:

•    AIAA on 1800 879 078 or by emailing supportpart9@aia.com; and

•    Resolution Life on 133 731 or by emailing AIAtransfer@resolutionlife.com.au.

Annexure B – Locations for Public Inspection

1.    In New South Wales, at the offices of Herbert Smith Freehills (Level 34, ANZ Tower, 161 Castlereagh Street, Sydney NSW 2000);

2.    In Queensland, at the offices of Herbert Smith Freehills (Level 31, 480 Queen Street, Brisbane QLD 4000);

3.    In South Australia, at the offices of DMAW Lawyers (Level 10, 81 Flinders Street, Adelaide SA 5000);

4.    In Victoria, at the offices of Herbert Smith Freehills (Level 24, 80 Collins Street, Melbourne VIC 3000);

5.    In Western Australia, at the offices of Ashurst (Level 10, 123 St Georges Terrace, Perth WA 6000);

6.    In Tasmania, at the offices of Dobson Mitchell Allport Lawyers (59 Harrington Street, Hobart TAS 7000);

7.    In the Australia Capital Territory, at the offices of Chamberlains Law Firm (Level 8, 224 Bunda Street, Canberra ACT 2601); and

8.    In the Northern Territory, at the offices of HWL Ebsworth (Level 9, Mitchell Centre, 59 Mitchell Street, Darwin NT 0800).

Annexure C – Newspapers for notification

1.    In New South Wales, The Sydney Morning Herald and The Daily Telegraph;

2.    In Queensland, The Courier Mail;

3.    In South Australia, The Advertiser;

4.    In Victoria, The Age and the Herald Sun;

5.    In Western Australia, The West Australian;

6.    In Tasmania, The Mercury and The Examiner;

7.    In the Australia Capital Territory, The Canberra Times;

8.    In the Northern Territory, The Northern Territory News; and

9.    Nationally, The Australian and The Australian Financial Review.

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    These reasons concern an application for orders pursuant to s 191(5) of the Life Insurance Act 1995 (Cth) (Life Act) dispensing with the need for compliance with the obligation imposed by s 191(2)(c) of that Act to give to certain life insurance policy owners an approved summary of a scheme to transfer a life insurance business between companies that are carrying on life insurance business in Australia. The application was made by AIA Australia Limited (AIAA) and Resolution Life Australasia Limited (RLA) as the first and second applicants, respectively, and was heard on 22 February 2023, on which occasion the orders which appear immediately before these reasons were made. These are the reasons for those orders.

2    It is proposed that AIAA will transfer the substantial part of its superannuation and investments life insurance business to RLA under a scheme to be confirmed by the Court, in accordance with the requirements in Part 9 of the Life Act. For ease of reference, the proposed transfer is referred to herein as the “Scheme”, that word taking the same meaning that it bears in Part 9 of the Life Act.

3    In essence, the orders sought on this application are for dispensation from the obligation under s 191(2)(c) of the Life Act to provide certain “affected policy owners” with a copy of a prescribed document, being an approved summary of the Scheme (the Scheme Summary). There is a large number of both AIAA and RLA policy owners who, by reason of the implementation of the Scheme, are expected to fall within the definition of “affected policy owner” set out in s 191(1) of the Life Act. The application appears, in substance, to be made on the basis that the giving of the Scheme Summary to many of these policy owners should not be required, having regard to the expense involved and the lack of utility.

4    In summary, the policy owners in respect of whom dispensation is sought, as set out in the material before the Court on this application, are as follows:

(a)    policy owners in AIAA’s Statutory Fund No.1 whose policies are not being transferred to RLA, although other policies in that fund are to be transferred;

(b)    AIAA policy owners whose policies will be transferred, but for whom AIAA has no record of a current mailing address;

(c)    AIAA policy owners who acquire an AIAA policy which will be transferred to RLA pursuant to the Scheme, but do so only after the date on which the process of mailing out the Scheme Summary to affected policy owners is commenced; and

(d)    RLA policy owners other than those who are corporate policy owners of group life insurance policies issued by RLA.

5    As will become apparent, the general underlying rationale advanced for the relief is at least threefold: the relevant policy owners (apart from, perhaps, those for whom no current mailing address is available) will not be affected adversely by the sale and transfer effected by the Scheme, the cost of giving them the Scheme Summary will be out of proportion to any benefit, and the wide publicity that will be given to the Scheme will likely be sufficient to ensure that it is brought to their attention in any event, such that all relevant objections to the Scheme are able to be raised at the confirmation hearing.

Background

6    AIAA is an Australian registered, foreign owned, unlisted public company, being a wholly owned subsidiary of AIA Company Limited, which is a life insurance company incorporated in Hong Kong. AIA Company Limited is ultimately wholly owned by AIA Group Limited, which is also incorporated and listed in Hong Kong.

7    Part of AIAA’s business includes the provision of life insurance coverage for individuals either directly or indirectly through businesses and superannuation funds. It is a “life company” registered under the Life Act.

8    AIAA presently has a significant share of the life risk insurance market in Australia.

9    In 2017, it entered into an arrangement to acquire the life insurance business of Colonial Mutual Life Assurance Limited (CMLA). That business was transferred to it in 2021 in accordance with Part 9 of the Life Act. The CMLA business included a large portfolio of life insurance business, which relevantly encompassed the CMLA Superannuation and Investments life insurance business (the S&I life insurance business).

10    As at 30 June 2022, AIAA provided life insurance products to over seven million customers with $11.9 billion of gross policy liabilities and $15.2 billion of assets. Its business is operated through five statutory funds and a shareholder fund.

11    Following a recent review of its portfolio in Australia, AIAA concluded that its S&I life insurance business did not have the scale necessary to support the required level of ongoing investment. It no longer considers that particular business to be part of its core strategic focus and it seeks to exit that area of the market by selling that part of its business to RLA.

12    RLA is a part of the Resolution Life group of companies (Resolution Life Group). The Resolution Life Group is a global life insurance group focussed on the acquisition and management of in-force portfolios of life insurance policies. It has a worldwide operation and its business focusses on consolidating in-force life insurance companies and portfolios, including substantial portfolios of business managed on a “closed to new business” basis. In other words, it does not sell new policies but instead acquires portfolios of already written insurance, and it specialises in managing this form of insurance through to the completion of policy liability, including through RLA (formerly AMP Life Limited). Presently, RLA is growing its participation in the Australian market and, in accordance with this strategy, seeks to acquire the ex-CMLA S&I life insurance business held by AIAA. RLA claims that it is sufficiently capitalised, and claims that it provides a stable environment to deliver on long-term obligations to customers. It has a large portfolio of superannuation and investment products, including the largest participating fund in Australia.

13    The material before the Court raises no doubt as to the adequacy of RLA’s capitalisation, although this is discussed in more detail below. Relevant to the present application, it operates its life insurance business through three statutory funds, being Statutory Funds No.1, No.2 and No.3. It also maintains a separate shareholder fund.

14    The evidence before the Court shows that, as at 30 June 2022, RLA had approximately 910,000 policies with approximately $22.3 billion of policy liabilities, which were supported by approximately $26.1 billion of assets. The largest of its funds was Statutory Fund No.1, which had assets of approximately $21.9 billion supporting 821,000 policies.

15    On 23 February 2022, RLA and AIAA entered into a “Business Transfer Agreement” which, inter alia, set out the commercial arrangements between them in relation to the sale and transfer of AIAA’s S&I life insurance business. To a large degree, that business consists of the CMLA business transferred to AIAA in around 2021.

16    For present purposes, it can be accepted that the proposed transfer of the S&I life insurance business is consistent with RLA’s business model and will permit it to add incremental scale to its existing business to the benefit of the transferring policy owners.

17    The proposed transfer involves approximately 125,000 policies which carry $6.2 billion of policy liabilities (net of reinsurance) as at 30 June 2022.

18    As set out in the actuarial reports filed in support of the orders sought, the following AIAA business is proposed to be transferred:

(a)    part of AIAA’s No.1 Fund, consisting of (inter alia) life risk, participating and non-participating whole of life and endowment, investment account and annuities business including ex-CMLA policies;

(b)    AIAA’s No.1L Fund, which consists of ex-CMLA ordinary (non-superannuation) unit-linked regular/single premium savings and investment business;

(c)    AIAA’s No.2L Fund, which consists of ex-CMLA superannuation and deferred annuity unit-linked regular/single premium savings and investment business; and

(d)    AIAA’s No.4 Fund, which consists of ex-CMLA superannuation unit linked allocated pension and allocated annuity business.

19    The Business Transfer Agreement imposes on AIAA the obligation of providing to RLA the underlying computer systems and administration of business management staff supporting these portfolios.

20    Hereinafter in these reasons, the policies being transferred are described as the “Transferring AIAA Life Policies” and the owners of those policies are described as the “Transferring AIAA Life Policy Owners”.

Overview of proposed Scheme

21    The Scheme, which is to give effect to the Business Transfer Agreement, is proposed to cause the transfer of AIAA’s ex-CMLA S&I life insurance business to RLA. Any such transfer is subject to the confirmation of the Court under s 194 of the Life Act, approval by the Foreign Investment Review Board under the Foreign Acquisitions and Takeovers Act 1975 (Cth), as well as the approval of the Treasurer under the Insurance Acquisitions and Takeovers Act 1991 (Cth). Those latter approvals are yet to be obtained.

22    The Transferring AIAA Life Policies consist of those relevant policies that are in-force immediately prior to the “Effective Time” of the Scheme (being the time and date on which the Scheme comes into effect), as well as any life policies which have expired but under which benefits may remain payable, or in respect of which a person has a guaranteed renewal right as at the Effective Time of the Scheme.

23    If the Scheme proceeds, the consequence will be:

(a)    the Transferring AIAA Life Policies referable to AIAA’s Statutory Fund No.1 (which does not include all of the policies in that fund) will be transferred to RLA’s Statutory Fund No.1;

(b)    the Transferring AIAA Life Policies referable to AIAA’s Statutory Fund No.1L will be transferred to RLA’s Statutory Fund No.3; and

(c)    the Transferring AIAA Life Policies referable to AIAA’s Statutory Funds No.2L and No.4 will be transferred to RLA’s Statutory Fund No.2.

24    From the Effective Time of the Scheme, RLA will acquire AIAA’s rights and assume its liabilities and obligations (including the obligation to pay benefits) in respect of the Transferring AIAA Life Policies.

25    Some life policies of AIAA in its Statutory Fund No.1 will not be transferred as part of the Scheme. All of the AIAA policies referable to its Statutory Fund No.3 are also excluded from the sale. Collectively, these policies are referred to as the “Remaining AIAA Life Policies” and, similarly, the owners of the policies are referred to as the “Remaining AIAA Life Policy Owners”.

26    As at the Effective Time, presently proposed to be 12.01am AEST on 1 July 2023, the Transferring AIAA Life Policy Owners will become RLA policy owners. Subject to minor proposed changes to the terms of a small number of the policies, the rights and liabilities of the Transferring AIAA Life Policy Owners will be the same in all respects as they would have been if the applications on which those policies were based had been accepted by RLA instead of AIAA and the policies had originally been issued by RLA.

27    Further, each Transferring AIAA Life Policy will become referable to the RLA Statutory Fund to which they are transferred and references in those policies to AIAA will be read as references to RLA.

28    Any claims or proceedings in connection with a Transferring AIAA Life Policy will be maintained or continued by or against RLA.

29    Finally, other business contracts (as listed in Schedule 3 to the Scheme document) and each Reinsurance Treaty under which AIAA is a cedant (as listed in Schedule 4 to the Scheme document) will transfer to RLA.

Relevant legislation

30    Sections 190 and 191 of the Life Act provide as follows:

190    Transfer or amalgamation of life insurance business

(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.

…

191    Steps to be taken before application for confirmation

(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.

31    Regulations 9.01 and 9.02 of the Life Insurance Regulations 1995 (Cth) provide as follows:

9.01    Copy of scheme for transfer etc. to be given to APRA

(1)    For the purposes of paragraph 191(2)(a) of the Act, a copy of:

(a)    the scheme; and

(b)     each actuarial report on which the scheme is based;

must be given to APRA before a notice of intention to apply to the Court for confirmation of the scheme is published in accordance with regulation 9.02.

9.02    Notice of intention to apply for confirmation of scheme

(1)    For the purposes of paragraph 191(2)(b) of the Act, an applicant to the Court for confirmation of a scheme must publish a notice of intention to make the application, in a form approved by APRA:

(a)    in the Gazette; and

(b)    in one or more newspapers, approved by APRA, circulating in each State and Territory in which there is a register of life policies that includes the relevant policy of an affected policy owner.

(2)     A notice under subregulation (1) must:

(a)    state that an affected policy owner may get a copy of the scheme from the place, within the times, and for the period, set out in subregulation (4); and

(b)    give the address of each place at which a copy of the scheme may be obtained.

(3)    The notice must be published before the scheme is released for public inspection under subregulation (4).

(4)    A copy of the scheme must be open for public inspection from 9.00 a.m. until 5.00 p.m. every day (except weekends and public holidays), for a period of at least 15 days, at:

(a)    an office of the applicant; or

(b)    another location approved, in writing, by APRA;

in each State and Territory in which there is a register of life policies that includes the relevant policy of an affected policy owner.

Principles relating to the application of s 191(5)

32    The above sections must be construed in accordance with the object and purpose of the legislation, which is identified in s 3(1) of the Life Act as being, inter alia, to protect policy owners, both current and prospective, “in a manner consistent with the continued development of a viable, competitive and innovative life insurance industry”. It has been held that the regime under Part 9 of the Life Act was adopted as a means of achieving this object: Asteron Life & Superannuation Ltd, in the matter of Asteron Life & Superannuation Ltd (No 3) (2021) 394 ALR 89, 106 [82] (Asteron Life).

33    The particular object of s 191(2)(c) is to accord every affected policy owner the benefit of receiving a copy of the Scheme Summary and an opportunity, if they so desire, to make submissions to the Court in respect of any application for confirmation of the Scheme: The Application of Commonwealth Life Ltd (2003) 12 ANZ Insurance Cases ¶90-117, 86,315 [8]. With that in mind, the granting of dispensation must be regarded as a matter of considerable importance and care must be taken before the requirements of the provisions are dispensed with: QBE Insurance Australia Ltd, in the matter of QBE Insurance Australia Ltd [2012] FCA 1127 [16]; OnePath Life Ltd, in the matter of OnePath Life Ltd [2022] FCA 406 [8] (OnePath Life). Dispensation is not to be granted as a matter of course: Asteron Life 107 [87].

34    However, the legislature must be taken to have appreciated that the life insurance industry, which is regulated by the Life Act, operates on a large scale, particularly insofar as it concerns insurance which is linked to superannuation funds and the like. Policy owners of some funds can number in the hundreds of thousands and it is not unreasonable to expect that the discretion in s 191(5) to make orders regarding dispensation was inserted partly with that understanding in mind, conscious of the enormous time and expense that might be required to furnish each and every policy owner with the prescribed documents.

35    The structure of s 191(5) is relatively straightforward. There exists what might be described, albeit inaccurately, as a “subjective jurisdictional fact” on which the discretionary power is conditioned, being the Court’s satisfaction that, because of the nature of the scheme or the circumstances attending its preparation, it is not necessary that s 191(2)(c) be complied with. Once the Court is so satisfied, the residual discretion is cast in general and possibly untrammelled terms: cf National Mutual Life Association of Australasia Ltd, the application of National Mutual Life Association of Australasia Ltd and AMP Life Ltd [2016] FCA 1219 [35] (National Mutual Life) per Gleeson J; Asteron Life, 107 [88]. However, the practical reality is that, once the Court has reached the required state of satisfaction, that fact alone is likely to impel the exercise of the discretion in the applicant’s favour. The essential question is therefore likely to be whether the Court has reached that state of satisfaction.

36    On the other hand, in Macquarie Life Ltd, in the matter of Macquarie Life Ltd [2016] FCA 973 (Macquarie Life) at [26], the discretion in s 191(5) was addressed in a manner tending to suggest that the provision had a more singular operation. The statutory concepts of “the nature of the scheme” and “the circumstances attending its preparation” were woven into the exercise of the discretion itself, rather than being treated as matters which informed the availability of the jurisdiction to exercise the discretion. The Chief Justice 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 benefits or entitlements and security of policy owners in respect of whom dispensation is sought; evidence by qualified actuaries as to whether policy owners in respect of whom dispensation is sought will be detrimentally affected by the scheme; the practical difficulties and the costs involved in providing approved summaries of the scheme to policy owners in respect of whom dispensation is sought; the extent to which the proposed scheme may be brought to the notice of policy owners by means other than the scheme summary being sent to each individually; and the involvement and attitude of APRA to the application.

37    This approach has been relied upon and adopted in subsequent decisions: see National Mutual Life at [34] per Gleeson J (where her Honour listed separately and developed these considerations); St George Life Ltd, in the matter of St George Life Ltd [2018] FCA 1206 (St George Life) [30] per Markovic J; The Colonial Mutual Life Assurance Society Ltd, in the matter of the Colonial Mutual Life Assurance Society Ltd [2020] FCA 1809 (Re CMLA) [31] per Gleeson J; Asteron Life, 107 [88] and 110 [96]; OnePath Life at [9] per Jagot J.

38    In the practical application of s 191(5), it is unlikely that there will be any real difference of outcome whichever construction is applied. Nevertheless, it would seem preferable that s 191(5) be accorded its natural meaning. It follows that the Court should first, as a matter of fact, ascertain whether it is satisfied that, because of the nature of the scheme or the circumstances attending its preparation, it is not necessary that s 191(2)(c) be complied with. If the Court is so satisfied, a broad discretion then arises, in the exercise of which the Court is empowered to decide whether dispensation should be permitted and, if so, on what terms.

Who is an affected policy owner?

39    An important issue in the operation of s 191(2)(c) of the Life Act is the identification of those persons who qualify as “affected policy owners”. Section 191(1) provides that an “affected policy owner” is the owner of a policy that is referable to a statutory fund affected by a scheme. The word “affected”, as used in this definition, takes its ordinary meaning as the past participle of the verb “affect”, which in turn means in this context “to have an effect on, either materially or otherwise”: Oxford English Dictionary (online resource) “affect” (v.2, def I). It follows that, where a scheme will “have an effect on” a statutory fund, the owner of a policy that is referable to that fund will fall within the statutory definition of “affected policy owner”.

40    In this case, the application of the definition gives rise to two issues:

(a)    which of the applicants’ statutory funds are “affected” by the Scheme; and

(b)    who are the “owners” of the policies referable to the statutory funds affected by the Scheme.

41    The first question is not difficult. All of the policies referable to AIAA’s Statutory Funds No.1L, No.2L and No.4 are transferring to RLA such that each of those funds is “affected” by the Scheme. Further, as some of the policies referable to the AIAA’s Statutory Fund No.1 are transferring to RLA, that fund is also affected. Similarly, RLA’s Statutory Funds No.1, No.2 and No.3 are receiving policies from AIAA’s Statutory Funds, such that each of those RLA funds will be affected by the Scheme: see St George Life at [32].

42    By contrast, AIAA’s Statutory Fund No.3 is neither transferring nor receiving any policies under the Scheme and there is nothing that might otherwise suggest that it will be “affected” in any relevant way: see Macquarie Life at [22] – [25] per Allsop CJ. There is also nothing in the evidence to suggest any potential weakness in either the transferring or receiving funds which would affect Statutory Fund No.3. Mr Jeronimus van Koert, the Chief Actuary of AIAA, observes in section 4.2.1 of his report, in evidence on this application, that the capital adequacy multiple of AIAA’s Statutory Fund No.3 will be “unaltered” as a result of the implementation of the Scheme. It was submitted that this arises from the fact that the capital requirements for each fund are separate, and assets, liabilities and policy entitlements are “ring-fenced” within each fund. In these circumstances, it can be accepted for the purposes of this application that the policy owners referable to AIAA’s Statutory Fund No.3 will not be “affected policy owners” for the purposes of the Scheme.

Who is the owner of a life policy?

43    The second question, regarding the identity of the “owners” of policies referable to affected statutory funds, requires more detailed consideration. It now appears to be well accepted that, in relation to schemes under the Life Act, the owner of a policy is the person to whom the policy is issued and who is defined as the owner: cf Macquarie Life at [22]. This follows, in particular, from s 10 of the Life Act, which relevantly provides:

10    Issue and ownership of policies

(1)    For the purposes of this Act:

(a)    a life company issues a policy when the company enters into the contract that constitutes the policy; and

(b)    a policy is issued to the person with whom the life company enters into the contract.

(2)    For the purposes of this Act, the owner of a policy is:

(a)    the person to whom the policy is issued; or

(b)     if the rights of that person under the policy have been assigned under this Act or transferred by the operation of the policy, the person who has those rights.

44    In Macquarie Life, Allsop CJ observed at [27]:

… the definition of “affected policy owner” in s 191(1) which read with s 10 makes it tolerably clear that persons who may have insured rights, such as members of superannuation funds, are not policy owners.

45    See also the observations of Markovic J in St George Life at [35] and Allsop CJ in Asteron Life at 106 – 107 [85] – [86].

46    Applying these principles, for the purposes of the current application, the policy owners are:

(a)    individuals who hold a current contract for life insurance in their own name;

(b)    superannuation trustees or employers who enter into policies in their own name for the benefit of members of the funds or employees, respectively, but not the members of the funds or the employees themselves;

(c)    certain categories of recently lapsed or cancelled policies, being:

(i)    policies that have lapsed or have been cancelled as a result of a failure to pay the required premiums, but which can be reinstated within a particular period if the policy owner resumes payment of their premiums;

(ii)    policies that have lapsed but are the subject of an unresolved dispute or ongoing litigation; and

(d)    policy owners who are being remediated.

Whether dispensation should be granted

47    It is now appropriate to turn to the question of whether, in light of the nature of the Scheme or the circumstances attending its preparation, it is not necessary that the identified affected policy owners be given a copy of the approved Scheme Summary. In this respect, the consideration of the Scheme’s nature requires an analysis of the transactions that are to occur in its implementation and their impact on the affected policy owners.

The position of APRA

48    In determining whether the Court is satisfied that it is not necessary to comply with s 191(2)(c) and, if so, whether the discretion in s 191(5) should be exercised in the applicants’ favour, the position of the regulator is relevant. APRA has the necessary expertise in the area of life insurance to fully appreciate the intricacies of a transfer of substantial business from one life company to another, and the overall impact of such a transfer occurring. In this case, the Court is grateful to have received APRA’s submissions on several issues, no doubt reflecting its considered view of the Scheme and its proposed implementation.

49    In summary, APRA’s submissions are to the following effect. First, that it has engaged in lengthy discussions with the applicants in relation to the Scheme since June 2022, in the course of which they provided it with drafts of the Scheme documents from time to time and accommodated all of its proposed changes to the several versions of those documents. Second, it has approved a number of the critical documents for the implementation of the Scheme in accordance with the Life Act, including the Notice of Intention and the Scheme Summary. It accepts that those documents have been drafted in plain language, so that the two minor proposed changes to the terms of certain policies are clearly disclosed. Third, it is satisfied that the steps proposed to publicise the proposed Scheme are sufficient to ensure that any reasonable objections that policy owners might have to the Scheme will be made known to the applicants, APRA and the Court for due consideration on their merits at the confirmation hearing. Fourth, that the orders sought by the applicants on this application are appropriate.

50    Whilst the Court is to be satisfied for itself that the power in s 191(5) of the Life Act should be exercised, the considered submissions from APRA assist it in reaching a conclusion on each of the matters discussed below.

The nature of the Scheme

51    The nature of the Scheme is ascertainable from the description provided in the scheme document required to be produced in accordance with the requirements set out in s 190(3) of the Life Act and given to APRA pursuant to s 191(2)(a). In general terms, certain life insurance business and associated assets are to be transferred from AIAA to RLA with the consequence that, for all intents and purposes, from the Effective Time RLA will be taken to be the insurer of the owners of those policies as if it had been from the inception of the policies. The Scheme’s essential features are:

(a)    on and from the Effective Time, the S&I life insurance business of AIAA will be transferred to RLA, which will obtain and assume all rights and benefits (including the assets transferred) and all obligations and liabilities of the business;

(b)    RLA will become the issuer of the Transferring AIAA Life Polices and AIAA will cease to be the issuer of those policies;

(c)    the Transferring AIAA Life Policy Owners will cease to be owners of AIAA policies and will become owners of RLA policies;

(d)    the rights and liabilities of the Transferring AIAA Life Policy Owners will, except in a small number of instances, remain the same in all respects as they would have been if their policies were originally taken out with RLA;

(e)    certain specified changes will be made to the terms of approximately 400 of the Transferring AIAA Life Policies so as to make them consistent with the vast majority of the other Transferring AIAA Life Policies;

(f)    AIAA will be released from all liabilities and obligations under, or in respect of, the Transferring AIAA Life Policies;

(g)    RLA will be entitled to the rights and benefits under, or in respect of, the policies, such as the right to receive fees and premiums, and to enforce all rights and remedies under the policies and at law, as well as being deemed to have been given all the directions, authorities, mandates and instructions which previously vested in AIAA to (inter alia) deduct premiums and fees payable in respect of the policies;

(h)    RLA must be substituted for AIAA in any proceedings in progress in connection with the Transferring AIAA Life Policies; and

(i)    RLA also assumes the position of AIAA under a wide range of contracts listed in Schedule 3 to the Scheme document that relate to the Transferring AIAA Life Policies and, concurrently, AIAA is released and discharged from all obligations and liabilities under those contracts.

52    For the purposes of this application, the nature of the Scheme so described raises the issue of the relative positions of the policy owners now and when the Scheme is put into effect. If the policy owners, or some of them, will be worse off as a result of the implementation of the Scheme, then the requirement to inform them of the Scheme and its operation will necessarily demand more stringent adherence. The converse might follow where it is expected that the carrying out of the Scheme will be beneficial to the policy owners or neutral, in the sense that it will not negatively impact their rights and interests.

Publication of the Scheme

53    In this case, the dispensation sought by the applicants is intended to be qualified. In their application, they ask that the Court put in place, by a series of orders, a regime for the public advertising of the Scheme by a number of different methods and the establishing of several avenues by which interested parties may obtain relevant information about it. For ease of reference, this regime will be termed the “Publicity Strategy”. Importantly, it has been the subject of extensive consultation with APRA, leading ultimately to APRA’s concluding that it is appropriate in the circumstances.

54    The Publicity Strategy comprises the following steps:

(a)    On or shortly after 17 March 2023, the applicants will publish the required notice of intention to apply for confirmation of the Scheme (Notice of Intention) in the Commonwealth Government Notices Gazette and, on or shortly after 22 March 2023, will publish that Notice of Intention in newspapers which have been approved by APRA, including newspapers circulating in each State and Territory and two in national circulation.

(b)    From on or shortly after 17 March 2023, (but not prior to the publication of the Notice of Intention in the Gazette), and up to and including the Effective Time, the applicants will make copies of certain relevant documents available for viewing and downloading on dedicated web pages. Those documents include the Notice of Intention, the Scheme document, the Scheme Summary, certain expert actuarial reports prepared by Mr van Koert (of AIAA), Mr Gregory Martin (of RLA), and Mr David Goodsall (an independent actuary). These are together referred to as the “Scheme Documents”.

(c)    During that same period, the applicants will provide links to various web pages containing the Scheme Documents and provide a link to an online enquiry form on each web page. They will also provide a dedicated email address for each applicant as specified in the Notice of Intention and Scheme Summary to receive enquiries about the Scheme.

(d)    On the assumption that the dispensation sought in this application is granted, the applicants will send the Scheme Summary by regular pre-paid post to all owners of AIAA life policies (the AIAA Life Policy Owners) except those who will not transfer to RLA (being the Remaining AIAA Life Policy Owners) and those policy owners for whom no record of a current mailing address exists.

(e)    In relation to those AIAA Life Policy Owners for whom no record of a current mailing address exists, the applicants will attempt to contact them by their known nominated mobile phone number and email address in an attempt to obtain an updated mailing address and, where a mailing address is provided, send a Scheme Summary by regular pre-paid post to that address.

(f)    If material sent out pursuant to the above process is returned undelivered, further attempts will be made to ascertain a new mailing address and, if one is found, the material will be sent to it.

(g)    From on or shortly after 17 March 2023, and up to the date of the confirmation hearing, each applicant will utilise its existing call centres to handle calls concerning the Scheme made to the toll free number specified in the Notice of Intention and Scheme Summary and will train call centre staff to handle such calls.

(h)    The applicants will also provide a copy of the Scheme Documents to any another AIAA Life Policy Owners and owners of RLA life policies (RLA Life Policy Owners) free of charge as soon as reasonably practicable upon request.

(i)    Where a person becomes an AIAA Life Policy Owner (other than a Remaining AIAA Life Policy Owner) on or after the date that addresses are extracted for the mail out referred to above, up to the Effective Time, the applicants will provide a copy of the Scheme Summary in the “Welcome Pack” provided to that new policy owner, or the new policy owner will be sent the Scheme Summary in a standalone letter.

(j)    From on or shortly after 17 March 2023, but not prior to the publication of the Notice of Intention in the Gazette, the applicants will send, by email, a link to the Scheme Documents to independent financial advisors who are on a distribution list maintained by AIAA as at 10 March 2023 or who are on a distribution list maintained by RLA as at 8 March 2023.

(k)    From on or shortly after 17 March 2023, the applicants will send, by email, a link to the Scheme Documents to RLA Life Policy Owners who are corporate policy owners of group life insurance policies.

(l)    From on or shortly after 22 March 2023, but not prior to the publication of the Notice of Intention in the Gazette, the applicants will publish a short notification about the Scheme, including details of how affected policy owners can access further information about it through a LinkedIn page.

(m)    From 23 March 2023 to 14 April 2023, the applicants will make copies of the Scheme Documents available for public inspection during ordinary business hours at locations approved by APRA. The applicants have sought further orders by which they may be relieved from this requirement to facilitate public inspection and, instead, will publish certain notices making reference to substitute means of accessing the Scheme Documents or information about the Scheme, in the event that their ability to offer public inspection is affected by public health orders made in response to the COVID-19 pandemic.

55    These steps will all have been completed, or have been in place for a sufficient period, prior to the date set for the confirmation hearing on 31 May 2023.

56    The detail of the communications proposed by the above Publicity Strategy was set out in the affidavit of Mr Mark Moss (a Program Manager of AIAA) dated 15 February 2023, which was relied upon by the applicants in this dispensation application.

57    Clearly enough, the Publicity Strategy is extensive. It would appear to facilitate the broad public distribution of information about the proposed Scheme. The Court can be confident that it will bring the Scheme’s existence to the attention of those persons who might be interested in raising issues or concerns in relation to it, and who are not otherwise provided with a copy of the Scheme Summary. In particular, it is likely to bring the Scheme to the attention of those persons in respect of whom any orders are made dispensing with the existing notice requirement in s 191(2)(c) of the Life Act.

58    It follows that the application for dispensation is to be considered in the context of the Court otherwise making orders requiring the applicants to implement the Publicity Strategy, which is likely to ameliorate significantly any detriment that might conceivably have flowed from particular policy owners not personally receiving the Scheme Summary.

Proposed changes to terms and conditions of some policies

59    The Scheme contemplates the making of two changes to a small number of Transferring AIAA Life Policies. They are as follows:

(a)    First, a very small number of policies, approximately 354 in total, do not contain a term which allows the insurer to update and modernise the policy without the need for the individual policy owner to consent or “opt in”. The approximately 124,646 remaining policies to be transferred contain a term to that effect. Pursuant to the Scheme, it is proposed that the 354 policies be modified to include such a term.

(b)    Secondly, the large majority of policies which are to be transferred under the Scheme have benefits based on investment unit holdings multiplied by a unit price, where the unit prices are set on a “next price” or “forward price” basis in accordance with modern industry best practice and regulatory guidance. However, some 47 policies have terms that stipulate the use of a “last price” or “historic price” basis. It is proposed to amend those policies to allow them to be operated on a “next price” or “forward price” basis in the future.

60    These proposed changes are not applicable to the Remaining AIAA Life Policies or to the existing RLA Life Policies. They are applicable only to the Transferring AIAA Life Policies. Since it is intended that, subject to one minor exception, all of the Transferring AIAA Life Policy Owners will be given a copy of the Scheme Summary, it follows that the proposed changes do not affect the question to be determined on this application. The persons affected by the changes will receive the Scheme Summary whether or not the dispensation is ordered. The relevant exception to this position arises from the fact that, as identified previously, dispensation is sought in respect of those Transferring AIAA Life Policy Owners for whom AIAA does not have a record of a current mailing address. Conceivably, some of the persons whose policy wording is proposed to be altered may fall within this category. This possibility is addressed below.

Policy owners for whom there is no record of a current mailing address

61    It is apparent that there are approximately 19,836 persons within the group of Transferring AIAA Life Policy Owners for whom AIAA has no current mailing address. Whilst that number may seem high, it is to be kept in mind that the policies in question are described as “closed legacy products”, being policies which were acquired from CMLA and have been in existence for some time. It can be inferred that, in these circumstances, numerous policy owners have moved their residence and have failed to update their address with AIAA.

62    The basis on which the applicants seek to be relieved from the obligation to send the Scheme Summary to the policy owners for whom there is no record of a current mailing address is that compliance with s 191(2)(c) would, in these circumstances, be futile. This is undoubtedly the case. It was added that the mailing of the Scheme Summary is not the only method by which the applicants are intending to advise policy owners of the Scheme and its contents. As has been discussed, the orders dispensing with the need for full compliance with s 191(2)(c) will be accompanied by other orders imposing upon the applicants the obligation to comply with the Publicity Strategy. In particular, in relation to those persons for whom AIAA does not have a current mailing address, AIAA will be required to make attempts to contact them via their mobile phone number or email address and, where a current mailing address is ascertained, to then provide a copy of the Scheme Summary to those persons. The same process is to take place where material is sent to policy owners with known addresses, but is returned undelivered.

63    Further, the Notice of Intention approved by APRA will be advertised in newspapers across Australia. That notice provides an adequate explanation of the effect of the Scheme and how it is proposed to be implemented, as well as identifying sources through which policy owners may seek further information about the Scheme and obtain copies of the Scheme Documents.

64    Whilst the application anticipates that the Notice of Intention will also be published in the Commonwealth Government Notices Gazette, there is no evidence from which it can be inferred that this will bring the Scheme to the attention of many policy owners.

65    Overall, the steps that the applicants propose to take to publicise the Scheme and its intended implementation will likely be sufficient to bring the Scheme to the attention of most policy owners, even if those policy owners do not receive a copy of the Scheme Summary. In these circumstances, it is appropriate to make an order dispensing with the requirement to give the Scheme Summary to persons for whom AIAA has no record of a current address at the date of the intended mail out.

66    It should be mentioned that there is a possibility that all of the approximately 401 identified policy owners whose policies are intended to be subject to changed terms and conditions are within the class of 19,836 persons for whom AIAA holds no current mailing address. That possibility may be remote, but as these persons’ rights are liable to be more greatly impacted than others, it is not inappropriate to afford them further consideration. However, in the first instance, the probability that all of the 401 persons whose policy terms might alter as a result of the implementation of the Scheme are also without a recorded current mailing address is minimal. Secondly, even if that were to be the case, there is a high likelihood that a good portion of those persons will become aware of the Scheme and its effects as a result of the proposed Publicity Strategy, including the initiatives in it that are intended specifically to locate policy owners who do not have a recorded current mailing address. Thirdly, at a prima facie level, the presently unchallenged actuarial evidence before the Court indicates that the alterations to the terms and conditions of the small number of policies in question are likely to be of little moment, if not actively advantageous. There is no need to determine that point finally on this application. It is sufficient, for present purposes, that there is some not insignificant evidence to that effect.

67    It follows that the fact that the Scheme Summary will not be sent to 19,836 policy owners in the initial mail out is not a reason to expect that those persons whose policy terms are proposed to be changed as part of the Scheme will not be sufficiently informed of the Scheme or afforded an appropriate opportunity to make submissions in relation to the proposed alterations. The remote possibility that a person whose policy is subject to change will not receive notice of the Scheme does not present a significant obstacle to the Court’s being satisfied that it is not necessary for s 191(2)(c) to be complied with.

Persons who become policy owners after the date of the mail out of the Scheme Summary

68    The next set of policy owners in respect of whom dispensation is sought are those who only become AIAA Life Policy Owners (other than Remaining AIAA Life Policy Owners) after the date that the addresses for the policy owners are extracted for the purposes of the mail out but prior to the Effective Time. As the mail out will be to thousands of persons, once the relevant addresses are extracted for the initial mail out, there would be significant complication were adjustments required each time a new policy emerged.

69    However, the applicants’ proposal is not to the effect that these new policy owners will not be given a copy of the Scheme Summary; rather, it is that they will be given a copy subsequent to the initial mail out. The orders that establish the Publicity Strategy include a requirement that, in relation to each of those persons who becomes a policy owner after the commencement of the mail out and up to the Effective Time of the Scheme, a copy of the Scheme Summary will be included by AIAA in the “Welcome Pack” provided to them, or will otherwise be sent to them by regular pre-paid post in a standalone letter.

70    It is not immediately apparent that dispensation is required in these circumstances, as the applicants intend to give the Scheme Summary to the affected policy owners in any event and the matter is merely a question of timing. Nevertheless, to put beyond doubt the efficacy of the steps that the applicants propose to take, it is concluded that the orders sought in relation to this set of policy owners should be made.

71    The making of the orders can otherwise be supported by reason of the fact that these policy owners are likely to become aware of the Scheme and its intended implementation as a consequence of the performance of the Publicity Strategy. Indeed, it may be that they become aware of the Scheme prior to their receipt of the Scheme Summary through the other modes of notification prescribed in the Publicity Strategy.

The Remaining AIAA Life Policy Owners in AIAA Statutory Fund No.1

72    Dispensation is also sought in respect of the Remaining AIAA Life Policy Owners in AIAA Statutory Fund No.1, even though they are undoubtedly “affected policy owners” within the meaning of s 191(1) of the Life Act. The persons within this category are life policy owners in AIAA’s Statutory Fund No.1 whose policies are not to be transferred. Only a relatively small number of members of that fund will be transferred to RLA. Those whose policies will not be transferred, and who will remain in that fund, number approximately 500,000. There will be no alteration to the terms and conditions of their policies as a result of the Scheme’s implementation. Nevertheless, the fact that the composition of Statutory Fund No.1 will be altered to a not insignificant degree has the consequence that the members of that fund are properly characterised as “affected policy owners”.

73    The first ground supporting dispensation in respect of this class is that the cost of giving a copy of the Scheme Summary to all 500,000 persons is disproportionate to any benefit that they might obtain from its receipt. In his affidavit of 15 February 2023, Mr Mark Moss deposes that the cost of mailing out copies of the Scheme Summary to these persons would be in the vicinity of $1,160,000. Although the cost of informing affected policy owners might, on some occasions, be a justification in and of itself for granting dispensation, such circumstances are not likely to be common. In this case, however, the cost of compliance is not advanced as the singular reason for the relief sought. It is coupled with the proposition that, if the Publicity Strategy is implemented, there will be ample notice of the Scheme to the not insignificant number of Remaining AIAA Life Policy Owners. In the circumstances, where it has been determined that the Publicity Strategy is comprehensive and likely to bring the Scheme to the attention of many affected policy owners, there is greater justification for the making of orders dispensing with the need to give personal notice to the Remaining AIAA Life Policy Owners in AIAA Statutory Fund No.1.

74    However, the applicants also rely upon the further ground that, although the Remaining AIAA Life Policy Owners are “affected policy owners”, they will suffer no actual detriment if the Scheme is carried into effect. This ground was supported by reference to two actuary reports, one by Mr van Koert, AIAA’s Chief Actuary, and the other by Mr Goodsall, an independent actuary. Both considered the impact of the Scheme on the Transferring AIAA Life Policy Owners as well as the Remaining AIAA Life Policy Owners.

75    Mr van Koert, who was particularly familiar with the internal organisation and operation of AIAA, considered the consequences of the Scheme’s implementation on the policy owners’ rights and interests. He concluded that the transfer of the Transferring AIAA Life Policy Owners to RLA would not materially prejudice the contractual benefits and rights of either them or the Remaining AIAA Life Policy Owners. After addressing the issues of the management of participating business/bonus philosophy, the investment strategy and asset allocation, administration and systems, product and pricing strategy and claims management, he concluded that the proposed transfer will not adversely impact the reasonable benefit expectations of Transferring AIAA Life Policy Owners or the reasonable benefit expectations of the Remaining AIAA Life Policy Owners. Mr van Koert also concluded that the security of their respective benefits will continue to be appropriate following the transfer.

76    The applicants also relied on the report of Mr Goodsall, who addressed, amongst other things, the question of the financial impact on, and benefit security of, several groups of policy owners following the implementation of the Scheme. He identified that, in reviewing benefit security, he had considered the impact of the Scheme on the financial position of the policy owners of each Statutory Fund of both AIAA and RLA, including the amount of capital in each fund compared to the applicable statutory obligations, the way in which capital is managed, and projections of capital. Although his opinions on the topic of benefit security were not entirely specific, his overall conclusion was stated to be that there would be “no adverse impact” on benefit security to the Transferring AIAA Life Policy Owners, Remaining AIAA Life Policy Owners, or RLA Life Policy Owners. In particular, Mr Goodsall projected that AIAA’s Statutory Fund No.1 would sustain a small increase in its “capital adequacy multiple” as a result of transfer proposed by the Scheme. The capital adequacy multiple is the ratio of the “capital base”, being the net assets of the fund less regulatory adjustments, to the “prescribed capital amount”, being the minimum capital a life company is required to hold in each statutory fund as specified in standards determined by APRA pursuant to s 230A(1) of the Life Act.

77    AIAA sought to draw an analogy between the position of the Remaining AIAA Life Policy Owners and the position of policy owners in a receiving fund, who do not themselves transfer as a result of a scheme. In this connection, it relied in its written submissions on the decision in St George Life to contend as follows:

Dispensation from the requirement to notify such owners of policies referable to a receiving fund has been granted in multiple instances. See, in particular, the St George Scheme at [32], where Markovic J noted that “there are many cases where unqualified dispensation has been granted under the [Life Act] to policy owners referable to the receiving fund who experience no change in their relationship with the insurer, where the relevant statutory fund remains intact and the actuarial evidence is to the effect that the interests of those policy owners are not prejudiced by the scheme”.

78    With respect, there is a slight misstatement in this passage to the extent that it might imply that the words in quotation marks were the observations of Markovic J. At paragraph [32] of her reasons, her Honour was, in fact, reciting submissions made on behalf of the plaintiffs in that case. Nevertheless, it can be accepted that, where the fund in question remains intact, the actuarial evidence indicates that the relevant policy owners are not adversely affected by the proposed scheme, and those policy owners retain their erstwhile relationship with the insurer, there are good grounds to conclude that the provision of an approved summary of the scheme would, as a matter of practicality, be somewhat redundant. Precisely this position is anticipated to arise in relation to the Remaining AIAA Life Policy Owners.

79    On this issue, it is also useful to consider the indicia which have been taken to inform the exercise of the discretion to dispense with the requirements of s 191(2)(c) in prior decisions of this Court, as set out by Allsop CJ in Re Macquarie Life and developed by Gleeson J in National Mutual Life. As explained above, it may be that those indicia are properly to be regarded as going to what the language of s 191(5) suggests is a logically prior question of the availability of the jurisdiction to exercise the discretion. Ultimately, however, the difference between the two constructions of s 191(5) has no effect on the outcome of this case. It is convenient to set out the indicia as summarised by Gleeson J in National Mutual Life, as follows:

34.    While each case necessarily turns on its own facts, the considerations which have been taken into account in the exercise of the discretion to grant dispensation include:

(1)    the intra-group nature of a scheme due to the lack of, or limited, difficulty in passing on a claim that is made on the transferring insurer to the receiving insurer: see Calliden Group Limited in the matter of Calliden Group Limited [2007] FCA 2019 (“Re Calliden Group”); MMIA Pty Ltd and QBE Insurance (Australia) Limited [2008] FCA 1239 (“Re MMIA”);

(2)    the nature of the scheme and whether it involves changes to the contractual benefits or entitlements and security of policy owners in respect of whom dispensation is sought;

(3)     evidence by qualified actuaries as to whether policy owners in respect of whom dispensation is sought will be detrimentally affected by the scheme;

(4)     the practical difficulties and the costs involved in providing a scheme summary to policy owners in respect of whom dispensation is sought;

(5)     the extent to which the scheme may be brought to the attention of policy owners by means other than the scheme summary;

(6)     the lack of material changes to policy terms and conditions: see Re QBE; and

(7)     the involvement and attitude of APRA to the application: see Re Calliden Group; Re MMIA; Westport Insurance Corporation, in the matter of Westport Insurance Corporation [2009] FCA 1357; (2009) 16 ANZ Insurance Cases 61-830; American Home Assurance Company, in the matter of American Home Assurance Company [2010] FCA 1499; Re QBE.

80    Addressing the indicia most relevant to the circumstances of this case, where the policy owners in question are those who remain in the transferring fund, the following observations can be made:

(a)    the actuarial evidence discloses that the Scheme will not involve changes to the contractual benefits or entitlements and security of Remaining AIAA Life Policy Owners and that no such policy owner will be detrimentally affected by the Scheme;

(b)    the evidence before the Court also shows that giving the Scheme Summary to the Remaining AIAA Life Policy Owners will be practically onerous and expensive, it having been estimated that the cost of providing the Scheme Summary to those persons would be approximately $1.16 million;

(c)    AIAA and RLA will undertake a number of other steps to ensure that the Scheme is widely and publicly advertised;

(d)    no changes will occur to the policy terms and conditions for the Remaining AIAA Life Policy Owners; and

(e)    the applicants have engaged regularly with APRA in relation to the Scheme, and APRA has indicated that it has no comments to make in relation to either the content of the documents proposed to be used to notify the affected policy owners or the means of communicating with those policy owners.

81    Here, there is sufficient evidence to conclude that the AIAA Life Policy Owners, whether they will remain in Statutory Fund No.1 or will have their policies transferred out of that fund, will not be adversely affected by the Scheme, and their rights, entitlements and benefits will remain the same without being diminished in value. This factor, combined with the fact that it would be unduly expensive to give to each of the Remaining AIAA Life Policy Owners in AIAA Statutory Fund No.1 a copy of the Scheme Summary, and the fact that the proposed publicity of the Scheme will probably be effective to bring the Scheme to those policy owners’ attention in any event, is to satisfy the Court that compliance with s 191(2)(c) is not necessary in respect of those policy owners. In the absence of any other matter favouring a contrary conclusion, is appropriate to exercise the discretion in s 191(5) to dispense with the requirement to give the Scheme Summary to the Remaining AIAA Life Policy Owners in AIAA Statutory Fund No.1.

The RLA Life Policy Owners

82    For similar reasons, dispensation orders are sought in respect of the obligation to give a Scheme Summary to the RLA Life Policy Owners in RLA’s Statutory Funds No.1, No.2 and No.3. Those funds are recipients of the Transferring AIAA Life Policies, such that the Scheme can be said to have an effect on the funds and each policy owner referable to them thereby falls within the definition of “affected policy owner”.

83    Again, the core reason for seeking dispensation appears to be the substantial cost involved in sending a copy of the Scheme Summary to each of the 910,000 RLA Life Policy Owners. The evidence establishes that the approximate cost is $1.36 million. As was the case in relation to the Remaining AIAA Life Policy Owners, that is not an insignificant amount of money, although the cost alone is probably an insufficient reason for granting the dispensation.

84    Nevertheless, the Publicity Strategy which forms part of the proposed orders will also bring the Scheme to the attention of the RLA Life Policy Owners and will provide them with the ability to acquire all relevant information in relation to it. In particular, the Publicity Strategy requires RLA to publish the Scheme Documents on dedicated webpages targeted towards the policy owners and financial advisers, send email links to those documents to those RLA Life Policy Owners who are corporate policy owners of group life insurance policies and to independent financial advisers on a distribution list maintained by RLA, and publish a notification on its LinkedIn page. It can be surmised that a large number of the relevant policy owners will, by these means, become informed of the Scheme, such that it is most likely that any issues relevant to their position will be ventilated at the confirmation hearing: Asteron Life at 108 – 110 [92] – [96]; OnePath Life [15].

85    The applicants also relied upon the proposition that, in any event, the Scheme and its implementation will not have any adverse impact upon the RLA Life Policy Owners. This was sought to be established by reliance on both the report of Mr Martin, who is the appointed actuary of RLA pursuant to the Life Act, and the report of Mr Goodsall.

86    Mr Martin’s report involved an extensive analysis of the potential impact of the transfer, addressing a range of metrics. There is no need to embark on a detailed consideration of that analysis, which is accurately summarised in the following:

Resolution Life Existing Policyholders

In terms of the Resolution Life’s policyholders’ contractual benefits and rights, there will be no change to the contractual benefits and rights of the existing policyholders of Resolution Life 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 Resolution Life as a result of the Proposed Transfer. For the policies that have benefits linked to underlying investment performance, as for the similar AIAA transferring policyholders, the increase in scale of Resolution Life’s overall investment portfolio provides enhanced opportunities for investment risk-return and investment management cost outcomes for these policyholders.

In terms of the policyholders’ benefit security, each of the statutory funds of Resolution Life, and Resolution Life as a whole, will remain in a sound financial position and the existing policyholders’ benefit security will remain appropriate after the Proposed Transfer. Indeed, the increase in overall operational scale and business revenues that the transferring AIAA business will provide, is expected to enhance future Resolution Life financial resilience.

There are no material disadvantages for the existing policyholders of Resolution Life as a result of the Proposed Transfer.

87    In his written submissions, Mr Hollo SC for RLA very properly identified that, as set out in Mr Martin’s report, a consequence of the implementation of the Scheme would be that the total of RLA’s potential liabilities across its three Statutory Funds would increase by 28%, whilst its assets would increase by only 25%. However, as Mr Martin identified, RLA would nevertheless continue to soundly and adequately meet the regulatory capital amounts (including the prescribed capital amount determined by APRA, as mentioned above) as well as any higher prudential capital requirements, and it would continue to satisfy its internal capital reserving benchmarks. The result of this was that the risk profile for RLA Life Policy Owners would not materially change, and the position after the transfer under the Scheme would remain sound and appropriate for them.

88    In his report, Mr Goodsall addressed the Scheme’s impact on the financial security of RLA Life Policy Owners and concluded that, were the Scheme to be carried out, RLA would continue to maintain assets in excess of its prescribed capital amount for each of its funds and sub-funds. While he also observed that there would be a decrease in the capital adequacy multiple in relation to RLA Statutory Fund No.1, this did not mean a reduction in benefit security as long as the resulting excess capital was sufficient to support the fund. In the present case, the capital adequacy multiple of Statutory Fund No.1 and its sub-funds was in excess of 200%, which is considered strong for funds of this nature.

89    The applicants have accordingly established in respect of the RLA Life Policy Owners that, due to the nature of the Scheme and the circumstances attending its preparation, it is not necessary that those policy owners be given a copy of the Scheme Summary.

Conclusion

90    In relation to the application as a whole, it has been established that, due to the nature of the Scheme and the circumstances attending its preparation, it is not necessary that s 191(2)(c) of the Life Act be complied with in respect of several categories of affected policy owners. For that reason, and because there are no other countervailing considerations, the discretion in s 191(5) should be exercised to make the orders for dispensation sought in the application.

Associate:    

Dated:    8 March 2023