On the go: The High Court of England and Wales has taken the exceptional step of blocking the transfer of a £12bn portfolio of annuities from The Prudential Assurance Company Limited, a subsidiary of M&GPrudential, to Rothesay Life – leaving a question mark over future deals of this nature.
Mr Justice Snowden, explaining the rationale for the decision, said on Friday that when purchasing annuity policies customers might have chosen Prudential because of “its age, its established reputation and the financial support which it would be likely to receive from the accumulated resources of the wider Prudential group if the need were ever to arise”.
He said Rothesay was “a relatively new entrant without an established reputation in the business”.
He noted that Rothesay’s capital strength was currently as robust as that of Prudential. However, he said Rothesay “does not have the same capital management policies or the backing of a large group with the resources and a reputational imperative to support a company that carries its business name if the need were to arise over the lifetime of the annuity policies”.
The current benefits, terms and conditions, and service for the policyholders covered by the proposed transfer are unaffected, according to Prudential.
In March 2018, PAC entered into an agreement with Rothesay Life to reinsure £12bn of shareholder-backed annuity liabilities with the intention that this would be followed by a transfer of the business pursuant to Part VII of the Financial Services and Markets Act 2000.
Prudential said in a statement on August 17 that this reinsurance arrangement remains in place and the High Court’s judgment has no effect on the current capital position of the Prudential, which as at June 30 2019 had an estimated Solvency II surplus of £3.7bn.
The High Court judgment is also expected to have no impact on the timetable for the demerger of M&GPrudential from Prudential plc, which is expected to complete in the fourth quarter of 2019.
The Prudential statement said: “We are disappointed by the High Court’s decision. The Independent Expert, who was appointed to report to the High Court, concluded the transfer would have no material adverse effect on the security of benefits or the reasonable benefit expectations of our policyholders.”
Rothesay Life also issued a statement on August 17 pointing out that “neither the Prudential Regulatory Authority nor the Financial Conduct Authority objected to the transfer”.
It added: “The reinsurance transaction agreements contain provisions to address this outcome and whilst it is not the preferred or optimal outcome for either party, it will not have a material impact on Rothesay Life as a whole. Rothesay Life and PAC are committed to a long-term relationship irrespective of the outcome of the proposed insurance business transfer.”
Rothesay Life and PAC have been granted leave to appeal the judgment by the High Court.
