On 16 August 2019, the UK High Court declined to sanction the transfer of a portfolio of annuity policies from Prudential Assurance Company Ltd (Prudential) to Rothesay Life PLC (Rothesay) under Part VII of the Financial Services and Markets Act 2000. In an unexpected decision, the Judge exercised his discretion to refuse to sanction the transfer principally based on the annuity holders' argument that they had reasonably assumed that Prudential would provide their annuities for the rest of their lives. The implications of this decision could be far reaching and affect future proposed transfers of long term life insurance portfolios.


In March 2018, the parties entered into a reinsurance agreement under which Rothesay agreed to reinsure GBP12.0 billion of Prudential's annuity liabilities, with the intention that the policies would later transfer to Rothesay by way of Part VII Transfer. The parties sought the Court's sanction for the Part VII Transfer of approximately 370,000 annuity policies from Prudential to Rothesay (the Scheme). The Scheme was motivated by Prudential's desire to reduce its regulatory capital requirements in connection with a planned demerger of the Prudential group.

The independent expert's report reached a number of conclusions supportive of the Part VII transfer, including that:

  • both companies have a very high level of security for policyholders (based on SCR coverage ratios);
  • the protection afforded by both companies' capital management policies was broadly comparable;
  • the fact policyholders would be transferring from Prudential (a multi-line insurer with a wide variety of life and pensions business) to Rothesay (a mono-line insurer which was only exposed to annuity policies) would not have a material effect on the security of transferring policyholders' benefits;
  • Rothesay, like Prudential, would continue to be subject to FCA and PRA regulation; and
  • Rothesay would use the same outsourced service provider so there was no reason to believe that service levels experienced by policyholders would change.

The PRA and the FCA also reported to the Court that they had no objections to the Scheme.

However, a number of the transferring policyholders opposed the Scheme, largely on the basis that they had specifically selected Prudential as their annuity provider for life and their policies should not, therefore, be transferred against their will to a smaller insurer with a very different history and reputation, simply to further the commercial interests of Prudential with respect to its proposed demerger.

The Judge broadly accepted these objections and refused to sanction the Scheme (although the reinsurance agreement remains in place and, unaffected by the Court decision). In his judgment, Mr Justice Snowden made the following observations:

  • The Court had to decide whether it was appropriate to sanction a scheme, and had to take into account all the circumstances of the case1. The Court's discretion was “of very real importance [and] not in any way intended simply as a 'rubber-stamp' for the opinion of the independent expert or the views of the regulators”2.
  • Annuity holders had exchanged a lump sum for the provider's promise to make regular payments for the rest of the annuity holder's life. For many the annuity policy would provide their only or main source of retirement income. Annuity holders were not able to change provider. The characteristics of an annuity were therefore such that annuity holders would be particularly concerned to select a company with a good reputation and financial standing which they trusted. Their position was different from that of holders of general insurance policies or workplace pensions, who could change to another provider if they did not like the transferee.
  • Prudential had not made a contractual promise never to seek to transfer the polices to another provider, but statements it had made to policyholders - for example that they were buying a lifetime annuity with Prudential meant it was reasonable for policyholders to make the assumption that it would be Prudential and no other company that would be providing their annuity for the rest of their life; the Judge would therefore take this into account in the exercise of his discretion.
  • Although both companies currently had strong capital positions, the Judge considered he could not disregard the possibility that Prudential or Rothesay might require external financial support over the lifetime of the annuitants, in which case Prudential would be likely to be supported by the very substantial resources of the Prudential group (which would have a commercial imperative to protect its brand). The Judge accepted that policyholders had chosen Prudential on the basis of among other things its age and established reputation, and Rothesay did not have those attributes.
  • The commercial objective sought by Prudential from the Scheme had been largely achieved by the reinsurance agreement with Rothesay that was already in place.


This decision is concerning for insurers looking to transfer and assume annuity portfolios in future - such market participants might previously have thought that a positive independent expert report and non-objection from the regulators would be enough to secure Court sanction.

This decision does not mean that it will be impossible to transfer annuity books in future: Snowden J confirms in his judgment that annuities such as those provided by Prudential are transferable under Part VII as a matter of law and contract, and that the fact policyholders might reasonably have assumed that Prudential would never transfer them was simply a factor to be taken into account in the Court's exercise of discretion. Accordingly (he says) the result might have been different if the transfer had been proposed on different terms, or if there had been less disparity between the transferor and transferee in characteristics policyholders reasonably considered important in selecting an annuity provider.

Nonetheless, if the approach in this case is followed when future Part VII schemes come before the Court, it could be significantly harder to get approval for annuity portfolios, or other books consisting of long term life insurance business where the policyholder has a reasonable expectation of a continuing commitment from the provider he originally selected. This decisions may also cause the regulators to scrutinise in more detail any objections raised by policyholders during the Part VII process.


1 see section 111(3) of FSMA

2 Quoting Briggs J, Re Pearl Assurance (Unit Linked Pensions) Limited [2006] EWHC 2291 (Ch)

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