The Prudential annuities transfer to Rothesay Life was blocked over concerns about capital guarantees and the fact Prudential had failed to inform clients of the option, it has emerged.
The deal between the providers, which was first announced in March 2018, was denied in the High Court last week after judge Justice Snowden found the provider had never mentioned to its clients that a transfer to another provider could occur.
He also found there was a fair degree of disparity between the two providers, which could impact clients, with Rothesay being “a relatively new entrant without an established reputation in the business”.
The deal would have seen £12bn of annuities moved from Prudential to Rothesay Life, covering around 400,000 policies.
It had already been approved by the regulators but the court documents revealed there was opposition from a number of policyholders who had assumed Prudential was committed to making payments to them for the remainder of their lives.
In the absence of any clear statement to the contrary, the judge found it was reasonable for policyholders to have assumed that the company wouldn’t seek to transfer their policies to another provider.
Mr Snowden said many policyholders would have chosen the Prudential Assurance Company – a subsidiary of Prudential - as the provider for their annuities based on its age, established reputation and the financial support it would be likely to receive from the wider Prudential group if the need were ever to arise.
“These factors mean that the choice of policyholders to take their lifetime annuities from PAC itself carries significant weight,” he noted.
Rothesay Life on the other hand, which was established in 2007, doesn’t have the same capital management policies, or the backing of a large group to support it should the need arise over the lifetime of the annuity policies, Mr Snowden said.
He said the “reliance which policyholders would then have to place upon an uncertain capital raising exercise from the investors in Rothesay, or the markets more generally, is a material disadvantage” for the transferring savers.
Mr Snowden said his decision might have been different if the transfer was proposed to policyholders on different terms, or if there was less disparity between the two providers.
In a statement released on Friday Prudential 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.”
It is believed the decision could impact other similar deals.
Closed-book annuity transfers have become more popular since after the financial crisis, as insurers are looking to free up capital to comply with stricter capital adequacy requirements under the Solvency II rules.
This was the case with Aegon, which sold two thirds of its UK annuity portfolio to Rothesay Life in 2016, and Standard Life Aberdeen, which sold its book of insurance contracts, including annuities and workplace pensions, in 2018 to Phoenix Life.
FTAdviser reported today that Canada Life will seek court approval to take over the Retirement Advantage annuities book, covering around 26,600 policies and £2bn of assets.
Tom Selby, senior analyst at AJ Bell, noted that the High Court decision doesn’t have any impact on policyholders in the short-term.
But he added: “If insurers looking to complete similar deals in the future are unable to do so – and thus are blocked from offloading business and reducing their capital obligations – this could seep through into the rates and charges in other parts of the business.
“More fundamentally, sometimes when you hear of ‘books of business’ being sold off from one company to another the end investor is forgotten.
“This ruling is a stark reminder that there are real people relying on these incomes – incomes they have committed to for life - whose interests must be protected.”
maria.espadinha@ft.com
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