Court of Appeal gives green light to Pru's £12bn annuity sale

Court of Appeal gives green light to Pru's £12bn annuity sale

The Court of Appeal has overturned a High Court ruling which blocked the transfer of £12bn of annuities from Prudential, now M&G, to Rothesay Life.

In a judgment, published yesterday (December 2), the Court of Appeal rejected all of the previous judge’s objections to the transfer forcing the High Court to review the transfer.

In response a spokesperson from M&G said: “We welcome the Court of Appeal’s judgment, which concluded that the original judge made errors in his approach to assessing whether the transfer should be allowed to go ahead. 

“This means that the original decision will not stand and the High Court will be asked to assess the proposed transfer again and make a new decision as to whether the transfer should be allowed to go ahead.”

In March 2018, Prudential announced its plan to sell £12bn of annuities to derisking expert Rothesay Life, covering 400,000 policies.

But in August 2019, a High Court judge blocked the sale, otherwise known as a Part VII transfer, which raised concerns around other such deals in the annuities market in the future.

Judge Justice Snowden found Prudential 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”.

However, the Court of Appeal judges, Sir Geoffrey Vos, Lord Justice David Richards and Sir Nicholas Patten, said the High Court had been “wrong” to find there was a material disparity.

They also found the previous court had accorded too much weight to this argument and instead the question should be whether there was a “material adverse effect” on the policyholders. 

It stated: “If the policyholders’ prospects of being paid are essentially the same with and without the scheme, it was hard to see how there could be any material adverse effect on the policyholders’ security of benefits caused by the scheme”.

Hammad Akhtar, head of corporate insurance at Pinsent Masons, said the decision will lead the way for all future Part VII transfers.

He said: “The Court of Appeal went further than it perhaps needed to when setting out its reasons for allowing the appeal. 

“Many will now question whether the role of the court is limited to rubber stamping proposed transfers of insurance businesses where the main actuarial consideration is the likely impact of the transfer on the security of benefits of policyholders. 

“It will be interesting to see how the courts approach future application in light of this and whether the onus on the different parties involved in such applications has changed”

Meanwhile, Michael Abramson, partner at Hymans Robertson, said today’s decision will be well received by the insurance industry.

He said: “At the same time, the robust process that we have seen in action demonstrates to policyholders, be they pension schemes with buy-ins or individual annuitants, the high level of regulatory and legal oversight in the industry.