In the matter of Division 3A of Part IIIA of the Insurance Act 1973 (Cth) & QBE Insurance (Australia) Ltd [2015] FCA 1223 – http://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2015/2015fca1223.

The Federal Court of Australia granted an insurer relief from the requirement to notify all affected policy holders when transferring general insurance and reinsurance business.  It imposed an alternative notice regime which included notification of overseas regulators, and of each national head office in the case of multi-national corporate group cedents.  The judgment will assist insurers who are considering a transfer of amalgamation of insurance business in Australia.

The statutory regime

In Australia, transfers and amalgamations of general insurance and reinsurance business are regulated by Part IIIA of the Insurance Act 1973 (Cth) (the Act).  Requirements include the lodging of the proposed scheme with the Australian Prudential Regulation Authority (APRA), publishing notice, and actuarial assessment (including independent actuarial assessment at the cost of the insurer if so required by APRA).  The scheme must be approved by the Federal Court of Australia.

Section 17C of the Act includes a requirement that an approved summary of the scheme be “given to every affected policyholder”.1  The Federal Court of Australia may dispense with this requirement in particular cases if warranted by the nature of the scheme or the circumstances attending its preparation.

Previous judgments of the court indicate that such dispensation is a matter of considerable importance and should not be granted as a matter of course.  The “plain policy intention” behind the Act is that every affected policyholder should be given a summary of the scheme and an opportunity to make submissions to the Court in respect of it on a confirmation application [see In the matter of Westport Insurance Corporation [2009] FCA 1357 at [38]- [39] per Lindgren J].  Relief may be granted where the insurer has made all reasonable efforts to identify affected policy holders and where a regime of alternative notice is put in place [see Application of Gordian RunOff Limited under the Insurance Act 1973 (Cth) [2013] FCA 983 per Yates J].

The application

QBE Australia sought approval from Allsopp CJ in the Federal Court of Australia for two schemes whereby insurance business would be transferred to it from QBE International.   Both QBE Australia and QBE International are wholly owned subsidiaries of QBE Insurance Group Limited.

The first scheme – general insurance on Norfolk Island

The first proposed scheme involved the transfer of all insurance business underwritten by QBE International where the insured risk was situated in Norfolk Island, a Territory located about 1400 km from the Australian mainland.  QBE gave evidence of the nature and history of the business and an analysis of the claims history:  The business was principally retail home and motor vehicle insurance, with a small amount of commercial insurance.  It was written through five insurance intermediaries who held QBE International’s pen.  Until 2012, QBE International relied upon the records of those intermediaries.  It kept a “red book” containing a brief précis of a policy number and other information, but did not itself keep a list of names of policyholders until 2012.  There were only two open claims.

Allsopp CJ accepted that this indicated “a tolerably short-tail business” and that it was unlikely that claims would arise from policies written earlier than 2012.2  

Allsop CJ granted relief in regard to notice, provided that QBE sent a summary of the scheme approved by APRA: (i) to all affected policyholders for whom an address could be found and whose policies were issued on or after 1 January 2012; (ii) to each of the insurance intermediaries; (iii) by notice in the Norfolk Island Government Gazette and the Norfolk Islander newspaper; (iv) by notice on the website Norfolkonlinenews and (v) by a link on the QBE Asia Pacific website.

The second scheme – legacy reinsurance

The second proposed scheme involved the transfer of run-off or legacy reinsurance business, whether originally written by QBE International trading under various names, or acquired by it in the past.  The writing of this reinsurance business began in 1950 and ceased in 2003.  QBE provided evidence that it had attempted to complete a database and list of reinsureds, removing relevant entries that were repetitive or misleading.  It had been able to identify over 1,000 cedents, with a verified address for 94 per cent of them.

Allsopp CJ approved QBE sending notice to: (i) any cedent where the postal addresses was known, by that postal address; (ii) the head office of company groups where more than one company was a cedent; (iii) where no postal address was known, to the government authority or agency responsible for regulating insurance business in the country where that reinsurance treaty was issued; (iv) by notice published in the Wall Street Journal – Asia Edition; and (v) by links on the QBE Asia Pacific website and the QBE Singapore website respectively.

Implications

  • Such applications are likely to become even more common in Australia due to increasing consolidation.  As a result of competition between large domestic insurance groups, APRA-authorised subsidiaries of foreign insurers and other local insurers, the total of licensed insurers and reinsurers in Australia has been decreasing each year since at least 2011 (seehttp://www.apra.gov.au/Insight/Pages/Insight-2014-2-HTML.aspx#P234_24269
  • This particular case involved an internal reorganisation of the insurance business of the QBE group, rather than a transfer to a distinct insurer.  Nevertheless, it illustrates the principles and types of alternative notice regime which the courts will apply.  The insurer must demonstrate that it has made all reasonable efforts under the circumstances to identify affected insureds or cedents, and the proposed scheme of alternative notice must provide a strong likelihood that the scheme will be brought to the attention of affected policyholders so as to enable them to object to the scheme if they wish.
  • The practical effect of applying these principles can differ markedly depending on the type and extent of business being transferred; thus, the orders made in respect of the reinsurance business included requirements to notify the national head office in each country of a corporate group cedent, and to notify the corporate regulator in any country where an address for a cedent could not be identified.
  • A significant factor in QBE’s favour was the active support of the regulator (APRA).  The Insurance Group Practice Leader at APRA appeared and informed the court that APRA agreed with QBE’s affidavit material, thatQBE had liaised and communicated with APRA, that APRA had been involved in overseeing all aspects of the two schemes, and that its suggestions and clarifications concerning improvements in the process and substance of the schemes had been incorporated by QBE.

This article was written in consultation with Michael Eyers AM, Consulting Principal of Keypoint Law and his assistance is gratefully acknowledged.


1It should be noted that Australian courts have held that the phrase “every affected policyholder” bears a different meaning in relation to transfers/amalgamations of general insurance and reinsurance business, as opposed to life insurance business.  In the former case, the phrase is restricted to only those policies which are actually transferred to another insurer or subject to amalgamation, whereas in the latter case the phrase refers to every policy which is part of the affected scheme, whether that policy is transferred/amalgamated or not.  

Cf s191 Life Insurance Act 1995 with s17C Insurance Act 1973, and Re Insurance Australia Limited [2004] FCA 524 at [22] per Lindgren J.

2Judgment, para 16

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This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article