Southern Rock Insurance Company Limited, Re

MR JUSTICE ADAM JOHNSON: Introduction

1. This is a Part 8 claim by Southern Rock Insurance Company Limited (“ Southern Rock ”), and Alwyn Insurance Company Limited (“ Alwyn ”), for an order under section 111(1) of the Financial Services and Markets Act 2000 (“ FSMA ”) sanctioning a proposed insurance business transfer scheme (“ the Scheme ”), together with ancillary orders under section 112 of FSMA.

2. The purpose of the Scheme is to transfer the entire insurance business of Southern Rock to Alwyn. I will refer to this as “ the Transferring Business ”. Southern Rock and Alwyn are already part of the same international group, both being wholly-owned indirect subsidiaries of Arch Capital Group Limited, (“ Arch ”). Arch is a publicly-listed Bermuda exempted company but writes insurance and re-insurance on a global basis.

3. Both Southern Rock and Alwyn are incorporated in Gibraltar and are both authorised by the Gibraltar Financial Services Commission (“ GFSC ”), but passport into the UK and are authorised to carry out contracts of general insurance in a number of different classes, Southern Rock in the area of motor insurance and ancillary matters and Alwyn in a slightly broader category of areas including insurance for fire and property damage.

4. The Scheme comes about because of a strategic review carried out by Arch. Its acquisition of Southern Rock in 2021 resulted in it operating three regulated insurance entities in Gibraltar. The idea is to consolidate operations and the Scheme is part of that process.

5. The Transferring Business consists of a portfolio of motor insurance contracts sold predominantly in the UK and Gibraltar. Southern Rock is now in run-off and so there are no live policies. However, as at 1 August 2025 there were 7,426 open claims and six periodical payment orders under which Southern Rock is or may become liable for payments to claimants.

6. Since 2011, Southern Rock and Alwyn have broadly co-insured the same book of business and indeed the majority of Southern Rock’s open claims are already co-insured with Alwyn.

7. As to customer engagement, Somerset Bridge Limited (“ SBL ”), a further subsidiary of Arch, already provides identical services, including underwriting, compliance and risk services and claims management, to both Southern Rock and to Alwyn. Consequently there will be no alteration in the way the Transferring Business will be serviced at the Scheme’s effective date. There will be no change to the terms and conditions of the transferring policies and they will continue to be administered by SBL accordingly. SBL has a sanctions monitoring process in place, and I am told there are no transferring policyholders or transferring policies that have been identified as subject to sanctions or as presenting any sanctions issues.

8. As to the Scheme itself, although the Scheme document is a sophisticated one, no doubt the product of much careful and diligent work, the Scheme is straightforward and is designed to transfer the legal rights and obligations relating to the Transferring Business from Southern Rock to Alwyn. There is a parallel scheme in Gibraltar which was duly approved on 7 November subject to final approval being given by this Court. Is the Scheme an insurance business transfer scheme?

9. Moving on to the statutory scheme, an initial question is whether the Scheme qualifies as an insurance transfer scheme for the purposes of section 105 of FSMA and thus of Part VII more generally. I should set out the relevant parts of section 105: “(1) A scheme is an insurance business transfer scheme if it: (a) satisfies the condition set out in subsection (2); (b) results in the business transferred being carried on from an establishment of the transferee in the United Kingdom or Gibraltar, and (c) is not an excluded scheme. (2) The condition is that the whole or part of the business carried on in the United Kingdom by an authorised person who has permission to effect or carry out contracts of insurance (‘the transferor concerned’) is to be transferred to another body (‘the transferee’). (3) A scheme is an excluded scheme for the purposes of this section if it falls within any of the following cases .”

10. A number of such cases are then set out. I need not run through them in this judgment.

11. Pausing there, it will be seen that one of the requirements under section 105 is that the condition in subsection (2) must be satisfied. Part of that condition is that the relevant business must be carried out by an “ authorised person ”. Starting with that point, a technical question arises whether Southern Rock qualifies as an “ authorised person ” given that it is passporting in from Gibraltar.

12. The relevant definition is in section 31 of FSMA. The position was clear enough prior to Brexit because the then version of section 31(1)(b) referred to the following as “ authorised persons ”, namely, “ an EEA firm qualifying for authorisation under Schedule 3 ”. Although Gibraltar companies were not EEA firms, specific provision was made for them to fall within the Schedule 3 authorisation regime by means of the Financial Services and Markets Act 2000 (Gibraltar Order) 2001.

13. The issue is: does the position remain the same post-Brexit? In my opinion it does. Section 31(1)(b) has been repealed as far as EEA firms are concerned but section 409 of FSMA now contains saving provisions relating to Gibraltar, and among the “ relevant legislation ” which is to continue to apply in relation to the exercise of Gibraltar-related market access rights and persons exercising those rights is section 31(1)(b): see FSMA section 409(11)(a). The overall intention, in my opinion, is clear. It is to maintain the status quo as far as Gibraltar firms are concerned and thus in my opinion, Southern Rock continues to be an “ authorised person ”. Consequently, subject to the matters I will shortly address, section 105 is engaged.

14. In his submissions, Mr Woods correctly raised a related point, although he made clear this was out of an abundance of caution. His point was to query whether the version of section 105 I should be concerned with is the version presently in force or whether the savings provision in section 409 might arguably be said to resurrect the whole of the previous version of section 105. Like Mr Woods, I do not think so. I think he was correct to say that the savings provisions are intended to be limited in scope. Although they are plainly intended to preserve the authorisation regime under section 31, they are not intended to preserve the former version of section 105, which was concerned with the mechanics of an insurance business transfer, rather than with the authorisation mechanism via passporting, which seems to me to be a separate and self-contained matter. In any event, the present version of section 105 makes specific reference to Gibraltar in subsection (1)(b). It would make no sense to disregard it in favour of an earlier now repealed provision which did not. Requirements of s.105 FSMA

15. So far, so good. I can now turn to the remaining requirements of section 105. I am entirely satisfied that these are met, for the following reasons: i) I am satisfied that the Scheme involves the transfer to another body of the whole or part of the business carried on in the UK by an authorised person who has permission to effect or carry out contracts of insurance. This is the condition in subsection (2). I have already referred to and have already dealt with the first part of it, namely the question of who is an “ authorised person ”. The other part of it is about whether a business is carried on in the UK. Here, I am satisfied on that part of the test as well, because the matter of where a business is carried out focuses on the actual business activities of the transferor (see Scher v Policyholders Protection Board [1994] 2 AC 57 at 101-102). Here, the Transferring Business comprises motor insurance policies against risks arising in the United Kingdom written by Southern Rock and thus are risks that arise in respect of UK-based motoring activities and result in payments being made in the UK. ii) I am also satisfied that the Scheme will result in the business transferred being carried out from an establishment of the transferee in either the United Kingdom or Gibraltar. That is the pre-condition set out in subsection (1)(b). It is satisfied here because the Transferring Business will be carried out from Alwyn’s establishment in Gibraltar. iii) Third, I am satisfied that the present is not an excluded scheme as defined in section 105(3) of FSMA.

16. That, then, deals with the threshold requirements under section 105. Sections 107 and 108 FSMA: other formalities

17. Moving on, section 107(2) of FSMA permits an application to be made by either or both of the authorised persons concerned. Here, the application is made by both.

18. Section 108 then confers powers on the Treasury to impose requirements on applicants, which it has done by means of the Financial Services and Markets Act 2000 (Control of Business Transfers) (Requirements on Applicants) Regulations 2001. Here I am satisfied that the requirements of the Regulations have been complied with in the sense that appropriate notices have been published and sent to individual policyholders and re-insurers. Southern Rock and Alwyn established a dedicated webpage containing a wealth of dedicated material and set up a call centre. The evidence in fact shows a high degree of engagement with the material on the website via downloads. Finally, in accordance with paragraphs 3.5 and 4.1(b) of the regulations, copies of the application, the report of the independent expert, the statement setting out the terms of the Scheme and a summary of the independent expert report were each given to the PRA and the FCA on 10 September 2025. Independent expert report

19. Turning to other matters, section 109 of FSMA requires a report to be prepared by a suitably-qualified person approved by the appropriate regulator. Here, the independent expert is Mr Christopher Clarke, a principal at the well-known actuarial consulting firm, Milliman Inc. He is a Fellow of the Institute and Faculty of Actuaries. Mr Clarke produced an initial and very detailed report dated 16 July 2025. Amongst other matters, that looks at the position of the existing Southern Rock policyholders and at the position of the existing Alwyn policyholders. Mr Clarke’s analysis considered both the capital position of the two entities and their solvency position by reference to the Solvency II regime, which continues to be applied both in the United Kingdom and in Gibraltar in largely unchanged form post-Brexit.

20. In dealing with the Southern Rock policyholders, Mr Clarke said as follows in his July 2025 report at paragraph 2.14 (he refers to the Southern Rock policyholders as the “ Transferring Policyholders ” and to Southern Rock as “ SRICL ”): “ The Transferring Policyholders will therefore be transferring to a company that is considerably better capitalised relative to regulatory capital requirements and will have a substantially larger absolute level of capital. I have looked at both companies’ ability to withstand adverse scenarios, including deteriorations in reserves. In the short term, Alwyn’s capital strength means that it would be able to withstand more severe adverse scenarios than SRICL. If SRICL’s business were to run off as planned over the next 1-2 years, the size of the insurance liabilities relative to its capital would be such that it could then potentially withstand some extremely adverse conditions. As Alwyn’s business has grown and its solvency position is expected to weaken over the next few years, its ability to withstand adverse conditions will reduce to some extent. Nevertheless, the stress tests I have looked at show that, even in extremely unlikely scenarios, Alwyn would still be able to remain solvent ”.

21. In dealing with the position of the current Alwyn policyholders and supported by the same reasoning, Mr Clarke said as follows at his paragraph 2.19: “ The current Alwyn Policyholders will not be materially adversely affected due to the relative differences in the financial strength of Alwyn pre-Scheme and post-Scheme ... ”.

22. Mr Clarke’s overall conclusion at paragraph 10.1 of his July 2025 report was as follows: “ In summary, in my opinion, provided the proposed Scheme operates as intended, and I have no grounds for believing that it will not do so: • the Scheme will not materially adversely affect the security of benefits afforded to either the policyholders of SRICL being transferred under the Scheme or the existing policyholders of Alwyn; and • the Scheme will not have any impact on service standards experienced by the policyholders of either SRICL or Alwyn. There are not expected to be any policyholders of SRICL that do not transfer under the Scheme. If there are to be any such policyholders, it would be necessary for me to evaluate the impact of the Scheme on them once they have been identified .”

23. In his recent supplementary report, Mr Clarke deals with certain events occurring since his initial report but confirms that his overall assessment remains the same. His opinion is obviously a very powerful factor in favour of approving the Scheme. Comments and objections

24. Moving on to section 110 of FSMA, this permits various parties to be heard on the application for Court approval to an insurance business transfer scheme, including the PRA and the FCA. The PRA has now confirmed that it is not aware of any issue which would cause it to object to the Scheme and that, accordingly, it does not object. The FCA has also now confirmed that the Scheme is within the range of reasonable and fair schemes available to the parties and that, accordingly, it does not object to the Scheme.

25. No objectors have appeared at the present hearing, although I note that two policyholders raised issues in correspondence. Both were sent replies. There was some limited further engagement with the first, who raised general concerns including about transparency. However, the correspondence in the end was not pursued. I do not consider the general points raised by this first policyholder to have any real weight in the context of the present exercise. The second policyholder was sent a reply confirming that there would be no new transfer of personal data and did not engage further. The correspondence was shared with Mr Clarke but did not cause him to revise his favourable view of the Scheme which, as I have said, remained the same in his supplementary report. Section 111 FSMA: conditions for sanction and discretion

26. One then comes to section 111 of FSMA. This relevantly provides as follows: “(1) This section sets out the conditions which must be satisfied before the court may make an order under this section sanctioning an insurance business transfer scheme ... (2) The court must be satisfied that: (a) ... the appropriate certificate has been obtained (as to which see Parts I and II of Schedule 12); (aa) ... (ab) ... (b) the transferee has the authorisation required (if any) to enable the business, or part, which is to be transferred to be carried on in the place to which it is to be transferred (or will have it before the scheme takes effect). (3) the court must consider that in all the circumstances of the case it is appropriate to sanction the scheme ”.

27. Here, the PRA have provided the requisite certificate confirming that Alwyn will, taking the proposed transfer into account, possess the necessary margin of solvency. The GFSC have provided the equivalent certification. That deals with section 111(2) (a).

28. As to section 112(2)(b), the Court must be satisfied that Alwyn has the necessary authorisation to carry on the business transferred to it. This has also been confirmed by the PRA in its report.

29. The further and final matter under section 111 is the exercise of the Court’s discretion. The approach has recently been examined by the Court of Appeal in Re Prudential Assurance Company Limited [2020] EWCA Civ. 1626 , [2021] Bus LR 259 . Detailed guidance was set out in the judgment of Sir Geoffrey Vos, Chancellor, as he then was, at paragraphs [75]-[85]. This has a focus on identifying the nature of the business to be transferred and the underlying circumstances giving rise to the Scheme in order to guide the exercise of the Court’s discretion.

30. In the present case I am satisfied that the Court should sanction the Scheme having regard to that guidance. The following factors are relevant.

31. One can start with the nature of the Transferring Business. This consists of, on the one hand, Southern Rock’s insurance liabilities, including claims liabilities, deposits from re-insurers and re-insurance payables; and on the other hand, Southern Rock’s insurance assets including associated outwards re-insurance contracts and re-insurance receivables. As already mentioned, Southern Rock is in run-off and has no live policies but as at August 2025, there were 7,426 open claims and six periodical payment orders.

32. As to the impact of the transfer on Alwyn, the transferee company, I note it is much bigger than Southern Rock. The Transferring Business represents 100% by value of Southern Rock’s current liabilities as at 30 June 2024, but if the transfer is sanctioned, the Transferring Business will represent only about 13% by value of Alwyn’s existing business as at 31 December 2024.

33. The circumstances giving rise to the Scheme are a business consolidation between similar businesses already forming part of the same group, and again as already noted above, since 2011 Southern Rock and Alwyn have broadly co-insured the same book of business. Of Southern Rock’s open claims, the majority are thus already co-insured by Alwyn. Further, as already mentioned, SBL, itself a subsidiary of Arch, already provides identical services to both Southern Rock and Alwyn.

34. At paragraph [80] of the Court of Appeal judgment in Re Prudential Assurance Company , the Court said that on the facts of that case the paramount concern was to assess whether the transfer would have any material adverse effect on the receipt by annuitants of their annuities. It was also concerned to assess whether there might be any material adverse effect on service standards.

35. In my opinion, similar factors are in play here, although the context and the detail are different. Here, the transferor operates a motor insurance business in run-off. The transferee is a general insurer in the same group covering a somewhat wider area of general insurance business but including motor insurance.

36. The paramount concern must be to assess whether the transfer will have any material adverse effect on payments of the existing liabilities of Southern Rock or on the security of benefits afforded to existing policyholders of Alwyn. One must also be concerned about the ongoing management and servicing of claims by policyholders of Southern Rock and about service standards experienced by customers of Alwyn.

37. I am satisfied on the evidence that there will be no material adverse effects in either sense. Mr Clarke’s opinion on the first is clear. The Scheme will not materially adversely affect the security of benefits as regards policyholders of either party. Indeed, the policyholders of Southern Rock are predicted to benefit from being transferred to a company that is considerably better capitalised relative to regulatory capital requirements and will have a substantially larger absolute level of capital. I see no good reason to doubt that view or Mr Clarke’s conclusions generally. Further, the PRA and the FCA have raised no objection to the Scheme and no other objector has come forward at this hearing making any point about security of benefits.

38. Mr Clarke has also opined on the issue of service standards and said he does not consider there will be any material adverse impact. In the circumstances of this case, I am satisfied that must be correct, because Southern Rock and Alwyn are already serviced by the same subsidiary company in the Arch group. So there will obviously be continuity of service. Mr Woods also made the point that on both sides of the transfer, policyholders will continue to have access to the Financial Services Compensation Scheme and to the Financial Ombudsman Service.

39. In those circumstances, and given that I am otherwise satisfied that all relevant formalities have been met, I propose to sanction the Scheme and further, to make the ancillary orders sought by the applicants under section 112 of FSMA. _________________________ (This Judgment has been approved by the Judge.) Digital Transcription by Marten Walsh Cherer Ltd 2 nd Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP Tel No: 020 7067 2900. DX: 410 LDE Email: [email protected] Web: www.martenwalshcherer.com