UK Insurance Limited, Re

MR JUSTICE HILDYARD:

1. This is an application pursuant to s.111(1) of the Financial Services and Markets Act 2000 (“FSMA”) seeking the sanction of the court to the transfer of a portfolio of general insurance business of the transferor, which I shall refer to as “UKI”, to the transferee, Intact Insurance UK Limited, which I shall refer to as “Intact”. The applicants also seek, as is common, ancillary orders under s.112 of FSMA.

2. UKI is a wholly owned subsidiary of Direct Line Insurance Group Limited, formerly known as Direct Line Insurance Group PLC, which I shall refer to as “Direct Line”. Direct Line is in turn a wholly owned subsidiary of Aviva plc following its acquisition by Aviva plc, which completed on 1 st July 2025. UKI is the largest of the regulated entities in the Direct Line Group. It underwrites a wide variety of general insurance business, including motor, home, and commercial policies, which are marketed under well known brands, including Direct Line, Churchill, Privilege, Green Flag, NIG, and Farmweb.

3. At the effective date of the proposed transfer, which is presently fixed for 00.01 hours (BST) on 1 st April, UKI expects to have some 10 million in-force policies. It also expects to have Solvency (UK) (“SUK”) provisions of some £4.68 billion on a gross basis, eligible own funds of £2.1 billion, and a Solvency Capital Requirement, which I shall refer to hereafter as “SCR”, of some £1.479 billion, giving rise to an SCR coverage ratio of 142 per cent. The independent actuary, whose role is essential to the process, and to which I shall return, has described UKI as sufficiently capitalised. I understand, although it is unnecessary to go into the details, that prior to the re-arrangement of certain re-insurance arrangements UKI might have had a higher SCR, but it is in any event very much above the required level.

4. Turning to Intact, that was, until 19 th August 2025, known as Royal and Sun Alliance Insurance Limited and is now part of a large Canadian multi-national named Intact Financial Corporation, from which obviously it has derived its new name. Intact itself is a British multi-national general insurance company. It provides a wide range of commercial and speciality lines insurance products, including but not limited to property, casualty, marine, motor, professional indemnity, construction, engineering and renewable energy, and accident and health. As at 30 th September 2025, Intact had approximately 3.5 million policies that are “live”, as at 30 th September it had SUK provisions of £5.02 billion on a gross basis, eligible own funds of £2.00 billion, and an SCR of £1.1 billion, giving rise to a SCR coverage ratio of 178 per cent. The Independent Expert thus considers Intact to be “well capitalised”.

5. The business which is to be transferred legally under the transfer scheme is the brokered commercial lines business of the transferor, UKI. The reason for the transfer, which was preceded by a commercial transaction which in fact makes this Scheme really only the legal culmination of an economic process which has already occurred, is UKI’s decision to focus on its core direct insurance operations, retail and small business lines, and to transfer to a suitable acquiror its brokered commercial line business..

6. So far as the economic process prior to this Scheme is concerned, the parties entered on 6 th September 2023 a business transfer agreement (“the BTA”), which was subsequently amended and restated on 1 st May 2024, for the sale of the transferring business to Intact. The economic transfer was effected under a 100 per cent quota share reinsurance agreement, which was entered into on a ‘funds withheld’ basis with effect from 1 st October 2023. (“Funds withheld” means that there is no actual cash transfer of the premium at the time, but there are provisions for the retention of premium in, and the payment of any claims from, a separate fund set up for that purpose and held by the insured.)

7. The effect of this, as I have also briefly described, is that that which I am asked to sanction has in economic reality already occurred. I asked Mr Martin Moore KC, who has presented the matter, to confirm that that quota share reinsurance arrangement, and the transfer which if affected, was not conditioned in any way on this Scheme, and he confirmed that it was not.

8. A wrinkle, if I can call it that, as to the definition of or scope of the business to be transferred is that a distinction is made between what is referred to as ‘front book’ and what is referred as ‘back book’ business. Front book business is the risk associated with the business from the risk transfer date, which I understand to have been 1 st October 2023, as prescribed by the BTA, and the back book being the risk associated with the business prior to that risk transfer date. Both the front and back book will transfer pursuant to the Scheme, but it is proposed that from the date the Scheme takes effect the ‘back book’ will then be subject to what was referred to as a ‘reverse quota share treaty’ (“the Reverse QS Treaty”). The Reverse QS Treaty provides for that limited part of the business to be reinsured by the transferor so that the transferor will in economic terms retain the risk. This was explained well and clearly in the first witness of Mr David Innis in support of the transfer on behalf of UKI. The overall effect of the economic arrangements, therefore, is that the economic risk and reward of the front book have transferred to Intact, and also, since June 2024 pursuant to a form of renewal right transfer, approximately 250,000 policies have been renewed into Intact.

9. As is not unusual in this type of business, in this case the vast majority of claims are reported within two years of the date of the loss, which has facilitated the effective reserving and operational planning in relation to the Transferring Business. The IFRS reserves attributable on a gross basis to the Transferring Business are some £275 million, of which 18.9 per cent relates to what has been described as the ‘back book’. This ratio is similar on a SUK basis. The Scheme has no effect on the SCR ratios of either party, but even if that were not so, the SCR ratios of the transferring and the transferee are well above the levels indicated by the capital policy of each, providing a cushion, which is substantial, against future risks.

10. Also, as part of the arrangements provided for in the BTA, some 200 of UKI’s employees were transferred under the provisions of TUPE to Intact (as part of a wider transfer of employees involved in UKI’s brokered commercial business) but then seconded back to UKI to maintain service of the Transferring Business until the Effective Date. The effect of this, as is obvious, is to maintain continuity in the claim handling process, both before and after the transfer becomes effective in law.

11. I should briefly mention that there are a small number, or relatively small number of policies, some 1,109 policies as at 21 January 2026, where the current address of the policy is stated to be the Bailiwick of Jersey. Under Jersey law it is necessary, to be sure of an effective transfer of those policies, that there be a parallel scheme in the Royal Courts of Jersey. That is planned for 5 th March 2026. Until that time, the policies are defined as Excluded Policies under this present Scheme, pending legal transfer under the Jersey Scheme. The Jersey Scheme is conditional on the sanction of this Scheme, but not vice versa. Accordingly, if this Scheme is sanctioned, and the Jersey Scheme becomes effective, the Excluded Policy class will be redundant since there will remain none.

12. It will already be apparent that the business being transferred represents only a very small part of the business of the Transferor and will become a very small part of the Transferee’s business. But, nevertheless, it has been necessary for the Independent Expert, and the court, to consider all three constituencies theoretically affected, that is to say, the interests of transferring policyholders, which is the main object of focus, the policyholders of Intact, as the transferee business, which accepts that transfer, and the policyholders of the UKI as the transferring entity. But in light of the relative sizes, and the relative financial strength, and the conclusions of the Independent Expert, to which I shall come, it has not been necessary to circulate or notify the non-transferring policy holders of UKI, nor the existing policy holders in Intact. Notification in appropriate form has been required only in respect of transferring policies.

13. That brings me to the issue as to the sufficiency of notification and the other pre-conditions which must be satisfied before the court has jurisdiction to make the order that is sought. These have been well and fully described in the helpful skeleton argument provided by Mr Moore.

14. I must be satisfied that the scheme of transfer involves the transfer to another body of 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. I must be satisfied also that the transfer must result in the business transfer being carried on from the establishment of the transferee in the UK or Gibraltar. Thirdly, I must be satisfied that it is not an excluded scheme as defined in s.105(3) of FSMA. I am satisfied in each of those three matters. As I will come onto, so too are both the PRA and FCA, who have been involved closely in the iteration and development of all aspects of this proposed transfer.

15. The application is made to this court as is required by s.107 of FSMA, and I must be also satisfied that the notices given, and the information supplied, complies with the relevant regulatory requirements and is adequate to inform those affected as to the nature, intent, and effect of what is proposed. There are specific requirements as to the provision of the report, or summaries of the report, both to the PRA and the FCA, free of charge, and no order can be made by the court until a period of not less than 21 days has elapsed since the PRA and FCA were given the requisite documents. That is plainly satisfied in that both were supplied with the requisite documents on, I understand, 8 th January 2026.

16. The default, if I can put it that way, notification requirements are onerous to the point of being impractical in many circumstances, since the records of insurers involving so many, in this case millions of policy holders, cannot be guaranteed to be correct. Further, the default provisions require notification to all policyholders, which may well be disproportionate, unnecessary, and often needlessly confusing. In those circumstances, it is usual to seek Court approval for an alternative protocol for notification; and in this case, an application was made before ICC Judge Barber on 15 th October 2025 to prescribe a regime for the advertisement of the transfer and for a programme of notification dispensing with the otherwise potentially impractical or impossible task of giving notice to each policy holder concerned. In this case, where the transferring business is all broker business, the most obvious people to contact were the brokers concerned, and accordingly the programme that was directed by ICC Judge Barber on the application of the companies was a programme for the notification of policy holders via their brokers, either by the brokers supplying the name of the policy holder to the transferor company in order that it should supply their details, or, alternatively, for those details to be supplied to the broker for onward transmission. As it was, not all the brokers replied, and in the event not all complied with the route that they had stated they preferred. But subsequently, and as discussed at the hearing, very considerable efforts were made to ensure that every known broker was contacted, and it is extremely impressive to report that in the event only one was left out of the fold, and that broker turned out to have ceased business.

17. I am satisfied that the programme of notification was appropriate and fulfilled, that the information that was given was both clear and sufficient, and that there is every indication that it will have reached those concerned to receive it. I am also satisfied for the purposes of s.111(2) (b) FSMA that Intact has the necessary authorisation to carry on the business transferred to it; this has been confirmed both by Mr Norgrove in his second witness statement on behalf of Intact, and also in the report of the PRA, to which I will refer again in the next paragraph. Lastly, I must be satisfied, in terms of the formal preconditions, that for the purposes of s.111(2) (a) FSMA the appropriate certificate(s) under schedule 12 have been given, and Mr Moore has been careful to take me to the required certificate, and I am satisfied in that regard also.

18. I turn next to the question of the attitude both of the regulators and of the recipients of notice and information. FSMA prescribes by s.110 that any person, including an employee of the transferor concerned, or the transferee who alleges that he would be adversely affected by the carrying out of the scheme, is entitled to attend at court. The matter was called on outside, and the record of the correspondence confirms that there has been no one who has indicated any wish, nor attempted to attend before me. Likewise, both the PRA and FCA are given the statutory entitlement to appear, and neither has exercised that right, although both have, as has become the convention, provided me with two reports each confirming to me that they are content with what is proposed. The ordinary stance adopted by the regulators in this context is not to approve but to state whether they object or not; in this case, both have formally stated their non-objection. Both have also confirmed to me that so far as best endeavours can assist there is no problem, in terms of the sanctions regime, in respect of the proposed transfer.

19. There were four ‘objections’, applying a broad definition of that word. The Independent Expert has both identified each of these and satisfied himself that none provides any reason for objecting to the Scheme. I do not think I need for these purposes to go through in any detail each or indeed any of them: suffice it to say that three were made but not pursued, one was an objection, which is understandable, that a policy had been taken out under a false pretence, or impersonation, and the result of that, quite rightly, is that that policy has been treated as void, or voided, and is not part of the arrangements accordingly.

20. In all the circumstances, and having carefully read the FCA and PRA reports, I am satisfied that I have jurisdiction to sanction the Scheme if in my discretion I consider that appropriate. The exercise of my discretion is an important matter. It is always reasserted by the Court that this is not a ministerial matter or rubber stamp. The Court is required to go carefully through the elements of the Scheme, as I have, and as its “first duty” (having identified the nature of the transfer) to consider and, to the extent necessary, interrogate the requisite independent expert’s reports. The independent expert must be approved by the Regulators; and his function is, as I say, central to the architecture, both in the case of general business and even more so, perhaps, in the case of life business. These matters involve actuarial considerations and are considered, understandably, to be too complex to be left to the commercial decision of individual policy holders, and rather than a vote of policy holders, as was initially provided for at the end of the 19 th Century until 1908, am actuarial report is required. The independent expert reports provide, as it were, the litmus test of the scheme.

21. In this case, I have no doubt as to the carefulness of the task undertaken by the Independent Expert (Mr Stewart Mitchell FIA). These Schemes, even those which may not be thought complex, either in their structure or in terms of legal principle, require a great deal of iterative work with the Independent Expert, the FCA, the PRA, and the various advisors concerned. It is plain to me from the Independent Expert’s reports and the evidence in this case and the care with which it has been presented that that work has been undertaken with great conscientiousness in this case. In terms of their substance it seems to me that the Independent Expert’s two reports are consistent and cogent, and the conclusions that the Independent Expert has reached, as regards to the effect of these Schemes on the three constituencies which I have identified, which can be summarised as being that in each case there is no material adverse result, or effect, is not counter intuitive, nor such as to cause me to interrogate with scepticism the ultimate conclusions reached.

22. That being the case, although I still retain a discretion, the decision of the Court of Appeal in Re Prudential Assurance Company Limited [2020] EWCA Civ 1626 in the Court of Appeal, which emphasised that the cases of London Life and Axa had been developed in the context of life business and not in the context of the transfer of general business, and should be read accordingly, has prescribed, to a large degree, what my approach should be. That approach is set out in para.75 through to 86 of that judgment, which Mr Moore has set out in para. 4.3 of his skeleton argument. I do not propose to read that long passage out, as it can easily be found in the report of the case itself.

23. Finally, I need to consider whether what is proposed to be done to implement the Scheme by way of ancillary order under s.112 of FSMA is permissibly within the ambit or scope of that section and necessary (in the sense of desirable and appropriate). This has been generously defined in the authorities, including Re Norwich Union Linked Life Assurance Limited [2004] EWHC 2802 (Ch) and, more recently, Re Barclays Bank Plc [2018] EWHC 2868 (Ch) . I am satisfied in that regard.

24. In conclusion, therefore, I can do no better than repeat para.14.1 of Mr Moore’s skeleton argument, to the effect that (a) the Scheme gives effect to a reasonable commercial objective, (b) the Independent Expert has concluded that the Scheme will not have a material adverse effect on any of the policy holders concerned, (c) neither regulator objects to the Scheme, (d) the Scheme has been fully explained in documents made available sufficiently to policy holders in accordance with the order of ICC Judge Barber, (e) no material objections have been raised such as to cause concern, (f) all statutory requirements have been complied with, and (g) the ancillary orders are within the court’s jurisdiction and there is no reason not to make them given their commercial desirability.

25. Accordingly, I will sanction this Scheme on the terms of the order, subject to any points which Mr Moore considers that he should address me on, given that he has already told me that the order is in standard short form, as has become the convention. ______________ 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